For the purpose of investment in catchment management
Using the Atay River (“Stung Atay”) catchment as a
case study, Fauna & Flora International (FFI), with EU funding, is
exploring the case and means for investment in hydro-dam catchments in the
Cambodian Cardamom Mountains.
Our research shows that investment in forest protection could mitigate the risk of reduced hydropower production which could lead to revenue loss from the Stung Atay hydro-dam by as much as USD 180 million over 30 years or an average of USD 6 million per year. Whilst forest protection should be undertaken at a regional scale, our study shows that protection of the Stung Atay catchment would cost less than USD 100,000 per year on an ongoing basis.
Methodology
FFI have conducted this study combining the use of:
· a catchment hydrological model (the Soil and Water Analysis Tool (ArcSWAT))
· financial cost benefit analysis analysing potential returns to investment in catchment management
· inputs from forest protection, agroforestry and livelihoods experts
On the basis of multi-disciplinary studies and with reference to the most recent scientific research regarding the effect of deforestation on rainfall and hydropower production, this document presents the case and potential approaches for investment in protection of the Stung Atay catchment forests.
The Hydropower Challenge& Natural Resource Management
Land-use change from primary forest to agriculture could potentially lead to reduced rainfall over the catchment. This could in turn reduce water available for hydropower production and lead to financial losses for the hydro-dam operator and Electricité du Cambodge.
This will potentially be of concern to the Royal Government of Cambodia (RGC) which by 2020 intends that Cambodia will have access to electricity supplies of 6,000 MW, with 68% of this amount generated by hydropower. With ambitious targets such as these, catchments which are well-managed, will better contribute to hydropower production and the meeting of RGC targets.
Response to the Natural Resource Management Challenge
Given the risk to hydropower production, the FFI feasibility study identifies the following catchment management activities which should maintain forest cover and mitigate risks that deforestation may negatively affect hydropower output:
· Government and community ranger patrols of protected areas to prevent further deforestation
· Implementation of agroforestry farming systems to relieve pressure on primary forest
Economic Benefit
Cost benefit analysis indicates a financial return to catchment investment in scenarios where electricity production falls by more than 2% over 30 years as a result of deforestation and reduced catchment rainfall. Under this very conservative estimate, the benefit provided would be USD 9,318,840 before discounting over 30 years. The table below shows the potential scale of revenue loss associated with hydropower reduction. Recent scientific studies from the Amazon which have application to Southeast Asia indicate that 40% deforestation could lead to hydropower efficiency loss of greater than 30%. Cost benefit analysis results should be understood in the context of regional deforestation leading to local rainfall reduction and the assumption that forest protection efforts are made regionally.
Low Costs
The feasibility study indicates that low cost is crucial to support for catchment investment. The management measures proposed by the FFI feasibility study are sufficiently low such that catchment investors should not be dissuaded.
Proposed management interventions and the very low costs of investment mean that a variety of actors could invest either together. This study indicates that the most obvious initial source of investment is from the USD 3 million already committed to catchment protection by Yunnan South East Asia Economy and Technology Investment Co. Ltd. (the hydro-dam operator). Some of these funds are already earmarked for investment in ranger patrols and tree-planting.
Investment Structure
For the purpose of investment in catchment management, the feasibility study proposes a “Stage 1 Transitional Structure” leading to a “Stage 2 Long Term Structure”.
....................................................................................
Report Structure
This report is structured as follows:
· This Part 1 provides a 10 page overview of report purpose, conclusions and recommendations regarding a potential catchment investment
· Part 2 provides an introduction to the natural resource management problems facing the Stung Atay Catchment
· Part 3 provides an overview of IES as a management tool and sets out the requirements for IES implementation
· Part 4 provides an overview of each of the key feasibility component studies, their findings and recommendations
· Part 5 draws together the recommendations of each of the component studies in order to inform project design for a catchment investment project
· Part 6 sets out a proposed term sheet which would form the basis for discussions about structuring a potential investment in catchment management
Background
1 Using the Atay River (“Stung Atay”) catchment as a case study, Fauna & Flora International , with EU funding, are exploring the case and means for investment in hydro-dam catchments in the Cambodian Cardamom Mountains. The purpose of such investments would be to enhance sustainable production of hydroelectricity through protection of forests.
2 The first phase of this project comprised a feasibility assessment to determine whether there is a “business case” for the proposed investment in improved catchment management, which will deliver higher benefits than costs.
3 This investment is proposed to take place on a broad “Incentives for Ecosystem Services” (IES) basis. In the context of the Stung Atay catchment, this would mean that downstream users of water cost-effectively invest in water resource management in the upper-catchment of the river.
4 The feasibility assessment is a one year process which started in June 2012. During the first six months of the study, the main emphasis was on hydrological studies to better understand the potential problems of soil erosion and declining flow in the Atay catchment and determine whether land use or forest management interventions in the Stung Atay “upper-catchment” are appropriate and cost-effective management responses.
5 During the second six months the emphasis was on studies ascertaining whether there were likely to be positive economic and livelihood benefits associated with project implementation.
6 Key studies conducted to date in relation to the feasibility assessment include:
Hydrological Assessment July 2012 – June 2013
Forest Protection Study June –December 2012
Land Management Study November 2012 – May 2013
National Legal & Policy Assessment July – September 2012
Livelihood Assessment October - December 2012
Cost Benefit Analysis April – May 2013
Report Purpose
The purpose of this report is to synthesise the key findings and recommendations of the above component feasibility studies so as to:
· Assess overall project viability
· Assess investment potential and positive returns on management measures
· Inform a potential investment structure design within the context of the specific natural resource management challenges faced by the Stung Atay catchment, the needs of downstream users of water and Cambodian statutory and institutional frameworks.
This report seeks to provide answers to the following key questions with respect to the Stung Atay catchment, which would address questions of return on investment and project viability:
1. Does a resource management problem exist?
2. Can land-use management benefit downstream users of water?
3. Can improved catchment management provide economic benefits to downstream water users?
4. Are there parties or actors potentially capable of and willing to invest in Stung Atay catchment management?
5. Are there parties or actors capable of taking responsibility for management of upper-catchment natural resources?
6. Would catchment investment under an IES approach in Cambodia be legal?
7. Are the livelihood consequences of a catchment investment project likely to be beneficial to upstream communities?
8. Are property rights in upstream areas sufficiently clear for land management contracts to be established and for environmental protection to be secured?
Conclusions
The following section summarises key conclusions relating to the feasibility of an investment in catchment management along IES principles and concludes that such investment would be both prudent and possible on a risk mitigation basis.
This study indicates that the most obvious initial source of investment is by the RGC from the USD 3 million already committed to catchment protection by Yunnan South East Asia Economy and Technology Investment Co. Ltd. (the hydro-dam operator).
Weaknesses
Current scientific understandings of the link between forest cover and rainfall are increasingly strong but remain locally or contextually limited and the CBA presupposes this link exists. This weakness is dealt with by way of a sensitivity analysis which looks at various scenarios of electricity production loss so as to assess the robustness of conclusions across different scenarios so as to aid sound risk-based decision-making.
Recommendations
1 A case for catchment management for the benefit of the hydro-dam operator is justified where a power production loss of 2% or greater may arise as a result of failure to invest in catchment management. The costs of catchment management are therefore low relative to the likely cost impact of failure to manage the catchment. As such, and from the perspective of the hydro-dam operator, investment in catchment management according to the proposed plan is justified although the case for investment presupposes that similar investments for forest protection are being made across other areas of forest.
2 A case for catchment management for the benefit of Electricité du Cambodge also exists where a power production loss of 4% or greater may arise as a result of a failure to invest in catchment management. The risk of costs associated with deforestation to Electricité du Cambodge are lower than for the hydro-dam operator because EdC can substitute to coal which is not much more expensive than hydroelectricity under the power purchase agreement. Once the dam infrastructure passes to RGC / EdC ownership, the costs of meeting hydropower shortfalls through coal-burning will be substantial and crystallise immediately upon expiration of the 30 year build operate transfer(BOT) contract.
......................................................................................................................
Need a copy of full report of the above feasibility study, please feel free to contact:
1. Dr. Joel Jurgens, SPES Project Manager
E-mail: joel.jurgens@fauna-flora.org
Mobile: 012 234 170
2. Mr. Yos Katank, SPES National Communication Coordinator
E-mail: yos.katank@fauna-flora.org
Mobile: 077 878 001
Whole feasibility study report in PDF, which you can download:
Our research shows that investment in forest protection could mitigate the risk of reduced hydropower production which could lead to revenue loss from the Stung Atay hydro-dam by as much as USD 180 million over 30 years or an average of USD 6 million per year. Whilst forest protection should be undertaken at a regional scale, our study shows that protection of the Stung Atay catchment would cost less than USD 100,000 per year on an ongoing basis.
Methodology
FFI have conducted this study combining the use of:
· a catchment hydrological model (the Soil and Water Analysis Tool (ArcSWAT))
· financial cost benefit analysis analysing potential returns to investment in catchment management
· inputs from forest protection, agroforestry and livelihoods experts
On the basis of multi-disciplinary studies and with reference to the most recent scientific research regarding the effect of deforestation on rainfall and hydropower production, this document presents the case and potential approaches for investment in protection of the Stung Atay catchment forests.
The Hydropower Challenge& Natural Resource Management
Land-use change from primary forest to agriculture could potentially lead to reduced rainfall over the catchment. This could in turn reduce water available for hydropower production and lead to financial losses for the hydro-dam operator and Electricité du Cambodge.
This will potentially be of concern to the Royal Government of Cambodia (RGC) which by 2020 intends that Cambodia will have access to electricity supplies of 6,000 MW, with 68% of this amount generated by hydropower. With ambitious targets such as these, catchments which are well-managed, will better contribute to hydropower production and the meeting of RGC targets.
Response to the Natural Resource Management Challenge
Given the risk to hydropower production, the FFI feasibility study identifies the following catchment management activities which should maintain forest cover and mitigate risks that deforestation may negatively affect hydropower output:
· Government and community ranger patrols of protected areas to prevent further deforestation
· Implementation of agroforestry farming systems to relieve pressure on primary forest
Economic Benefit
Cost benefit analysis indicates a financial return to catchment investment in scenarios where electricity production falls by more than 2% over 30 years as a result of deforestation and reduced catchment rainfall. Under this very conservative estimate, the benefit provided would be USD 9,318,840 before discounting over 30 years. The table below shows the potential scale of revenue loss associated with hydropower reduction. Recent scientific studies from the Amazon which have application to Southeast Asia indicate that 40% deforestation could lead to hydropower efficiency loss of greater than 30%. Cost benefit analysis results should be understood in the context of regional deforestation leading to local rainfall reduction and the assumption that forest protection efforts are made regionally.
Low Costs
The feasibility study indicates that low cost is crucial to support for catchment investment. The management measures proposed by the FFI feasibility study are sufficiently low such that catchment investors should not be dissuaded.
Proposed management interventions and the very low costs of investment mean that a variety of actors could invest either together. This study indicates that the most obvious initial source of investment is from the USD 3 million already committed to catchment protection by Yunnan South East Asia Economy and Technology Investment Co. Ltd. (the hydro-dam operator). Some of these funds are already earmarked for investment in ranger patrols and tree-planting.
Investment Structure
For the purpose of investment in catchment management, the feasibility study proposes a “Stage 1 Transitional Structure” leading to a “Stage 2 Long Term Structure”.
....................................................................................
Report Structure
This report is structured as follows:
· This Part 1 provides a 10 page overview of report purpose, conclusions and recommendations regarding a potential catchment investment
· Part 2 provides an introduction to the natural resource management problems facing the Stung Atay Catchment
· Part 3 provides an overview of IES as a management tool and sets out the requirements for IES implementation
· Part 4 provides an overview of each of the key feasibility component studies, their findings and recommendations
· Part 5 draws together the recommendations of each of the component studies in order to inform project design for a catchment investment project
· Part 6 sets out a proposed term sheet which would form the basis for discussions about structuring a potential investment in catchment management
Background
1 Using the Atay River (“Stung Atay”) catchment as a case study, Fauna & Flora International , with EU funding, are exploring the case and means for investment in hydro-dam catchments in the Cambodian Cardamom Mountains. The purpose of such investments would be to enhance sustainable production of hydroelectricity through protection of forests.
2 The first phase of this project comprised a feasibility assessment to determine whether there is a “business case” for the proposed investment in improved catchment management, which will deliver higher benefits than costs.
3 This investment is proposed to take place on a broad “Incentives for Ecosystem Services” (IES) basis. In the context of the Stung Atay catchment, this would mean that downstream users of water cost-effectively invest in water resource management in the upper-catchment of the river.
4 The feasibility assessment is a one year process which started in June 2012. During the first six months of the study, the main emphasis was on hydrological studies to better understand the potential problems of soil erosion and declining flow in the Atay catchment and determine whether land use or forest management interventions in the Stung Atay “upper-catchment” are appropriate and cost-effective management responses.
5 During the second six months the emphasis was on studies ascertaining whether there were likely to be positive economic and livelihood benefits associated with project implementation.
6 Key studies conducted to date in relation to the feasibility assessment include:
Hydrological Assessment July 2012 – June 2013
Forest Protection Study June –December 2012
Land Management Study November 2012 – May 2013
National Legal & Policy Assessment July – September 2012
Livelihood Assessment October - December 2012
Cost Benefit Analysis April – May 2013
Report Purpose
The purpose of this report is to synthesise the key findings and recommendations of the above component feasibility studies so as to:
· Assess overall project viability
· Assess investment potential and positive returns on management measures
· Inform a potential investment structure design within the context of the specific natural resource management challenges faced by the Stung Atay catchment, the needs of downstream users of water and Cambodian statutory and institutional frameworks.
This report seeks to provide answers to the following key questions with respect to the Stung Atay catchment, which would address questions of return on investment and project viability:
1. Does a resource management problem exist?
2. Can land-use management benefit downstream users of water?
3. Can improved catchment management provide economic benefits to downstream water users?
4. Are there parties or actors potentially capable of and willing to invest in Stung Atay catchment management?
5. Are there parties or actors capable of taking responsibility for management of upper-catchment natural resources?
6. Would catchment investment under an IES approach in Cambodia be legal?
7. Are the livelihood consequences of a catchment investment project likely to be beneficial to upstream communities?
8. Are property rights in upstream areas sufficiently clear for land management contracts to be established and for environmental protection to be secured?
Conclusions
The following section summarises key conclusions relating to the feasibility of an investment in catchment management along IES principles and concludes that such investment would be both prudent and possible on a risk mitigation basis.
This study indicates that the most obvious initial source of investment is by the RGC from the USD 3 million already committed to catchment protection by Yunnan South East Asia Economy and Technology Investment Co. Ltd. (the hydro-dam operator).
Weaknesses
Current scientific understandings of the link between forest cover and rainfall are increasingly strong but remain locally or contextually limited and the CBA presupposes this link exists. This weakness is dealt with by way of a sensitivity analysis which looks at various scenarios of electricity production loss so as to assess the robustness of conclusions across different scenarios so as to aid sound risk-based decision-making.
Recommendations
1 A case for catchment management for the benefit of the hydro-dam operator is justified where a power production loss of 2% or greater may arise as a result of failure to invest in catchment management. The costs of catchment management are therefore low relative to the likely cost impact of failure to manage the catchment. As such, and from the perspective of the hydro-dam operator, investment in catchment management according to the proposed plan is justified although the case for investment presupposes that similar investments for forest protection are being made across other areas of forest.
2 A case for catchment management for the benefit of Electricité du Cambodge also exists where a power production loss of 4% or greater may arise as a result of a failure to invest in catchment management. The risk of costs associated with deforestation to Electricité du Cambodge are lower than for the hydro-dam operator because EdC can substitute to coal which is not much more expensive than hydroelectricity under the power purchase agreement. Once the dam infrastructure passes to RGC / EdC ownership, the costs of meeting hydropower shortfalls through coal-burning will be substantial and crystallise immediately upon expiration of the 30 year build operate transfer(BOT) contract.
......................................................................................................................
Need a copy of full report of the above feasibility study, please feel free to contact:
1. Dr. Joel Jurgens, SPES Project Manager
E-mail: joel.jurgens@fauna-flora.org
Mobile: 012 234 170
2. Mr. Yos Katank, SPES National Communication Coordinator
E-mail: yos.katank@fauna-flora.org
Mobile: 077 878 001
Whole feasibility study report in PDF, which you can download:
