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 Fund Project 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 Fund Mesoamerican Caribbean Reef (MAR) Ecoregion

Guatemala Water Fund Sierra 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

Management of SMBR

Guatemala Water Fund Sierra 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

Guatemala Water Fund Project Concept PES MECHANISM

PES Financial Mechanism Market 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) 6 Medium (hydro-power, agro-industry, others) 10 Small (hotels, others) 5 21

PES Financial Mechanism Design Assumptions 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 Design Implementation Structure BOARD OF DIRECTORS Sector Committees Industry sector Other Sectors Policy level Investment Policies NGO’s + Donors

Financial Mechanism Design Implementation Structure $$ Other sector accounts $ Industrial account SOURCE DONORS Investment policies Investment technical committee Investment decisions and supervision Management and operation of Guatemala Water Fund INDUSTRY PROJECTSPROJECTS $ Management account + $$ 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 Design Implementation Structure

Investment Committee

Financial Mechanism Design Financial Feasibility (Projected Cash Flow in US$) INCOME Y1Y1 Y2Y2 Y3Y3 Y4Y4 Y5Y5 Y6Y6 A. User fees (membership)75,000120,000134,000148,000152,000 B. Donations165,000150,000 75,000 C. Interest earned15,55577,903110,373128,563 Total Income257,305351,903401,123361,063367,813370,563 EXPENSES Y1Y1 Y2Y2 Y3Y3 Y4Y4 Y5Y5 Y6Y6 D. Project allocations120,000180,000220,000 E. Endowment transfer35,00045,00055,000 F. Management costs90,00085,000 Total Expenses245,000310,000360,000 Cash Flow (accumulated) 12,30554,20895,33096,305104,205114,768

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: Freshwater Conservation, Value chain & Valuing Nature

Sierra de las Minas Rio Motagua Rio Polochic Sierra Merendon Rio Chamelecon ManchagualaPueblo 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!