This component aims at maximizing the benefits people and communities obtain from improved watersheds as a basis for developing institutional and financing mechanisms that are needed to sustain restoration investments beyond the project period. The project is investing in improving watershed services by focusing on the benefits people can obtain from ecosystems in a watershed. Benefits can be direct, such as provisioning services (Like, food, water, and forest products) or regulating services (Like control of floods, erosion regulation, and water purification, or indirect, through supporting services for the functioning of ecosystem processes [like nutrient cycling; soil creation; and photosynthesis]). Ecosystems also provide people with non-material benefits such as aesthetic pleasure, recreational opportunities, and spiritual and cultural sustenance. The ecosystems that provide watershed services form part of the infrastructure needed for water security.
The project is thus focused primarily on provisioning services and regulating services, as the other services (e.g., supporting services) are difficult to measure and quantify. The project is also supporting improvements in the provision of non-material benefits (such as cultural, recreation and amenity services) given that Malawi’s most iconic national parks and wildlife reserves are in the Shire basin.
To improve watershed services, the project is investing in (i) strengthening the key watershed institutions that charged with the responsibility of protecting Malawi’s watersheds; (ii) piloting a market-based mechanism to complement the institutional capacity interventions and to provide an opportunity to crowd-in private financing for watershed services where a market for such services exist; and (iii) a package of enabling infrastructure and climate information services to maximize the livelihood benefits from improved watersheds, and to enhance the climate resilience of both the farming community and the watershed.
Sub-Component 2.1: Performance-based grants to selected watershed management institutions
A performance-based grant scheme is expected to help (i) overcome bureaucratic inertia at the national and district level and spur action on specific long-standing institutional issues (e.g., delayed operationalization of key institutions); (ii) help translate the landscape restoration investments under Component 1 into actual watershed services by strengthening the institutions that would continue to implement restoration work beyond the project; (iii) improve selected watershed services and enable those institutions with an existing revenue stream to gradually recover a higher proportion of the cost of
watershed management from revenues generated from watershed services; and (iv) build adaptive capacity of the institutions by diversifying their revenue sources and reducing dependence on constrained government budgets.
The project will provide performance-based grants to selected watershed management institutions to finance institutional development activities aimed at achieving improvements in watershed services through sustainable management of water resources, land, forests and protected areas (national parks, sanctuaries and wildlife reserves). The grants will be linked to the achievement of a minimum set of indicators under a performance agreement signed between each institution and MoFNR. A term sheet of the performance agreement will be developed as provided in Annex 6. The grants will be provided to three institutions that play a critical role in watershed management–like NWRA; DoF; DNPW; and the seven DCs located within the hydrological boundaries of the targeted watersheds.
These institutions will utilize the grants to finance capacity building, operating costs, goods, equipment and logistical support, and any other assets and tools they need to play an effective role in the management of Malawi’s critical watersheds in line with their respective mandates. For those institutions with an existing revenue stream (i.e., NWRA, DoF, and DNPW), the grant will also contribute to financing, on a declining basis, the gap between the cost of watershed management activities and the revenues generated from watershed services.
Sub-Component 2.2: Pilot market-based mechanism for the provision and maintenance of selected watershed services
This Component will finance technical assistance and the initial capital required to establish a market-based mechanism for the provision and maintenance of selected watershed services in the Shire River Basin. The mechanism will involve using payments or rewards to individual farming households to encourage certain land-use practices that result in a specific watershed service that is of value to downstream water users. Regulating services of the watershed, particularly the reduction in sedimentation, offer the most potential for developing a market-based mechanism to complement the institutional capacity interventions under sub-component 2.1 above. Recent studies have highlighted the potential for such a scheme in the Shire River Basin, targeting a number of downstream water users, including Malawi’s Electricity Generation Company (EGENCO), water utilities operating in the Shire River basin – such as Blantyre Water Board (BWB) and Southern Region Water Board (SRWB) – who are incurring high operating costs due to the high level of sediments in the Shire River.
Building on these studies, the project will finance (i) technical assistance and related goods, works and services for the development of a Payment for Watershed Services (PWS) scheme for sediment reduction in selected micro-catchments upstream of the major hydropower and water supply intake installations; and (ii) PWS transfers to eligible beneficiary farmers upon achievement of sediment reduction targets. The project will take on the role of a “stand-in buyer” to pay individual farming households based on PWS contracts for sediment reduction. The aim is to provide a demonstration to the potential buyers (EGENCO, BWB, and SRWB) that payments to the farmers can deliver reductions in sediments. Beyond the immediate financial benefits to the buyers, reduced sedimentation will also improve climate change adaptation in the sense that reduced sediments will lead to improved water quality and availability and increase resilience to the impact of flash floods in the form of landslides or similar potentially life-threatening events.
Rationale for a PWS Scheme
A PWS scheme will complement the institutional capacity interventions under sub-component 2.1 and provide an opportunity to crowd-in private financing for watershed services where a market for such services exists. One of the challenges for watershed management in Malawi and elsewhere is the lack of consistent, long-term financing beyond the typical short-term project-based financing models. A PWS scheme can shift that dynamic because, in such a scheme, payments provided by downstream water users can finance watershed services for a much more extended period. In the case of the Shire River Basin, regulating services (such as sediment reduction, water quality) presents the best opportunity for a market-based mechanism given the high levels of sedimentation in the Shire River and its tributaries, and the associated costs incurred by both the energy and water utilities.
Preliminary estimates indicate that EGENCO, BWB, and SRWB together lose about US$10 million annually due to high levels of sediments. A feasibility study carried out in 2017 highlighted the potential for developing a PWS scheme focusing on sediment reduction by paying farmers to implement riparian buffers. These buffers are small pockets of vegetation that line river and stream banks, with the ability to improve water quality by preventing sediment from entering a stream. Projects that provide incentives to farmers to implement riparian buffers in the Shire have been done before by various NGOs and their funding partners. However, these projects are done typically at a small-scale and on a fixed time basis, and there is no rigorous monitoring and verification of their impacts on sediment yield. The project will finance a pilot PWS scheme to demonstrate the impact of interventions such as riparian buffers on sediment reduction, and thus provide the evidence needed to inform buyer decisions for maintaining these watershed services beyond the project.
Sub-Component 2.3: Enabling infrastructure and climate information services
This sub-component will finance a package of enabling infrastructure and climate information services to maximize the livelihood benefits from improved watersheds and to enhance the resilience of both the farming community and the watershed to climate-change induced droughts and floods.
Enabling Infrastructure
Two categories of enabling infrastructure will be supported under the project. These are:
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- Multi-purpose water infrastructure to increase access to water for multi-purpose use, while at the same time protecting people from floods. This will include infrastructure for harvesting, storing, and delivering water for people, livestock, and agriculture in the targeted watersheds, as well as flood control. The objective is to diversify water sources in each watershed and increase the amount of water available for productive use, mitigate against the risk of droughts, while at the same time protecting people from the destructive impacts of water (floods). The menu of water infrastructure investments will include small to medium dams, rainwater harvesting structures (including sand and sub-surface dams, semi-circular bunds and soil bunds), and boreholes for groundwater extraction
- Multi-purpose water infrastructure to increase access to water for multi-purpose use, while at the same time protecting people from floods. This will include infrastructure for harvesting, storing, and delivering water for people, livestock, and agriculture in the targeted watersheds, as well as flood control. The objective is to diversify water sources in each watershed and increase the amount of water available for productive use, mitigate against the risk of droughts, while at the same time protecting people from the destructive impacts of water (floods). The menu of water infrastructure investments will include small to medium dams, rainwater harvesting structures (including sand and sub-surface dams, semi-circular bunds and soil bunds), and boreholes for groundwater extraction
- Last-mile infrastructure to support agricultural productivity and market access and enhance the chances of success for the small-holder farmer groups supported under Sub-Component 1.2. Infrastructure under this category will include (i) small-medium scale irrigation systems to accelerate diversification, intensification, and commercialization of agricultural production; (ii) rural feeder roads, bridges, and market centers to improve access to markets; and (iii) clean water for value addition, where required. These investments tend to have a prohibitively high cost for producer groups, but they yield benefits that extend beyond the producer groups supported by the project to surrounding communities.
Climate Information Services (CIS)
In addition to the infrastructure, the project will also support the development of climate information services (CIS) to enable climate-informed decision-making by different watershed users (including farmers and agri-enterprises, energy and water utilities, dam operators, insurance companies, etc).
The project will finance technical assistance and related goods, works and services to develop and market a suite of hydrological, weather and climate products and services to enable climate-informed decision-making by different users (including smallholder farmers and agri-enterprises, energy and water utilities, dam operators, insurance companies, etc) using data from the existing ground-based observation network managed by both the Department of Climate Change and Meteorological Services (DCCMS) and NWRA, and supplemented as necessary with other global, satellite-based sources.
Future climate change scenarios suggest that Malawi will see increasing climatic variability, higher temperatures, more extended dry periods, and more erratic and intense rainfall events . Changes to climate and weather patterns exacerbate the impacts of landscape degradation, making it harder to address the problem. More extreme flood events will cause greater soil erosion and land degradation. Hotter and drier periods will contribute to forest fire risks. Droughts will continue to negatively impact food production, causing food insecurity, and increased poverty. Increased poverty results in higher demand for agricultural land, thus exerting more pressure on the natural resources base. Improving climate information services is, therefore, key to building climate resilience across various productive sectors in a watershed and reducing stress on the natural resources base. However, Malawi remains unprepared to anticipate and respond to the effects of climate change.
While Government of Malawi has made some investments in revamping the country’s most critical hydrological and meteorological observation network (especially within the Shire river basin) , operation and maintenance of the network remain a challenge due to limited budgets. Moreover, both DCCMS and NWRA have limited technical capacity to convert hydro-meteorological data into useful and potentially revenue-generating climate information products and services needed for building resilience. Both agencies, however, are committed to exploring the involvement of the private sector to support the transition up the climate services chain, from data collection to products and services, and there are opportunities to strengthen the ground observation network further to support product development.
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