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Ecosystem Service Payments in Kulekhani Watershed : 

Nepal 

Madhukar UpadhyaFebruary 22, 2012

Country Background 

•  Area: 147141 km2

• Diverse topography

(67m to 8848 m),

Monsoonal climate,

• Five distinct regions

High Himalaya

Middle

Mountains

Shiwaliks

Terai

Trans Himalaya

• 39.6% forest, 22% agriculture, water,

rock, others

• Population 26 million with 25% belowpoverty

• GDP growth 3-5%, per capita income 642 USD

• Political transition following a decade long insurgency.

• Remittance earning over 300 billion rupees (~4 billion USD)

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• Vulnerability to climate impacts

 – Glaciers retreating faster  – Weather variability – Extreme events, GLOFs – Extended drought of  2008

• Impacts on biodiversity and water resources in the hills and mountains, drying springs 

• Impact on livelihoods200 ft deep dry well Water mining in the 

stream bed

Saving property 2008

Flood victims being rescued 

PES context• Overarching goals: Sustainable development and poverty reduction

• The State began sharing benefits from NR through LSG Act 1999

• Districts with powerhouses are entitled to 10% (later 12%) of the amount

obtained by government as royalty from that powerhouse.

• 38 per goes cent to the development region to share among the districts of  that region

• Royalty payments since the beginning of 2000/ 01. The 16 districts

received first installments in late 2000. Makawanpur where Kulekhani is

located is one of them

• National Park entry fees (40%)

• Revenue to be used for rural electrification and local development projects

• From Districts Revenue goes to VDCs – the lowest political unit with

number of villages

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Existing PES activities

• Kulekhani (hydropower): – Govt. vs Community

• Siwapuri (domestic water and hydropower):

 – Govt. vs Govt.

• Sardu Khola (drinking water):

 – Community vs Community

• Rupa Lake (fishery):

 – Community vs Community

• Forest carbon: (community forests in 3 pilot areas)

 – Community vs Global community

Kulekhani Watershed• Watershed Area,- 125 km2

with 8 VDCs

• Located 50 km south of 

Kathmandu – between Mid

Mountains and Mahabharat:

1500 – 2600 masl

Land use- Forest: 54% (community forests in hills with some national

forests), Agriculture land: 46% (sloppy land and river terraces), water body: 1.6% (streams and lake)

Population within watershed: About 50,000 people

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Kulekhani Reservoir 

• Reservoir built to augment power during winter (1982)• Reservoir type hydropower plant (K1-60+K2-32 MW)- K3 is being built

• Small streams feed the reservoir 

• Originally designed for over 

100 years

• Fixed at 50 years when

commissioned in 1982

• Life further reduced

following 1993 cloudburst

• Kulekhani watershed lies in

cloudburst prone area

•  Analysis of sediment

generation based on poor 

information (no knowledge

of 540 mm rain in 24 hours)

• Estimated sediment 700 m

3

,actual added 38000 m3

/yr/ha

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The PES to reduce siltation

• Pilot scheme (2006 to 2009) to encourage conservation measures infarms and other land

• 20% of the HP revenue received by DDC to the VDCs for 

conservation works

• VDCs used the money in development activities (constructing

irrigation canal and helping schools)

• Did not reach farmers to implement conservation activities

• Government projects on conservation worked in the 1980s and 1990s.

Now shifted to the district headquarters

• No institution to help them identify proper activities that would reduce

sediment load in streams

• NEA instead built checkdams to retain sediment upstream

Post LSG Act 1999• 20% royalty received by the DDC is provided to upland

communities in 8 VDCs through Environmental

Management Special Fund (EMSF)

• Money received by DCC in 1st year NRs 18,800,308

• 20% would be NRs 3,760,061

• The VDCs have received money in the order of 4-5 million

rupees.

• Exact figures of money spent on conservation unavailable

as there is no record with VDCs.

Source:(ESP 2006)

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Rational for PES• Local communities need to be involved in management of

watershed resources . However, the incentive for them to beinvolved is diminishing because of low return for their effort inmanaging NR.

• Seasonal migration for alternate income is a major source ofincome to millions of un- or semi-skilled people.

• The role of forests in storing carbon is important to help

mitigate climate change. Some prospects exist.

• Nepal has given due importance to forest protection and hasbeen a leader in implementing community forest to save

forest resources.

• Local forest users involved in forest protection need to becompensated for their role in helping downstream waterusers.

Lessons learnt

• PES (unlike revenue sharing) is a new concept for Nepal –

long way to go in knowledge building

•  Awareness amongst ES beneficiaries (e.g. urban

population, companies and the private sector in general) is

low

• Knowledge about PES and its application in the nationalNRM policy – missing

• Bundling the services for higher returns to the resource

managers is helpful

Several important points have emerged

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• Economic valuation of ecosystem services – new area towork on.

• Unlike water, which flows continually and cannot be saved

(or owned), carbon saved under REDD belongs to people

but they have no tenant’s right. Unless ownership is defined

people would not be confident of their ability to negotiate the

price.

• Entry fee of the parks is not considered as PES as the

money goes directly to the national coffer and not to thelocal government or community

Lessons learnt contd.

• The pilot activities and the academic studies have

generated important insights regarding the issues of PES in

Nepal

• PES seems to be working when there is a real need for 

people downstream who depend on the services from the

watersheds

• Carbon trade seems to be taking pace, but is yet a new

experience. The experts view is that it may not work for tworeasons. For carbon market to be successful we need to

increase the forest area (not an easy task) or the cover 

density (limited scope)

Lessons learntcontd

.

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Critical issues

• PES has only one set of sellers selling fixed services toalready identified buyers. Disputes make negotiations

lopsided.

• Buyers are ready to pay for the services when there is

either no alternative to the required service or the service(s)

are in shortage.

• Carbon payment is more transparent than water payment

because of legality involved.

• Entry fees (not considered as PES) to the national parks

and protected areas have a clear policy to fix tariff. Thetransaction is fair and transparent. The utilization of the

fund ploughed in is done by the local government of VDC

and DDC.

Water stress in the ridge areas affect a large number of

upland people

Stream flows are depended on the extent of ground waterrecharge in the mountains, which is a function of landuse inupland, and hence water security in the downstream must

begin by activities directed towards water conservation inupland

Can PES be effective in Nepal?Yes! Because

People’s effort in resource management in uplandinadvertently provide benefits to the people in the lowland

Because the watersheds are small and local effect ofchanges in land-use and water management aretransferred downstream in a short period

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Some Risks

• If the benefit from ecosystem services (water) decrease or fails tomeet buyers’ expectation , there is a likelihood of PES failing.

• Net income to individual families needs to be clear.

• Political interference in the transaction could be discouraging

• Water induced disasters could destabilize or upset the benefit from

the ecosystem services. Floods and landslides can wash or burry

the cultivated land below.

• Long term financial viability in carbon is yet not certain.

• Hazards such as fire, insect/pests, and diseases destroying the

vegetation• Development infrastructure in forest areas can reduce the carbon

stock

• Integrate PES with other development initiatives along with method

for economic valuation of the ES.

• Meet specific economic challenges faced by smallholder farmers in

upland areas.

• Combine water, carbon, biodiversity and other services together.

• Regulatory policies must be formulated to give the PES program the

necessary legal backing.

•  Awareness must be raised to make sure that people understand the

problems at hand and how the PES mechanism helps solve it.Experience from PES pilots and similar programs must be collected

and synthesized to provide policymakers with the information needed

to create favorable policies.

Recommendations

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Thank You!