GUATEMALA WATER FUND:

Partnering with the Private Sector for Biodiversity Conservation in the

Sierra de las Minas Biosphere Reserve (SMBR) through a Payment for Environmental Services

(PES) Mechanism

Karin M. Krchnak

WWF-US

October 27, 2013

Guatemala Water FundProject Objectives

• Achieve long term financial sustainability in the conservation and management of the SMBR through implementation of a PES mechanism.

• Implement an innovative financial mechanism linking downstream water users with upstream watershed management and conservation to ensure an abundant and clean water supply.

Guatemala Water FundMesoamerican Caribbean Reef (MAR) Ecoregion

Guatemala Water FundSierra de las Minas Biosphere Reserve

• Declared in 1989 the jewel of the PAS in Guatemala.

• 592,800 acres

• Oldest mountain range in the region

• Altitude ranges from sea level to 10,496 ft

• 66% of mammal species in Guatemala, including endangered species like the resplendent Quetzal, jaguar, yellow-cheeked warbler, ocelot

• “Gene bank” for economically important coniferous species

63 permanent rivers originate in core zone

• Approximately 500 poor communities in buffer zone

• Declared in 1989 the jewel of the PAS in Guatemala.

• 592,800 acres

• Oldest mountain range in the region

• Altitude ranges from sea level to 10,496 ft

• 66% of mammal species in Guatemala, including endangered species like the resplendent Quetzal, jaguar, yellow-cheeked warbler, ocelot

• “Gene bank” for economically important coniferous species

63 permanent rivers originate in core zone

• Approximately 500 poor communities in buffer zone

Management of SMBR

Guatemala Water FundSierra de las Minas Water Users Market

Two watersheds selected because:

• 21 industry plants

• Water is important input in industrial processes

• Significant water quantity and quality reduction during dry season (Montagua Valley is one of Central America’s most arid zones)

• Industry’s willingness to pay

• Existing base information

Two watersheds selected because:

• 21 industry plants

• Water is important input in industrial processes

• Significant water quantity and quality reduction during dry season (Montagua Valley is one of Central America’s most arid zones)

• Industry’s willingness to pay

• Existing base information

Guatemala Water FundProject Concept

PES MECHANISMPES MECHANISM

PES Financial MechanismMarket Study

Industries categorized by:

• Geographic location: 21 industries in Motagua basin

(located in 3 of 82 sub-watersheds)

• Extraction techniques: surface (rivers) and underground (wells)

• Water is important input in industrial processes

• Size Large (Coke bottling plant, Rum plant, Paper, others) 6Medium (hydro-power, agro-industry, others) 10Small (hotels, others) 5

21

PES Financial Mechanism DesignAssumptions

• Well-known cause-effect

• Very low fixed cost

• Mix of financial instruments

• Custom made to market needs

• Balance between conservation and development objectives

• Balance between short- and mid-term results:

Micro Direct impact to industry Focus on water and energy use optimization (reduction of effluents) Short-term impact

Macro Conservation and management of watershed Focus on PA or forest owners Community projects Mid-term impact

Financial Mechanism DesignImplementation Structure

BOARD OF DIRECTORS

Sector Committees

Industry sector

Other Sectors

Policy level

Investment Policies

NGO’s+

Donors

Financial Mechanism DesignImplementation Structure

$$

Other sector accounts

$

Industrial account

SOURCE DONORSInvestment

policies

Investment technical

committee

Investment decisions

and supervision

Management and operation of

Guatemala Water Fund

INDUSTRY

PROJECTS

$

Management account

+

$

$

Trust fund or endowment

Investment Committee by sector

Investment decisions and supervision

Director

Financial Accountability Unit

Technical Unit

Management and

supervision of Water Fund

Specialized support• Financial audit• Marketing• Technical experts (e.g. hydrology)• Monitoring

Project proposal (technical support)

Outsourcing

Financial Mechanism DesignImplementation Structure

Investment Committee

Financial Mechanism DesignFinancial Feasibility (Projected Cash Flow in US$)

INCOME Y1 Y2 Y3 Y4 Y5 Y6

A. User fees (membership) 75,000 120,000 134,000 148,000 152,000 152,000

B. Donations 165,000 150,000 150,000 75,000 75,000 75,000

C. Interest earned 15,555 77,903 110,373 128,563 128,563 128,563

Total Income 257,305 351,903 401,123 361,063 367,813 370,563

EXPENSES Y1 Y2 Y3 Y4 Y5 Y6

D. Project allocations 120,000 180,000 220,000 220,000 220,000 220,000

E. Endowment transfer 35,000 45,000 55,000 55,000 55,000 55,000

F. Management costs 90,000 85,000 85,000 85,000 85,000 85,000

Total Expenses 245,000 310,000 360,000 360,000 360,000 360,000

Cash Flow (accumulated) 12,305 54,208 95,330 96,305 104,205 114,768

Project Update

• Built data base starting 1995• Conducted awareness, research and information activities with key

stakeholders• Ongoing conservation activities to preserve high biodiversity areas in

basin • Clearly identified cause-effect relationship on at least three sub-

watersheds showing clear dependency on upper watershed• Identified users’ willingness to pay through market studies • Established 10 community-based watershed committees • Signed agreements with three main industries (Paper plant, and rum

and Coca Cola bottling plants)• Completed diagnosis and business plans to optimize water use and

reduction of effluents in all three plants

WWF & Coca-Cola Activities

• Share lessons learned in PES projects driven by Coca-Cola and WWF • Share industrial experience of BMP’s in water use implementation

promoted by Coca-Cola and WWF-Other bottling plants• Present Water Savers Tool Kit developed by WWF and Coca-Cola• Share BMP’s training initiatives developed by WWF and Coca-Cola to

date for water use optimization and analyze training needs at ground level

• Phase 2 Core Basin: 2013-2020

• Freshwater Conservation, Value chain & Valuing Nature

Sierra de las Minas

Rio Motagua

Rio PolochicSierra Merendon

Rio Chamelecon

Manchaguala

Pueblo Viejo

Teculutan

WWF-TCCC Areas of work

© WWF-Canon / Martin Harvey

Believe it or not, branding a PPT is easier than dancing with an elephant.

GRACIAS!