Position the oven rack in the middle of the oven. Preheat the oven to 325 degrees F.
In a heavy saucepan, melt the sugar over medium high heat. Cook, without stirring, until sugar starts to caramelize, about 4 minutes.
Immediately pour the caramel over an 8-inch round pan or distribute the caramel into two leche flan molds (llanera). Tip the pan or molds side to side to distribute the caramel evenly. Set aside.
In a large bowl, beat the egg yolks until well blended. Add the condensed milk and stir to mix thoroughly.
Pour the evaporated milk and water into the yolk mixture. Add the lemon rind and vanilla, and mix well. Pour the mixture into the pan or molds.
Place a kitchen towel in the bottom of a large roasting pan and then place the prepared pan or molds on top of the kitchen towel. Pour enough hot water in the roasting pan to come halfway up the sides of the pan or molds.
Carefully place the roasting pan in the oven. Bake the custard in the hot water bath until set, about 1 hour.
Let the custard cool in the water bath for 20 minutes and then refrigerate to chill for several hours or overnight.
To serve, run a knife around the side of the pan and quicky turn the custard into a serving plate. Pour excess caramel in the pan over the custard.