Building a global community of practice around natural water infrastructure

The Nectandra Institute: Making It Rain

Kate Hamilton

The Nectandra Institute: Making It Rain

The Nectandra Institute, a Costa Rican non-profit focused on forest and watershed conservation, is attempting to bring the revolving loan fund mechanism-new to watershed protection-to the San Carlos River. Here, Kate Hamilton, a private consultant in the environmental markets space, chats with Nectandra regarding project design and outlook.

31 July 2014 | In rural areas worldwide, watershed protection is desperately needed, but project developers are stymied by a lack of water users with deep enough pockets to pay for it. In Costa Rica's San Carlos watershed, the non-profit Nectandra Institute has come up with a solution: a self-replenishing revolving loan fund (RLF) that lets borrowers pay back money over time as benefits from conservation accumulate. RLFs have been used in many places, including the United States, to finance big infrastructure projects. Now, the model's supporting investments in “natural” infrastructure: the forests and grasslands that recharge the aquifer, trap erosion, and filter out pollution.

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Standing tall in one of many pastures in the canton of Zarcero, a tree covered in bromelias holds a sign stating, “El mayor tesoro que podemos heredar es agua.” This sentiment to safeguard the treasure that is water is echoed by local land-owners in the upper Balsa River watershed, where I spent over a day touring the area’s hills, farms, forests, and communities. My visit to the area was guided by Luis Villa, Chief Operations Officer of the Nectandra Institute.

The Nectandra Institute is a non-profit organization based outside of San Jose, Costa Rica. It was created to protect cloud forests in the San Carlos watershed, an area where cattle ranching and development have resulted in the destruction of cloud forest. With the support of a fellowship from Colorado State’s Center for Collaborative Conservation, Luis, Andrea Johnson, and I scoped out several different communities and projects benefitting from Nectandra loans. Check out local news coverage of the visit here.

To explore further the innovative approach to supporting water management, I asked Luis about the goals, practices and results that the Nectandra Institute has seen to date.

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KH: This is Kate Hamilton, sitting in San Ramon, Costa Rica with Luis Villa of Nectandra Institute. Luis is the Chief Operating Officer of Nectandra Institute, a non-profit based in San Ramon, working on preserving cloud forests locally.

Luis, to start, can you explain the overall mission of Nectandra?


LV: Thank you, Kate. I think you said it best—Nectandra Institute was created specifically to promote the conservation and restoration of tropical cloud forests, and other forest ecosystems that are in the highlands here in Costa Rica.

KH: And for how many years have you been here working in Costa Rica?

LV: The Institute was created actually incorporated via a California nonprofit corporation in 1999, but we really didn’t get out into the field and on the ground working on our mission until 2006. There was a lag there. The founders in 1999 also created a private reserve called the Nectandra Cloud Forest and Garden, so they were focused on those efforts first, and the Institute was in gestation during that time frame.

KH: Nectandra works towards its goal in preserving cloud forests from an interesting angle, which is making zero-interest loans to different partners who are working to preserve or restore cloud forests in this area. Tell me a little bit more about these loans.

LV: That’s right. What we’ve done is partner with water management associations, “ASANAS.” These are resident-run groups in rural communities of Costa Rica and there’s about 2000 of these groups throughout the country. We are working on a specific part of the country, in the upper Balsa River watershed, with about twelve communities. Through philanthropic funding, we’ve established a revolving loan fund from which we make loans to water management associations to help them buy land, in or around water sources, or higher up in the watershed in groundwater recharge zones. We do not charge any monetary interest. We do expect them to pay back the principle over a defined period of time, usually around twelve years. They pay what we call “ecological interest,” which is the time and resources that they dedicate towards restoring the forests on these properties, which are usually former cattle grazing sites, farms, or croplands, and monitoring the restoration over time.

KH: So what exactly are water management associations?

LV: That’s a very good question. Here in Costa Rica, the potable water delivery system is in most areas, such as San Jose, or other metropolitan areas, and is managed by the state-run water company or agency. But in many rural communities in Costa Rica, the state-run water company does not have a presence—it’s not feasible for them to be there, so they delegate these tasks to the rural communities themselves. Over time, many rural communities have established their own water management associations, ASANAS, which manage the water delivery infrastructure. Sometimes they receive technical assistance from the state company and oftentimes, they just do it on their own and run their own potable water delivery system. That’s what a water management association is here in Costa Rica.

KH: So the primary goal of the ASANAS is to provide clean water to their clients, community members paying for potable water. Why do they care about forests?

LV: There is a very strong relationship between a healthy forest ecosystem and clean, available water. The best way to explain it, the best analogy I have, is that here in the tropics, especially in the mountainous areas covered in forests, the forests act as a sponge. Forests trap precipitation, whether it’s rain or fog or mist, allowing it to infiltrate into the ground and recharge the groundwater levels. All over our region, groundwater sprouts as a freshwater spring, which the communities pipe for potable water.

KH: A common question around these types of investments in watershed services projects is how does one really know that preserving or restoring a forest is truly improving water quantity or quality?

LV: Well, it’s not an exact science and here at the Institute, we aren’t scientists or experts in geology. These communities are looking at the land’s typography and, as I understand, the aquifers are shallow, so there’s not a long lag time between rainy season and when the springs are in full flow. So you know if you can follow the land’s typography and contour of the land, hone in on those areas in the highlands and make sure they’re covered in vegetation and forests, then you’re protecting the streams that are downslope. Recently, a coalition of communities decided they’re going to engage a hydro-geological program to try and understand the hydrology of the area in a much more technical fashion. Hopefully with results of that study, be able to use resources and borrow eco-loans from the Nectandra Institute in a way that focuses on the most critical areas, in the best manner possible.

KH: Do you know when the study will be completed?

LV: It’s just starting now and going to be probably a yearlong process, if not longer. These are extensive studies. The first phase of the study is being conducted and once the full financing is in place, the rest of the study can be engaged.

KH: On the topic of finances, how much money has Nectandra loaned to various partners?

LV: We’ve made loans totaling about $830,000 and with those funds, the local water management associations have been able to acquire and protect 220 hectares. This represents around twelve communities that have been direct beneficiaries of these eco-loans and associated land purchases.

KH: To what extent are you getting paid back for these loans?

LV: We had our doubts at first, but we’ve had zero percent delinquency rate. Everyone is paying on time; no one has fallen behind on payments. I think one of the biggest reasons is that our partner communities understand that we are operating on a revolving loan fund, what that means is that any money repaid is used again in loans to neighboring watersheds. So they really want to keep that loan funded, which I describe as keeping a communal asset intact.

KH: Several water management associations charge water users taxes which they then use for watershed management and to pay back these loans. How do these taxes work?

LV: Water management associations are the perfect borrower because they have a steady income flow from water tariffs that they charge and the services they provide to the community. When we’ve made some loans, the income received from water tariffs is often enough to repay the loan, depending on the time we delegate—sometimes it’s ten years, sometimes it’s a little bit longer. But in some other cases, they’re stretched to the max with their finances, yet they really want to buy the land and protect it and restore the forest. So what several communities have done is approved to tax themselves, households in the community, surcharge in their water bills so that they can take on this debt, this loan from Nectandra Institute, and take on the property and repay on time.

KH: In the example we saw today, what percentage of it is surcharge and what is generally people’s water bill?

LV: So today we visited a community called Laguna. That community’s water association adopted a surcharge of about $4 per month. As the manager of the association informed us, the average water bill is around $12. This is a significant percentage on top of the water bill, yet everyone was on board. They had 100% approval for the surcharge.

KH: That’s a significant part of one’s water bill. How did people agree to pay that much for forest conservation?

LV: You’re right. That’s a 33% percent increase, so it is significant. But what people here understand is that if people own the land around their water source, their water source will be much more protected than in private hands and potential sources of contamination. That’s the buy in. They’re in control of their water.

KH: So there are several cases where a water tax is funding these conservation projects. We visited another case today where the electricity co-op has a tax for watershed protection. How does this work?

LV: Our natural partners are water management associations but we’ve recently started to branch out with a hydroelectricity co-op. They provide electricity to all the homes in our service area. They observed what the water management associations were doing and became interested in joining this effort to protect the forests and watersheds in the area. They were convinced, in part, by some of these watershed associations who lobbied them to adopt a surcharge in the electricity bill. Since it’s a co-op, the members had to approve this by vote. They leveraged the additional revenue into an eco-loan from Nectandra Institute and bought the block of land that is contiguous to the properties protected by the water management association. So you have the hydroelectricity company charging a watershed surcharge and the water management association doing something very similar in the same area.

KH: Currently Nectandra is completely focused on the upper Balsa River watershed, an area an hour outside of Costa Rica’s capital. At this point, are you planning on scaling up, on broadening beyond this watershed? What are the next steps?

LV: We would like to maintain our focus locally. We think what we’re doing here is working and working well, but we have always been very open sourced with what we’re doing and we are happy to share our knowledge with any organization that’s interested in replicating it elsewhere within Costa Rica or anywhere else. There are around 2,000 water management associations here in Costa Rica and I think it’s beyond 10,000 in all of Central America, so there’s potential to work with these water management groups and set up this sort of model. We are happy to share our experiences and scale up in that sense, but not as an organization per say.

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Kate Hamilton is an independent consultant focused on investments in conservation. Her work includes serving as a Strategic Advisor to Valorando Naturaleza and the Governor’s Climate and Forests Task Force. She is currently a fellow with Colorado State’s Center for Collaborative Conservation.
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