Meeting in Yichang China 25 Oct 2008 By Lawrence Haas Independent Consultant, UK

Transcription

1 HSAF Briefing On Benefit Sharing / Additional Benefits Meeting in Yichang China 25 Oct 2008 By Lawrence Haas Independent Consultant, UK

2 Key Points 1. Larger issue - financing is key to long-term environment and social performance of hydropower projects Principles: > internalizing costs of sustainability all EES attributes > no unfunded commitments 2. Lack of financing correlated to EES performance failure multiple reasons e.g. overburdened state or local public finance 3. Revenue sharing is an important mechanism to achieve this and a key sub-set of benefit sharing 4. Many examples & different approaches for monetary and non- monetary benefit sharing in different settings - but practices are really only emerging not widespread Cont.

3 5. While benefit sharing mainly refers to long term operation I.e. over the economic life of the asset steps needed at earlier stages of project cycle to provide least-cost approach, otherwise things are more expensive later, and less flexibility for adaptive management benefit sharing opportunities also exist in implementation phase (e.g. local jobs, procurement) 6. Conceptual confusion / different views exists about benefit sharing - which affects approaches + outcomes: e.g. On compensation versus benefit sharing, On who should share, On whether the onus is on project (operator) or tariff (i.e. consumers)

4 IHA Protocol 2004 Protocol A4, B3, C2 Distribution and sustainability of economic benefits 2006 A9: Additional benefits & capacity building B3 Additional benefits C3 Additional economic benefits Change in Emphasis Benefit sharing prominent in both versions hydropower as catalyst for local development 2004 Version was more explicit on sharing benefits between the local community broader region / basin 2006 Version spells out but combines various additional benefits with the deemphasis of benefit sharing targeting with local community as a potential downside in its application

5 Refresh on 2004Attributes A4, B3 and C2 Focused on: 1. Affected Community 2. Broader Community

6 Refresh on 2006Attributes 1 of 3 Focused on: Affected Community Broader Community Plus National development

7 Refresh on 2006 Attribute 2 of 3 Similar Stakeholder support Stops short of community defined benefits

8 Refresh on 2006 Attribute 3 of 3 Linked to other attributes Like aspect on directly affected Community Social and cultural enhancement

9 What is the Status of Current Practice + Conceptual thinking going forward

10 Benefit sharing as a Policy Tool + Business Case 1. Advance sustainable performance hydropower (env & social dimensions)... meeting present generation needs without compromising future generations meeting their own needs an basis of close & harmonized combination of economic growth, assurance of social advancement and environmental protection. 2. Treat local communities as Partners in the project + local action to implement many env & social aspects To implement sustainable practices of mutual benefit to host community and long-term hydropower performance 3. Realize comparative advantages for the power sector Risk reduction for ALL stakeholders, not only govt & investors Level playing field for public and private IPP Mobilizing capital - enhanced access to international finance

11 Three Forms of Benefit Sharing In a comprehensive long-term approach: Equitably sharing of electricity services: adversely affected are among the first to receive the benefits of electricity services from the project, subject to contextual constraints (e.g. power safety, preference, targeting exiting RE). Non-monetary entitlements to enhance resource access: where communities adversely affected receive (non monetary) entitlements to enhance local access to natural resources (i) to offset the permanent loss or reduction of resource access from before the project, and Revenue sharing: where affected communities share the direct monetary benefits of hydropower, according to a formula and approach defined in regulations. Goes beyond one-time compensation payments and shortterm resettlement support. Opportunity + Empowerment

12 Revenue sharing at different jurisdictional levels Provincial / State share (revenue sharing - free power, royalties, etc) District or Municipality share Affected community share Delivery Approaches Vary For Affected Community Share Can be a combination As a Municipal + Budget contributions Fund for Community initiatives Individual Payments to displaced e.g. Brazil Constitution 45% of water-use tax to municipalities losing land; 45 % to Province. Norway e.g. Columbia Basin Trust in BC, China, India + Vietnam proposed e.g. China $100 per person for 20 years

13 Source of Funds: Financing mechanisms used in different countries Often a mixture of measures: e.g. Revenue sharing linked to bulk tariff or water utilization fee (most) Direct equity sharing using return on equity as an income stream; Government budget transfers to affected municipalities and basin / watershed management agencies Levying property taxes on land of power facilities and reservoir Direct long-term contracts between the project & affected communities Preferential electricity rates for PAP or fees for water services Targeted use of carbon financing (a new financing source) Funds managed in various ways: e.g via Trusts & Development Funds or by increments to existing development budgets / programmes that target affected communities

14 Use of Funds: Developing country examples Grants for measures preferred by beneficiaries made through different funding windows: e.g. Local development initiatives (CDD approaches), like: Village or commune scale infrastructure Agriculture extension services Skills and local entrepreneur development Rural credit programmes (revolving funds) Local expenditures on health services, Communications, rural roads etc. Youth programmes etc. Bottom up local development Income raising actions for environment and water resource protection, like: Catchment management measures e.g. headwater forests; adopting soil conservation and erosion control measures Improving local capacity for managing ecosystem services Payments for ecosystem services

15 Use of Funds: OECD Example Figure 2: Delivery of benefits program at the basin level The Columbia Basin Trust in British Columbia, Canada Delivery of Benefits Programme in the Columbia Basin in Canada A mature basin-level program The Columbia Basin Trust Started in 1995

16 Areas of Confusion To Avoid

17 Compensation vs Benefit Sharing Construction Phase Compensation & Resettlement For displaced families + resettlement host area Operation Phase Benefit Sharing with all adversely affected communities hosting the project in their locale Short-term Project Commissioning Long-term In Vietnam Covered by Decree Any future revisions Covered by a new Decree for benefit sharing Financed by Project Capital Budget Financed by Share of Project Revenue (i.e. from tariff)

18 Definitions- who is adversely Affected Best to use EIA defined project impact zone to identify all impacted by resource transformation and adjust contextually 2. All communes bordering reservoir 1. Affected Commune(s) bordering on upstream river. EIA to confirm which communes on the basis of degree of resource access affected and contribution to catchment management of benefit to hydropower generation. Dam Reservoir reservoir Past Focus on this group 3. Relocated people and Resettlement Community all Commune(s) involved as defined in RAP Powerhouse 5. Affected communes bordering river downstream of powerhouse 4. Every commune bordering dam, river diversion section, and powerhouse. how far downstream (i.e. cut-off) determined by EIA on basis of degree of resource access affected.

19 Considerations Critical decisions Project or basin approach Levels (provincial, municipal, local host community) Applies to new and existing hydropower Size of hydropower (MW cut off) Single and Multi-purpose with hydro Level playing field for hydropower maintained Level of benefit sharing (i.e. % Revenue) Bottom up process to decide investments Linkages to poverty reduction targets Maximize local development mechanisms Transparency and Accountability

20 Two Contextual Perspectives from Washington July 08 Expert Group Meeting apples and oranges Case A Versus Case B Single share companies Like Hydro Quebec, Manitoba or BC Hydro Unbundled Power Sector Multiple Generators e.g. Viet Nam 30+ equitized EVN generators and 30+ IPPs may be venture capital groups Onus on Owner Operator Striking Community Agreements And Implement Communities Local Govt Onus on Legislation Project owner Operator Typically a Local Area Fund or Trust with Multi stakeholder Governance Partnership thinking as a common theme

21 Vietnam Example To illustrate developing country with active hydropower program Plus explicit sustainability mandate (aspiration in existing legal framework) $20 Million /year if implemented now rolled out nationally

22 Article 1: Scope of the regulation 1. This Decree provides for equitable sharing of benefits arising from sustainable development of the nation s hydropower resources. 2. The Decree establishes a long-term revenue sharing arrangement between the main consumers of electricity services in towns, cities and industry and the local communities hosting hydropower projects adversely affected by the project. 3. The Decree regulates: (i) (ii) (iii) (iv) Financing mechanisms for revenue sharing on hydropower projects; Policies to target people adversely affected by hydropower projects within existing rural electrification budgets and programs; Policies to grant entitlements to enhance resource access to offset the permanent transformation, loss or reduction of resource access in the project impact zones of hydropower projects, and Procedures to introduce benefit-sharing mechanisms systematically in the project cycle of hydropower projects, starting with up-front strategic and project planning stages.

23 C5 Room for Revenue sharing - economic rent Plant Factor Competitive Threshold $/kw Present Room $US cents / KWh % average tariff 50% 2, % 55% 2, % 60% 2, % 65% 2, % 70% 2, % 75% 2, % 80% 2, % 85% 2, % 90% 2, % Calculated with av. cost of marginal generator Without emission cost on thermal 10% Discoint Rate Average tarrif 890 VND Planned Room Needs to Cover Revenue sharing + water resource fee + 2% environment protection fee? Room Increasing VN moving to international fuel price levels Upward pressure on international energy prices Adding thermal emission penalties Adding hydro ancillary benefits

24 Framework MOIT ERAV Regulates Generation Entities Rules ~ Market Operator (All settlements) From Power Market Reform to Revenue Sharing Funds 2% gross Generation Central Reserve Fund (ERAV) Start-up Buffer Support rollout QN basin Training ctr.? Spot Market Single Buyer Aspects - ERAV/MOIT sets Rules + Regulates - Revenue Sharing reflected in tariff - Revenue neutral for hydropower entities - Maintains competitive market for hydro Project-Specific Revenue Sharing Funds Provincial Jurisdiction 59 Provinces

25 Operating Project Revenue Sharing Funds Existing + New Remittances from power sector Provincial Peoples Committee Rural Development A provincial jurisdiction Project Revenue sharing Fund Benefit Sharing Council (Policy & Charter) Fund Management Board or unit (operation) Coordination Appoints / Controls Council Rules - Some prescribed in Decree - Some for Council to set with PPC approval - other Funds - other Provinces - PMBs, etc Delivery mechanisms and measures preferred by beneficiaries e.g. - Allocation to different groups in the project impact area set in Charter (Article 26+27) - Allocation to different grant categories set annually by the Council (Article28) - Grant application based system (Article 29) - Mechanism and roles in delivery of measures in Grants (Article 31)

26 AC3 Draft Decree chapters Chapter 1. Chapter 2. Chapter 3. Chapter 4. Chapter 5. Chapter 6. General provisions Process to introduce benefit-sharing mechanisms on hydropower projects Equitable sharing of electricity access and services Entitlements for enhancing resource access Revenue sharing General implementation provisions

27 Pilot in Gia-Thu Bon basin In Central Highlands Figure 5: Location of hydropower projects in the Vu Gia-Thu Bon basin A Vuong Project 210 MW selected as Pilot

28 Pilot Test on 210 MW A Vuong Project Commissioned in 2008 Article-by- Article verification of draft Decree Fine tune mechanisms and capacity building needs to roll out program nationally to all existing and new hydropower Partnership approach (Regulator, Province, ADB, WWF, Communities) 80% Ethnic communities in Project impact area 2% of gross generation = $US 1 Million yr for revenue sharing

29 Charter is at the Heart Social contract transparency and accountability Benefit Sharing Council Representatives of Beneficiaries Vision Who is eligible, What can be funded Allocation to different communes Procedures + M&E Transparency and Accountability Institutional Responsibility Periodic Update Tied to poverty reduction targets Bottom up grant application procedure. Using commune coaches. Simple contracts Communication Strategy

30 Observations on Updating Benefit Sharing Attribute in the Protocol

31 Process Elements for Attributes Policy Review applicable legislation Draft Legislation / Guidelines - Regulation Well defined project impact area and eligible communities Well defined categories of eligible investments Monetary and non-monetary forms of benefit sharing Multi-stakeholder governance of fund management Capacity building tools for local implementation with existing institutions / rural development mechanisms Integration with local development plans

32 A comprehensive long-term approach Three parallel tracks Projecting from current policy directions.