Case Studies:
Case sub-title Hydroelectric Power (HEP) and cloud forest conservation This is one of the few direct private agreements so far: a HEP company pays the Monteverde Conservation League for the hydrological services rendered by the Children’s Eternal Rain Forest which covers most of the hydropower plant’s upper catchments. Since this forest is already a designated conservation area, the PES scheme is unlikely to result in additional conservation. .But the company contributes in this way to the management of the reserve and has also benefited from being able to build the dam and water intake on land of disputed ownership inside the reserve. The company’s PES contribution is treated as Operation and Management cost, which represents an increase of about 20% increase in annual O&M costs (note that the company receives a fixed price for the sale of electricity and therefore cannot pass on the bill to final users); contracts are signed for 99 years. Ongoing, contract was signed in October 1998 (the same year that the HEP began to build its plant). Hydropower company is keen to regulate flows (control runoff) and to reduce sedimentation. An important driver for the company was to "win" the favour of the forest owner (in this case, the Monteverde Conservation League, owner of the forest reserve) because it needed to build part of its infrastructure in areas belonging to the reserve. SupplyNGO (seller) Children’s Eternal Rain Forest covering about 3000 ha of the watershed and owned by the NGO Monte Verde Conservation League (note: MCL owns 22,000ha of forestland in the Tilarán Cordillera). A significant proportion of the area is cloud forest. DemandPrivate corporate (buyer) La Manguera S.A., operating La Esperanza hydroelectric power plant,(HEP) , located downstream from the Cloud Forest. Within the watershed, water is only used to produce hydropower. Water in the periphery of the HEP is mostly used to supply aqueducts for household consumption and dairy farms. Downstream it is used for recreation purposes and for cattle that drink directly from the watercourse of streams and rivers. IntermediaryNo intermediary: direct negotiations between buyer and seller FacilitatorBackground studies were contracted out to consultants.ServiceRegulation of flows and control of sediments. CommodityConservation and protection of existing ecosystems. According to Rojas and Aylward (2002), the MCL commits in the contract to
Payment mechanismDirect negotiation - payments made directly to the Monteverde Conservation League.. The contract was signed for 99 years, covering 3000 hectares. Terms of payment.The HEP payments are: Year 1: $3/ha/yr during construction of the project; Year 2: $8/ha/yr when beginning to produce power; $9/ha/yr in the second year of power production; and $10/ha/yr during the third and fourth years of production. By the fifth year, the HEP company pays $10/ha/yr multiplied by a factor that takes into consideration the the difference between forecast and actual production volume over the payment period and between average unit sales price of power and the price on the first day of the period. Private energy producers in Costa Rica have a production cap. This in turn places a limit on the payment level Funds involvedThe exact amount depends on changes in production volume and price but annual payments by the company from the fifth year are in the region of US$30,000 per year (US$10/ha times 3000 ha) Analysis of costs and benefits EconomicLow level of competition. The payments cover between 10 per cent and 25 per cent of the MCL’s annual operating costs. In return, the HEP is guaranteed maintenance of the current level of environmental service (as the area is already protected there is no expectation of increased environmental service). The payment scheme however, has been the means for resolving a land ownership dispute and enabling the La Manguera to build the dam and water intake on land claimed by both the company and the MCL but in the possession of MCL. The company treats PES costs as Operation and Management cost (roughly US$ 30,000 from a total of US$ 140,000). It is a considerable additional cost for the hydropower project, representing a 21% increase in annual O&M costs. The company has a cap on the sales price of electricity and therefore cannot pass on the bill to final users. This HEP invests US$ 5/kW/yr while the others that deal through FONAFIFO ultimately invest less than US$ 1.5/kW/yr. (Rojas and Aylward, 2002). EnvironmentalPayments are used to help protect the cloud forests in Monteverde that are host to a large variety of flora and fauna. Because the area is located on high slopes with high propensity to landslides, the company perceives that protection of the forest results in sediment control and stable water supply, although there are no studies supporting this. The payment can be interpreted as a means of avoiding the risk posed by land use change. SocialEnvironmental education. It is difficult to track exactly which social benefits can be attributed to the contract with the company as the MCL already has several environmental education programmes in place.Land use and forest cover in the area are unlikely to change as they are regulated by the Ministry of Environment (MINAE) and are under Reserve status. The Ministry of Environment plays a role in ensuring the conservation of forest cover and is in charge of imposing fines or taking legal action for violations to the Forestry Law of 1996. Other laws impose restrictions on land use in areas close to springs and river courses to preserve forest cover and avoid pollution. (more about the laws in Rojas and Aylward, 2002) The MCL patrols the area to prevent forest fires, etc. Land use is very unlikely to change. Information not available. This scheme shows that payments may be a strategy to minimise risk. Also, where there is only one seller and only one buyer, voluntary contractual arrangements may work better than a top-down national level payment scheme. Information not available. Information not available. Raul Solorzano, personal communication (2000); Manrique Rojas, personal communication (2000); Rojas, M. and Aylward, B. 2002. Cooperation between a small private hydropower producer and a conservation NGO for forest protection: The case of La Esperanza, Costa Rica. Rome, Italy, FAO- FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS. Land-Water Linkages in Rural Watersheds. Case Study Series. http://www.fao.org/ag/agl/watershed/watershed/papers/papercas/paperen/cost2pix.pdf.http://www.fao.org/ag/agl/watershed/watershed/papers/papercas/paperen/costa2.pdf |
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