“For many people, food comes from a supermarket and water comes from a tap. But the truth is, the food and water that sustain us come from grasslands, forests, rivers, and lakes that depend on natural processes to be sustained themselves. Setting aside wild places alone are insufficient to protect nature. Lands and waters can sustain people and wildlife; modern conservation is about finding ways to do both.”
-The Nature Conservancy 2013 Annual Report
This post is part of a series following the experiences of students participating in the EFC’s Summer Environmental Finance program in Ecuador. This post was written by Megan Garrett.
The Nature Conservancy (TNC) has initiated a program to conserve the watersheds from which water is sourced, called Water Funds. These water funds exist all over the world, but have become especially popular in Latin America following the success of FONAG (Fondo para la Proteccion del Agua), the first ever water fund, located in Quito. These water funds are an interesting financial tool in preserving our water sources and surrounding environment.
As the most mature fund of its kind, FONAG sets a great example of what works for Quito and has helped to establish a manual on starting water funds, produced by The Nature Conservancy.
FONAG was created in 2000 after two years of negotiation between TNC and the government of Quito. The two years of negotiating were extremely important to the stability of FONAG. No two water funds are the same, and how they are established is dependent on the legal, political and human culture of the area in which they must succeed. After negotiating and determining if the water fund is a good option for the Quito area, FONAG was established with a seed fund of $21,000 from TNC and The Water and Sewage Metropolitan Enterprise of Quito.
This seed money went into a private trust, which is controlled by a Board of Directors, made up of funders that are that are key stakeholders in Quito’s water supply. These board members – Quito Power Company, National Brewery, Consortium CAMAREN, and The Tesalia Springs Company – each contribute to the trust fund every year as well as meet to approve the budget for FONAG each year. FONAG uses the interest money from this trust fund, along with donations, to finance their project initiatives. Even though FONAG’s trust fund is private, since 95% of their funding comes from public entities – like the Quito water utility – they are managed publicly and funds within the trust must be invested in public investments.
Other regions have followed with different strategies for administering funding (Source: TNC, 2011)
|Water Fund||Organization that administrates the resources||Type of entity|
|FONAG (Quito)||Private trust fund||Private financial commercial organization|
|FONAPA (Paute)||Public trust fund: National Financial Corporation||Public financial commercial organization|
|Agua Somos (Bogota)||Existing environmental fund: Patrimonio Natural||Private foundation, created to strengthen the National Protected Areas system|
|Water Fund for Life and Sustainability (Cauca Valley)||Private trust fund||Private financial commercial organization|
Contributions from Quito’s water and electric companies, the two largest fund investors, help generate approximately $1 million each year in disbursements for conservation projects in the watersheds that supply the city with drinking water. The water utility alone contributes 2% of the revenues paid by their consumers to the fund. This system illustrates the potential power of the ‘beneficiary/consumer voluntarily pays’ as an alternative or addition to the ‘polluter pays’ system that governs most water quality improvement programs. FONAG’s trust fund was established to last them for at least 80 years of initiatives. The specific programs funded by FONAG include:
- Communication to promote information about protecting water resources.
- Vegetation Restoration
- Environmental education program called “Guardianes del Agua.”
- Water management program.
- Surveillance and monitoring program of priority areas.
As an example of how FONAG distributes their funding between programs, here is a chart of expenditures from 2010 (Source: FONAG):
|Programs and projects||Interest from FONAG Trust Fund||Donations||Other Contributions||Total|
|Surveillance and control||$88,000||$139,000||$155,000||$374,000|
|Management and the fiduciary||$94,000||$7,000||$57,000|
|Support to programs||$52,000||$203,000||$243,000|
FONAG’s success relies heavily on a good strategic management. Malki Saenz, the technical secretary, emphasizes that not only must FONAG have a good understanding of the area’s politics, institutions, culture, and economics, but the investment account through which they make money must be run as a good business. From Malki’s experience with FONAG, he has outlined the main problems Quito faced, along with the solutions and lessons learned from the venture.
- A steady and permanent growth of Quito…
- drives the water search further away with more cost of infrastructure
- accelerates the deterioration of water use and land.
- There’s an urban ignorance of water sources.
- A lack of information for technical and social management shows a need for more policy information.
- Legal framework can be difficult to navigate.
- Maintain an integrated system for hydrological information.
- Restore hydrological areas.
- Diversify actions in restoring systems and disseminating information.
- Long-term sight and actions are important to maintaining structure.
- Intervention needs to be specifically defined – territory, political, etc.
- Involve both national and local counterparts, which impact the system and make complimentary efforts.
- Evaluate and monitor the impact each project has for effectiveness.
- This isn’t theory, it’s practice and hands-on, so be practical.
- Don’t try to do everything, be specific on water conservation and clear about goals.
- Always remember no two funds are the same.
Megan Garett is a MPA graduate student and is participating in the Environmental Finance Center’s Summer Applied Environmental Finance Program in Quito Ecuador.