The growing demand for water and timber as well as the potential adverse impacts of uncontrolled logging on the hydrological attributes call for increased attention to integrated watershed protection and sustainable timber production objectives in the forested catchments. Moreover, the development of large-scale economic infrastructure implies an increased risk of significant losses due to flooding and sedimentation linked to logging and conversion of forested areas. Fundamental question is how to assess the potential physical impacts of timber production on reservoir management and downstream activities. There is also the need to value and compare the intangible, non-priced (intangible), but real benefits of forested catchment protection (and of other non-marketed environmental benefits) with the tangible, economic benefits of timber production. This challenge must be addressed since policy makers in developing countries, like Malaysia, require monetary estimates to help them decide on land use options. Having this research scenario, Payment for Ecosystem Services (PES) mechanism is needed to recognized the ecosystem goods and services. Explain your