Sustainable Water Service Tariff Model for Integrated Watershed Management: A Case Study in the Ecuadorian Andes

Abstract

This study addresses the financial sustainability challenge of integrated watershed management (IWM) in regions with inadequate water service tariffs. A novel water service tariff model is proposed, incorporating supply costs, water loss reduction investments, and IWM expenses informed by user perceptions. The model is applied to an intermediate Andean city in southern Ecuador, where the current tariff impedes the financial viability of the water utility, reflecting a regional trend. The results indicate a necessary tariff increase exceeding 100% to cover the costs and support IWM. The economic value of watershed environmental services (WES) were estimated at USD 1,505,530.64 per year. This value translates to an average water consumption of 20 m3/user/month, equivalent to a WES of USD 2.60 per month. Despite the users’ willingness to pay falling below the estimated economic value of WES, there is a clear need for implementing incentive programs to promote water conservation and policy adjustments that favor the financial sustainability of water supply companies in developing countries.