13.3.4.0 Introductie

According to the definition of the Center for Watershed Protection, a watershed is: "the area of land where all the water that drains off goes into the same stream, lake or other water body. A watershed can cross country and state lines. We all live in a watershed."1 Watershed protection serves as a mechanism for protecting a lake, river or stream by managing the entire watershed that drains into it.2 Establishing a payment system for watershed protection can be qualified as PES, i.e. the payment is connected with the availability of water, the ecosystem service. Typically, a PES scheme for watershed management comprises the implementation of financial mechanisms to compensate upstream landowners so as to maintain a certain land use in order to positively affect the quality and availability of the downstream water resources. In this case, the upstream landowners are usually paid not to build roads, plant trees or perform other activities that have an impact on the quality of water.3 Sometimes they are paid to keep a forest intact to avoid erosion that might impact the watershed. The PES systems vary from payments by private water users to environmental agencies and NGOs (which contribute to ensuring the watershed protection), to direct payments by central government (which acts as user, provider or seller of the water) to private landowners who protect a watershed.4

In Latin-American countries, the system for payments for watershed protection has gained popularity in recent years.5 The scarcity of water and water-related conflicts have played a role in setting up PES water schemes in Costa Rica and Colombia.6 In Latin America, as well as in other developing countries, these projects are usually public schemes and supported by external financing by way of loans, grants and the expertise of international organisations, development agencies and NGOs. Others are constructed in the form of public-private partnerships.7 An example is a PES system set up in Costa Rica, presented in section 13.3.4.1.

The involvement of the private sector in the PES schemes for watershed management has not yet developed on a large scale. In fact, only five per cent of global private investments were directed towards the water sector, which of course also comprises many water-related business activities other than PES.8The SNS REAAL Water Fund explains that a lack of involvement is related to the presumptions of investors about water investments, such as that water issues are very complex and that investments have a high-risk and low-return profile, combined with high overhead and transaction costs. High transaction costs should be understood in relation to the acquisition of legal title or use rights and capacity building in order to change unsustainable land-use practices. In order to improve the financial capacity of watershed protection businesses, private water users that have a higher ability to pay have to be involved. Examples are energy companies that depend on the stability of the water volume in a river or artificial lake to be able to generate electricity, and water companies, breweries and soft drink companies that depend on the availability and the quality of water near their production sites. In paragraph 13.3.4.2, this will be illustrated by describing a PES project in which the French company Perrier Vittel S.A. acted as an initiator and beneficiary of watershed protection services.