PES farm under conservation with Napier grass (Pennisetum purpureum) strips along contours (left) and indigenous (Dombeya spp.) Photo: World Wide Fund for Nature/ Nyongesa JM

Suggested Citation: Sang J, Mwanyoka I, Nyongesa J, Lopa D and Mwangi J. 2017. Case studies of water-related PES schemes in East Africa. In: Namirembe S, Leimona B, van Noordwijk M, Minang P, eds. Co-investment in ecosystem services: global lessons from payment and incentive schemes. Nairobi: World Agroforestry Centre (ICRAF). Chapter 8 | 1 CHAPTER 8 Case studies of water-related PES schemes in East Africa

Joseph Sang, Iddi Mwanyoka, Josephat Nyongesa, Dosteus Lopa and John Mwangi

Highlights • Payment for Environmental Services (PES) schemes have been implemented in various parts of East Africa. • Bio-physical and socio-economic baseline studies involving various experts and local land owners underpinned the assessment and design of the PES project. • The projects were at various levels of implementation at the time of writing.

8.1 Background

The water-related PES schemes in East Africa considered in this chapter are Sasumua, Lake Naivasha - Malewa River Basin Integrated Water Resource Management (IWRM) Programme, Upper Tana-Nairobi Water Fund and Uluguru project. The Uluguru and Usambara projects are located in ; the other PES projects in Kenya. These PES schemes are initiated by various organizations and NGOs in collaboration with government agencies, and were at different stages of implementation at the time of writing. The Lake Naivasha - Malewa PES program is located in the Lake Naivasha basin, which supports important biodiversity conservation areas: Aberdare National Park, Aberdare Forest Reserve, and agro-ecosystems on which indigenous communities depend for their well-being in the upper catchment, and the Oserian Sanctuary, the Hell’s Gate National Park, the Lake Naivasha Ramsar Site (145 km2) and associated riparian land in the lower catchment1,2. Lake Naivasha is an inland freshwater lake of economic importance in Rift Valley, Kenya. The Lake is a vital source of water in a semi-arid area, and supports a flourishing horticulture industry with a substantial contribution to Kenya’s export trade. Designated as Kenya’s second Ramsar site without surface outflows 3,, the Lake carries great importance for fishing communities, tourism, recreation, geothermal generation and the biodiversity around it. These sub-sectors in turn are dependent on the health of lake whose recharge in turn depends on water supply from the River Malewa’s upper catchments and the proper functioning of the riparian zones biofilter. However, deforestation, agricultural intensification and related unsustainable farming practices including cultivating on high slopes and riparian zones in the upper catchment threaten ecological functions in the basin. These activities have decreased the water quality and quantity of rivers flowing to Lake Naivasha causing increased sediment load and eutrophication in the Lake. This has negative consequences for commercial horticulture,

Chapter 8 | 1 biodiversity and local communities that depend on water from the Lake. Deteriorating water quality and quantity also affects tourism as wildlife numbers dwindle and geothermal power stations have trouble sourcing sufficient amounts of water for drilling, cooling and construction4. The Sasumua project is an innovative PES project, which was still under development at the time of writing, and which aims to improve the quality of water flowing into the Sasumua Reservoir. It operates upstream of the Sasumua Dam where land-use changes, driven by population pressure, have increased the inflow of sediments and other pollutants to the Reservoir. The Sasumua Reservoir is of vital importance to Nairobi City, contributing 20% of its water supply. The cost of treating water at the Sasumua Dam could be lowered by improving the quality of incoming raw water. This can be achieved by incentivizing upstream landowners to adopt sustainable land management practices on their farms. The Nairobi Water Fund covers the entire Upper Tana River, the main source of water for the four million inhabitants of Nairobi City. The river flows from the Aberdare Range and Mt. Kenya to the Indian Ocean. In addition to supplying water to Nairobi, the river is also the main source of hydro-electricity in Kenya. As the Sasumua PES project site falls within the Upper Tana, both PES projects can complement each other.

Figure 8.1 Location of Uluguru PES project

The Uluguru Project is located in the Uluguru Mountains and East Usambara is in the East (Figure 8.1). The Uluguru and East Usambara form part of the famous in Tanzania. Both are critical mountain ranges providing a wide range of ecosystem services. The Uluguru Mountain is the source of the , which supplies about 90% of Dar es Salaam’s water5. The project emphasized the fair and equitable distribution of benefits accrued from the sale of ecosystem services to downstream users,

2 | Case studies of water-related PES schemes in East Africa and is centred on the Kibungo sub-catchment in the south-eastern Uluguru Mountains. On the other hand, the East Usambara Mountain is the source of Zigi River which supplies 100% of the water needs of the City of Tanga5. Over the years, the Uluguru and East Usambara Mountains have suffered from degradation attributed to human activity, thus threatening the continued supply of the watershed services6. The degradation prompted the implementation of a PES scheme banking on the readiness of the communities to participate in the project through implementation of various improved land-use practices including tree planting, terrace farming and grass-strip farming, as well as the willingness shown by other stakeholders including the Tanzanian government and major downstream water users, particularly the Dar es Salaam Water Supply Corporation (DAWASCO) and Coca-Cola Kwanza Ltd with the understanding that the interventions will positively affect their business in the long term7.

8.2 Assessment and design

Initial feasibility studies in PES implementation8 (Chapter 5) are important as they provide the baseline information necessary for the project implementation. Feasibility studies were conducted before implementing the Naivasha and Sasumua PES schemes. For both Naivasha and Sasumua cases, baseline information was obtained through questionnaire surveys, interviews with farmers, direct measurement of variables and through model simulations using the Soil and Water Assessment Tool (SWAT). The information obtained served as a starting point against which to measure impacts of PES implementation and to develop a business case. A policy, legal and institutional review was also carried out to determine the viability of PES under the existing legal and institutional framework. A summary of the various technical studies carried out is shown in Figure 8.2.

- Defining core - Assessment of the impact - CBA showed that - Conducted buyers/sellers hydrological/water of current land use business as usual is proofing study. problems (soil erosion, practices on livelihoods/ unsustainable. - Identified criteria for the run-off, sedimentation, poverty and watershed - Several alternatives selection of buyers and turbidity, etc.). conditions. available, but either too sellers. - Identification of hotspots - Identified unsustainable costly or unsustainable - Assess willingness and within Uluguru watershed. land use as the underlying in the long-run. ability to sell and buy. causes of poverty. - Identified EPWS as - Assessment of existing potential viable option. policy/legal framework for - Developed business relevance to EPWS. case for investment, - Establish if there was which led to the business case between development of MoU. potential sellers and buyers - CBA estimate is of watershed ecosystem important to determine services. the opportunity cost. - Identify access rights to natural resources, institutional capacity and currents conservation incentives.

Technical Reports

Figure 8.2 typical baseline studies for the development of PES

Chapter 8 | 3 In the case of the Uluguru and East Usambara Mountains in Tanzania, the Equitable Payments for Watershed Services (EPWS) projects were established as part of the broader PES concept to ensure the continued and sustainable provision of watershed services to beneficiaries via a mechanism that promotes articulation of conservation practices while directly effecting poverty alleviation. The programmes were designed to be implemented through two interconnected phases. The first phase (2005–2007) consisted of feasibility to build a business case and gather knowledge to structure the new market suitable to local conditions and equitable outcomes. Thus, a number of studies6,9,10,11 were conducted during this phase: hydrological assessment, buyer profiling, seller livelihood analysis and capacity assessment, cost-benefit analysis and legal and institutional framework analysis (Figure 8.2). A key finding was that deforestation, ‘extensification’ of agriculture and poor farming practices have reduced the ability of the Uluguru catchments to supply Dar es Salaam with a reliable supply of high-quality water and that since the 1970s, forested areas in the Uluguru mountains have decreased in size by approximately 25%. Since 1995, land under cultivation in the Uluguru mountains has doubled. In the Kibungo sub-catchment alone, the extent of cultivated land has increased by 300% since 1995. Hydrological analysis indicated that these land-use changes have resulted in greater surface run-off and an associated increase in topsoil erosion, which in turn led to increased siltation of the Ruvu River and turbidity increases in the Ruvu River of between 1.5% and 3% annually. The business cases also highlighted potential benefits to buyers as they participate in the programmes. A similar approach was taken for the East Usambara where the Tanga Urban Water Supply (UWASA) was engaged. The negotiations were mainly performed by CARE and WWF. These studies helped develop business cases which were submitted to and negotiated with potential buyers, notably the Dar es Salaam Water Supply and Sanitation Cooperation (DAWASCO), Coca-Cola Kwanza Ltd and Tanga Urban Water Supply and Sewerage Authority (Tanga-UWASA). The information from the business cases was used to develop a memorandum of understanding which was signed between the Kibungo-area upper catchment communities and downstream water users in Dar es Salaam, and the East Usambara communities and the Tanga UWASA, respectively. Phase II of the projects implemented the proposed interventions within the identified (‘hotspot’) communities. Tanzania does not have a stand-alone policy on PES unlike for example Costa Rica, however, the existing institutional framework seems to support implementation of EPWS programmes. With the support of the relevant ministries, these PES programmes contributed significantly to the integration of PES-related provisions into laws and policies such as the Water Resources Management Act of 2009 and the new National Forest Policy of 2010. The Sasumua PES project used field sampling procedures developed as part of the Land Degradation Surveillance Framework (LDSF)12, laboratory analyses using infrared (IR) spectroscopy13,14 and standard laboratory and field procedures. The project also employed past climatic data and hydrological modelling using the Soil and Water Assessment Tool (SWAT)15 to assess the potential impacts of the proposed interventions. The Lake Naivasha and Uluguru PES schemes took the same approach. The assessment and design of the Nairobi Water Fund project used the same hydrological simulation approach as the Sasumua PES project. Finally, although all projects presented in this study share common design features, the Upper Tana project has one salient feature: buyers are being encouraged to contribute to a common fund, the interest from which will be used to perpetuate the PES project in Upper Tana.

4 | Case studies of water-related PES schemes in East Africa 8.3 Cost-benefit analysis

A cost-benefit analysis (CBA) was carried out for both upstream sellers and downstream buyers of ecosystem services to estimate the cost of land-use change, i.e. the opportunity and other costs to upstream farmers for upholding their ends of the PES contract, which includes rehabilitation and maintenance of riparian zones through tree planting, grass strips, terracing along steep slopes, contour cropping, agroforestry, using improved seed varieties, rotating crops, fallowing and reducing the use of agrochemicals. The CBA determined the right amount that upstream farmers would be willing to accept, and downstream buyers would be willing to pay for the implementation of practices that would enhance the provision of watershed ecosystem services. A voluntary contract was also developed binding sellers and buyers. The Lake Naivasha Water Resource Users Association (LANAWRUA)—on behalf of the ecosystem service beneficiaries (the floriculture industry around the lake—agreed to compensate small-scale land owners upstream represented by the Upper Turasha-Kinja and Wanjohi Water Resource Users Associations (WRUAs) for the foregone income. The buyers of ecosystem services pay each upstream seller USD 17 per year through a voucher system. Other than compensating for foregone opportunities, the compensation also aims to incentivize other farmers to participate. Additional benefits to the farmers come in the form of increased farm productivity and income resulting from soil retention and improved fertility on farms, as well as skills and knowledge on soil and water conservation. The PES scheme is a hybrid compensation approach2 based on the three PES paradigms by van Noordwijk et al16. In the case of Sasumua, it is expected that the Nairobi City Water and Sewerage Company will reward upstream farmers for practicing sustainable land-use practices from savings in water treatment costs.

Left: One of Floriculture greenhouse that benefits from Lake Naivasha water: Right: Fisherman in Lake Naivasha. Photos by World Wide Fund for Nature, 2012

8.4 Pilot site selection

For Naivasha, hydrological studies identified two degraded sub-basins for a pilot project: Wanjohi and Turasha. The selection criteria considered a range of factors such as sub-basins with high water yield, sediment yield, pollution threat, reduced land use, land cover change, high population density, high demand for water use, threatened livelihoods, high poverty and existence of potential buyers17. Both sites are regarded as critical for water quality improvement and biodiversity conservation. To assure buy-in by land owners, management officials of the Water Resource Users’ Associations, agricultural extension staff and opinion leaders guided the selection of farms for PES conservation practices.

Chapter 8 | 5 The Nakuru Rural Water and Sewerage Company, Naivasha Water and Sewerage Company, commercial horticultural growers, the Kengen’s geothermal electricity generation plant, Kenya Wildlife Service, and the tourism industry in Naivasha and the Lake Naivasha Riparian Association were identified as potential ecosystem service buyers.

8.5 Community sensitization

A participatory approach engaging both sellers and buyers during consultation phases was key to build confidence and trust between two mutual business partners and for each side to appreciate both the shared risks under a business as usual scenario without PES and the potential benefits from co-investment in stewardship. Awareness and sensitization sessions were conducted on-farm, through grass-root meetings, seminars, workshops, field days and public meetings engaging buyers and sellers to enhance PES scheme understanding and buy- in by the local communities, commercial investors and other stakeholders. In the Naivasha case, sensitization was done top-down, starting with the buyers: Water Resource Management Authority (WRMA) executives, Water Resource Users’ Associations executives representing buyers and sellers, local administration and targeted land owners. The focus of the sensitization was on the PES concept, the current state of ecosystem degradation, possible causes and effects, potential solutions, types and value of environmental services, the roles of stakeholders and their contribution in PES implementation, as well as expected short- and long-term outcomes. In the Ulugurus, sensitization emphasized the benefits that could be secured through participation in the programme. The emphasis was on voluntary participation so as to avoid invoking past experiences when force was used to introduce and implement bench terrace farming. To make sensitization sessions more inclusive, potential buyers (downstream water users) were invited to visit the project sites to appreciate catchment degradation and interventions being put in place, and to share with the farmers the challenges they face in connection with acquiring quality water. Likewise, farmers had opportunity to visit potential buyers and appreciate the services they provide that really requires continuous flow of quality water.

8.6 Incentives and policies

In these PES projects, incentives range from actual cash payments to technical support in kind. In the Naivasha case, payment is in cash through a voucher system and technical support. Each voucher is worth USD 17 per farmer paid annually on a flat-rate basis and can be redeemed in form of farm inputs from selected input supplier shops. Technical support is in the form of extension advice on best sustainable farm management practices and alternative farm enterprises, training of local community members in soil and water conservation practices and service provision. Similar payment systems are proposed for the Sasumua case and the Nairobi Water Fund. In the Ulugurus, farmers were paid a flat fee for each enrolled farm18. Incentives were provided in the form of cash compensation under performance-based arrangements. Farmers participating in the scheme received financial compensation for their labour and reduced crop production.

6 | Case studies of water-related PES schemes in East Africa 8.7 Negotiation

In Naivasha, a series of contract negotiation meetings was held between buyers and sellers. Among the issues agreed on was equal payment for each participating farmer for one year per farm following verification by both parties of the conservation implementation and the presentation of a monitoring plan by the WRUAs. Legal advice was also sought to interpret the provisions in the contract, and legal experts helped develop the contracts through participatory process involving both parties. In the Sasumua case, no negotiations have been held at the time of writing as the major beneficiary of water services Nairobi City Water and Sewerage Company (NCWSC) is yet to agree to participate citing policy, legal and institutional hurdles.

Figure 8.3 Diagrammatic representation of a negotiation process for the Naivasha PES scheme (adopted from the Naivasha catchment PES2)

Figure 8.4 Diagrammatic representation of a negotiation process for Uluguru PES scheme19 (1) Agreement under which DAWASCO agrees to pay CARE/WWF for the purpose of PES, (2) PES contact setting out the conditions under which payment will be made and (3) Village authorities provide payments to individuals who meet the conditions of the PES contract

Informed by the findings from the technical studies20,21,11 the programmes developed appealing business cases which were used to negotiate with potential buyers/beneficiaries, notably the Dar es Salaam Water and Sewerage Cooperation (DAWASCO), Coca-Cola Kwanza Ltd and Tanga UWASA.

Chapter 8 | 7 8.8 Measurement, reporting and verification

Measurement, reporting and verification (MRV) precedes payment and involves an independent third party appointed by the buyer8. Verification includes confirmation of the number and establishment level of the grass strips and agroforestry trees, riparian land restoration and survival rates of the fruit trees among other PES interventions. In Naivasha, monitoring is jointly done with WRUA sellers and buyers’ representatives, government agencies including WRMA and the Ministry of Agriculture. In addition, deposition loss under grass strips is monitored at farm level by the community. The project engages trained WRUAs management staff members to monitor water quality (using turbidity meters) and water quantity through constant gauge reading stationed at specific points along rivers flowing into Lake Naivasha. It is anticipated that changes in water quality and quantity will be observed with the increased adoption of the proposed PES conservation measures. The joint monitoring team verifies conservation measures implemented on farms quarterly before annual payment. Socio-economic study reports have indicated farmers’ willingness to continue implementing PES practices to sustain the benefits derived from the adopted interventions. Since their inception in 2008, the PES schemes have positively contributed to indigenous community livelihoods and conservation. Enhanced soil retention and farm fertility have also effected increased farm productivity and income22.

8.9 Monitoring the impact of the implemented land-use interventions

As improved hydrological status and livelihoods are the main objectives of the Uluguru PES project, it was vital to monitor the effectiveness of the interventions in attaining these objectives. Hydrological monitoring was done based on key factors: river water level by staff meter and automatic data logger, water discharge by current meter, level of sediment load by sediment sampler and laboratory testing, and land-use change practices by GPS and GIS mapping. The monitoring was performed daily and reported monthly. Scientific approaches and tools were used coupled with regular field visits and observations by technicians from the Wami-Ruvu Basin Water Office who collected and analysed data that was subsequently shared with key players and stakeholders. Community members were also involved: individual communities were selected and trained in the use of simple hydrological instruments such as Imhoff cones that allowed them to measure the volume of settleable solids (sediments) in a specific volume (usually one litre) to determine the amount of sediment loading in the rivers and streams. This complement local know-how in assessing streamflow before and after the interventions (the assessments indeed showed an increase). This was important in that rainfall data for instance helped farmers to prepare for agricultural activities like farm preparations, planting, management, and harvesting their crops. Livelihood monitoring was done using participatory approaches and tools including matrix/questionnaires, participatory observation, focus discussion groups as well as visiting farms/homesteads. Monitoring teams and farmers’ groups collected data and shared it at farmers’ meetings. Village leaders also engaged in collecting and keeping data as well as sharing it in meetings at Ward and District government levels. The livelihood monitoring exercise used a range of indicators as shown in Table 8.1.

8 | Case studies of water-related PES schemes in East Africa Table 8.1 indicators used in monitoring livelihood levels for the PES projects Main Objective Indicator Crop production Increased crop production Food security Number of meals per day Decreased diseases like malnutrition Poverty reduction Market accessibility Increased incomes Health Increased ability to pay health services Incidence of disease Education Ability to pay school contribution Ability purchase uniforms Housing condition Number of renovated houses

8.10 Benefit distribution and co-benefits

Payments in these projects are made or proposed to be made either in cash or in kind. In Naivasha, participating farmers receive the same flat-rate amount of cash for each enrolled farm. The payment follows joint verification by the sellers and buyers of the implemented interventions. The two WRUAs, through facilitation by CARE/WWF, make payments to the sellers on behalf of LANAWRUA. Payment is made through a voucher system which is more equitable and safer than cash payment. The voucher is redeemed for agricultural inputs at agreed and convenient outlets and is not exchangeable for cash which ensures that payments are not diverted to other uses. For the Uluguru case study, payments were made based on farmers’ performance, for instance the acreage of bench terraces implemented at a given period of time, or the number of trees grown over a given period of time. Payments under the Uluguru scheme were distributed transparently as shown in Figure 8.5.

Figure 8.5 Model of the distribution of funds provided by DAWASCO to 144 farmers who completed land improvement work in 2009 in the Kibungo sub-catchment, via four Village Security Committees

Chapter 8 | 9 8.11 Lessons learnt

There are numerous lessons to be learned from these projects. First, strong stakeholder partnerships are vital to the success of a scheme. Second, compelling business cases for PES build willingness to pay for and deliver environmental services. Such willingness forms the basis for the sustainability of PES schemes, and will stimulate adoption and increase its chance of success. Third, participation of the private sector strengthens business ties with smallholder farmers. Fourth, appropriate and adequate capacity building of environmental service providers and beneficiaries builds confidence and trust in the scheme.

Payment of Ecosystem services ceremony in 2010 (Left) and in 2012 (Right). Hans Ngugi (right, Chairman Wanjohi WRUA) display dummy cheque received from buyers of ecosystem during 2012 annual events. Photos: World Wide Fund for Nature/Nyongesa JM, 2010/2012

References

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8 van Noordwijk M, Namirembe S and Leimona B. 2017. Monitoring for performance -based PES: contract compliance, learning and trust building. In: Namirembe S, Leimona B, van Noordwijk M, Minang P, eds. Co-investment in ecosystem services: global lessons from payment and incentive schemes. Nairobi: World Agroforestry Centre (ICRAF). 9 CARE/WWF. 2007. Social and Livelihoods Assessment for Villages Around East Usambara and Uruguru Mountains, Dar es Salaam. CARE International. 10 CARE/WWF. 2008. Household Survey conducted in Kibungo Sub-Catchment. EPWS Phase II. CARE International. In: Tanzania and World Wide Fund for Nature in Tanzania. Dar es Salaam. 11 Gathenya JM. 2009. Monitoring Impacts of EPWS Implementation at Mfizigo Catchment, Kibungo, Uluguru Mountains. CARE/WWF project report. Dar es Salaam: CARE International. 12 Vågen TG et al. 2010. The Land Degradation Surveillance Framework (LDSF): Field Guide. Nairobi: Africa Soil Information Service. 13 Vågen TG, Shepherd KD and Walsh MG. 2006. Sensing landscape level change in soil fertility following deforestation and conversion in the highlands of Madagascar using Vis-NIR spectroscopy. Geoderma 133(3–4):281–294. 14 Awiti AO et al. 2008. Soil condition classification using infrared spectroscopy: A proposition for assessment of soil condition along a tropical forest-cropland chronosequence. Geoderma 143(1– 2):73–84. 15 Neitsch S et al. 2011. Soil and Water Assessment Tool Theoretical Documentation Version 2011. Texas, USA. 16 Van Noordwijk M and Leimona B. 2010. CES/COS/CIS paradigms for compensation and rewards to enhance environmental services. In: World Agroforestry Centre Working Paper. Bogor, Indonesia: World Agroforestry Centre. 17 Gathenya M. 2007. Feasibility Assessment for Naivasha-Malewa Payments for Watershed Services. In: Hydrological assessment. Consultancy Report. Naivasha, Kenya: WWF/CARE PES Project. 18 Lopa D et al. 2012. Towards operational payments for water ecosystem services in Tanzania: a case study from the Uluguru Mountains. Oryx 46(01):34–44. 19 Dosteus L, Iddi M, George J, Thabit M, Paul H, Jones M-E, Blomley T, Leimona B, Van Noordwijk M and Burgess ND. 2012. Towards operational payments for water ecosystem services in Tanzania: a case study from the Uluguru Mountains. Fauna & Flora International, Oryx 46(1):34–44. 20 CARE/WWF. 2007. CARE Tanzania proposal to DAWASCO: Equitable Payments for Watershed Services. EPWS Phase I - Making the Business Case. In: Tanzania and World Wide Fund for Nature in Tanzania. Dar es Salaam: Care International. 21 CARE/WWF. 2007. CARE Tanzania proposal to Coca-Cola Kwanza Limited: Equitable Payments for Watershed Services. EPWS Phase I- Making the Business Case. In: Tanzania and World Wide Fund for Nature inTanzania. Dar es Salaam: Care International. 22 Nyongesa, JM et al. 2016. Estimating farmers’ stated willingness to accept pay for ecosystem services: case of Lake Naivasha watershed Payment for Ecosystem Services scheme-Kenya. Ecological Processes 5(1):15.

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