The Challenge

The metropolitan area of Lima, Peru, is the second largest city in the world to have developed in a desert. Scarcity of water is one of the main environmental factors that have accompanied the growth of the city that is now home to about one-third of Peru’s total population. It is therefore important to conserve and protect the river basins that supply Lima with water.

In 2014, when Peru sought to raise resources to invest in conservation projects to protect the urban watershed in the Lima metropolis, it became clear that a participatory approach was needed to promote policy changes in the targeted cities, Lima and Callao. In addition, watershed governance involved different actors such as users living upstream and private companies, municipalities, environmental authorities, and water utilities located downstream. Coordinating these disparate actors to ensure a participatory approach had been one of the main challenges in managing the water resources. 

The Solution

Peru sought to learn from Ecuador’s Quito Water Fund (FONAG), the first water fund created in Latin America. In Quito, a percentage of the water tariff is invested in watershed conservation projects through FONAG, into which all key actors contribute. The FONAG has been able to leverage more than US$12 million in financing for its operations. Peru authorities wanted to implement a similar regulatory scheme in Lima and to encourage private sector investment in the sector as well.

The Latin American Water Funds Partnership, which includes GEF, sponsored FONAG’s Financial Director and a hydrologist to visit Lima and share their experience with senior officials and multiple stakeholders in Peru’s water and environment sectors. About 20 officials from Peru learned from the visiting experts how to operate a water fund, particularly the roles played by the government, private sector, and the water utility, as well as the monitoring required for success. Motivated by the visit from the Ecuadoran experts, multi-stakeholder dialogues within Peru continued on how best Peru could replicate Ecuador’s success. Information from these interactions fed into a draft law presented to Parliament. 


Senior officials from Peru’s water and environment sectors learned from Ecuadoran counterparts and improved their understanding and skills regarding water governance, conservation activities, and regulatory schemes for green infrastructure. The multi-stakeholder dialogues broadened inter-agency collaboration within Peru and deepened the support of pivotal decision-makers and civil society, including users. The exchange resulted in the following actions:

  • In 2015, Peru passed the Compensation Mechanisms for Ecosystem Services Law, and new regulations governing water utilities were approved in 2016. These changes allowed the private sector to invest in water funds.
  • Peru’s Lima Water Fund has become fully operational and is mapping and developing a portfolio of green infrastructure. Water utilities are now required to earmark one percent of their revenue to invest in natural infrastructure and, in the case of Lima, 3.5 percent for disaster mitigation and climate change adaptation.
  • The Lima Water Fund has collaborated with the Latin American Water Funds Partnership to develop a toolkit to improve the skills of actors working in water governance. This toolkit will share good practice approaches, lessons learned, and technical studies required.
Lessons Learned

It is important that the relevant people/change agents participate in this type of knowledge exchange. The Ecuadoran expert visit to Peru was twice postponed to ensure that the relevant people— decision-makers and other key stakeholders—could attend and learn from the visiting experts. “This meant two rounds of buying/ canceling tickets and arranging then postponing meetings. However, the cost of all that was worth it; the participation of decisionmakers contributed to getting the regulations changed,” said Germán Sturzenegger of the Inter-American Development Bank’s Water and Sanitation Division.