Framing benefit sharing

Hydropower and related multipurpose development is increasingly recognised as providing multiple opportunities to significantly enhance development of communities at local levels but also at regional and transboundary levels if planned, designed and implemented in a sustainable manner. However, it is also widely recognised that for hydropower projects to contribute effectively to poverty alleviation and social development, the quality of projects must be enhanced and driven by imperatives of sustainable development with a strong focus on broader development goals. In general, there is no dispute that for many HPPs and, specifically, multipurpose dams, there may be a significant number of possible options that can derive benefits to wider stakeholder groups. The need to consider multiple, and often conflicting, objectives for a large number of stakeholders, and across a broad spectrum of scales constrained by geographical location, of the infrastructures and remoteness, means that a

Main categories of project owner contribution

Figure 11.1 Main categories of project owner contribution (A) that affect community7 well-being and where benefit sharing regimes (B) can transform the quality of well-being huge number of decision variables and constraints may need to be considered. Our experiences in these arenas are still new and uncharted across nations and projects. This is mainly due to the benefit sharing measures required going beyond the obligatory' measures of mitigation and compensation which do not necessarily encompass sustained social development.

Disentangling benefit sharing and mechanisms

Project promoters may share project benefits through two broadly obvious mechanisms: monetary and/or non-monetary mechanisms. Most common forms of monetary benefit sharing mechanisms include:

Revenue sharing Development funds Equity sharing

Property-- taxes/Royalties/Resource fees Preferential electricity rates

Through these mechanisms the benefits from investment projects are being shared with local communities. One important aspect to consider is that some of these mechanisms do not target directly or exclusively affected populations but may be used to finance long-term local/regional development initiatives. As such these mechanisms may also support the creation of long-term partnership between developers and concerned communities, a core approach of Corporate Social Responsibility (CSR) regimes.

Non-monetary mechanisms are probably more common as they are usually part of Environmental and Social Management/Action Plans (ESMPs/ESAPs) in the form of mitigation and compensation packages. Most common forms of nonmonetary' benefit sharing mechanisms are listed in Table 11.3. Hydropower companies and governments manifest their socially responsible behaviour through diverse mechanisms aiming at (Egre, 2007; Roquet and Durocher, 2006; Dhillion, 2014; Nair, 2014; Ahlers et al., 2015):

  • • compensation of project-affected populations usually by means of monetary' compensation for lost assets and loss of access to resources
  • • restoration of the livelihoods of project-affected populations living in the vicinity' of a hydropower development by means of non-monetary or monetary benefit sharing mechanisms
  • • enhancing and improving the livelihoods of project-affected populations living in the vicinity of a hydropower development by means of non-monetary or monetary benefit sharing mechanisms

In the case of the two last types of mechanisms it is often difficult to draw a strict line to distinguish between what corresponds to mandatory mitigation commitments (i.e., to restore existing pre-project conditions) and what goes beyond it, to

Table 11.3 Monetary and non-monetary instruments used in hydropower development to manifest socially responsive behaviour

Main mechanism/ instruments

Main objective - obligatory and non-obligatory

Mitigation and restoration (obligatory)

Enhancing local development

(Benefit sharing programs, non-obligatory)


Monetary compensation for lost assets or access to resources

Revenue sharing Development funds Equity sharing

Property taxes/Royalties/Resource fees

Preferential electricity/water-related rates

Payment for Environment/Ecosys- tem Services (PES)


Livelihood restoration and enhancement Community development (health, education, mobility) Concessions for natural resource use Catchment/watershed development

improve existing conditions. Benefit sharing initiatives deal mostly with the third type of mechanism, mechanisms that go beyond the monetary compensation for lost assets and/or loss of access to resources, namely, non-monetary and monetary local development enhancing mechanisms. Since in the case of non-monetary mechanisms some instalments usually aim simultaneously to restore and to improve existing conditions, there is a need to advance towards a concept that is more operational.

From an overall development framework, it can be argued that all the instruments included as ‘enhancing local development’ in Table 11.3 can act as local development drivers. Both monetary and non-monetary instruments can contribute to local development initiatives. There are at least two (interrelated) criteria under which one could classify these instruments according to potential for contributing to local development. The first criteria would be the degree of targeting that can be expected from the instrument, whether the beneficiaries should be restricted to exclusively or mostly restricted to the project-affected population. For instance, a regional development fund would most likely promote regional development and thus benefit both project-affected and not-affected populations. The second criteria would be the degree of centralisation (regional-national vs local) of the funds/initiarives being part of the benefit sharing program.

From an economic point of view, the positive externalities that may be triggered by both types of instruments can improve the welfare of the beneficiary communities, if applied and monitored. Improved road access, improved access and quality of health and education centres, strengthening of local private and public organisations, etc., all have a positive contribution to local development. Monetary instruments are more intangible when provided directly to affected households - where there is danger of mismanagement and distribution among household members.

Both instruments are used as part of typical ESMPs and also as part of benefit sharing programs, as it can be seen that non-monetary instruments can be used indistinctively as part of mitigation/restoration packages (in ESMPs) and as part of benefit sharing programs. From an overall development perspective, considering both types of mechanisms (monetary and non-monetary) as actual contributions to enhance local development appears as a reasonable approach. From an operational perspective it will be a challenge to be able to disentangle non-monetary benefit sharing mechanisms from plain mitigation and compensator)' measures. Detailed studies of HPPs show that directly affected communities were not always clear on the difference between compensation and livelihood restoration measures and those considered as additional (IIED, 2014; Sweco, 2011). When benefit sharing measures are intertwined with obligator)' compensations, expectations from communities appear to be lifted to levels where larger contributions from the proponent increasingly include benefit sharing measures (Table 11.3), thus including non-obligator)' measures. The result of this was a confusion of expectations and the actual nature (e.g., proponent's contribution of revenues) of benefit sharing.

Benefit sharing mechanisms - typology

Major categories of benefit sharing mechanisms employing either monetary or non-monetary instruments, or both, can be categorised as presented in Table 11.4. The typology requires consideration of geographical scale, that is, the segment of society likely to be affected by a given mechanism (Figure 11.1; Table 11.4). Beneficiary groups can be defined at many levels; each application of the suggested typology may thus be tailored to specific circumstances and local/national/regio- nal-transboundary conditions. The mechanisms can be reached via a range of entry points and the portfolio of measures is wide and varied (Tables 11.3, 11.4 and 11.5; Box 11.1). CSR is an entry point based on reports mainly related to private proponent initiative, whether reactive or proactive in nature (Table 11.4).

Box 11.1 Examples of benefit sharing mechanisms across countries

Countries and mechanisms used in hydropower projects

Burkina Faso Fixed tax on infrastructure value paid to local government Canada Trust Fund from revenues specific to Columbia basin FIPP projects; Equity sharing; in Cree Nation payments from the State Government for all types of resource extraction

Colombia 3% of gross hydropower sales each to environmental authority and local municipality; local employment; infrastructure development; local institutional and capacity building

Costa Rica Payment of Environmental Services, watershed management instruments

Ghana Resettlement Trust Fund India Preferential electricity rates

Lao PDR Revenues to Government; Environmental/Watershed Protection programs; livelihood capacity building programs Lesotho Fund for community development Mali Royalties, 60% to municipality and 40% to province/region Nepal Royalties (10% of revenues) paid to national government for distribution to local level; local development programs (education, health); community fund; community/household shares in local electrification schemes

Norway 28% tax on profits, property taxes, natural resource taxes, licence fees towards business development fund; preferential electricity rates Philippines CSR fund - voluntary contributions to 3 national funds South Africa Educational, mobility and land use support Vietnam Local development fund - community based

Sources: NED, 2014; Sweco, 2011; Wang, 2012; Dhillion (personal

observations, 2011-2018)

Concluding key elements and enablers of benefit sharing

Underlying principles derived from experiences and practices relevant for benefit sharing in hydropower development that transform conflicts and reduce risks are:

  • • Equitable and fair sharing of benefits arising from resource use
  • • Appropriate sharing arrangements and access to resources by those who contribute directly and indirectly to the exploitation and use of the resource are necessary to ensure sustainable development and affected persons’ well-being
  • • Special consideration on benefit sharing to those in a disadvantaged position related to the utilisation of the resource
  • • Landscape/ecosystem transformation requires compensation and mitigation assuring that affected persons are not rendered disadvantaged post-hydro- power (infrastructure) development
  • • Affected persons are included in the decision-making processes. Communication is informed and participatory.

Benefit sharing can work against communities as learned from a number of HPPs, for example, where money can land up in a few hands, or if benefit sharing is done rapidly and is non-inclusive of gender and vulnerable groups, and when it goes unmonitored. There is an absolute need to involve those directly affected in the design of benefit sharing regimes.

160 Dhillion

Table 11.4 Typology of mechanisms and potential entry points for benefit sharing


Entry points for benefit sharing (enablers)


Project design and operations

Policy and Regulatory Instrument at feasibility evaluation stage

Maximise benefits of flexible infrastructure and integrated resource management, e.g., multi-purpose infrastructure (flood control, irrigation), managed flows, watershed management



Local-regional development plans CSR

Mitigation instruments (enhancement)

Investments outside core infrastructure to broaden reach of benefits, e.g., social infrastructure (including access to resources), community programs (social, education, health, agriculture), conservation, ecosystem services and catchment treatment

Financial allocations (Including royalty and equity


Policy instrument CSR

Distribute economic rents, e.g., taxes, development funds, preferential rates, joint ownership (equity' investment, local share offers in HPPs). Royalty regimes and equitable electricity' access. Institutional frameworks can act as enablers.


Local, regional and national development plans including institutional framework development CSR

Mitigation instruments (enhancement)

Build enabling environment for leveraging benefits, e.g., (i) knowledge sharing, river basin organisation, SME development, development planning capacities at regional and national levels, and (ii) knowledge sharing, stakeholder-community' organisations/ institutions (agriculture, infrastructure, health and education, gender, youth) and thematic local focus groups.


National strategic plans

Building and assuring requirements for benefit sharing through a range of mechanisms including institutional frameworks



Development plans CSR

Mitigation instruments (enhancement)

Building required knowhow for designing, implementation and monitoring benefit sharing measures. Community-level capacity' to manage funds both on household levels (small- scale industry; women-run businesses) is required when measures are aimed at increasing household fund management and security.

Adapted from: World Bank 2009; IIED 2014

Table 11.5 Example of benefit sharing targeted at local community well-being and environmental protection

Lao PDR. The Nam Theun 2 project set by various capacity building programs for enhancing livelihoods through testing new systems and seeds via agricultural training programs.

Integrated Community Health Center at Sop On, a village of resettled households

An extensive health care and improvement program was implemented and has improved general health levels.

This is usually only possible with additional funds going beyond the usual mitigation requirements. Here benefit sharing is a viable tool.

The Nam Theun 2 (NT2) project also set up a trust for environmental protection and an institution for watershed management to safeguarc forest resources — protecting biodiversity- and ecosystem services.

Increasing health-care awareness among women

A community-based forest management plan was also set up providing local communities a 70-year concession for forest use.

Nepal. Through benefit sharing the project owner in the Khimti hydropower project, the project initiated a partnership with an international NGO (UNDP) and local communities where a local electrical energy supply cooperative was set up where each household had an equal share. The cooperative is managemed and run by local communities where expert management training has been provided.

Project health clinic for workers also allowed access to villages. It is used by villages beyond the project’s footprint (area of impact) thus benefiting a wider area.

In addition, an ambulance system and use of the project health clinic (for workers) for local communities is fully functional. Furthermore, an extensive irrigation system financed by the project owner has been set up by governance through local institutions (user-groups).

A number of scholarships for higher education (university level) are also made available for qualified students from the communities.

The actions of the project owner were part based on its own Corporate Social Responsibility strategy and not a government requirement.

These actions, among others, led to high acceptance of the hydropower project and reduced risk for the project owners.

Source: Photographs taken by author. See also Lao PDR, Nam Theun 2 (NT2) HPP (https://; Nepal,; Wang, 2012; Sweco, 2011; Dhillion, 2014.

Today many governments and proponents (hydropower developers) shy away from benefit sharing going beyond the minimum required compensation and mitigation — thus there is still much ground to cover in terms of learning how benefit sharing can work in the long run, how it is to be framed, if legal requirements are the only way to assure benefit sharing, and if it justifies the argument for large-scale infrastructure developments like dams and ultimately sustainable development. In many countries there is the issue of corruption and thus instilling transparent management of funds related to benefit sharing regimes is challenging and at times not possible. Further, benefit sharing returns in investments by the community may end up as ‘elite capture’.

Proponents can face unjustifiable demands due to misunderstandings of the nature and scope of benefit sharing which is largely non-obligatory (Fig. 11.2). Of relevance is to realise that, in practice, it is difficult for project owners to draw a categorical line between obligatory and non-obligatory aspects, for example compensation and livelihood restoration, where extra funds through benefit sharing enhance the planned livelihood measures and work as extensions of compensation and associated enhancement measures (Wang, 2012; Dhillion, 2017).

Social acceptance to operate hydropower projects

Social risks arise because the expectations of external stakeholders are broader or different than those defined by legislation, regulatory approvals and/or the conditions of project financing. While it is universally accepted that a legal

Hydropower project development and required

Figure 11.2 Hydropower project development and required, obligatory and non-obligatory measures licence is required from the relevant government agencies, project proponents are also acknowledging the importance of obtaining a social licence to operate (SLO). Establishing good relationships with stakeholders and focusing on their concerns can generate significant positive opportunities for the project and proponent. It is critical that project stakeholders are not just seen as a source of negative risks to projects. The bottom line is that with a proper approach the potential social risks can be converted into potential social opportunities, requiring a systematic approach to managing both aspects (risks and opportunities).

Undoubtedly, community engagement is part and parcel of a successful social responsibility strategy (Wynberg et al., 2009; Dhillion and Granfelt, 2010; Dhillion, 2014; Dhillion, 2017; Dhillion, 2018). Some developing nations (like Lao PDR, Nepal, Vietnam and Bhutan) are starting to include benefit sharing and social responsibility — accountability' — into policy regimes. There is also a significant amount of theory building up around the issue of CSR and its sustainability (e.g., Reinhardt, et al., 2008; IIED, 2014). However, the mechanisms and assessments required for stakeholder understanding require deeper understanding from a practical standpoint. Although arguably approaches and mechanistic processes may be case specific there are likely processes that are applicable globally.

Making benefit sharing plans tangible

Benefit sharing plans and precise measures may be agreeable to all parties involved but their implementation and success can be hinged on the following:

  • • Policy and Regulatory frameworks. Institutional presence and establishment.
  • • Presence and type of implementation arrangement. Responsibilities of parties involved, procedures/protocols and operational plans required. Monitoring and evaluation.
  • • Institutional agreements.
  • • Communication policy and strategy, including complaint management.
  • • Community representation, engagement and mobilisation, indigenous cultures.
  • • Funding arrangements and clarity in purpose and flow of funds. Partnerships.
  • • Capacity building for implementation and management of benefit sharing plans. Technical and human resource needs.

Without doubt, benefit sharing is now viewed as a vital component of sustainable hydropower development and management - aiming to assure well-being, gain acceptance locally and as a practical instrument for encouraging cooperation among differently-positioned stakeholders. It is a new key enabling mechanism to many environmental and social safeguard arrangements. It is however only practised by a few serious actors and needs to gain ground to show it is a viable mechanism for sustainable hydropower development. At this stage our experiences are few but there is promising potential when projects actually go beyond the basic obligations of mitigation and compensation.


  • 1 The Agreement governing the activities of states on the Moon and other celestial bodies (1979) and the Convention on the Law of the Sea (1982).
  • 2 The World Bank upgraded its E&S Framework and safeguard policies in 2017. rojects/brief/environmental-and-social-safeguards-policies


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