Is finance the final frontier to ensure long-term benefits from transboundary cooperation?

Benefits of transboundary cooperation are not easily valued and quantified

Evidence and experience related to cooperation over shared water resources points towards a multitude of economic, social, environmental, regional development and peace and security benefits (follow the link for a graphic outlining some of the most common of these). However, as will be the case with all benefits that do not rely on straightforward transactions, it is not easy to directly attribute values and quantify the benefits of transboundary water cooperation. First, there is no universally accepted benefits assessment framework. Second, the concept of net benefits is risky at best as there will always be trade-offs, and with that, relative winners and losers. Third, attributing a monetary value can exacerbate inequalities and may possibly raise tensions between States.

Certain benefits are also more easily quantified, which may mean they get prioritised to ensure quick wins and to service the political need for a successful story. This is often the case with economic benefits. However, without a complete picture of the suite of benefits and the trade-offs between these, balance between economic, social and environmental goals is unlikely to be achieved. Examples exist for hydropower where social and environmental risks historically received less attention than the perceived economic gains associated with building dams.

Other, less direct benefits remain more challenging to quantify, such as those associated with peace and security. Yet, it is possible to extrapolate that States stand to gain considerably from striving for and maintaining peace both in terms of preventing costs related to tensions, and conflicts in the extreme cases, and making inferences regarding the benefits of peace for trade relations between riparian states. As an example, the 1998 peace treaty signed between Peru and Ecuador paved the way for free navigation of Ecuadorian ships on the Amazon and duty-free zones along the river. Since then, trade flows between Ecuador and Peru have increased by a factor of 9 to 10 (UN Comtrade Database).

Therefore, by quantifying how cooperation affects outcomes for river basins and better understanding the trade-offs between the different benefits from both a qualitative and quantitative perspective, a stronger case can be made for financing those institutions responsible for fostering transboundary cooperation over water in the long-term.

Risks inherent to cooperation arrangements and/or the institutional set up of transboundary institutions make it tricky to diversify sources of finance

After analysing the types of finance available for cooperation arrangements and accessed by the majority of transboundary institutions, there are obvious constraints for long-term financial sustainability posed by developmental-style funding. This can compromise ownership and commitment by riparian states. Adjustments in institutional set up could greatly contribute to financial sustainability, especially flexible architecture that enables the organisation to absorb and work with different sources of finance.

Flexibility would also help examine co-benefits of IWRM interventions as a way to bring in new sources of finance such as climate finance. Striking the right balance between political motivations and technical expertise would also enable diversification of financing sources, generating value from an economic perspective and with it revenues. However, tinkering with institutional issues should only be seen as the starting point on the journey to financial sustainability. When it comes to diversifying sources of finance, there is vital need for transboundary institutions to acquire the internal capacity and skillsets needed to engage investors and the private sector, and basin stakeholders with financial capital to build bankable projects.

Unrealised opportunities exist in combining natural and built infrastructure

Considerable benefits could arise from expanding the use of natural infrastructure in shared basins and combining these with planned and existing built infrastructure. Doing this would not only contribute to improving the functionality of built infrastructure and help reduce risks related to climate change and water scarcity, but could also serve as a way to diversify financing for transboundary basins in the long run. To bring natural infrastructure solutions to scale there is the need to build on the growing evidence base from demonstration projects globally that provide a solid proof of concept.

Work in the Volta Basin has created evidence on the unaccounted benefits that natural infrastructure services provide to local communities and economies and has demonstrated ways in which these benefits can be factored into planning and decision-making for built infrastructure (see this graphic). By integrating data into a water resources system model, the project was then able to produce trade-off analyses which take into account different portfolios of built and natural infrastructure benefits and how they fare over time in the context of climate change. This work built a foundation for understanding trade-offs for balancing built and natural systems in basin development and could ultimately contribute to improving the financial viability of natural infrastructure.

Another emerging example of financing for natural infrastructure in transboundary settings is the Cubango-Okavango River Basin (CORB) Fund. The fund that was set up by the Permanent Okavango River Basin Water Commission (OKACOM) along with several partners to address concerns regarding future basin conditions such as an increase in hydrologic variability and flow reduction, as well as changes in water quality due to increased pollution. The fund, once fully capitalized will invest in natural infrastructure along the entire basin, from financing actions to protect the Angolan water towers to restoring downstream wetlands in Namibia and Botswana.

Another instrument that may contribute to increasing sustainability of financial mechanisms in transboundary settings are the Blue Peace Bonds. These bonds are being designed to incentivize and de-risk transboundary water cooperation and management. The intent is for Blue Peace Bonds to be the financing arm of transboundary multisectoral joint investment plans. As such, they would be issued by municipalities, transboundary water organisations or other non-sovereign entities, as structures that blend public and private capital and are backed by cash flows generated from projects in the transboundary water basin.

About transboundary basins & IUCN BRIDGE

Globally, 286 lake and river basins stretch across national borders, covering more than 150 states, supplying water to almost 3 billion people, and accounting for an estimated 60 per cent of global freshwater flow (TWAP 2016). Besides supplying water to billions of people, transboundary basins contribute to economic development and human well-being through the provision of a multitude of ecosystem services.

IUCN has worked in transboundary basins for over a decade through its Building River Dialogue and Governance (BRIDGE) programme, and before that through the Water and Nature Initiative. BRIDGE supports countries that share river or lake basins to implement effective water management arrangements with shared visions, benefit-sharing principles and transparent and coherent institutional frameworks. The goal of BRIDGE is to enhance cooperation among riparian countries by applying water diplomacy at multiple levels. The programme works in 14 shared basins across 4 continents and, since its inception in 2011, has helped mature frameworks for cooperation contributing to regional peace and security.