III. Transforming natural resource conflicts

Benefit sharing for project risk- conflict reduction and fostering sustainable development: Current understanding and mechanisms


The surge and growing focus on renewable energy as a viable and sustainable source of energy is increasingly seen as a key component of planning for future energy needs. Renewable energy plays an important role in reducing greenhouse gas emissions and its increasing use is reducing demand for fossil fuels. Unlike fossil fuels, non-biomass renewable sources of energy like hydropower, geothermal, wind and solar do not directly emit greenhouse gases. Then why don’t we use more renewable energy? In general, renewable energy is more expensive to produce and use than fossil fuel energy. Favourable renewable resources are often located in remote areas, and it can be expensive to build power lines from the renewable energy sources to the cities that need the electricity. In addition, renewable sources are not always available, e.g., dry periods can reduce the water available for hydropower production, electricity is reduced from solar power generators during cloudy periods and wind velocity affects rotation of wind turbine blades. This chapter will focus on experiences with hydropower projects (HPPs).

Hydropower development occupies a special niche in the current mode of environmental governance — as a low carbon solution to the rising energy demands and social inclusion when international standards of performance are practised (www.worldbank.org; www.ifc.org;www.adb.org). This is particularly so in low to middle income nations where infrastructure has historically limited and hindered development, and thus energy demand. In many nations with mountain areas providing the hydraulic head (height for the fall of water for power generation needs) and abundant water resources, like in Vietnam, Bhutan, East-Timor, Nepal, Lao PDR (Laos), Indonesia, Lesotho, Papua New Guinea and Ethiopia, hydropower power is emerging as a reliable, sustainable and economically viable source of energy. Those countries are now attracting foreign investments and seeing a growth in national developers.

Hydropower like other renewable energy resources requires a large land area for the infrastructure required for generation purposes, associated structures (including access roads) and/or for accumulation/storage of water in the form of reservoirs. There are various types of HPPs including those called the runof-river which work to minimise the land-take for the project, nevertheless land has to be acquired for facilities. Hydropower projects require a fall in the height of the water to generate energy (turn turbines) - the greater the fall and availability of water, the more rapid and longer the turbines turn, the greater amount of energy that can be produced. Projects are often located in remote mountainous locations where harnessing water is possible for power generation and these HPPs supply energy where required (usually far from the physical location site of the project, nationally or internationally). Pressure of land and water resources is high and returns (including power supply) to the local communities can vary. Hydropower development requires that water and land resources are available and can be obtained from either state or private actors.

Proponents or developers of HPPs can be governmental and/or private (including joint-ventures). The proponents affect how the local affected actors are compensated and how natural resources (including biodiversity on land and water) are managed. Developers complying with international standards and requirements usually strive to ensure that fair and equitable measures are used and that sustainable development is a goal. Such developers include several multinational energy' developers (state and private) and are often supported through loans by international development/financing agencies and at times development agencies of donor nations. Increasingly national or regional banks are opening portfolios for such developments (e.g., Indonesia Infrastructure Finance, India Infrastructure Finance Corporation). Development agencies can be involved in rather stringent due diligence processes requiring adherence and monitoring of projects as can the multilateral financing agencies with the aim of reducing financial, environmental and social risks. Less serious proponents generally do not adhere to international practice and these are the ones which are often laden with conflicts rooted in unsound impact assessments, non- inclusive practices and poor stakeholder participation and incomprehensive compensation and livelihood restoration measures. The lack of inspection (due diligence), monitoring and evaluation processes lend to projects risks and unresolved conflicts.

Opponents claim that there is mounting evidence that there exist modern non-hydropower renewable technologies with the capacity to meet a substantial proportion of the global electricity' demand. Hydropower installations have grave consequences to natural resources and local community livelihoods, often causing disintegration of social networks, unsuccessful relocation and devastating impact on environments (land and particular fishes/fisheries in managed water ways). In addition, it exploits the rights of people to their ancestral resources. Affected people are rarely informed in full, in time or included in decision making. One of the most relevant critics to HPPs has been associated to the unequal distribution of costs and benefits. A large share of costs are carried by the local communities — usually in isolated and rural areas — and most of the benefits are being accrued to urban populations and industries. This feature constitutes a ‘structural’ challenge to the hydropower industry. The ‘structural challenge’ has to do with the fact that most hydropower projects are physically located in isolated, rural, poor areas - whereas the ‘benefits’ of electrification often are ‘exported’ to urban (often far-away) areas. Under these conditions, then, the rationale for benefit sharing in the sector is a must for the long-term social-economic-environmental sustainability of the investments. Serious proponents learning from HPPs related unfair social practices and environmental catastrophes have recently turned to instill requirements for benefit sharing going beyond the obligatory (legal) mitigation and compensatory requirements.

History, rationale and concept of benefit sharing

The concept of benefit sharing can be traced back to its origin in two UN resolutions1 1979 and 1982 and has lingered in development arenas. Benefit sharing was introduced as a core concept in the objectives of the Convention on Biological Diversity' (UNEP, 1992) to point to the potential need to share equities/royalties from the sales of biodiversity-related drugs/medicines. This concept hinged on the premise that biodiversity' is based in biological abundant environments which is likely be home to rural or forest-dwelling communities who not only depend on the natural resources around them but have profound knowledge of the resources. This knowledge is likely to be developed over generations (imbedded in local cultural intellectual knowledge and practice) and is referred to as traditional ‘ecological’ knowledge (ТЕК) (Svarstad and Dhillion, 2000; Dhillion et al., 2002; Berkes, 1999). In the context of infrastructure, developers require land and water resources both in terms of a source of energy and space for establishing the physical structures needed. The land- take thus can include forested or vegetation-covered land, land in use by local communities, and ecosystems rich in terrestrial, avain and aquatic habitats infringing on ecosystem sendees and watershed/basin integrity (Aiders, et ah, 2015; Dhillion, 2017).

Origins of benefit sharing in the hydropower sector

Social and environmental impacts from HPPs became recurrent and have captured the attention of public opinion and NGOs since the late 1980s. Prominent arguments are: flooding of productive agricultural land and wildlife habitats, the displacement of indigenous groups, the submergence of communities and/or cultural heritage sites, the effects of construction and operating regimes of hydropower facilities on fish/aquatic habitats and slow-occurring cumulative effects. In addition to the above, the emergence of environmental concerns related to the use and exploitation of natural resources led to a closer focus towards social and environmental sustainability in the hydropower industry. Following this recognition, different efforts have been made by the industry to overcome criticisms. In particular, there were at least two relevant efforts that aimed to improve the social performance of hydropower investments that introduced the concept of ‘benefit sharing’: International Energy Agency (IEA, 2000) and World Commission on Dams (WCD, 2000).

Benefit sharing principles

The extractive sector (mining) has a long history and more established benefit sharing regime based on two important principles which also work for the renewable energy sector and particularly hydropower. According to the first principle of derivation, the revenue is shared by derivation when a percentage of the revenues is allocated upfront to the producing territory (area of origin) which may be local community institutions, local and regional governments. This is the case in, for example, Bolivia, Brazil, Colombia, Indonesia, Papua New Guinea, Mexico, Chile and Ghana that have adopted the derivation principle in sharing the benefit among stakeholders involved in the extractive sector. The second principle known as principle of need suggests that resources should be distributed based on need so that those with greater need will receive a greater share — this is the case for Botswana, for example. It is noteworthy that Norway has decided not to spend revenues received from the oil sector and they are kept in a sovereign fund. Either geared towards derivation or need, it is important to note that mineral-rich countries have considered the use of Foundations, Trusts and Funds (FTFs) as vehicles for sharing the benefits of mining operations with the surrounding communities (Wall, 2014).

Correa (2010) outlines the underlying principles derived from these initiatives that are relevant for benefit sharing in hydropower/multipurpose development. In short, revised, these are: (i) equitable and fair sharing of benefits arising from resource use; (ii) appropriate sharing arrangements and access to resources by those who contribute directly and indirectly to the exploitation and use of the resource and; (iii) priority access and special consideration on benefit sharing to those in a disadvantaged position related to the utilisation of the resource. Fields (in Sweco, 2011) proposed ‘A framework to maximize and distribute benefits across stakeholders, consistent with the principles of sustainability’ as a practical working definition of benefit sharing. These concepts, illustrated in Table 11.1, build on the idea of the use of one natural resource for a single output which feasibly may allow for multiple interventions across a landscape with potential development effects. The scalar aspects are important in defining benefit sharing although regional and national benefit sharing measures cannot overshadow local affected people or community interventions.

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