Payment for Environmental Services_EN

1

OCTOBER 2009

This publication was produced by Development Alternatives, Inc. for the United States Agency for International Development under Contract No. 497-M-00-05-00005-00

A SUMMARY OF ESP CASE STUDIES

PAYMENT FOR ENVIRONMENTAL SERVICES

Photo credit: Asep Mulyana/ ESP Jakarta Field School participants near Batu Karut spring, Sukabumi, observing a map as part of a raw water protection program. Using the map, they will mark the catchment area and areas designated for artificial infiltration well construction.

PAYMENT FOR ENVIRONMENTAL SERVICES A SUMMARY OF ESP CASE STUDIES

Title: Payment for Environmental Services A Summary of ESP Case Studies

Program, activity, or project number: Environmental Services Program,

DAI Project Number: 5300201. Strategic objective number: SO No. 2, Higher Quality Basic

Human Services Utilized (BHS). Sponsoring USAID office and contract number: USAID/Indonesia,

497-M-00-05-00005-00. Contractor name: DAI. Date of publication: October 2009

Development Alternatives, Inc.

In collaboration with:

The Urban Institute Hatch Mott MacDonald

Johns Hopkins Center for Communications Programs FIELD Indonesia John Snow, Inc.

Rare Center for Tropical Conservation PERPAMSI/FORKAMI

Social Impact CO2OL-USA

Kleiman International Consultants, Inc. Evensen Dodge International

Mayflower Partners LLC

TABLE OF CONTENTS

ACRONYMS ..............................................................................................................................III 1. INTRODUCTION .............................................................................................................. 1

1.1. PAYMENT FOR ENVIRONMENTAL SERVICES: CLARIFICATION OF TERMS...............................................2 1.2. TYPES OF ENVIRONMENTAL SERVICES......................................................................................................2 1.3. PAYMENT FOR ENVIRONMENTAL SERVICES (PES) PRINCIPLES ...............................................................4 1.4. CRITERIA FOR PES ..................................................................................................................................5 1.5. STRENGTHS AND WEAKNESSES OF PES IN MANAGEMENT OF NATURAL RESOURCES AND THE ENVIRONMENT..........................................................................................................................................................6

2. ENVIROMENTAL SERVICES PROGRAM PES EXPERIENCE .................................... 8 2.1. IDENTIFICATION OF PROVIDERS AND BUYERS .......................................................................9 2.2. INITIATING PES .................................................................................................................................. 10 2.3. DEVELOPMENT OF A TRANSPARENT FEE DISTRIBUTION PROCESS .............................. 11

3. PES IN MAGELANG - CONSERVATION COOPERATION ACTIVITIES .............. 12 3.1. BACKGROUND........................................................................................................................................ 12 3.2. RESOURCE ............................................................................................................................................... 12 3.3. PROVIDER ................................................................................................................................................ 12 3.4. BUYER...................................................................................................................................................... 13 3.5. ACTIONS/ CONTRACT ........................................................................................................................... 13 3.6. MONITORING AND EVALUATION......................................................................................................... 14 3.7. CONCLUSION......................................................................................................................................... 14

4. UPPER BRANTAS WATERSHED................................................................................. 16 4.1. BACKGROUND........................................................................................................................................ 16 4.2. RESOURCE ............................................................................................................................................... 16 4.3. PROVIDER ................................................................................................................................................ 17 4.4. BUYER...................................................................................................................................................... 17 4.5. ACTIONS/ CONTRACT ........................................................................................................................... 17 4.6. MONITORING AND EVALUATION......................................................................................................... 18 4.7. CONCLUSION......................................................................................................................................... 18

5. CONSERVATION OF GUNUNG GEDE PANGRANGO NATIONAL PARK (TNGGP) THROUGH PES WITH PRIVATE SECTOR PARTNERS................................. 20

5.1. BACKGROUND........................................................................................................................................ 20 5.2. RESOURCE ............................................................................................................................................... 20 5.3. PROVIDER ................................................................................................................................................ 20 5.4. BUYER...................................................................................................................................................... 21 5.5. ACTIONS/ CONTRACT ........................................................................................................................... 21 5.6. MONITORING AND EVALUATION......................................................................................................... 22 5.7. CONCLUSION......................................................................................................................................... 22

6. PASURUAN NURTURED/ CONSERVATION FOREST TRUST FUND (HATF)... 24 6.1. BACKGROUND........................................................................................................................................ 24 6.2. RESOURCE ............................................................................................................................................... 24 6.3. PROVIDER ................................................................................................................................................ 24 6.4. BUYER...................................................................................................................................................... 25 6.5. ACTIONS/ CONTRACT ........................................................................................................................... 25 6.6. CONCLUSION......................................................................................................................................... 25

7. LESSONS LEARNED AND CONCLUSION................................................................. 27

ACRONYMS The following is a list of acronyms commonly used in this report and on the project as a whole. Bappenas Badan Perencanaan Pembangunan Nasional / National Board of Development Planning BHS Basic Human Services CBO Community-Based Organization / Organisasi Berbasis Masyarakat CDM Clean Development Mechanism / Mekanisme Pembangunan Sehat CS Carbon Sequestration CSR Corporate Social Responsibility / Tanggung Jawab Sosial Perusahaan DAI Development Alternatives, Inc. DAS Daerah Aliran Sungai / Watershed Area Dinas KLH Dinas Kehutanan dan Lingkungan Hidup DPU Departemen Pekerjaan Umum / Department of Public Works ES Environmental Services / Pelayanan Lingkungan ESP Environmental Services Program / Program Jasa Lingkungan FCPF Forest Carbon Partnership Facility Fokal Mesra Forum Kajian Air dan Lingkungan Hidup Menuju Selaras Alam /

Establishment of the Water Analysis and Environmental Forum Forestra Forum Rehablitasi Sungai dan Hutan / River and Forest

Rehabilitation Forum FORKAMI Forum Komunikasi Kualitas Air Indonesia / Communication Forum

of Indonesian Water Quality FORMASI Forum Masyarakat Sibolangit / Sibolangit Community Forum Forpela Forum Peduli Air / Water Concern Forum Forum DAS MP Forum Daerah Aliran Sungai Multipihak / Multi-Stakeholder Watershed Forum FS Field School / Sekolah Lapangan GIRAB Gerakan Intensifikasi Rehabilitasi Alam Bumiaji / Bumiaji

Rehabilitation Intensification Movement GIS Geographical Information System / Sistem Informasi Geografis GOI Government of Indonesia / Pemerintah Indonesia HATF Hutan Asuh Trust Fund / The Nurtured Forest Trust Fund HH Health and Hygiene / Sehat dan Bersih HIPPA Tim Pembina Himpunan Petani Pemakai Air / Team of Advisors for Farmer Water Consumers HIPPAM Himpunan Penduduk Pemakai Air Minum / Community Water Buyers Association HPP High Priority Province / Propinsi Prioritas Utama HSP Health Services Program / Program Pelayanan Kesehatan HWWS Hand Washing with Soap / Cuci Tangan Pakai Sabun ICRAF International Council for Research in Agroforestry / Dewan

Internasional untuk Penelitian Kehutanan IDR Indonesian Rupiah / Mata Uang Rupiah Indonesia IPB Institut Pertanian Bogor / Bogor Agricultural Institute KTT Kelompok Tani Tahura / Tani Tahura Group

PAYMENT FOR ENVIRONMENTAL SERVICES, A SUMMARY OF ESP CASE STUDIES

LMDH Lembaga Masyarakat Desa Hutan / Forest People Community Institutions

MDK Model Desa Konservasi / Conservation Village Model M&E Monitoring and Evaluation / Monitoring dan Evaluasi MRA Magelang Regency Administration / Administrasi Wilayah Magelang MRR Magelang Regency Regulation / Peraturan Daerah Magelang MSF Multi-Stakeholder Forum / Forum Pemangku Kepentingan Multipihak NGO Non-Governmental Organization / Lembaga Non Pemerintah NRW Non-Revenue Water PDAM Perusahaan Daerah Air Minum / Local Water Utility PEMDA Pemerintah Daerah / Local Government PERDA Peraturan Daerah / Provincial Government Regulation PERDES Peraturan Desa / Village Government Regulation PES Payment for Environmental Services / Pembiayaan Jasa Lingkungan PHBM Pengelolaan Hutan Berbasis Masyarakat / Community Based of Forest Management PHKA Pengelolaan Hutan dan Konservasi Alam / Forest and Nature Conservation Management POKJA Kelompok Kerja / Working Group PP Peraturan Presiden / Presidential Instruction REDD Reducing Emissions from Deforestation and Forest Degradation SO USAID Strategic Objective / Tujuan Utama SOP Standard Operating Procedures / Prosedur Standar Operasi TNBTS Taman Nasional Bromo-Tengger-Semeru / Bromo-Tengger-Semeru National Park TNGGP Taman Nasional Gunung Gede Pangrango / Gede Pangrango Mountain National Park UN United Nations / Perserikatan Bangsa-Bangsa UNESCO United Nations Educational, Scientific and Cultural Organization /

Organisasi Pendidikan, Ilmu Pengetahuan, dan Kebudayaan US United States / Amerika Serikat USAID United States Agency for International Development / Agen

Amerika Untuk Pembangunan International

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID IV

1. INTRODUCTION The Environmental Services Program (ESP) is a sixty-four month program funded by the United States Agency for International Development (USAID) and implemented under the leadership of Development Alternatives, Inc. (DAI). ESP works with government, private sector, NGOs, community groups and other stakeholders to promote better health through improved water resources management and expanded access to clean water and sanitation services. The period of the project is from December 2004 through September 2009. ESP activities are focused on the High Priority Provinces (HPPs) of Nanggroe Aceh Darussalam, North Sumatra, West Java, Central Java/Yogyakarta, East Java, DKI Jakarta and Papua. ESP also supports improved water and sanitation services delivery in the three Eastern Indonesia cities of Ambon, Jayapura and Manado. ESP is part of USAID/Indonesia’s Basic Human Services (BHS) Strategic Objective (SO), which focuses on the interdependence of health and the environment, and their effect on health outcomes. USAID/BHS activities strive to improve the quality of three basic human services, water, food/nutrition and health, to improve the lives of Indonesians. ESP takes a ‘Ridge to Reef’ approach to link water resources management with improved health. Integrated technical components include Watershed Management and Biodiversity Conservation, focusing on raw water resource conservation and rehabilitation as well as biodiversity conservation; Environmental Services Delivery, ensuring increased access to clean water and sanitation services; Environmental Services Finance, leveraging necessary investment in infrastructure and environmental service rewards; and Strategic Communications for Behavior Change, to stimulate awareness and action on ESP issues from the individual and household level all the way up to the general public and national-level decision makers. ESP also manages cross-cutting technical support including GIS, gender, and small grants. All of ESP’s work is implemented in an integrated manner, where links are made among various technical components as well as with other USAID partners. ESP uses a landscape approach to protection and improvement of water resources from the source to the tap. The primary focus of the watershed management and biodiversity conservation component is improved land stewardship that integrates conservation efforts along with rehabilitation of degraded land with a goal of improved water quality and quantity. The upstream-downstream relationship to overall watershed health and quality of raw water sources at the urban and peri-urban level, leads ESP to engage various stakeholders (ie Communities, National Parks etc.) in critical watersheds who are safe guarding water resources and/or providing Environmental Services (ES). As ESP is concerned with overall raw water source protection, it was a natural progression for the program to explore the use of Payments for Environmental Services, or PES, as a mechanism to formalize relationships between upstream water stewards and downstream water users to help sustain raw water supply. Section 1 of this document offers an introduction to Payment for Environmental Services (PES) by clarifying terms, approaches, principles, and criteria for effective PES implementation, while also addressing potential strengths and weaknesses. Section 2 specifically focuses on ESP’s experience with PES and the steps taken to initiate, implement, and assess the PES model. Sections 3, 4, 5, and 6 illustrate applications of the PES model in four ESP case studies: (1) National Park Pangrango- West Java; (2) Magelang Regency - Central Java; (3) Brantas - East Java; and (4)Pasuruan - East Java. Following these case studies, Section 7 offers Lessons Learned and Conclusions regarding PES application and its viability as a model for conservation efforts in the future.


1.1. PAYMENT FOR ENVIRONMENTAL SERVICES: CLARIFICATION OF TERMS

There has been growing interest in Payments for Environmental Services, or PES, as an alternative financing mechanism to provide additional funding for public services impacted by externalities that go beyond funding abilities of government agencies. PES can be applied to a broad range of environmental services including, but not limited to, biodiversity, carbon and clean water. ESP is focused primarily with water as an environmental service. The first section of this report provides an introduction to key terms necessary for understanding the steps and process of PES1.

Environmental Services are the provision of natural resources and healthy functioning ecological systems that produce environmentally and economically valuable goods and services including clean water, erosion control, carbon uptake, landscape beauty, etc. (Conservation Finance Alliance 2002).

Payments for Environmental Services, or PES, is the compensation for providing

environmental services. The actual payment that is transferred can take many forms: cash, in-kind assistance, tax exemption, tenure security, skills training, etc. Varied approaches are used for payments, as each case of PES is distinct.

Providers/Suppliers of PES are natural resource stewards “producing”

environmentally and economically valuable goods and services. In the case of watersheds, Providers are typically individual landowners or collective resource user groups of upland farms or forests or protected areas.

Users/Buyers are beneficiaries willing to pay the benefit of receiving environmentally

and economically valuable goods and services. In the case of watersheds, Buyers are most likely public or private companies, irrigators, hydroelectric power generators, and industries.

1.2. TYPES OF ENVIRONMENTAL SERVICES Payment for Environmental Services (PES) is intended to create alternative financial resources for one or more conservation goals within landscapes (i.e. watersheds) or protected areas that are in addition to public funding by government agencies. Applications of PES may include: 1) retention of carbon either topographically or underground within a given watershed (i.e. enhancement tree planting and maintaining additional tree stock); 2) watershed protection including quantity and quality of water (i.e. downstream water users paying upstream farmers to adopt land practices that favor conservation of land, water, or biological diversity); 3)conservation of biodiversity (i.e. donors pay local villagers for conservation set asides, such as biological corridors); and finally 4) landscape enhancement (i.e. tourism operator paying a local community not to hunt in a forest being used by wildlife tourists)(Wunder 2005) 2.

1 Source: Financial Incentives to Communities for Stewardship of Environmental Resources

Feasibility Study, USAID-Winrock International. 2 Wunder, S. 2005. Payments for Environmental Services : Some nuts and bolts. CIFOR Occasional Paper

No. 42. Center for International Forestry Research, Bogor, Indonesia.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 2


Carbon Sequestration PES for Carbon Sequestration (CS) has moved forward rapidly in Indonesia over the last five years. The release of the National Readiness plan has been carried out to support Indonesia’s willingness to participate in the carbon market. This allows Indonesia to partake in the World Bank’s Forest Carbon Partnership Facility (FCPF) and the UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD). These are the preeminent multilateral efforts underway to support developing countries to prepare to Reduce Emissions from Deforestation and Degradation (REDD). Under the clean development mechanism (CDM) of the Kyoto Protocol (COP3 Kyoto, Japan, 1997), afforestation and reforestation are defined as follows:

• Afforestation involves converting land, that has not been forested for a period of at least 50 years, to forested land through planting.

• Reforestation involves converting land, that was once forested but has been under another land use type (prior to 31 December 1989), to be converted back into forest land.

These two definitions restrict the use of CS in some ESP HPP watersheds. Despite this, payments for CS usually require complex and lengthy negotiations when the possibility of CS is considered, particularly in conjunction with PES for watershed protection. With the likely approval of REDD in Copenhagen in December 2009, new opportunities for carbon-based PES are likely to emerge. Watershed protection In recent years, there has been an increase in PES for watershed protection. ESP works in four areas whereby PES in being implemented. Additional examples include an annual water fee by PT Inalum to the North Sumatra District Government to support efforts to protect the watershed functions of Lake Toba. Another example is a project coordinated by ICRAF, in collaboration with a local NGO and the local government of Lampung, Sumatra, to support leasing of state-owned land to the local community for protecting watershed functions. Biodiversity protection Suyanto et al. (2005) 3, reports that currently there is only one clear case of PES for biodiversity protection in Indonesia. This is at Meru Betiri National Park where a local community obtained a land lease to manage the buffer zone around the National Park. As part of this agreement they are obliged to plant local medicinal trees. This work is coordinated by an Indonesian NGO (Latin) and the Bogor Agricultural University (IPB). Landscape beautification protection In Indonesia, PES for protection of landscape beauty is relatively advanced. Suyanto et al. (2005) documents several cases where there are currently working models of payments for landscape beauty, including Komodo National Park, Gunung Halimun National Park, Togean Island and the Gili island ecotourism developments. The government issues licenses for environmental services for up to 10 years and up to 1000 ha areas. The mechanism to pay for the services is through entrance or user fees.

3 Suyanto, S., R. P. Permana, N. Khususiyah, and L. Joshi. 2005. Role of land tenure in adopting

agroforestry and reducing wild fire in a forest zone in Lampung-Sumatra. Agroforestry Systems 65:1-11.



1.3. PAYMENT FOR ENVIRONMENTAL SERVICES (PES) PRINCIPLES

Over the last 15 years, conservation in tropical countries has emphasized a more human-oriented approach. Integrated conservation development projects and Sustainable Forest Management were approaches that were designed to increase incomes and sustain the environment (Wunder 2005). Many of these programs contained poverty alleviation components within broader conservation goals. PES schemes create an alternate approach to conservation, with stewardship of natural resources and their service as a main component. Payments are made to reward land stewards for protecting resources, with a goal of promoting long-term sustainable land management practices. PES is a market-based approach to conservation based on the principle that those who benefit from environmental services, such as Buyers of clean water, should pay for them, and those who generate these services should be compensated for providing them4. In a PES mechanism, service Providers receive payments conditional upon their providing the desired environmental services (or adopting a practice to generate those services). Unsustainable watershed management can negatively impact the livelihoods of upstream land stewards and productivity of downstream environmental service Buyers by threatening the supply of critical water services. Participating in PES activities gives both stakeholders the incentive to collaborate and promote watershed protection, making PES a viable model for a sustainable watershed management, as long as there is clarity regarding the resource, Buyer and Provider. In this model, downstream Buyers compensate upstream residents for measures taken to safeguard and improve the watershed. The preference for stewardship, as opposed to enforcement, promotes a conservation focus from within communities, offering a more sustained long-term impact on the environmental service (Suyanto et al. 2005). Poverty within areas of potential PES can make guarding environmental service values difficult, if the community has no stewardship role and is not empathetic to the purpose of the protected area. According to Wunder (2005), PES contracts have also helped to increase land tenure security through mapping lands and demonstrating income generating activities for the local Provider. Within PES schemes, it is critical that those involved as the Provider of the ES are empowered to make key decisions and are given the authority and technical assistance needed to develop sound conservation practices to promote and enhance upstream ecosystem health. Protecting and conserving natural resources within a broader ecosystem is critical to maintaining a healthy productive watershed that will continue to provide environmental services sustainably into the future. Most PES schemes in developing countries have focused on retaining forests, but interest is growing in applying the approach to agricultural areas. The PES model, however, is still in its infancy in tropical countries (where it is most advanced in Latin America), although in developed countries it has evolved into a proven effective model. A widely known case of successful PES in the US during the 1990s entails New York City negotiating environmental service agreements with landowners and municipalities in the Catskill-Delaware watershed. This initiated the protection of 80,000 acres of land at the origin of New York City’s raw water source. US$1.8 billion was dispersed to private landowners for protecting and enhancing the watershed, versus spending US$8 billion on a new water treatment plant5. This large scale land rehabilitation and protection led to the improvement of water quality.

4 World Development Report 2008 Development for Agriculture, World Bank 5 Vivek Voora and Henry Venema 2008. The Natural Capital Approach A Concept Paper. International

Institute for Sustainable Development (IISD)



By making these investments, the city avoided the need for a massive investment in end-of-the-pipe technology, thus saving hundreds of millions of dollars (Postel and Thompson 2005)6. Arranging payments for the benefits provided by forests, agriculture, and other natural ecosystems is a technique created to identify the value of conservation practices. The goal is to ensure benefits from current practices or improvements to upper watershed ecosystems continue in perpetuity. Landowners or Providers are encouraged to manage natural resources with an approach that ensures continued generation of environmental services. In addition to benefiting biodiversity, such schemes also have a potential to benefit poor landowners who manage environmental services as part of their daily activities. The most common cases of PES in Indonesia have primarily involved protecting landscape beauty, where the Provider of the environmental service is a national park (as noted in section 1.2). The second most commonly funded PES in Indonesia to date is that of water, mainly developed through decentralized water schemes specific to both Provider and Buyer. Water Buyers paying for watershed conservation through PES mechanisms are domestic water supply systems, hydroelectric power producers, irrigation systems and bottlers. Watershed payments have the potential to significantly expand with a more concise understanding of the effects of upstream land use on downstream water services. An example of successful PES implementation is on the Indonesian island of Lombok. The Provider of the ES (water supply) is supplied by private land owners and the Buyer is the PDAM (municipal water company) clients and the bottled water industry. The land management focus is in the upper catchment area for improved forest stands and springs. There is oversight of the ES by the district government and an independent third party community organization. According to a local survey 95% of respondents were willing to pay to support upstream land management to ensure a sustained water supply7. There are several other ES water supply examples in Indonesia where municipal and city water supply companies are the Buyers, including areas surrounding Balikpapan and Kabupatan Kapuas Hulu.

1.4. CRITERIA FOR PES

There are several criteria that should be in place for PES execution. According to Wunder (2005), a set of principles with 5 distinct criteria are necessary to ensure the success of PES. The first and most critical principle requires the transaction is voluntary and not forced by the Provider or the Buyer. The ES Provider has land use choices that are not forced upon by outside entities. The second states that there must be a well-defined Environmental Service (ES) or land use which provides this service, for example clean water or erosion control. The third principle is that the service is being ‘bought’ by a minimum of one ES Buyer, and the fourth principle requires there is a minimum of one ES provider. Payments, whether monetary or in-kind, usually go through an intermediary. The fifth and final principle ensures that the ES provider will continuously provide for, and secure, the ES.

Within this framework of defined Providers, Buyers, and ES, there are three initial steps that are necessary for PES schemes. First, an assessment of the range of ecosystem services that

6 Postel, S. L., and Thompson, Barton H., Jr. 2005. Watershed protection: Capturing the benefits of nature's

water supply services. Natural Resources Forum 29:98-108. 7 Reducing Emissions from Deforestation and Forest Degradation in Indonesia. Ministry of Forestry of the

Republic of Indonesia Publication 2008.



flow from a particular area, and who they benefit. This is done by mapping hydrology of watersheds and the Providers and Buyers. The second is an estimate of the economic value of these benefits to the various stakeholders including a clearly defined royalty and fee assessment for earmarked funds with transparent procedures for disbursements. Often times a third party will be brought in to the process of disbursement. The third is a policy, subsidy, or market to capture this value and reward landowners for conserving the source of the ecosystem services. Needed within this are multi-stakeholder committees with strong representation by environmental stewards.

Upon completion of the various steps taken to prepare the framework for the ES, there is a lengthy socialization process to educate stakeholders in terms of responsibilities, drafting contract agreements, the initial and subsequent transaction activities, and monitoring and evaluation plans. It is critical that there is a full understanding of all parties’ responsibilities under terms of the contract agreement.

1.5. STRENGTHS AND WEAKNESSES OF PES IN MANAGEMENT OF NATURAL RESOURCES AND THE ENVIRONMENT

PES schemes have several strengths and benefits in relation to the framework of managing natural resources and the environment. One of the most important benefits is building public awareness for participation in the management of natural resources and an improved environment. Socialization through Field Schools and creating public information campaigns are excellent tools to engage communities in local level efforts. A second benefit includes assisting in conflict resolution and building consensus among stakeholders involved in the management of natural resources and environment, for example national parks or local land stewards. Another advantage is increasing rationalization (efficiency) in environmental goods and services (ecosystem) through the creation of “value” to goods and services which are of critical importance, particularly with regard to degradation of environmental health. There is also a creation of alternative sources of funding for efforts in conservation, rehabilitation, and management of natural resources, particularly in areas with limited income opportunities. This allows for a transfer of resources from beneficiaries to marginalized Providers. Specifically in the management of sub-watersheds, PES schemes have the greatest potential to be developed for the management of water resources. This includes the growth of alternative funding to finance the protection of watershed ecosystems. It can also be used as an instrument to modify behavior that is destructive in the utilization of water resources and to encourage communities to practice sound conservation. PES schemes may also provide the protection of public sector-oriented conservation. One principal weakness of PES is that the government can perceive PES as a replacement funding source, reducing government’s responsibility for funding the maintenance of public goods, including environmental services. Further, it can end up being an extension of conventional policies that exclude rural people from the resources that they need for their livelihoods. In the absence of both sustainable funding and organizational change at the community level, direct payment schemes may not only be short -term, but may result in the situation being worse at termination than at inception.



ES payments can also create problems when only a minority of community members are rewarded as Producers/Suppliers. It is often unclear how best to designate those community members specifically responsible for managing the Environmental Service under negotiation, as it is common for a large number of people to have different roles and impacts on a an environmental service. Payment to too small a group can lead to jealousy and conflict. Payment to too large a group can reduce the value on an individual or household basis, thus reducing the overall community’s commitment to safeguard the Environmental Service. Second, it is possible that the better educated community ‘elite’ will be better positioned to negotiate a complex PES deal with outsiders, thus minimizing potential accrual of benefits to a community’s poorest households.



2. ENVIROMENTAL SERVICES PROGRAM PES EXPERIENCE

ESP collaborates with the Indonesian Government, private sector, non- governmental organizations (NGOs), community groups and other stakeholders to strengthen management of local streams and rivers through environmental service projects focusing on four related goals:

• To strengthen the capacity of communities, government, private sector, local institutions and non-governmental organizations to advocate for expansion in the scope of environmental services of critical water resources through improved natural resource management and protected areas;

• To create the opportunity for the public, NGOs, private sector, and universities to participate more effectively in the management of water resources at local level distribution areas;

• To strengthen biodiversity conservation through improving the understanding and appreciation of the relationship between protected and forest areas and the distribution of imperative environmental services;

• To improve the health and livelihoods of Indonesians through access to education of the importance of environmental services (water, sanitation, waste management) through the use of appropriate technology, innovative financing, best practices are that environmentally friendly and sustainable, as well as activities that are market oriented.

The watershed management and biodiversity conservation component of ESP contributes to stabilizing and improving the supply of raw water to urban and peri-urban population centers in ESP High Priority Provinces and special imperative areas. This is being achieved through promoting a landscape approach to improve land stewardship that integrates conservation of natural forests with high biodiversity values; restoring and rehabilitating degraded forests and critical lands; and supporting sustainable utilization of agricultural lands. It is also enabling conditions for improved land stewardship, including policy support for land tenure necessary for responsible community based forest management, as well as financing options to reward upper watershed communities for activities that contribute to conserving a stable supply of raw water for their downstream neighbors. ESP facilitates series of integrated field activities that include community-based Field Schools. Field Days share results of community Field Schools to stakeholders a broader sub-catchment context and present the multi-stakeholder Action Plan, including but not limited to water quality, critical land rehabilitation and biodiversity conservation. Importantly, health and hygiene communications as well as service delivery support in community-based clean water, sanitation and solid waste management systems is also provided. ESP is actively involved in PES policy discourse and working with various stakeholders in four geographic regions in Java, which this report will analyze as individual case studies:

1. Magelang Regency - Central Java 2. Upper Brantas Watershed - East Java 3. National Park Gunung Gede Pangrango- West Java 4. Pasuran Forest Trust Fund - East Java



Of critical importance to the success of PES in these areas are the upper watershed communities who have been empowered to take ownership of the entire process of socializing the PES concept through to the programming of payment funds. Communities are eager to learn about conservation practices and design their own activities that will enhance the quality of water for downstream Buyers. Through ESP’s Farmers Field Schools, communities are engaged and empowered in PES programming. ESP PES initiatives include strengthening of existing policy on collaborative management within and outside protected areas, improving spatial planning, as well as facilitating and connecting the various upstream and downstream stakeholders. This contributes to ESP’s objective of providing improved access to clean water to more people, and also provides models for collaborative management that can be adapted to PES approaches with water supply, biodiversity conservation, and, potentially, carbon.

2.1. IDENTIFICATION OF PROVIDERS AND BUYERS Identifying Providers and Buyers of water resources is done following topographic mapping and hydrological analysis of water catchment sites assists in pinpointing Providers. Geological analysis of water flow and river channels helps to reveal the locations of Buyers of the environmental service and which residential areas exist in catchment sites. After identifying Providers and Buyers, ESP examines the realistic probability of abating specific threats and which environmental players most contribute to these threats. ESP then explores effective ways of rewarding those potential Providers that most contribute to the reduction of these threats or those who are environmentally responsible (or reduce environmental degradation). Important Providers/Sellers for protection of water services include:

Local communities contribute to the pollution of water quality by waste and refuse disposal. There are instances of farming to the edge of rivers and streams, despite the legal width of the riparian buffer zone being placed at 100m on either side of a first order river and 50m on either side of a second order stream. This results in erosion and increased sedimentation into water supplies downstream.

Farmers may sometimes use water in an uneconomic way and apply poor agricultural practices (poor contours, overuse of water) which do not maximize the amount of water that can recharge the underground aquifers and/or minimize sedimentation and fertilizer run-off into rivers and streams. By promoting sustainability and financial incentives, there can be a behavior modification toward sound practices.

PDAMs, or local water utility companies, are frequently given authority by local government regulations or PERDA, to manage the ecology of land immediately around natural springs and in the aquifer that feeds springs. However, many of these spring management zones can be too small or are degraded and badly in need of restoration. An example is at Desa Cirumput, Cianjur. In recent years, the water deficit at the Cirumput Spring has fallen from 600 to 156 liters per second. Further the ecological management zone around this spring is only 15 m. A recent assessment of the Spring at the request of ESP (FORKAMI 2006)8, indicates that the ecological management zones required to conserve the ecological system and restore the Spring function is: 10-20 m immediately around the Spring (zone 1); Zone 2 is 780-800 m and zone 3, is 7.4 km. PES

8Warta Forkami, Juni 2006 ”Survei Hidrologi dan Geohidrologi“ Jakarta



could facilitate three protection functions for PDAMS. First, to better define the extent of the ecological buffer zones required to conserve springs. Secondly, to achieve the necessary PERDA to support these zones. And thirdly, to implement conservation actions in order to rehabilitate the ecology of the spring system.

National Parks protect large land areas and their land values by conservation of natural vegetation and abatement of unfavorable environmental activities.

Absentee land owners. A great deal of land leased out to farmers is owned by absentee landlords.

Industry impacts water depths by excessive draw down of wells and streams. This is particularly true of the ‘cut-flower’ industry that requires maximal water supplies during the hottest time of the years, most of which evaporates and does not recharge underground aquifers. Industries also discharge pollutants into water, most notably in sand, soil, and rock mining.

2.2. INITIATING PES Following the identification of both an appropriate PES model and Providers and Sellers for a particular PES site, ESP initiates implementation of PES in accordance to the following process: 1. Identifying PES between Providers and Buyers and establishing a new monitoring and

coordinating institution in order to gain confidence of stakeholders. This monitoring team consists of representatives from Providers, Buyers, and regional administration.

2. Establishing initial commitment requires time for accommodating the demands of Provider and the willingness of Buyers although stipulations are already in place for the amount of environmental services payment.

3. Drafting of contract agreement, conducted by ESP and the monitoring and evaluation team through meetings toward initial commitment and agreement concerning a coordinating team for planning utilization of funds for conservation.

4. Familiarization of stakeholders with the approved draft contract agreement, which stipulates the rights and responsibilities of all involved parties. This familiarization process is aimed at garnering input and support, such as local administration policies and regulations, from concerned parties.

5. Finalization of contract agreement after receiving input from the various concerned parties.

6. Initial transaction, involving payment from Buyers for conservation efforts, toward implementation of contract agreement.

7. Improving quality of environmental management and conservation of water catchment sites through greater Buyer awareness and the Provider’s efforts toward environmental protection supported by available funds.

8. Monitoring, evaluation, and action planning toward determining the fulfillment of all parties’ rights and responsibilities in order to ensure continuous improvement of environmental conditions over time.



2.3. DEVELOPMENT OF A TRANSPARENT FEE DISTRIBUTION PROCESS

ESP has considered a number of options for dispersing user payments to targeted Providers of watershed services, including trust funds. What is abundantly clear is that these funds should be used for environmental protection and not to alleviate poverty. Wunder (2005) considers that while poverty alleviation is an important side effect of PES, if it becomes the primary objective it will jeopardize the basic PES functionality. Whether it is trusts or other dispersal mechanisms that eventuate, these payments should be made through an independent authority, with an independently constituted board of Indonesian citizens, and which has an audit system put in place. This authority would issue PES to the targeted Providers and the effect of these payments would be monitored by a further independent group, preferably an environmental NGO or the Buyer of the ES. The entire process should be monitored by an executive watershed board that could ensure that land was sensitively managed for watershed functions. It would not become a conservation management authority as such, but would strive to place the management of such land in the hands of communities, local NGOs, a formal group of which would form an advisory council. Examples of these activities might include:

• planting of trees and other vegetation, including bamboo and vetiver grass; • improved contouring of agricultural land; • improved spatial planning; • management of springs and rivers; • environmental education; and most importantly • monitoring of the results of PES, to demonstrate to the downstream residents that

their PES in fact improves both water quality and quantity. Lack of such monitoring could ultimately bring about the downfall of programs if it is not clear that their payments are cost effective. Payment would be made to the other key water service Providers or Sellers, after assessment of the reward payment, through the most representative and transparent village organization.

The following case studies are four areas where ESP is facilitating PES. The PES schemes are currently in various stages of implementation. The scale of the PES activities is on a sub-catchment basis. At this level there is more immediate impact and tangible results of improved water resources and adaptation of integrated watershed management (ESP Watershed Management Toolkit). ESP is collaborating with several stakeholders throughout various watersheds primarily a facilitator. This approach will encourage sustainability upon completion of ESP in March of 2010.



3. PES IN MAGELANG - CONSERVATION COOPERATION ACTIVITIES

3.1. BACKGROUND In Magelang, the Progo River divides into two branches to form several tributaries and that form sub-watersheds. Magelang Regency is in the upstream region of the Progo Watershed. Further upstream is Temanggung Regency, while Sleman and Kulon Progo regencies, as well as parts of Yogyakarta City lay downstream. ESP programming in this area was designed to facilitate the linkage of Buyers and Providers and to assist in formalizing PES. Prior to the establishment of the Magelang Regency Regulation on Ground and Surface Water Utilization, the PDAM had already been making payments to communities for ground and surface water usage retributions, and contributions to villages with water resources.

The payments to Magelang Regency Administration (MRA) were intended to reduce exploitation of water resources. However, the funds could not be properly monitored so there was little indication of contribution to conservation. ESP assisted all interested parties in the MRA to unify their perceptions of conservation and the utilization of environmental services toward greater coordination amongst conservation-related agencies. To date, Magelang Regency PDAM has provided funds for the preservation of conservation areas and utilization of water resources. There is a retribution for usage of ground and surface water paid into the regional treasury, although monitoring of fund utilization remains weak. Financial contributions have been made to villages with water resources (springs) through district and sub-district treasuries. Contributions are made to MRA for conservation based on Magelang Regency Regulations concerning ground and surface water management.

3.2. RESOURCE Magelang DPU has recorded 188 large to small springs, with 57 considered having water resource potential for Magelang Regency PDAM, including 17 that the company has already begun exploiting. According to the PDAM, all 17 water resources are showing declining capacities, for example the Sidandang and Tuksongo springs, which previously provided three liters of water per second currently provides only one liter per second. Few springs have also dried up in the watershed.

3.3. PROVIDER Providers are various community groups living within close proximity to springs of economic importance, and that are able to safeguard spring protection for stable and sustainable flow of water. Based on identification through regional mapping and geologic hydrological analysis,



40 villages have been identified in the following 4 sub-catchments: Tangsi, Bolong, Soti, and Blongkeng.

3.4. BUYER In the short term, Magelang Regency PDAM uses water sources in Magelang and will remain the sole Buyer of ES, although the vast potential of other Buyers, including private sector water companies, will be considered and exploited in the long-term. Magelang PDAM uses springs as its main water source, and cooperates with individuals and village communities surrounding the springs to conserve and preserve the local environment. It should be noted that this water is also likely to be important for Yogyakarta, further downstream, in the near future.

3.5. ACTIONS/ CONTRACT Several policies and agreements have been to set into place including conservation fee standards and a coordinating team of multiple stakeholders for fund utilization planning for conservation of water resources. PDAM, as the environmental service (water) Buyer, agrees to allocate a specified amount of funds for conservation at water catchment sites to be paid to the MRA. MRA channels such funds through its regional budget to water catchment areas for conservation purposes. In 2007, the PDAM allocated IDR 800 million for the 2008 program, which focused on 35 villages in the Tansi and Elo sub watersheds. In 2008, the PDAM allocated an additional IDR 1.3 billion for the 2009 program. The multi-party stakeholder team that was formed, with 25 members, periodically meets to discuss the monitoring of contract agreement implementation and synchronization of conservation activities in Magelang Regency. The duties of the team are to coordinate implementation of the program and develop water resource conservation activates. They are to monitor the field-based project implementation process. The team also coordinates agencies in project implementation (progress, reporting, and budgeting). Two policies have been instituted for PES activities in Magelang based on Magelang Regency Regulation No. 17/2005 on Ground and Surface Water Management. Article 22 (1) institutes the application of conservation fees. Article 22 (2) levies the amount of conservation fees, that now includes a tax on drinking water which is equal to 5% x basic price x volume sold. Also put into place is the Magelang Regent Decision Letter on the creation of a coordinating team for fund utilization planning for water resource conservation efforts.


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ENT FOR ENVIRONMENTAL SERVICES, A SUMMARY OF ESP CASE STUDIES

RONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 14

The following is a diagram of the PES Mechanism between provider and user in Magelang:

There are several activities contained in Conservation Activity Planning for 2009. An example includes the development of farmer efforts toward integrated land conservation. There are two specific activities being planned for the protection and control of areas surrounding springs. The first is a re-greening and rehabilitation of critical land through planting, gully plugs, absorption wells, and other conservation methods. Secondly, a hydrological studies will take place as well as a repair of irrigation networks. Coordination, monitoring, and evaluation plans will be put in place.

3.6. MONITORING AND EVALUATION Each of the four above mentioned sub-catchments have an Action Plan that specifies project activities and targets to be evaluated every year. No direct impact has yet been measured (increased water flow) from these conservation efforts, and it is likely some time before measurable impact is apparent. However, these activities have increased public awareness of the need to conserve water catchment areas that can help prevent continued degradation of water resources. The contract agreement for PES in Magelang is fairly new; therefore the emphasis has been on monitoring activities, as opposed to the improved quality and quantity of raw water sources.

3.7. CONCLUSION The PDAM has stated that PES funding will depend on company cash flow based on income. Should rate adjustments be disallowed and operational expenses increase, the funds disbursed for environmental services and conservation purposes may be reduced or discontinued if the financial burden is placed back on the PDAM. Magelang PDAM expects all concerned parties/stakeholders, including local administrations and concerned agencies to understand the company’s financial constraints. Any additional operational costs must be borne by the company’s customers. Increased cooperation among agencies involved in conservation efforts will help prevent additional financial burdens on PDAM and its customers. Basically Magelang PDAM will allocate conservation funds as long as its financial condition allows, this does question the sustainability of PES in this case.

MAGELANG REGENCY Regional Budget

MULTI-STAKEHOLDER TEAM

PROVIDER Villages

USER Magelang Regency

PDAM


ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

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4. UPPER BRANTAS WATERSHED

4.1. BACKGROUND The Sumber Brantas watershed experiences high levels of sedimentation due to the proximity of the Anjasmoro Welirang, Arjuno and Kawi volcanoes. This makes the land there very fertile for farming. From 1991-2002 there was widespread clearing for the planting of seasonal vegetable crops. The Brantas upstream watershed consists of conservation and production forests, as well as apple orchards, which constitute water catchment areas for downstream regions. This water catchment area has come under pressure due to changes in land utilization, unfriendly agricultural practices, and clearing of forested areas. In 2004, massive floods and landslides swept this region, while micro-climate changes have since resulted in decreased apple production and increased pest activity, with farmers moving their orchards higher up the mountain slopes. These conditions have led to a collective awareness among Kota Batu farmers to revitalize their orchards by planting forest foliage among their apple trees, and to re-green the degraded national forest area, as well as reducing impact of micro-climate changes. To preserve the environment, the Bumiaji community, led by 37 village heads, initiated the Clean Friday program to implement conservation activities. Buyers, such as Hippam, Hippa, the PDAM, Jasa Tirta and PJB have also been motivated to restore the conditions of the upstream region, which is the source of the raw water they depend upon, while local community groups in Bumi Aji have also taken action through ESP sponsored Field Schools. Since 2006, they have planted 60,000 seedlings in 2007/2008 and 50,000 seedlings in 2008/2009 near the spring and in apple orchards. Social, economic, and political communication between village communities (which use the land to raise vegetables and other seasonal crops as a source of income) and the Kota Batu administration is vital to the success of any rehabilitation effort in this area. Various stakeholders are now working in a collaborative effort.

4.2. RESOURCE Kota Batu has roughly 107 springs, most of which are in Bumiaji District and are used by local households through Hippam (community water sharing forum) and PDAM. These water resources are also used by industries and hotels, as well as for farming through Hippa (farmers water sharing forum), and by Jasa Tirta, the Java-Bali Power Station, and PDAM. The core problem in this water utilization is that water is seen as a free, natural resource for which no environmental fees are required. The conservation activities for preservation of water catchment sites in Raden Soerjo Park and the Perum Hutani areas are meant to protect and preserve the springs scattered throughout Kota Batu. These springs are used by HIPPAM, HIPPA and the three PDAM water companies in Malang Raya. Although Kota Batu has many springs, some residents have yet to receive access to clean water.



4.3. PROVIDER LMDH The Forest Villagers Institution (Lembaga Masyarakat Desa Hutan: LMDH) supports eleven villages in conservation activities covering 2,769 ha of production forest and 2,673 ha of protected forest. Activities include the distribution and planting of 200,000 seedlings. Bumiaji Tani Bumijaya II Farmers Group In the 2007-2008 planting period, this group planted approximately 60,000 tree seedling along the apple orchard roads, while in the 2008/2009 planting period, they planted 50,000 seedlings around springs. Payan Village Community Group The social groups targeted are the communities located near Brantas River.

4.4. BUYER HIPPAM HIPPAM is the Community Water Buyers Association. It is an independent water management group that serves areas not covered by PDAM Water Company. Perum Jasa Tirta I Perum Jasa Tirta I is the authoritative body that manages surface water and water structures along the Brantas river channel and is responsible for the quality, quantity, and continuity of water service for industrial, household, and agricultural use. PT Pembangkit Jawa Bali (PJB) The Java-Bali Power Company owns the Sumber Brantas upstream power station and is involved in Bumiaji District PES activities.

4.5. ACTIONS/ CONTRACT The current cooperative effort to improve conditions in the Brantas watershed requires the support of all parties using ES to ensure a stable supply of clean water. The role of the regional administration is vital in building sustainable cooperation between the stakeholders in the upstream and downstream regions. The Kota Batu administration, through the Bumiaji administration, has begun rehabilitating the upstream region of the Brantas watershed. Among the efforts made is the strengthening of the Forest People Community Institutions (Lembaga Masyarakat Desa Hutan: LMDH) in the villages that border the forest in order to rehabilitate the forest and preserve water sources. These activities then expanded through the Bumiaji Rehabilitation Intensification Movement (Gerakan Intensifikasi Rehabilitasi Alam Bumiaji: GIRAB). The parties concerned with these activities have systematically over time established agreement and cooperation at both the community and stakeholder level. Workshops have been conducted for Bumiaji District village heads and representatives of the local HIPPA and HIPPAM toward conserving the environment and improving public services. There have also been workshops between Providers and Buyers in formulating an agreement for PES transactions to restore the ecosystems and revitalizing agriculture. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 17

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There are several key developments in the PES implementation process. First, the Bumiaji District is supporting rehabilitation of river banks, critical land, and roadsides. Second, the GIRAB has held 19 conservation activities covering 600 hectares. Third, Perum Jasa Tirta II has assisted in planting bamboo along riversides. Fourth, the Pusaka Foundation NGO is working toward empowering communities economically through small to medium scale agricultural, animal husbandry, handicraft production, ornamental plant cultivation, and trade activities. Fifth, a cooperative agreement was established between Bumiaji District and Perum Jasa Tirta to re-green the environment and educate the public to conserve and preserve water sources. Sixth, PT Pembangkitan Jawa Bali (PJB) is cooperating with Wono Lestari Tulung Rejo Bumiaji LMDH to rehabilitate critical land in Tulung Rejo Village in order to ensure water flow for its power station. Finally, Fokal Mesra facilitated an agreement between HIPPAM and LMDH for the planting of foliage around existing springs.

4.6. MONITORING AND EVALUATION Monitoring and evaluation of activities is implemented by the respective partners. For example, under the cooperative agreement between the Bumiaji District and Perum Jasa Tirta to “re-green” specific areas, the District Government is required to provide documentation of the “before and after” conditions of the agreed upon locations. Perum Jasa Tirta is also required to verify the field conditions directly prior to the start of any activities.

4.7. CONCLUSION More concerted efforts will require further coordination to intensify activities, mitigate conflicts between economic and ecological interests and strengthen law enforcement. There is a lack of village regulations to protect forest and agricultural land ecology. Existing efforts include the formation of the Village Head and Forest Farmer Forum (Forum Kepala Desa dan Kelompok Tani Tahura) for the protection of the R. Soerjo National Park in October 2005, as well as the establishment of the Water Analysis and Environmental Forum (Forum Kajian Air dan Lingkungan menuju Selaras Alam: FOKAL Mesra).



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5. CONSERVATION OF GUNUNG GEDE PANGRANGO NATIONAL PARK (TNGGP) THROUGH PES WITH PRIVATE SECTOR PARTNERS

5.1. BACKGROUND The current Gunung Gede Pangrango National Park (Taman Nasional Gunung Gede Pangrango: TNGGP) area was designated as a Biosphere Reserve by UNESCO in 1977 and as the nation’s first National Park in 1980. TNGGP is a major water catchment area for Cianjur, Sukabumi, Bogor and DKI Jakarta. It has been designated a national park due to multiple critical ecological functions including high biodiversity, conservation education and research, and ecotourism. TNGGP can function optimally if the people living within the buffer zone areas and depend on its products (i.e. firewood), play a role in its management. Previously, communities had used kerosene (now too expensive) or cut wood from their own orchards or deserted plantations. However, as resources become depleted, many have become more dependent on the forest for wood. People living around the conservation forest have the potential and traditional knowledge necessary to utilize forest resources sustainably. Unfortunately, economic need has pressured them into excessive clearing. For this reason, supporting strategies are required to improve the welfare of the dependent communities, so that they shift their dependence away from wood and non-wood forest products and land clearing, and toward more sustainable land practices.

5.2. RESOURCE TNGGP is the source of 3 watershed areas including DAS Citarum (Kabupaten Cianjur), DAS Ciliwung (Kabupaten Bogor), and DAS Cimandiri (Kabupaten Sukabumi). There are dozens of rivers with their headwaters in TNGGP. TNGGP has many hydrological functions. There are 1,075 tributaries (Order1 and 2) as well as 58 river sources (Order 3) that cross through TNGGP, equaling a flow of ± 8 billion liters per year worth IDR 12 trillion. These rivers irrigate 10,998 hectares of rice fields that support 920,065 people in 149 villages, as well as serve as water sources for hotels and restaurants in the Puncak resort area.

5.3. PROVIDER TNGGP provides environmental services, including erosion and sedimentation reduction, leading to better quality water. The vegetation absorbs water which also prevents/reduces the occurrence of flooding by holding water during the rainy season and slowly releasing it during the dry season. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 20


The participation of all stakeholders, including those living in the buffer zone of TNGGP, are critical to establishing an ES initiative that takes sustainable conservation into consideration. Stakeholders unified their efforts in the establishment of Forpela TNGGP, or Forum Peduli Air Taman Nasional Gunung Gede Pangrango. FORPELA’s participation covers the economic empowerment of local communities, advocacy, and human rights in order for the public to become an active participant in conservation and development. FORPELA mediates between the associated private sector, local NGOs, watershed management community networks, and local government to mobilize, advocate, and allocate funding for improved conservation and land rehabilitation in and around TNGGP. FORPELA has also instituted a variety of programs creating a new balance in the village economic system that is conducive to the growth of independent small and medium scale enterprises.

5.4. BUYER A compensation scheme was established between the upstream provider of ES and the business/industrial sector surrounding the park. These businesses “buy in” to protecting the valuable environmental services from TNGP by joining FORPELA and contributing a one-time joining fee and monthly membership fees. The Pristine Water Company, for example, is one of the main private sector Buyers active in FORPELA. Although they have their own community support program focused on health and hygiene in addition to pest control assistance, they currently pay IDR 500,000 (or US$50 monthly) for conservation activities in the area.

5.5. ACTIONS/ CONTRACT Developing ES in TNGGP requires that Buyers have clear information on policies, mechanisms, and regulations to take on a participative and collaborative role. The private sector, as one of the Buyers benefiting from the water catchment function of TNGGP, must understand that it is a partner in the conservation of the National Park. The facilitation of this understanding is expected to become one of the main pillars in collaborative multi-party partnership towards the sustainable management of TNGGP. This requires a prolonged public awareness drive involving the following:

1. Phase I Inventory of ES Providers and Buyers; 2. Phase II Coordination with water service Buyers 3. Phase III Formulation of area working groups; 4. Phase IV Formation of executive management body; 5. Phase V Formulation of basic statutes and work program; 6. Phase VI Legalization (signing) of basic statutes.

This agreement is based on the unified vision of building stakeholder partnerships to support multi-party programs for the sustainable management of ES. FORPELA, aware of the ES potential of the National Park and the current threat to its conservation, joined forces with local government and NGOs to try and develop and implement a PES approach with the aim of mitigating poverty through conservation within the context of social justice and equity. The FORPELA TNGGP approach to PES connects conservation with the goal of ensuring sustainable benefits for the local communities. For example, FORPELA is assisting in the establishment of seedling nurseries that support the livelihoods of the local people, while ensuring forest conservation. PES can directly empower the communities and ensure land


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tenure security for them, as well as the conservation of the ecosystem on which they depend. An obligatory monthly fee is collected in accordance to a multi-stakeholder agreement, and combined with other funding sources including third parties (local government, universities, and other organizations) and in-kind from private company corporate social responsibility programs. FORPELA manages these funds to maintain and enforce regulations and pursue conservation and rehabilitation efforts which promote biodiversity and water resource protection. Three contracts have been negotiated between FORPELA and relative TNGGP stakeholders. The first contract entails the formation of the FORPELA forum for water users in TNGGP and specifies user fee amounts. The second contract is between FORPELA and Balai Besar TNGGP (a government agency) that gives FORPELA the authority to arrange payments for environmental services to promote conservation. The third is between FORPELA and six Model Desa Konservasi (MDK) or Village Conservation Pilots around TNGGP to develop community capacity building and conservation activities.

5.6. MONITORING AND EVALUATION The partnership agreement between TNGP and FORPELA specifies the responsibilities of each organization in the monitoring and evaluation of the activities implemented under the partnership. For example, FORPELA is required to report on a quarterly basis concerning the ongoing field activities as well as any problems encountered. It is also required to submit a final report at the end of the year. Further, TNGP is required to implement monitoring visits twice a year as well as draft a formal evaluation of the program on a yearly basis. This evaluation should then be reported to the Director General of Forest Protection and Environmental Conservation.

5.7. CONCLUSION The number of water Buyers aware of the need for forest conservation has increased steadily. Based on the results of FORPELA TNGGP socialization meetings throughout 2008, as many as 103 water Buyers are now members. Funds from membership fees have also increased. When the FORPELA TNGGP Statutes were written, Article 6 projected IDR30,000,000 a year, while the 2009-2012 target is higher at IDR186.000.000 a year. With this level of predicted income, FORPELA TNGGP should be able to fulfill its action plan independently. However, there have been a number of operational constraints and challenged including difficulties with a fee collection mechanism and communication between the managers and members.



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6. PASURUAN NURTURED/ CONSERVATION FOREST TRUST FUND (HATF)

6.1. BACKGROUND The ”nurtured forest” concept covers both the upstream and downstream reaches of the Arjuno and Welirang mountains in East Java. The objective of this concept is to motivate Buyers of ES (including businesses) to be concerned with maintaining forested areas and to embrace a sense of responsibility for conservation practices. Businesses can make contributions to fund conservation through the planting of seedlings and tree care for up to 5 years. It is expected that the nurtured forest concept will enable better cooperation between Providers and Buyers, as well as more targeted utilization of conservation funds and livelihoods for local communities. This type of cooperation is expected to reduce logging and improve forest conditions. The Nurtured Forest Trust Fund (Hutan Asuh Trust Fund: HATF) functions as a facilitator of conservation activities. HATF membership consists of local organizations including the Kaliandra Foundation, Kelompok Tani Tahura (KTT) and Lembaga Masyarakat Desa Hutan (LMDH). Kaliandra Foundation has been active for several years in providing social services such as health and hygiene to communities. Some of their other activities include training local farmers in livelihood and small business development. The Kaliandra Foundation has educated communities on sustainable use of forest resources. Through this socialization of conservation practices, the local community has conserved 10 hectares of forest. ESP has assisted in the establishment of HATF, facilitating meetings and workshops to socialize the PES concept and build support among stakeholders. Through capacity building efforts and minimal intervention, ESP empowers local organizations to take independent action, improving the potential for sustainability.

6.2. RESOURCE The activities under this case study take place from the upstream to the downstream areas surrounding Arjuno Mountain and Welirang Mountain in East Java. More specfically, the watersheds where the HATF will work are the Welang River Subwatershed and Brangkal River Subwatershed, both of which fall within the Brantas River Watershed.

6.3. PROVIDER The local Raden Soerjo National Park farmers association, comprised of 9 villages, are the Providers in this area. This farmers group has been identified as the Provider due to its members being dependent upon forest resources for their livelihoods. There is also a need for awareness training for conservation of natural resources by these same villages.


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6.4. BUYER The Buyers for this area are private companies that depend upon bulk water supply to produce their product, including PT Coca Cola, Pt Aqua, and PT. Sampoerna.

6.5. ACTIONS/ CONTRACT ESP has facilitated cooperation between the water Providers and Buyers in Pasuruan and local government institutions to gain support for PES. One of the first activities was to develop hydrological maps to use in discussion with businesses/companies in order to identify upstream-downstream linkages. Forest and village awareness campaigns were held in several locations while farmer Field Schools were conducted in 9 villages in Arjuno Mountain, which borders Raden Soerjo National Park. There has also been a strengthening of local organizations such as KTT and LMDH. PES advances to date include a number of meetings and workshops among farmers, businesses and facilitators including KTT (Paguyuban Kelompok Tani Tahura) and LMDH (Lembaga Masyarakat Desa Hutan). HATF has been established as a legally recognized entity. A contract agreement is being drafted and public awareness or socialization process is ongoing in order for all parties to have a clear understanding of responsibilities within the contract agreement. This contract is between four companies including HM Sampoerna, Aqua Danone, Coca-Cola, and Schering Plough Indonesia with LMDH and KTT to implement conservation activities in Tahura. The contract will span 2 years and contain IDR 800 million in funding for biophysic activities and alternative livelihood and conservation campaigns and trainings. It is anticipated that the contract be signed in November 2009, therefore Monitoring and Evaluation has yet to be implemented.

6.6. CONCLUSION The HATF case study has thus far yielded several valuable lessons regarding the arrangement of PES. First, it is important that the ES Provider understand their unique role in protecting the environment through the improved conservation measures. Second, soliciting the involvement on major private sector companies such as Coca Cola was easier than anticipated given that their level of awareness concerning the importance of environmental services was relatively high. As a result, such companies are quite willing to seek solutions that both benefit the environment and their business. Finally, instead of acting directly as a third party intermediary or facilitator, ESP strived to support and strengthen the credibility and capacity of a local facilitator, thereby promoting sustainability in the PES arrangement.



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7. LESSONS LEARNED AND CONCLUSION

Over the past 5 years, ESP’s has strived to provide a clean and stable water supply, utilizing a landscape approach to watershed management that integrates conservation and rehabilitation of natural resources and critical land through improved land stewardship. ESP has consistently recognized the importance of local communities to the success of such programs. ESP farmer Field Schools are a proven effective instrument for mobilizing and empowering communities to address various issues of ecological, social, and economic constraints. Environmental education in water ecology, improved health and hygiene, and other activities has allowed communities living within these watersheds to make informed decisions on watershed management, conservation practices, and the development of PES schemes for their relative areas. ESP has assisted in socializing the PES concept as well as providing technical support for stakeholders to collaborate on agreements and contracts for securing payments and assisting in planning conservation activities. With ESP regarded as a facilitator, involved stakeholders hold the responsibility for collaborating and ensuring the success and sustainability of PES schemes beyond the life of ESP. The four PES case studies above illustrate how the PES approach has evolved to fit a variety of geographically specific contexts and Provider-Buyer relationships. To ensure the success of PES, the following elements should be specifically addressed:

• A commitment of both Providers and Buyers to support the preservation of natural resources through conservation based activities.

• Active public participation is necessary and is empowered within the development process.

• A third party mediator, who understands the languages and approaches of both collaborating parties, should be present to bridge differences and clarify contract obligations. It is notable that, in each of the four PES case studies described, a third party mediator has emerged as a crucial aspect of instituting a sustainable PES arrangement.

• A very clear understanding of the contractual relationship between the Provider and Buyer such that each party fully comprehends their role in the contractual and conservation context. In examples where a PDAM acts as the ‘Service Buyer’, the regional administration should play a role in cooperation and transactions from the outset. It is important that the government plays an active role in supporting these practices, particularly as a conduit to facilitate fund transfers in an accountable and transparent way.

• Regular communication between the Buyers and Sellers is an important element in the implementation of PES. Only through continuous and transparent communication can a cooperative relationship be fostered and potential problems foreseen as the Buyer prepares to allocate and transfer funds.

• Monitoring and evaluation is essential to ensure continued funding to the ES Provider. Third party monitoring by an environmental NGO for example would allow an



impartial evaluation of the current practices. Where possible, quantitative monitoring (of water quality or quantity, for example) is encouraged to demonstrate concrete results. This is one of the greatest weaknesses of the case studies described herein. The extent to which PES activities are leading to the intended result—i.e. improved raw water quality accompanied by a more reliable flow (quantity)—remains to be seen. The lack of this concrete evidence could threaten the long-term sustainability of the arrangement if the Buyer is not convinced that a tangible benefit is received. In the Magelang case study, for example, the PDAM stated that it will only continue to make payments as long as its budget permits. Therefore, the absence of concrete evidence of the benefit to the utility would threaten the sustainability of PES.

• Policy work within this field is still at its infancy at the national level. However, as indicated in the four case studies, policies are drafted at the local level to meet specific PES schemes. Improved policy initiatives at the national level could assist in formalizing payment schemes although agreements remain voluntary.

• Broadening PES activities has high potential in Indonesia. Partnerships created by the various stakeholders, including national parks, communities, and or private sector businesses, have the opportunity to secure water sources and sound conservation of natural resources by creating PES schemes on broader scales. Interest groups from various communities and businesses within proximity to ESP PES schemes have shown a key interest in developing PES activities for their watershed. As seen in the four case studies, interest groups and stakeholders vary widely. The basic tools, continued education, and socialization of PES could be made available to allow stakeholders to create their own innovative ES program in additional watersheds. This could localize conservation-based practices and ensure a continued source of essential water resources.

As ESP comes to an end in early 2010, program staff are working to institutionalize PES policy for broader national-level impact while providing technical support to ensure sustainability of on-going models. ESP is working with the Ministry of Forestry on development of policy instruments codifying PES, in particular water, for upper watershed management (conservation and rehabilitation) as well as protected areas management (biodiversity conservation). Importantly, a Presidential Instruction (Peraturan Presiden) for PES to support watershed management incorporates many of the lessons learned by ESP and program partners. PES represents one of a number of alternative financing options for safeguarding environmental services including but not limited to water, biodiversity and carbon. At the same time, PES is not a silver bullet. Effectiveness is site-specific, and requires a high degree of clarity with regard to the specific environmental service, the stewards or suppliers, and the users or buyers. Without this clarity, success of a PES scheme is negligible. Beyond potential contributions to alternative financing for conservation and rehabilitation work, probably the greatest benefit of PES is building awareness of the value of environmental services and commitment to the management of these services to ensure sustainability into the future.


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