Report number: ORASECOM 004/2009
SHARING THE WATER RESOURCES OF THE
ORANGE SENQU RIVER BASIN
Feasibility Study for the Development of
a Mechanism to Mobilize Funds for
Catchment Conservation
Business Case
for the
ORASECOM Conservation Fund
JUNE 2009
Prepared by:
ORASECOM Conservation Fund
Business Case Executive Summary
Report number: ORASECOM 004/2009
Executive Summary
A parallel study to this business case has demonstrated that viable conservation projects
exist in the Orange-Senqu River Basin that require funding. Projects range from studies and
monitoring, to implementation of interventions on priority transboundary conservation issues.
Projects may be implemented by the parties, or by ORASECOM. Whatever the nature or
implementation arrangements for the projects, funding for these projects is required. The
ORASECOM agreement requires ORASECOM to recommend funding arrangements to
accompany any project recommendations that the commission may make.
Accordingly, The ORASECOM Conservation Fund (OCF) has been proposed as a vehicle to
obtain, manage and disburse finance from innovative funding sources, for conservation
measures in the Orange-Senqu River Basin. The specific objectives of the OCF are:
· To identify priority conservation issues for funding, from the list of priority
conservation issues identified in the ORASECOM strategy (Basin Wide Plan);
· To develop a funding strategy for the priority conservation issues;
· To develop projects to address the priority conservation issues, including feasibility
and bankability;
· To source and manage funding for the priority conservation issues, including contract
management and disbursement for projects;
· To monitor success of projects and funding, and to report on achievements.
Objectives and functions of the Fund are enabled by the legal form of the Fund, which
conveys powers and responsibilities on the Fund. In addition, the legal form provides the
legal framework within which the Fund operates and ensures good governance,
accountability and transparency for the OCF. Accordingly, the legal form is a critical element
in ensuring funder confidence in the OCF through creating the appropriate legal and
governance structure for the OCF. The business case explores the legal form in depth,
deploying a number of criteria to evaluate a decision tree on appropriate legal form. The
recommendation arising from the detailed analysis is that the Fund be established as a
charitable company in term of Section 21 of the South African Company's Act. The location
was chosen owing to the legal proximity to ORASECOM, which will be hosting the Fund.
The organisational institutional model for the Fund is explored in detail in the business
case. Of the three conceptual options, the most appropriate initial model is for the Fund to
conclude a management contract with ORASECOM, and thus for the Fund functions to be
performed from within ORASECOM. This model strongly supports the close relationship
between the OCF and ORASECOM, is cost effective as it reduces duplication and it
maximise use of functioning structures and systems. As the work of the Fund increases, so it
may be appropriate to move the functions out of ORASECOM into a separate institution.
This would be seen as an evolution of the Fund into an increasingly autonomous entity.
Starting with the hosting arrangement with ORASECOM (management contract) does not
preclude this evolution of the Fund.
Governance of the Fund reflects the emerging understanding and principles of good
corporate governance. A governing body is established for the Fund, which assumes
governance oversight and fiduciary responsibilities for the Fund. This body is critical in
conveying confidence to funders, partner institutions and broader stakeholders. It is
proposed that the governing body consist of between 5 and 11 directors, comprise of
representatives of:
· Departments of Water Affairs of the Member States;
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Business Case Executive Summary
Report number: ORASECOM 004/2009
· The ORASECOM Executive Secretary;
· Donors, selected through the donor forum;
· Private sector, selected through the stakeholder committees; and
· Civil society; selected through the stakeholder committees.
· The fund manager (Fund CEO where applicable) should attend board meetings, but
in a non-voting capacity.
Based on the purpose and nature of the institution, the following competencies must be
represented on the board:
· Understanding of water related conservation issues in the basin and beyond;
· Understanding of mitigation measures technical and non-technical;
· Understanding of the donor environment, accountability and credibility to donors;
· Legal and compliance competency;
· Financial competency and some knowledge of fund management; and
· Human resource competency.
Strategy development is an important element of governance and one of the key
responsibilities of the governing body. In the case of the OCF, given the close relationship
with ORASECOM, the ORASECOM strategy (the Basin Wide Plan) serves as the umbrella
strategy for the Fund, with the priority interventions identified for OCF funding compiled out
of the priority conservation issues identified in the Basin Wide Plan. Accordingly, the OCF
does not develop an independent strategy, but rather a strategy nested within the Basin
Wide Plan. The Fund will develop an independent funding and financial strategy.
The organisational implications of the Fund reflect the institutional-organisational model: the
management contract arrangement with ORASECOM. Despite a wide range of functions
required for the Fund, it is anticipated that these functions can all be conducted by a Fund
manager sitting inside ORASECOM, in the first instance. As the work-load of the Fund
increases, so additional capacity may be required. However, at the outset, a single fund
manager reporting to the Executive Secretary will suffice.
The financial model for the fund reflects this lean structure, with only limited establishment
and low operational costs. Whilst the OCF functions are managed within ORASECOM
according to a management contract, an annual budget of R1.6 million is required. Initial
once-off establishment costs of circa R200, 000 are anticipated.
This business case was presented to the project steering committee and the ORASECOM
Technical Task Team in early March 2009, and to the ORASECOM Legal task Team and
ORASECOM Council in April 2009. Comments arising from these key consultations have
been incorporated into the document.
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ORASECOM Conservation Fund
Business Case Table of Contents
Report number: ORASECOM 004/2009
Table of Contents
Executive Summary ............................................................................................................... i
Table of Contents................................................................................................................. iii
1
Introduction ....................................................................................................................1
1.1
Background.............................................................................................................1
1.2
Process to date .......................................................................................................1
1.3
Purpose of this document........................................................................................2
1.4
Structure of the document .......................................................................................2
2
Motivation for the Fund...................................................................................................3
2.1
The conservation situation ......................................................................................3
2.1.1
The key conservation issues ............................................................................3
2.1.2
Need and opportunities for basin conservation.................................................6
2.2
Response to the opportunity: the ORASECOM Conservation Fund ........................6
2.2.1
Purpose ...........................................................................................................7
2.2.2
Functions .........................................................................................................7
3
Legal form ......................................................................................................................9
3.1
Available legal forms ...............................................................................................9
3.2
Assessment of legal form ...................................................................................... 10
3.2.1
Assessment criteria........................................................................................ 10
3.2.2
Applying the assessment criteria.................................................................... 12
3.2.3
Conclusion of the assessment........................................................................ 15
3.3
Comparing trusts and charitable companies.......................................................... 15
3.3.1
Legal regimes in the member states............................................................... 15
3.3.2
Trusts............................................................................................................. 17
3.3.3
Company........................................................................................................ 17
3.3.4
Summary: trust vs. company.......................................................................... 17
3.4
Legal location of the Fund ..................................................................................... 20
3.5
Conclusion of the legal form analysis .................................................................... 20
4
Institutional Arrangements............................................................................................ 21
4.1
Institutional linkages with ORASECOM ................................................................. 21
4.1.1
Institutional models for the Fund .................................................................... 21
4.1.2
Conclusion of the institutional model analysis ................................................ 23
4.2
Institutional arrangement with other institutions ..................................................... 24
5
Fund Governance ........................................................................................................ 26
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5.1
Good governance.................................................................................................. 26
5.2
Governing body..................................................................................................... 26
5.2.1
Purpose ......................................................................................................... 26
5.2.2
Code of conduct ............................................................................................. 27
5.2.3
Composition ................................................................................................... 27
5.2.4
Nomination..................................................................................................... 28
5.2.5
Tenure ........................................................................................................... 28
5.2.6
Management of the institution ........................................................................ 28
5.3
Strategy development ........................................................................................... 29
5.4
Fund management ................................................................................................ 29
5.4.1
Management arrangements ........................................................................... 29
5.4.2
Fund manager................................................................................................ 31
5.5
Governance systems and control .......................................................................... 32
5.5.1
Planning systems ........................................................................................... 32
5.5.2
Management appraisal and performance management.................................. 33
5.5.3
External and internal audit.............................................................................. 33
5.5.4
Reporting ....................................................................................................... 34
6
Organisational and HR considerations ......................................................................... 35
6.1
Functional description ........................................................................................... 35
6.2
Organisational structure ........................................................................................ 36
7
Financial considerations ............................................................................................... 38
7.1
Financial arrangements......................................................................................... 38
7.2
Financial requirements of the Fund ....................................................................... 39
7.3
Cost of the OCF .................................................................................................... 39
7.3.1
Cost-model assumptions................................................................................ 39
7.3.2
Establishment costs ....................................................................................... 39
7.3.3
Operating budget ........................................................................................... 39
7.3.4
Cost summary................................................................................................ 39
7.4
Sources of finance ................................................................................................ 40
7.4.1
Contributions from the Parties ........................................................................ 40
7.4.2
Donor Funds .................................................................................................. 40
7.4.3
Investment income ......................................................................................... 41
7.4.4
Charges or taxes............................................................................................ 41
7.4.5
Summary........................................................................................................ 42
7.5
Financial systems.................................................................................................. 42
8
Risk analysis ................................................................................................................ 43
8.1
Identification of key risks ....................................................................................... 43
8.2
Risk quantification and management..................................................................... 44
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9
Implementation considerations..................................................................................... 45
Appendix A.......................................................................................................................... 46
Examples of interventions to priority conservation issues ................................................ 46
Appendix B.......................................................................................................................... 50
Review of Conservation Funds ........................................................................................ 50
APPENDIX C ...................................................................................................................... 67
ORASECOM Institutional Review .................................................................................... 67
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1 Introduction
1.1 Background
The Orange-Senqu River originates in the highlands of Lesotho and stretches over 2 300km
from the source to its month on the Atlantic Ocean. The river system is one of the largest
river basins in Southern Africa with a total catchment area of 850,000km2 inside Lesotho,
Botswana, Namibia and South Africa. The natural mean annual runoff at the mouth is
estimated at 11,500Mm3.
Supplying the economic heartland of South Africa, the basin has been extensively altered
and its water resources widely utilised. Given competing demands and complex socio-
economic drivers within the basin, significant management problems exist relating to both
water quantity and quality, and to environmental quality. The riparian countries have for
some time recognised that a basin-wide integrated approach has to be applied in order to
find sustainable solutions to these problems and that this approach must be anchored in a
strong political will.
Within this context, one of the key responsibilities of ORASECOM will be to promote the
conservation of the catchment through the development of indicators and the monitoring of
these indicators as well as the implementation of conservation measures/programmes. This
will be for the benefit of all stakeholders since it will be one of the support measures that
ensure that development is sustainable. Clearly there is a cost attached to these measures
and there will be a need to develop processes and mechanisms to ensure that funds are
mobilised on a continuous basis to meet these costs.
Accordingly, in April 2008 the ORASECOM Secretariat invited tenders for a project entitled:
"Feasibility Study for Development of Mechanism to Mobilize Funds for Catchment
Conservation". This tender was awarded to Pegasys Strategy and Development (Pty) Ltd in
September 2008. The project objective is stated as "propose a mechanism for the
mobilisation of funds for the conservation of the basin's water and associated natural
resources". Given that the project is at a feasibility level, the project requires that innovative
mechanisms to Fund conservation measures are investigated and are developed into a
business case that describes the conceptual model, requisite institutional arrangements and
the technical elements of funding and disbursement, and that demonstrates the viability of
the mechanism.
1.2 Process to date
The project was composed of three phases:
· a 2-month inception phase;
· a 3-month consultative phase; and
· a 2-month reporting phase.
The inception phase included a detailed review of: (1) the conservation situation and issues
in the Basin; (2) the possible financial instruments for conservation in the Basin (including a
detailed review of Funds); and (3) of the ORASECOM institutional arrangements that define
the nature of ORASECOM's engagement.
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The inception report was presented to the first stakeholder workshop, with recommendations
on a suitable financial mechanism for ORASECOM's engagement with priority conservation
issues in the basin. The recommendation arising from the workshop was to investigate the
development of a Fund1 as a financial vehicle to route finance2 to priority conservation
interventions, based on a defined conservation finance strategy.
A draft business case for the Fund was developed through the consultative phase, and was
presented to the consultative workshop to test and further develop the emerging
understanding. In addition, the emerging business case was tested with the ORASECOM
Legal Task Team and ORASECOM Council. This process has significantly enriched the
business case, leading to finalisation of the business case for implementation.
1.3 Purpose of this document
This document is the final business case for the ORASECOM Conservation Fund. It has
been presented, tested and improved through the Project Steering Committee and
stakeholder workshops in March 2009, and through the ORASECOM Legal Task Team and
ORASECOM Council presentation in April 2009.
1.4 Structure of the document
The document follows a relatively standard structure for a business case (motivation) for an
institution. It begins with a description of the purpose and functions of the institution (chapter
2), which informs the appropriate legal / legal form of the institution (chapter 3). Then the key
institutional arrangements for the Fund are investigated, including the most appropriate
institutional model (chapter 4), leading to governance considerations (chapter 5), a
discussion on organisational arrangements (chapter 6) and financial arrangements (chapter
7). The document ends with an assessment of the key risks of the Fund (chapter 8) and
some high-level implementation considerations (chapter 9).
1 The inception workshop recommended that a managed fund, established as a separate legal entity (probably a
trust) but closely linked to ORASECOM be explored further through the business case.
2 Primarily arising from donor or investment income, but possibly also including user charges, PES and other
sources of income in the future.
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Business Case
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2 Motivation for the Fund
Significant interest has been expressed in the concept of a Conservation Fund for
ORASECOM, through the project steering committee and the wider stakeholder
consultations. This chapter outlines the motivation for the Fund, describing the conservation
context and the need for funding at a basin-wide level merged into an assessment of
ORASECOM institutional arrangement and international experience on Conservation Funds.
The motivation forms the basis for an understanding of the purpose and associated functions
of the Fund.
2.1 The conservation situation
A parallel study to this business case has demonstrated that viable conservation projects
exist in the Orange-Senqu River Basin that require funding. Projects range from studies and
monitoring, to implementation of interventions on priority transboundary conservation issues.
Such projects may be implemented by the parties, or by ORASECOM. An outline of some of
the key conservation challenges and the possible responses to such challenges is given
below.
2.1.1 The key conservation issues
The extensive review of literature and consultations established five main conservation
challenges in the Orange-Senqu River Basin. Of these five issues, some have localized
impacts whilst others have transboundary implications. These main challenges identified in
the basin are:
· Threat to water resource availability
· Decline in water quality
· Alteration of the flow regime/hydrology
· Soil erosion and wetland degradation
· Invasion of alien species
Of these, water resource availability, water quality and alteration of flow regime were
identified as the highest priority challenges for the basin (Table 1).
Water resource availability
Water resource availability in the basin is greatly influenced by agricultural, municipal and
industrial demands. Agriculture accounts for the most significant portion of current and
projected demand (60%). Mining and industrial demands in the Orange River System
(excluding the Vaal river system) are a relatively small component of the total demand,
although these sectors are concerned about assurance of supply, owing to increasing
demands on the system. Over 97% of total water use takes place within South Africa. A
steady increase in consumptive water demand is anticipated in the basin a total increase
of 12.6% is projected by 2025.
The Vaal River system is facing the greatest challenges in reconciling future demand with, in
particular, significant growth in n the Rand Water supply area projected. Losses of around
25% are experienced in this area, suggesting that water conservation and demand
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management could contribute significantly to meeting increased demand. RSA DWAF has
set a target of 15% reduction in demand in the Vaal river system by 2015. In addition, a
number of smaller towns (e.g. Kuruman, Mafikeng and Upington) have been identified for
water conservation interventions to relieve water availability issues.
A number of interventions that address water resource availability issues and concerns
stand out in the basin all of which require financial support of some form. Examples of
such interventions include (see Appendix A for details):
· Water conservation and demand management measures in towns such as Kuruman,
Mafikeng and Upington
· Partnership in the Richtersveld COWEP programme and the extension of similar
projects to Namibia and Botswana
· Conducting a study on the potential for increased efficiency of water use in
agriculture, through reducing losses in conveyance and on-farm use (although it is
accepted that agriculture in the region is already highly efficient)
Water quality
Surface water quality in the Upper and Middle Orange River areas is generally good. In the
Vaal River high nutrient and salt loads are the result of mining and industrial discharges and
untreated or poorly treated municipal effluent. High nitrate levels in the Lower Orange River
suggest nutrient enrichment from agriculture. The Integrated Water Resources Management
Plan conducted by GTZ also found an increase in salinity in the lower reaches of the river,
resulting from irrigation return flows and evaporative losses along the river.
Thus the major water quality issues centre on mining and industrial activities (predominantly
in the Vaal River basin), municipal discharges and irrigation (particularly between Vioolsdrift
and the Vaal-Orange confluence). While existing mines are exploring a range of innovative
options for managing mine water discharge, the challenge of abandoned mines remains high
and one where significant funding will be required.
Small-scale mining along the banks of the Lower Orange River result in high sedimentation
loads and, along with reduction in river flow, create conditions favourable for the proliferation
of reeds. The proliferation of reeds has been exacerbated by high nutrient loads resulting
from irrigation activities in the Lower Orange River. Reeds pose several additional problems
in that they increase the surface area available for blackfly larval attachment and increase
riverine transmission losses caused by evaporation and evapo-transpiration.
A number of interventions that address water quality issues and concerns stand out in the
basin all of which require financial support of some form. Examples of such interventions
include (see Appendix A for details):
· Support of the rehabilitation of the Klip River wetlands;
· Support to the remediation of mine drainage from decommissioned mines; and
· Support the upgrading of various wastewater treatment works.
Altered flow regime
The main drivers resulting in a degraded hydrological regime are high water demand in the
Vaal River basin, and reservoir operations which do not provide meaningful environmental
releases.
The key reported impacts are:
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· The proliferation of reeds due to lower flow velocities and high nutrient loads
· An increase in the prevalence of blackfly
· Changes in the hydraulics of the Orange River Mouth estuary
Key challenges in the estuary are also linked to physical changes associated with sand
mining and road construction, rather than the flow regime per se. Co-ordination of
rehabilitation of the estuary is weak.
A number of interventions that address issues and concerns relating to altered flow regime
stand out in the basin all of which require financial support of some form. Examples of
such interventions include (see Appendix A for details):
· Coordination of the rehabilitation and management of the Orange River Mouth
estuary;
· Support to the Black Fly control programme; and
· Support to Lower Orange Transfrontier Conservation Area (LOTCA) Invasive Alien
Plant Management Programme.
Table 1: summary of example priority conservation issues in the Orange-Senqu River Basin
ISSUE
CAUSE
IMPACT
COUNTRIES
IMPACTED
Water availability
High demands and
Availability concerns
RSA and Namibia
abstractions,
for downstream
particularly in
countries
agriculture
Low flow in estuary
RSA and Namibia
Water quality
Poorly managed waste High nutrient levels
RSA and Namibia
water treatment works,
resulting in
industrial effluent and
eutrophication
agricultural run-off
Pollution from mining
High levels of salinity
RSA and Namibia
and industry
and heavy metal
pollution
Altered flow regime
Reservoir operations,
Flow regime
RSA and Namibia
high rates of
inappropriate to
abstraction
ecological
requirements; low flow
in estuary
Black fly infestation
High costs in cattle
RSA and Namibia
losses
Reed invasion
Increased black fly
RSA and Namibia
population, altered
habitat, flow and
siltation patterns, and
fire hazard.
Poor control of water
De-oxygenation,
RSA and Namibia
hyacinth
interference with
recreational use and
dam operation
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2.1.2 Need and opportunities for basin conservation
It is clear that there are a number of conservation challenges in the Orange-Senqu River
Basin, of differing orders of magnitude, and with differing funding requirements. Addressing
these conservation challenges is critical in ensuring the sustainable management of the
basin, particularly given both increasing demand and the impacts of climate change.
It is equally clear, from the studies conducted in this project, that there are a number of
interventions that could result in significant improvements in the status of the basin. Some of
these interventions can also bring significant benefits to water users and local communities.
Two challenges arise in relation to a number of these challenges:
· How best to fund them; and
· How best to co-ordinate cross-border activities (where these are required).
International best practice has pointed to the management of water at the basin level, rather
than according to administrative and political boundaries. The establishment of ORASECOM
has proved the commitment of the riparian states of the Orange-Senqu River Basin to this
approach. This institutional arrangement enables the identification, at the basin level, of the
key conservation challenges in the basin, and the adoption, at the basin level, of an
appropriate funding strategy to address these challenges. Such an approach moves well
beyond the rhetoric of integrated basin management, to its implementation, and reflects a
maturity of vision by riparian states in relation to the management of shared water resources,
and the shared benefits to be derived from such cooperation.
The tables in Appendix A provide examples of the range of conservation-related
interventions required in the basin. Such interventions range from the relatively low cost, to
the extremely expensive. A number of these interventions will also require substantial multi-
year funding in order to take on the magnitude of the challenge.
The key challenge with respect to conservation priorities and priority interventions is financial
and institutional in nature, given that the technical understanding of these issues and the
required interventions has largely been gained. The challenges can therefore be articulated
as:
· Where and how to access the necessary financial resources for the priority
conservation issues, particularly where these issues span international borders; and
· What institutional arrangements are required to source, manage and disburse these
financial resources, ensuring the best principles of governance, financial oversight
and control, accountability and transparency are maintained.
The establishment of a specific, basin-wide, funding mechanism to support the
implementation of these interventions will facilitate the sustainable management of the basin
to the benefit of all parties.
2.2 Response to the opportunity: the ORASECOM Conservation Fund
The development of fund, to support the financial management of resources to achieve
particular conservation outcomes, is well established internationally. These funds vary
greatly in nature legally, institutionally, geographically, purpose and financially. A detailed
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review of conservation funds was undertaken during the inception phase of this project and
can be found in the inception report. A summary of the review is attached in Appendix B.
The review provided some important lessons on best practice that have been incorporated
into this business case.
Arising from that review and from a review of the ORASECOM institutional arrangements
(Appendix C), it is clear that a Fund provides the most appropriate financial vehicle to
support the priority conservation issues identified through the basin-wide assessment and
planning process. This conclusion was supported by the Project Steering Committee, the
ORASECOM Technical Task Team and the ORASECOM Legal Task Team. This
endorsement forms a critical point of departure for the business case.
2.2.1 Purpose
It is clear that the Orange-Senqu River Basin faces some significant conservation challenges
and that one of the key responsibilities of ORASECOM will be to implement conservation
measures / programmes (where this responsibility has been delegated by the parties) or to
make recommendation to the parties on appropriate conservation measures or programme
and provide sources of funding. Whether ORASECOM implements interventions or provides
recommendations, it will need to secure funding for the identified, priority conservation
issues (and responses). In this regard, a mechanism is required to ensure that funds are
mobilised on a continuous basis from a wide variety of sources.
The purpose of the ORASECOM Conservation Fund can therefore be stated as:
"To source, manage and disburse funding for priority conservation issues in the Orange-
Senqu River Basin through the establishment of a dedicated, independent financial vehicle"
Key objectives arise from the purpose:
· To identify priority conservation issues for funding, from the list of priority
conservation issues identified in the ORASECOM strategy (Basin Wide Plan);
· To develop a funding strategy for the priority conservation issues;
· To develop projects to address the priority conservation issues, including feasibility
and bankability;
· To source and manage funding for the priority conservation issues, including contract
management and disbursement for projects;
· To monitor success of projects and funding, and to report on achievements
2.2.2 Functions
A summary of high-level functions is included:
· Strategy
o based on the framework provided by the ORASECOM Strategy, to develop a
Fund strategy outlining the priority conservation measures that the Fund will
finance (sub-strategy of the ORASECOM strategy)
o implement the strategy through a business plan
o monitor the achievement of strategy through a series of indicators and
accounting (review)
o link implementation of the strategy to performance management systems in
the Fund
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· Source funding
o Develop a marketing strategy for the Fund and the priority conservation
issues
o Source finance from key donors (new and existing donors), including the
development of bankable projects and proposals
o Consider and develop mechanisms for ongoing financial support through
reliable income streams, including investment, user charges and member
state contributions
· Fund management
o Protection of income
o Investment of capital and the generation of investment income (endowment
income)
o Management of the outsourcing of Fund investment
o Regular reporting on Fund performance
· Project development and disbursement
o Identification of interventions / programmes against strategy (criteria)
o Project feasibility assessment
o Project development, including determining financial requirements
o Develop disbursement arrangements, including contracts with implementing
agents
o Monitoring of projects and disbursements
o Project and expenditure reporting
· Contracts management
o Develop, implement and manage contracts
o Monitor contracts with implementing agents / parties
o Report on implementation of contracts
· Monitor and report on conservation projects
o Monitor priority conservation issues selected for funding, as part of a broader
monitoring of conservation issues in the basin by ORASECOM
o Report on conservation expenditure and progress with priority conservation
issues
· Institutional relationships
o Develop relationships with key partners and stakeholders
o Articulate a partner / key stakeholder strategy as part of the ORASECOM
strategy and the business plan
· Governance
o Strategic direction
o Oversight and control
o Appropriate design and structure of the organisation
o Financial reporting and accounting
o Systems of risk management and mitigation
o Measure and maintain organisational performance
· Administrative functions
o HR management, including management of individual performance
o Administration
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3 Legal form
3.1 Available legal forms
There are broadly 5 different legal forms that can be considered for the Fund. These are:
· A trust, established under common law, in one of the member countries or an
independent country.
· A charitable foundation, established under company law (or specific charities
legislation), in one of the member countries or an independent country.
· An international body, established by decree of an international grouping such as
SADC.
· A special entity created by custom legislation in one of the member countries.
· An entity created by agreement between the member countries.
The above legal forms are briefly described (Table 2).
Table 2: available legal forms
LEGAL FORM
DESCRIPTION
A trust, established under South Africa has an extensive body of common law supporting the
common law, in one of the establishment and operation of trusts. It is based on English
member
countries
or
an common law, modified by subsequent court findings and some
independent country.
specific legislation such as the Trust Property Control Act.
A trust is not a juristic person, but it tends to act like one to all
intents and purposes. A trust is created when a donor asks a
trustee to manage its assets on behalf of a beneficiary. The
trustee takes ownership of the asset, but does not benefit from the
fruits of the asset they are only the custodian. Trusts are
extensively used for charitable foundations, where a donor wishes
to place a large pool of funds in the hands of trustees, to be used
for the benefit of a particular cause.
The ORASECOM Conservation Fund could consider establishing
itself as a trust within one of the member states, or in an
independent country if this is seen to be advantageous.
Example: Table Mountain Trust, Mandela Rhodes Trust
A
charitable
foundation, While foundations can also take the form of a trust, this legal form
established under company is used here to describe the establishment of a legal entity that is
law
(or
specific
charities established under company law, or other relevant legislation. For
legislation), in one of the example, the South African Companies Act 61 of 1973 makes
member
countries
or
an provision (section 21) for the establishment of `Associations not for
independent country.
Gain'. These are not for profit companies that are established as
public companies. As such they must abide by the relevant
Companies Act legislation and disclosure requirements, and are
governed by a Board of Directors, appointed by the members
(shareholders). Members do not receive dividends or any other
form of profit share in the company, but are only responsible for
establishing the company, and then voting for directors at the
AGM.
June 2009
P a g e | 9
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
Countries such as the UK have specific charities legislation (the
UK Charities Act) which provides for the establishment of a legal
entity incorporated in the name of this Act. The governance and
disclosure requirements tend to be more aligned to the needs of
non-profit organisations with less of the onerous requirements
stipulated in companies legislation.
Example: various NGOs (WWF, TNC, etc.)
An
international
body, Organisations such as the UN and SADC have the power to
established by decree of an create international bodies. These bodies have legal status if
international grouping such as recognised as such by the member states.
SADC.
Example: SADC Secretariat, SADC Tribunal
A special entity created by One of the member states may choose to pass specific legislation
custom legislation in one of the which brings the ORASECOM Conservation Fund into being. The
member countries.
powers and functions of the Fund will then be specified in the
legislation, along with other relevant legislation governing public
entities of this nature.
Example: Gautrain Management Agency, South African National
Roads Agency, TCTA
An
entity
created
by The member countries may agree to establish the Fund, along
agreement
between
the similar lines to the establishment of ORASECOM itself. This calls
member countries.
for agreement between the parties on issues such as powers and
functions and governance arrangements.
Example: ORASECOM, ZAMCOM
3.2 Assessment of legal form
The legal form of the OCF is based on the functions that the Fund will have to perform. The
adage of "form follows function" applies to enable the best suited form for the required set of
functions to achieve the desired outcome to be selected.
3.2.1 Assessment criteria
In assessing the most appropriate legal form for the OCF, a number of important criteria
should be applied to a design-tree (Figure 1). The following criteria emerge from
international lessons and good-practice:
· Governance criteria
o Independence and accountability to build credibility: it is critical that the Fund
be regarded as credible to enable support from the key sources of funding,
namely donors (multinational, government, corporate, private and civil society
organisations) to be forthcoming. As in the medium to long-term the Fund
may be receiving income from beneficiaries of conservation activities, these
sources of revenue will also require credibility and accountability; and
o Protection of income and tight financial control: the Fund's primary purpose is
to source finance against and defined expenditure framework (strategy), and
to manage the funds, including management of disbursement and associated
June 2009
P a g e | 10
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
contracts. Accordingly, the Fund primary risk is related to finance and the
management of funds, and accordingly it requires good systems of financial
control and accountability. This is both to reduce internal risks (failure of
systems) and to build investor / donor confidence. Governance systems that
enable and support such management and control will be required.
o Ability to ring-fence risk: as the Fund is going to manage significant financial
resources, it will be important that the Fund's risk is ring-fenced and that this
risk is not transferred to a hosting or parent institution. This also improves
accountability, as risk cannot be transferred.
· Legal regime and legal status
o Stable and recognised legal regime: the legal regime upon which the
institution is built (i.e. the laws that govern the entity) must be stable and
recognised, and must incorporate or underpin principles of good governance
and tight control. Weak legal regimes, or legal regimes that are likely to
change do not engender investor / donor confidence and do not provide a
stable platform for the establishment and management of the organisation;
and
o Legal regime that enables management flexibility and portability: the OCF will
cover a basin composed of four member states, As such; the institution
requires some flexibility in requirements for location and management of the
institution (meetings, board representation, residency, etc.). In addition, it
may be necessary to move the institution to another legal regime (portability).
The regime under which the institution is established should enable as much
flexibility as possible, whilst providing clear framework for good governance
and control.
o Legal status: the OCF will need to enter into contracts with staff, contractors
and others. It is therefore necessary that the Fund has the legal capacity to
do so. Its legal form should also be such as to limit the liability of
directors/trustees and staff except to the extent to which they are negligent
in the performance of their fiduciary and other duties.
· Human resources, skills and capacity
o Clear and simple systems that enable attraction of skills and support hosting /
service sharing arrangements: the OCF will require certain skills in the
sourcing and management of funding. In addition, it is possible that the Fund
will share some functions and services with a hosting institution. Accordingly,
the form of the Fund must enable it to attract and retain scarce skills, and to
easily enter into HR arrangements with potential hosting institutions. Finally,
an established and tested HR regime should be utilised, to reduce internal
risk associated with poor HR policy and management.
· Establishment and management complexity
o Simple arrangements for management: the OCF will be entering into a range
of contractual, funding, management and hosting arrangements. It will be
important that the Fund be established in such a manner (i.e. legal regime,
institutional and governance arrangements, organisational arrangements)
that these arrangements with the "outside" world are simplified. Such
simplification reduces risk, increases efficiency and reduces cost.
June 2009
P a g e | 11
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
3.2.2 Applying the assessment criteria
Should the function be
performed within
an existing organisation
(ORASECOM)
YES
NO
Special unit established
Should the entity be
Inside ORASECOM
registered in the region
YES
NO
Foreign registered
Should the entity be a
trust or charitable
multinational organisation
company
YES
NO
International body
Should the entity be
established by agreement
established by special
between the parties
legislation
YES
NO
Special purpose entity
Trust or charitable company
with establishing
registered in one of the
legislation
member states
(in a member state)
Figure 1: Decision-tree for the legal form of the OCF
Applying the criteria to the decision-tree:
· Should the function be performed within an existing organisation (ORASECOM)?
Assessing this question against the criteria highlights the key issues for consideration
as governance, independence and risk. It is widely recognised that an independent
Fund, separate from any institutional influence and in a position to make its own
decisions, is the central element of building credibility of the institution with
prospective funders and financiers. An independent entity will be better equipped to
establish the appropriate systems of governance and financial control, reflecting the
financial management and financial risk nature of the institution. Finally, an
independent entity is required to ring-fence risk where the Fund is part of an
existing entity, the financial risk of the Fund is transferred to the parent entity. This
suggests that a separate, legal entity is required for the OCF.
· Should the entity be registered in the region?
Although both a foreign-registered entity and an entity registered in one of the basin
states achieve3 the required criteria4, it is possible to express a preference, based on
3 Assuming foreign registration in the UK, Europe or the USA.
June 2009
P a g e | 12
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
the local context and prerogatives of the Basin. A comparison of the two options is
included (Table 3).
In testing this with the Project Steering Committee and key stakeholders, preference
for a regional fund emerged. This was motivated on four grounds: (1) Funding is
likely to be local, as the initial reliance on donor funding reduces. Thus regional
registration supports tax benefits to regional funders. In addition, the issue of foreign
exchange regulations and the movement of money is facilitated by a regional fund,
with money moving with SADC or SACU. (2) A regional fund facilitates hosting
arrangements with ORASECOM, with consistent legal regimes supporting contract
arrangements and human resource regimes. (3) A fund registered in the region
reflects the regional flavour of the institution and grounds the initiative in the Basin.
(4) Regional registration reduces the transaction and management costs (overheads)
associated with the Fund.
4 Spergel and Taieb, in their 2008 review of conservation trust funds [Ref], identify 4 multi-country funds, none of
whom are established in one of the member countries. The following quote from their review gives their reasons
for establishing the Funds `off-shore':
"In the cases of the first three of these multi-country funds, the countries for whose benefit the CTFs were
established were considered (at the time that the CTFs were established) not to have legal systems in
which most people had confidence, or which would protect the CTF from taxation and attachment, and
which would not impose any legal barriers to the CTF's effective operation. In addition, since each of
these three CTFs were established for the benefit of three different countries, it was felt by people in all
of the countries involved that legally establishing the CTF in a "neutral" and mutually acceptable foreign
country would allay fears that the CTF might otherwise end up being dominated by the particular one of
the three countries under whose laws it might otherwise be established."
The fourth Fund (based in Central America) chose to establish itself in the USA to make it easier for US donors to
contribute directly to the fund.
The Sangha Trinational Foundation (covering Cameroon, CAR and the Republic of Congo) is a trust established
in the UK. The MD, Dr Timothee Fomete, gives the following reasons for why the trust was established in the
UK:
1. The member countries are all francophone countries with no established trust law. One of the countries
would have had to create the foundation through specific legislation and then get the other countries to
recognise this foreign legislation a process that is fraught with difficulty.
2. They wanted a stable legal environment that would not be subject to change.
3. They wanted a secure environment for investors.
4. They chose the UK because a UK trust does not require a local office, local directors or local board
meetings. The UK also has an arrangement with the US whereby UK charities are allowed to apply for
registration of a sister-charity in the US (section 501(3) (c) status of the US Internal Revenue Code).
5. Registering the Trust in a neutral country was politically more acceptable than choosing one of the
member states.
June 2009
P a g e | 13
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
Table 3: Comparison of regionally- and foreign-registration for the Fund entity
REGIONALLY REGISTERED
FOREIGN REGISTERED
Governance
Independence Independence can be
Greater independence, as
demonstrated, although more
established under the legal
closely linked to member states
regime of a country not in the
(parties) owing to legal
basin. This however
association. Basin registration
undermines basin "flavour" of
however introduces a regional
the institution.
"flavour" to the institution.
Financial control & ring-fence Can be equally achieved in a foreign or a regionally registered
risk entity
Financial matters (tax) Tax benefits for donors based in Tax benefits for donors in the
the region, requires separate
country where the Fund is
establishment of fund-raising
legally established
vehicle in other countries (e.g.
UK and USA) for international
donors
Legal regime
Recognised legal regime Both have well recognised legal regimes, although the foreign
regime is possibly marginally better recognised (more credible)
owing to significant precedence regarding such institutions and the
governance thereof
Flexibility and portability Consistent legal regimes for
Flexible regime, but different
hosting institution
legal system from regional host
More easily portable
institutions (requires legal
alignment)
HR regime
Human resources and skills Easily access tried and tested
Good system, but consistency
human resource systems that
with host institution will have to
attract and retain staff, and are
be tested
consistent with host institution
Establishment
Establishment and Can be simple (depending on
Simple, but may be more
management complexity approach)
expensive because of the
different legal and human
resource regimes
· Should the entity be a multinational organisation?
This option requires special agreement between the parties to establish the entity as
an international organisation, and recognition as such by the host country, similar to
the process used for ORASECOM.
Assessing this option against the criteria demonstrates the key concerns as the legal
regime (and related governance and confidence) and establishment complexity. The
legal regime of this institution would have to be established through the international
June 2009
P a g e | 14
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
agreement, and the regime of one of the parties will probably have to be adopted.
Accordingly, the body of law supporting this entity is more limited than other options.
This issue is key in considering good governance and funder confidence in the
institution. A further (and perhaps more significant) consideration is the establishment
complexity associated with creating a new international entity through agreement
between parties. This process is lengthy, costly and complex, and undermines the
short-term viability of the institution.
· Should the entity be established by special legislation?
This option assumes registration of the entity by one of the parties, through special
legislation established in that country.
Assessment of this option against the criteria demonstrates its unsuitability on the
basis of legal regime (and related governance and confidence) and establishment
complexity. The legal regime for this entity would have to be created through the
establishing legislation, with reference to other law for additional governance and
control (such as company law). Such a process introduces legal complexity that may
undermine the process or subsequent entity governance. A further key legal issue is
the portability of the institution as it is established by special legislation in one of the
riparian states, the entity cannot be moved from that legal regime. Hosting may be
established in another country, but legal issues between the hosting country
requirements and the establishing regime remain. Finally, the establishment
complexity introduced by the need for special legislation is extensive, requiring a
lengthy, costly and complex process that undermines the short-term viability of the
institution.
3.2.3 Conclusion of the assessment
Based on the analysis outlined above, it is clear that two legal forms are the most
appropriate based on the purpose and functions of the proposed entity: a charitable
company or a trust established in one of the member states. This conclusion is consistent
with international experience, with similar funds internationally typically established as one of
the above legal forms (charitable company or trust).
3.3 Comparing trusts and charitable companies
There are two proposed legal forms available to ORASECOM: a trust or a company (Table
5).
3.3.1 Legal regimes in the member states
These forms exist in all four member states. Trust law is well established in South Africa and
Namibia, whilst in Botswana and Lesotho trust are recognised under company legislation.
Each member state has dedicated company's legislation that recognises charitable
companies and recognises various taxation benefits for these entities. Given the similarity
between member states' legislation with respect to trusts and charitable companies, the
remainder of this analysis will focus on the interpretations provided by South African law.
These interpretations are however largely transferrable to the other member states (Table
4).
June 2009
P a g e | 15
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ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
3.3.2 Trusts
The legal establishment of the first legal form, the Trust, will provide ORASECOM flexibility
as trusts can be used to serve a variety of purposes. Trusts are not recognised as a legal
person, and the Trustees become the owners of the property - although in a legal and not a
personal sense. However it is generally accepted that trusts are able to enter into valid
contracts, with the representatives of the trust not being held personally liable as long as
they have entered into the agreement with the express or delegated permission of the
trustees. Trusts are ordinarily formed in four ways namely, by agreement, by means of a will,
a court order or by statute. The parties to a Trust are the Founder, the Trustees and the
Beneficiaries. ORASECOM is free to appoint any number of Trustees as there is no limit to
the amount of Trustees appointed.
For a Trust to be created it must be legal and contain the following essentialia. There must
be a clear intention; an obligation, property (including money) and an object (purpose),
ORASECOM can set out the terms of Trust Deed and make general and specific rules
regarding the general principles of the Trust administration. The administration of a Trust
revolves primarily around the Trustee and the relationship between the trustee and the
beneficiary. ORASECOM can furthermore set out the duties and obligations of trustees. If it
chooses not to, then these duties and obligations will be determined by common law and by
statute. They require, amongst others, that trustees always act in good faith, jointly and in an
impartial manner.
3.3.3 Company
The second proposed legal form available to ORASECOM is a company. If established in
South Africa this would be called a Section 21 Company, or `Association not for Gain'.
Typically, a company exists in law as a separate entity, distinct from its members. There
must be at least seven members in the Company (equivalent to the Founder of a trust). All
the assets and liabilities are its own and do not belong to the members. A Section 21
company has a two-tier structure, the lower tier comprising of seven or more natural or
juristic persons called the members and the other comprising of two or more directors.
Hence in theory, the ORASECOM Fund would be controlled by its members / shareholders,
who have the right to exercise all the powers of the company. In practice, however, the
strategic direction of the Fund is determined by the directors, who are elected by the
members.
As a company the ORASECOM Fund will have wide powers to carry out its main object and
purposes. These powers include the power to purchase movable and immovable property, to
invest company funds in any way, to borrow money, to open and operate banking accounts,
to employ staff etc. In order to be incorporated, and once incorporated, the ORASECOM
Fund must comply with the extensive provisions of and formalities provided for in the
Companies Act.
3.3.4 Summary: trust vs. company
The legal establishment of both these legal form processes provide the ORASECOM Fund
sufficient legitimacy, accountability, transparency, protection and control. There are the
apparent similarities which are shared by both legal forms namely, the establishment of the
terms which outlines the appointment, powers and fiduciary duties, followed by the
registration process and the Regulator under which both forms are protected. Clear nuances
June 2009
P a g e | 17
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
are that Trusts are not recognised as a juristic person, whereas a company operates as a
separate legal entity. Further, there is no minimum number of Trustees to be appointed,
whereas a company (Section 21) requires no less than seven members to be appointed and
no less than two directors.
Accordingly, there is little to choose between trusts and charitable companies in terms of the
ideal legal form for the OCF. However, the juristic status of the Section 21 Company and the
stringent requirements of the Company's Act probably make this the preferred form.
Table 5: Table of key attributes of trusts and charitable companies
SECTION 21 COMPANY
ATTRIBUTE
TRUST
(or similar incorporated charity)
Legal status
Is it a legal entity? Not a legal entity except for tax Is a juristic person
purposes (South Africa)
Through which
Governed by extensive common law Section 21 companies are governed
legal instruments
in countries such as the UK and by the Companies Act and extensive
is it governed?
South Africa. Legislation covers common law. In countries such as
specific aspects; for example the the
UK
there
are
additional
Trust Property Control Act dictates legislative requirements placed on
the relationship of a Trust to the charities through the Charities Act
property under its control.
and SORP 2000 (also relevant to UK
Trusts).
Can it enter into
Enters into contracts, etc. as if it is a Enters into contracts (i.e. has all the
contracts?
juristic person and given some legal powers of a legal person). Authority
status by the Trust Property Control for signing on behalf of the company
Act
(South
Africa).
Requires is normally delegated by the Board
evidence that the signatories to the to the executive management.
agreement are acting under the
express or implied approval of the
trustees,
as
per
trust
deed
requirements.
Governance
Who has ultimate
Trustees, or the Curator/Protector Members, at the AGM, through their
control?
(depending on wording of Trust power to appoint the Board of
Deed)
Directors.
Who has effective
Trustees make decisions, or may Board of Directors make decisions,
control?
delegate powers to management.
with
operations
delegated
to
management.
Who appoints the
The original trustees are appointed The Board of Directors is appointed
Board?
by the originator of the trust. The by the members of the company at
trust deed may then make provision the AGM. Normally the articles of
for the replacement of trustees after association (similar to a constitution)
a certain tenure. In the absence of will
provide
for
the
regular
any
arrangement,
the
trustees replacement of directors after a
themselves will determine when new specified term. New directors are
appointments should be made and then appointed at the next AGM.
will make the election. The trust
deed
may
also
stipulate
that
decisions regarding new trustees will
be
made
by
the
curator,
or
`protector'.
Who appoints
The Trustees
The Board of Directors
management?
Who is
The Trustees each have a fiduciary The Board of Directors have a
accountable?
responsibility to act in the best fiduciary responsibility to act in good
interests of the Trust.
faith.
Finance
June 2009
P a g e | 18
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
SECTION 21 COMPANY
ATTRIBUTE
TRUST
(or similar incorporated charity)
Legal status
What level of
Trustees have discretion to manage The Board of Directors have full
financial
the capital and income of the Trust, control over the assets and income
autonomy is
within the limitations set by the Trust of the company.
there?
Deed.
What level of
Trusts do not have to disclose their Companies are required to undergo
transparency is
financial affairs to the public, nor an annual audit. Section 21
there?
submit to an external audit. They are companies are public companies
required
to
submit
financial and are therefore required to make
statements to the Master of the their annual financial statements
Court upon request. In practice, publicly available.
most trusts receiving donor money
will subject themselves to audits and
make their financial statements
available to donors.
How are
A Fund is likely to be set up as a A charitable company is not allowed
surpluses and
discretionary trust, which means that to
distribute
surpluses
to
its
reserves treated?
all surpluses are to be utilised in the members. Any surplus or reserve
interests of the trust deed, at the should be used to further the objects
discretion of the trustees. The trust of the company. Upon dissolution,
deed will normally provide that, upon the Act requires any surplus to be
dissolution, any reserves should be distributed to a company or body
donated to an organisation with with similar charitable objectives.
similar objectives.
HR regime
What human
A Trust is subject to normal HR rules A company is subject to normal HR
resource requires
as prescribed by the host country's rules as prescribed by the host
exist?
legislation and is not restricted in its country's legislation and is not
ability to attract appropriate staff.
restricted in its ability to attract
appropriate staff.
Risk management
Exposure of
Trustees
have
a
fiduciary The new Companies Act places a
decision-makers
responsibility to act in the best fiduciary responsibility on directors,
to claims of non-
interests of the Trust. If it can be making them personally liable if they
performance.
proved that they have failed to do so, act in bad faith, or if they continue to
then there is a risk that they could be manage
a
business
that
is
held personally liable for a loss technically insolvent for more than 6
suffered by the Trust or a third party.
months. However the level of
Bona fide duty
protection afforded to directors is
slightly higher than that afforded to
trustees.
Risk of
The assets of a trust are registered The assets of a company are
expropriation or
in the names of the trustees. Recent generally protected from claims
other claim
case law has confirmed that these made against the members and
against the Fund's assets should not be included in the directors of the company. For
assets
trustee's estate in the event of example, if a director or member of a
claims made against the trustee. company is declared insolvent,
The assets of the trust are therefore his/her creditors may not attach the
protected.
assets of the company.
Ability to satisfy
A trust may have the power to alter A company must comply with fairly
donors that their
its objectives without consulting rigorous internal control, reporting
donations will be
donors, and may have the right to and disclosure requirements, as
spent as intended. withhold financial statements from prescribed in the Companies Act.
non-trustees.
However
this
is Donors will therefore not need to
unlikely to happen and major donors stipulate these conditions in their
will inevitably sign contracts that own agreements.
commit the trustees to conform to
June 2009
P a g e | 19
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
SECTION 21 COMPANY
ATTRIBUTE
TRUST
(or similar incorporated charity)
Legal status
certain reporting and internal control
requirements.
3.4 Legal location of the Fund
The analysis against criteria above recommended registration of the Fund within the Basin.
Selection of one of the member states is accordingly required.
From a legal perspective, the Fund can be established in any of the member states, as each
state has appropriate legislation enabling the Fund and each state has a legal history
(precedent) regarding the legal administration of such entities. Accordingly, there is no legal
preference for the location of the Fund within one or other member state (Table 4).
However, from a practical perspective, it is evident that the Fund should be located in the
same country as the host institution. Subsequent sections of this business case will motivate
the appropriate institutional and organisational arrangement for the Fund, closely associated
with the ORASECOM (a hosting arrangement based on a management contract).
Accordingly, it is recommended that the Fund be registered in South Africa, for four reasons:
(1) Registration in the same country as ORASECOM supports ease of contract
administration between the Fund and ORASECOM (management contract). (2) The Fund
will be managed by a Fund Manager employed and located within ORASECOM such
management will be complex if the Fund is located in another country (foreign account,
transactions management, contracts management, etc). (3) Of the four member states,
South Africa has the longest and most extensive legal history of trusts and charitable
companies, with significant precedence supporting confidence in the legal regime and
associated fund governance. (4) Many partners and funding institutions (private sector and
non-governmental) for the Fund are situated in South Africa, given that the majority of the
water use within the Basin is in South Africa. Accordingly, registering the Fund in South
Africa reduces transaction costs and provides taxation benefits to potential funders.
3.5 Conclusion of the legal form analysis
An extensive analysis of the most appropriate legal form and legal location of the Fund has
been described above. This analysis, combined with stated preferences of key stakeholders
within the Basin suggest that the ORASECOM Conservation Fund should:
· Be registered as a charitable company
· Be registered in South Africa,
o according to Section 21 of the Company's Act
June 2009
P a g e | 20
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
4 Institutional Arrangements
4.1 Institutional linkages with ORASECOM
A key consideration is the institutional-organisational form of the Fund and its relationship
with ORASECOM. The legal form analysis above demonstrated that the Fund should be
established as a separate entity (rather than established within ORASECOM).
4.1.1 Institutional models for the Fund
Three institutional-organisational arrangement options are available (Figure 2):
1. A separate entity is established for the Fund, with its own Governing Board, its own
executive management and its own staff and systems. This model is appropriate
where the Fund will be assuming a significant amount of risk (through financial
management, project and contracts management, etc) and where that risk both
needs to be ring-fenced within a separate entity (i.e. risk should not be transferred to
ORASECOM) and that entity is able to control its risks by retaining control of its
functions (i.e. does not outsource any functions that are central to managing the risk).
2. The Fund establishes its own, independent Board and appoints a Fund Manager
(CEO), but makes use of some of the staff, services and systems of ORASECOM
(for non-core functions). This model is appropriate where the Fund needs to retain
some core functions in order to manage risk, but can outsource various (non-core)
functions to ORASECOM to achieve economies of scale, implement cost savings
and access established ORASECOM systems.
3. The Fund has a management contract with ORASECOM, with the Fund Board
outsourcing all functions except strategy and corporate reporting (i.e. the Board
retains control over strategic direction and Fund strategy and for reporting on the
Fund). This model is appropriate where the Fund functions and Fund risks are
intricately associated with those of ORASECOM, and where overlapping mandates
suggest that other institutional models would result in duplication of functions
resulting in increased cost and reduced efficiency (and possibly efficacy). The Fund
Board has only limited control over implementation of the Fund strategy, including the
management of investments, disbursement and contracts (the Fund Board however
is ultimately accountable for these functions). Accordingly, to ensure that the Fund
Board is not exposed to unacceptable risk, shared responsibility with the
ORASECOM council and confidence in the outsourced functions will be required.
A comparison of these institutional models (Table 6) enables an assessment of the most
suitable model for the specific circumstances of the OCF.
June 2009
P a g e | 21
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
Model 1
Model 2
Model 3
New entity
Shared services
Management contract
e
c
Fund
Orasecom
Orasecom
n
Fund Board
a
Board
Council
Council
r
n
e
Fund
v
o
Board
G
Fund
Fund
Exec.
Exec.
CEO
CEO
Sec.
Sec.
t
n
e
m
Fund
Fund
Orasecom
Orasecom
e
g
management
manage.
manage.
management
a
n
a
M
s
n
Orasecom
t
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Fund staff &
Fund
Orasecom
staff &
r
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e
systems
staff & systems staff & systems
systems
p
O
Figure 2: institutional / business model options for the Fund
Table 6: comparison of institutional models for the Fund
MODEL 1:
MODEL 2:
MODEL 3:
SEPARATE ENTITY
SHARED SERVICES
MANAGEMENT CONTRACT
Linkage to ORASECOM strategy and activities
Linkage would have to be
Linkage would have to be
Close relationship Fund
established through MOU or
established through MOU or
strategy closely linked to
similar legal mechanism.
similar legal mechanism,
ORASECOM strategy through
although sharing of services
joint strategy formulation and
implies closer relation than
implementation
model 1.
Perception of independence
Can be perceived as most
Mixed perceptions of
Most closely aligned of the
independent, as no association
independence, as sharing of
three models, and therefore
with any other institution.
services align the Fund with
sense of full independence can
However, may be difficult to
ORASECOM. This can be
be undermined. However,
brand and market the Fund, as
positive, as the Fund can
because the mandate of the
a new institution has no track
associate with the track record
Fund is closely linked to that of
record.
(brand) and credibility of
ORASECOM, this institutional
ORASECOM.
linkage can be of benefit and
the Fund can associate with the
brand and credibility of the
ORASECOM.
Ring-fence risk
June 2009
P a g e | 22
ORASECOM Conservation Fund
Business Case
Report number: ORASECOM 004/2009
MODEL 1:
MODEL 2:
MODEL 3:
SEPARATE ENTITY
SHARED SERVICES
MANAGEMENT CONTRACT
Linkage to ORASECOM strategy and activities
Fully able to ring-fence and
Slightly less control of risk, as
Least ring-fencing of risk of the
control risk.
sharing of services implies
three options. Board exerts
some sharing of risk with
control through the
ORASECOM. Control over
management contract, with
functions and operation of the
day-to-day operational
Fund reduced through service
management through
sharing arrangements.
ORASECOM. Failure of the
host institution may induce
failure of the Fund, and visa
versa.
Establishment simplicity
Complex to establish, as a new
Intermediate complexity, as a
Simple to establish requires
entity must be established,
new entity is established,
appointment of the board,
complete with new staff,
although some existing staff
development of the
systems and structures.
and systems of ORASECOM
management contract and
are utilised.
recruitment of the Fund
manager. Systems and
Structure of ORASECOM are
fully utilised.
Cost of entity
Most expensive model, as a full
Intermediate cost some cost
Cheapest model
institution must be established,
savings through shared
management contract utilises
including full administrative and
services, but some cost
the full administrative and
compliance functions.
duplication.
compliance capacity of
ORASECOM.
Circumstances under which model is most suitable
When a large, complex Fund is
A fund of mixed size too large
Small fund with fund
established, that requires a
to be run by one or two
management functions
separate, independent identity,
managers, but too small to
implemented by one or two
the ability to ring-fence risk and
warrant a fully separate
managers. Close strategic
to exert tight control over
institution. Close association
alignment with a mandated
financial risk and governance.
with a "shared services"
"sister" institution is required.
institution for cost reasons and
Cost savings a significant
for strategic alignment reasons.
consideration.
4.1.2 Conclusion of the institutional model analysis
The analysis of institutional models, combined with the understanding of the OCF gained
through the preceding chapters, suggests that a phased approach (institutional evolution)
should be considered, starting with Model 3. In the first instance, it is appropriate that a
management contract arrangement with ORASECOM be concluded, given (1) the close
alignment of the OCF and ORASECOM, (2) the need to manage costs, (3) the anticipated
small size of the OCF initially, and (4) the advantages of linking the Fund into the
ORASECOM brand.
As the Fund grows and its functions expand, so moving the institutional model to Model 2,
and ultimately to Model 1 may be appropriate. Importantly, starting at Model 3 does not
preclude this evolution, but creates a stable "incubator" environment for the development of
the OCF.
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4.2 Institutional arrangement with other institutions
Figure 3 illustrates the main institutional relationships that will impact on the strategic and
operational life of the Fund.
Legend
SADC
Legal/statutory/MOU
Accountability/reporting
The
Advisory/Support
Parties
Council
Cooperative/communication
Depts of
ORASECOM
i
c
Water
g
Donor
t
e
Secretariat
Forum
t
r
a
S
The FUND
Private Sector
Programme
Steering
l
Committees
a
n
t
i
o
Programme
Stakeholder
r
a
Implementing
Coordination
e
p
Agents
Committees
O
Figure 3: institutional Arrangements for the Fund
It is proposed that the Fund will be a separate legal entity that is run by a Board of Trustees
or Directors. These Directors/Trustees will represent, at the very least, the interests of
ORASECOM and the parties to the ORASECOM agreement (via each country's Department
of Water).
The thick lines above represent legal or statutory relationships as in those resulting from
an MOU or contract between the parties. ORASECOM is governed by the parties, and
exists by virtue of their agreement. The Fund will be controlled by its Board, and not by
ORASECOM. However it will be necessary for the Fund to enter into a formal MOU with
ORASECOM, to ensure that the Fund's strategy is nested in the broader ORASECOM
strategy.
Higher up in the diagram one can see the relationship with SADC. The parties are expected
to communicate with SADC regarding developments in ORASECOM, and SADC may advise
ORASECOM on appropriate strategy. However there is no requirement for ORASECOM to
conform to SADC policy.
The Fund will be accountable to its Board. Apart from representatives from the parties and
ORASECOM, there may also be board representation from donors, the private sector, and
NGO's operating in the basin. At the very least, there should be some advisory relationship
with these parties to ensure that the Fund is cognisant of issues important to these entities.
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It is proposed that donors should form a `forum' of some kind to represent their interests in
the Fund, rather than the Fund having to deal with donors separately.
A number of different management arrangements are proposed below. A broad picture sees
the parties or the Fund appoint a project implementing agent (PIA) to oversee projects. This
PIA will report to a Project Steering Committee (PSC) that is normally made up of the parties
affected by the project, along with the Fund's representative/s. In some cases, where the
parties have not assigned responsibilities to the Fund, the PSC will report to the parties
directly. In others they may report to the Fund.
Provision is made for Stakeholder Communication Committees. These may be forums
provided for local stakeholders to coordinate their engagement with the Fund around
particular projects in the Fund's stable.
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5 Fund Governance
5.1 Good governance
The King Committee proposed seven key characteristics of good corporate governance:
1. Fairness: all the decisions taken in the operation of Fund should be impartial and
every attempt should be made to ensure that all the stakeholders receive fair
treatment from the organisation.
2. Transparency: is essential for the Fund, since one of its main objectives is to ensure
funder confidence. Therefore the information presented to the relevant stakeholders
must be accurate and timely, while being sensitive to information that may come
under public scrutiny.
3. Accountability: the Fund is accountable to shareholders through the Governing
Board. Management of the entity is accountable to the Board. Governance
mechanisms and procedures must be established to enable assessment of
management and the Governing Board of the Fund, built on appropriate performance
assessment frameworks and reporting.
4. Responsibility: the Governing Board and management of the Fund will have clearly
stated roles and responsibilities, which will be reflected in the memorandum of
association and board charter (company) / trust deeds (trust) and the terms and
requirements of employment. This will ensure that the entity's objectives and
mandate are achieved as effectively and efficiently as possible.
5. Discipline: the parties that will manage and operate the Fund should be committed to
adhering to proper conduct and corporate governance principles.
6. Independence: the Fund board and management should be independent in their
decision-making and act with integrity, in the best interest of the entity and its key
stakeholders. There should be no undue political interference, or any other form of
interference, in the entity's decision-making or execution of its mandate.
7. Social responsibility: the Fund should be aware of broader social and environmental
issues facing the Basin, and the impact that poverty has had on the basin's socio-
economic context. The entity should contribute to social upliftment and broader
economic development for all the basin's citizens.
5.2 Governing body
5.2.1 Purpose
Regardless of whether a trust or a charitable company is formed, they will both be governed
by a Board (of Trustees or Directors). The purpose of this governing body is to ensure that
the trust/company is steered in the direction intended by the Founder of the trust (or
founding members of the company).
The Board is the accountable authority of the Fund. As such, the Board is ultimately
responsible for good governance in the Fund, is the custodian of the strategic plan, and is
responsible for the affairs, the governance and management of the Fund, including
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performance and service delivery. As the accountable authority, the Board has fiduciary and
governance responsibilities.
The fiduciary duties of the Board require that the Board assumes custodianship of the assets
and records of the Fund, and that the Board acts in the best interests of the Fund in
managing the financial affairs of the OCF. The Board is required to maintain fiduciary
oversight, to ensure effective, efficient and transparent systems of financial and risk
management, and to keep full and proper financial records to facilitate the internal and
external audit of the OCF.
The Board must provide leadership and must retain full and effective control over the
direction and performance of the Fund. A key element of control is the management of risk.
The Board must ensure that risk is adequately understood and that all necessary measures
to manage risk are implemented.
In line with the principles of leadership and good governance, the Board must provide
strategic direction to the Fund, develop the business strategies and policies, ensure good
governance through appropriate systems and controls, provide guidance and advice to the
executive management, monitor and review the performance and service-delivery of the
OCF, and ensure compliance with all relevant laws, regulations and codes of business
practice.
The Board is accountable to shareholders through a chairperson, who leads the Board and
facilitates communication with the shareholders.
5.2.2 Code of conduct
Trustees or directors may not act beyond the objects of the trust or company (as set out in
the memorandum of association or Trust Deed), or beyond the limitations placed on their
powers by legislation or by common law. Trustees or directors stand in a `fiduciary'
relationship to the company: trustees or directors must use their position and exercise their
powers in a bona fide manner in the interests of the trust or company and not place
themselves in a position in which their personal interests conflict with their duties.
Trustees or directors may not act arbitrarily, capriciously or for an improper purpose.
Trustees or directors must exercise an independent discretion and may not fetter their
discretion. Further, if a trustee or director fails to exhibit in the performance of his or her
duties that degree of skill which may reasonably be expected from a person of his or her
knowledge and experience, the trustee or director may be liable to the trust or company for
any loss it may suffer.
5.2.3 Composition
Board composition should be a mix of governmental and non-governmental representatives,
and board size should be compromise between adequate representation and efficiency in
decision-making. Board composition should be in the majority non-government, with some
key government ex officio positions to represent government interests. Civil society should
be represented, as the Board should be responsive to the needs and concerns of NGOs and
community groups. However, representation should be such that the Board is not pulled in
too many directions by a wide range of constituencies with conflicting interests. Similarly,
representation should be of such a nature that it makes provision for representation that is
beneficial to the OCF. Representation of the private sector is useful, as the private sector
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often have experience serving on boards, bringing a high level of financial expertise, and as
the private sector may be an important donor to the Fund.
As a Section 21 Company, OCF must have at least seven members. As a Trust, OCF has
no limit to the amount of trustees selected. These members may be natural or juristic
persons, representatives, nominees, foreign citizens or other institutions, such as
government departments.
Based on this purpose and functions of the institution, and the governance requirements, it is
recommended that the OCF's Board consists of between 5 and 11 trustees or directors,
comprise of representatives of:
· Departments of Water Affairs of the Member States;
· The ORASECOM Executive Secretary;
· Donors, selected through the donor forum;
· Private sector, selected through the stakeholder committees; and
· Civil society; selected through the stakeholder committees.
· The fund manager (Fund CEO where applicable) should attend board meetings, but
in a non-voting capacity.
Based on the purpose and nature of the institution, the following competencies must be
represented on the board:
· Understanding of water related conservation issues in the basin and beyond;
· Understanding of mitigation measures technical and non-technical;
· Understanding of the donor environment, accountability and credibility to donors;
· Legal and compliance competency;
· Financial competency and some knowledge of fund management; and
· Human resource competency.
5.2.4 Nomination
Board selection should be through a participatory approach, with good representation by the
Fund's beneficiaries, government, donors, and private sector, to ensure that stakeholders
have confidence in the OCF board. As these groupings are represented on the OCF board, it
is recommended that the board chairperson convenes an ad hoc board nominations
committee that will provide oversight of the nominations process and will make
recommendations to the board regarding short-listed nominees. The nominations committee
is supported in the nominations process by the Fund Manager and ORASECOM
management. Invitation to the board should be through a collective board process.
5.2.5 Tenure
Board tenure should be considered to enable sufficient time for implementation of strategy,
but also adequate turn-over to enable the introduction of new ideas. Consistency between
one board and the next should be ensured by retaining a critical mass of board members
and through good induction processes.
It is recommended that the OCF implement a tenure of three years, renewable twice, and
that at least one quarter (3 members) of the board be changed each term.
5.2.6 Management of the institution
The board should establish its own proceedings, in line with the requirements of the trust
deeds / memorandum of association. These proceedings will include quorum, adjournment,
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voting, board delegation, recording of minutes, resolutions, and the appointment of
committees and committee chairs.
5.3 Strategy development
The purpose of the Fund is clearly located within the broader purpose and mandate of
ORASECOM and of the member states. Accordingly, the Fund's strategy is a nested
strategy, reflecting the strategic direction provided by the overarching ORASECOM strategy
(the Basin Wide Plan) and the respective strategies of the member states. It is
recommended that the OCF strategy be based on priority conservation issues and basin
interventions identified through the ORASECOM Basin Wide Plan (which necessarily must
take cognisance of the national strategies of the member states). The OCF strategy builds
on these priority issues and develops the funding and implementation strategy, including
project and contract management.
A strategic planning process that is closely aligned with that of ORASECOM and reflects the
strategic objectives of ORASECOM, the member states and mandated national institutions is
required. The strategic plan of the Fund must reflect that of ORASECOM, which in turn
reflects the strategic intent and objectives of the member state. Accordingly, a step-wise
planning process is required.
Strategic planning is a critical area for stakeholder involvement, and structures to ensure that
the strategy reflects stakeholder perspectives are required.
5.4 Fund management
5.4.1 Management arrangements
In essence, four management arrangements for the identification, funding, disbursement and
management of priority conservation projects can be identified (Figure 4). The management
arrangements are driven by two key considerations: (1) the source of funding and (2)
assignment of the functions and, therefore, the responsible authority. Any one (of these
arrangements is appropriate for the Fund, and it is likely that across its projects, the OCF
involvement will follow all four options (i.e. all four management arrangements taking place
concurrently). This has significant implications for organisational design, skills requirements
and financial management of the Fund.
· External funding with function not assigned (A)
The ORASECOM makes a recommendation to the party(ies) regarding a priority
conservation project, with a recommendation on finance (funders). However, the
party(ies) do not assign the function to the ORASECOM, but rather retain the
function. The Fund manages funding for the project on behalf of the parties, who in
turn conclude contracts with the implementing agents (PIA) for execution of the
project. ORASECOM / OCF may be represented on the project steering committee
(PSC), but this structure is convened by the client on the project, namely the
party(ies). Financial accountability, contract management and monitoring / reporting
follows the financial flows described above.
· External funding, with function assigned (B)
In this case, ORASECOM makes a recommendation and the party(ies) assign the
implementation function to the ORASECOM and the OCF. The OCF therefore source
the funding from donors and concludes arrangements with PIAs. The Fund convenes
the PSC, although the party(ies) must be represented on the PSC. As with (A),
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financial accountability, contract management and monitoring / reporting follow the
financial flows.
· Party funding, with function assigned (C)
As with (B), ORASECOM's recommendation is followed by assignment from the
party(ies), but in this case the party(ies) provide funding along with the assignment.
Funding flows from the party(ies) through ORASECOM to the OCF. The OCF
concludes arrangements with PIAs and manages contracts, disbursement, and
project monitoring and reporting. The PSC has representation from both
ORASECOM / OCF and the party(ies). As with (A), financial accountability, contract
management and monitoring / reporting follow the financial flows.
· Party funding, with function not assigned (D)
This arrangement is similar to (A) above, in that ORASECOM makes a
recommendation to party(ies), with the parties implementing the recommendation. In
this case, however, the ORASECOM / OCF recommends that the party(ies) finance
the initiative. The party(ies) manage the contract with PIAs and convene the PSC.
The ORASECOM may have representation on this structure. As with (A), financial
accountability, contract management and monitoring / reporting follows the financial
flows.
Funders
Funders
G
I
N
D
Parties
ORASECOM
Parties
ORASECOM
N
U
FUND
FUND
F
L
n
A
t
i
o
N
PSC
PSC
a
d
t
R
n
e
n
e
E
PIA
PIA
m
m
T
m
n
o
c
X
e
s
i
g
s
E
R
A
Project
Project
A B
g
D C
r
t
i
n
o
p
r
e
d
n
a
Parties
ORASECOM
Parties
ORASECOM
G
i
l
i
t
y
FUND
FUND
b
t
a
I
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n
u
D
o
c
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a
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PSC
PSC
t
s
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t
r
a
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PIA
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Project
Project
c
s
e
n
a
r
e
p
i
n
e
F
R
FUNCTION NOT ASSIGNED
FUNCTION ASSIGNED
Figure 4: management arrangements for the ORASECOM fund
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5.4.2 Fund manager
The Board is responsible for appointing the Fund manager, although if a management
contract is concluded with ORASECOM, this responsibility rests with the Executive
Secretary. The Fund manager must enter into a performance agreement with the Fund on
acceptance of his or her appointment.
The Fund Manager is responsible for the implementation of the strategic goals and
objectives of the Fund, and for its governance and fiduciary functions. The Fund Manager is
responsible for the day-to-day management of the Fund and for the leadership and direction
of the OCF management team. The Fund Manager is accountable to the Board (or the
Executive Secretary where a management contract is used).
During the establishment of the Fund, the Fund Manager will drive the organisational design
and development of the new entity, and strategically manage and coordinate the activities of
the evolving Fund.
Specific responsibilities may include:
· Strategic management of the organisation
o Provides the strategic vision and operational leadership
o Leads the OCF management team
o Responsible for structuring programmes and delegating authority
o Represents OCF executive on the Board
· Establishment of financial management systems and oversight of financial
management
· Oversight of infrastructure, facilities and equipment, moveable assets, and
development and maintenance of information systems
· Ensure organisational systems and human resources management
o Initially establish and organisationally develop the SADIS.
o Ensure and monitor organisation policies and systems
o Manage the SADIS staff and performance
· Ensure high level of service
The Fund Manager is the public face of the OCF and is responsible for public awareness
and public confidence in the deposit insurance scheme.
Significant human resource capacity is required for the Fund, given the significant challenge
posed by basin conservation finance initiative, with the various complex institutional,
strategic, financial, political and organisational elements to the Fund. In this regard,
outstanding Fund leadership will be required, not only to ensure effectiveness and efficiency
of Fund administration, but also to ensure ongoing strategic re-alignment, as the strategic
direction of ORASECOM, parties stakeholders, beneficiaries, funders and other players
changes. A carefully designed job description, recruitment, evaluation and performance
management system will be required to ensure access to and retention of the required Fund
Manager.
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5.5 Governance systems and control
The OCF needs to put governance systems and controls in place to ensure that the King
principles of good governance are embedded into the operations of the Fund. Standard
systems include the strategic plan, business plan and budget, management appraisal and
performance management, the internal audit, and quarterly and annual reporting.
5.5.1 Planning systems
There are 3 main planning tools that are used to ensure good governance such as
accountability, discipline and transparency. These are the Strategic Plan, the Business Plan
and the detailed budget.
The Strategic Plan
It has already been emphasised above that the OCF's strategy must be closely aligned with
that of ORASECOM. ORASECOM's strategy, in turn, should reflect the strategic objectives
of the Parties and their mandated national institutions. Accordingly, a step-wise planning
process is required.
The Strategic Plan is normally produced (or updated) annually, covering a rolling three or
five year period. It is the responsibility of the Board and is meant to provide the Executive
with high level direction and with Key Performance Areas or Indicators. Given the need for
alignment with ORASECOM, the planning process should commence once ORASECOM's
annual planning process is near completion. An alternative may be to run the two planning
processes in parallel.
Strategic planning is also a critical area for stakeholder involvement (in line with the
governance principles of transparency and responsibility), and structures to ensure that the
strategy reflects stakeholder perspectives are required. These normally take the form of
workshops and other forums where stakeholders are able to comment on current strategy
and provide input on their desires.
Once the Strategic Plan has been completed and adopted by the Board, it is passed on to
the Executive where it forms the basis of the Business Planning process.
The Business Plan
The Business Plan is similar to the Strategic Plan, in that it is normally updated on an annual
basis and covers a period of 3 to 5 years. However it is more operational than the Strategic
Plan, in that it provides the detailed programme information required to implement the
Board's strategies.
The Business Plan will also contain another level of detail with regards to budgets and
sources of funds.
Annual budgets
Both the Strategic and Business Plans will contain budget information. The CFO will need to
take this information and break it down into the detailed cost and revenue centres. The
managers of each cost and revenue centre should then be given the responsibility to monitor
these budgets against actual costs on a monthly basis.
Rules should be put in place regarding budget variations and the need to identify the causes
of these variations, as well as the impact of these variations on the expected annual
surplus/deficit. Significant variations from the budget will need to be escalated up to senior
management and the Board if adjustments are going to be required to programmes and/or
strategy.
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5.5.2 Management appraisal and performance management
The Balanced Scorecard is an example of management appraisal and performance
management. It is meant to provide a relevant way for assessing achievements by linking
performance measurements to four key business perspectives: internal, customers,
innovation and learning, and the financial perspective. The focus is on a few key measures
to evaluate performance and cascade the overall strategies through the organisation. The
scorecard links intangible with tangible assessment factors and is an important element of
an acceptable review and appraisal system.
Executive rewards should be determined in relation to the performance contracts signed
between them and the OCF. These contracts take into account the Key Performance
Indicators of the OCF's business plan. To ensure that individuals put maximum effort into
their roles the following should be in place:
·
Executives should sign performance agreements with annual targets and review
periods,
·
There should be clear definition of objectives, responsibility and expectations,
·
Effective measurement and monitoring systems should be put in place,
·
Performance-linked remuneration would ensure improved individual and entity
performance, and
·
Sanctions for sub-standard performance should be spelled out.
5.5.3 External and internal audit
The Companies Act requires all companies to be externally audited on an annual basis.
Trusts are not required to be audited, however good corporate governance recommends that
companies (and trusts) subject themselves to regular internal and external audits.
External audit
The Fund should subject itself to an annual external audit even if it is a trust. External
audits focus on the presentation of financial information usually the annual financial
statements. Generally Accepted Auditing Standards require that the auditors perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. It also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation.
Internal audit
The internal audit process is often on-going as opposed to the annual external audit. Its
purpose is to assess the internal controls of the organisation and to ensure that they are
operational and effective. There is therefore a strong emphasis on measuring compliance
with the entity's policies and procedures.
Internal auditors either produce an annual report, or meet with management and the Board
on a regular basis to advise on changes required to internal controls and systems.
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5.5.4 Reporting
An important governance control is to ensure regular reporting of management and financial
information.
Annual report
The primary source of information for the public is the Annual Report. It contains the annual
financial statements, produced in accordance with Generally Accepted Accounting Practice,
as well as supplementary information such as narrative reports from the Board Chairperson
and the CEO.
It is often used as a promotional document, but also serves the purpose of keeping
stakeholders informed of the organisation's financial position, performance and future
direction.
Quarterly report
While the annual report generally has an external focus, there is a need for more regular
reports to be submitted to the Board and to management. The CEO and other senior
management must receive financial and management accounts on a monthly basis. The
Board, which should be meeting at least on a quarterly basis, should receive unaudited
quarterly reports that detail the financial performance and position of the Fund, as well as
performance against budget. The quarterly report should be accompanied by a narrative
report from the CFO, detailing any variances and other relevant information.
The Board may delegate queries relating to the quarterly reports to a Board committee such
as the Audit committee; however the whole Board should take responsibility for examining
the quarterly reports.
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6 Organisational and HR considerations
Organisational design for the OCF is heavily dependent on the institutional-business model
adopted (Figure 2), the extent of project implementation by the Fund (Figure 4) and the
resources that the Fund will be able to generate. Accordingly, this section of the business
case will assume a simple structure for the Fund, with possible evolution into a more
complex structure as the Fund matures and workload increases.
6.1 Functional description
The first step in the organisational design process is understanding the functional
requirements of the Fund. These functions do not equate to organisational positions (HR
requirements), with several (all) functions performed under one position initially. Over time,
as the Fund grows and its project load increases, organisational structuring based on
functional distinction may be required.
Fund
governance
Fund
management
Legal and
compliance
Project
Finance
Corp. services
Marketing
management
management
management
management
WR
Financial
HR
Marketing &
engineering
control
management
promotion
Contract
Institutional
Accounting
Administration
management
relationships
Information
Procurement
management
Figure 5: high-level functional description for the Fund, assuming some implementation of conservation
projects
The high-level functional structure is built on the following elements (Figure 5):
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· Fund management: functions related to implementing the strategic direction of the
Board, and day-to-day management of the institution
· Legal and compliance: functions related to governance and legal issues for the Fund,
management of risk and strategic support to the Fund Manager
· Project management: functions related to the identification, development and
implementation of priority projects
o Water resources engineering: identification of priority conservation projects,
assessment of appropriate mitigation responses / initiatives
o Contracts management: initiation and management of contracts with
implementing agents, including tendering and evaluation
o Information management: management of all information related to priority
projects, link into information management in ORASECOM and member
states
· Finance management: functions related to financial management, investment and
income, accounting, budgeting, reporting and management of financial risk
o Financial control: daily management of financial affairs of the Fund, including
investment and income, disbursements, etc.
o Accounting: daily bookkeeping and accounting, budgeting financial reporting
o Procurement: all procurement functions for the Fund, except project
procurement
· Corporate services management: functions related to the full range of corporate
services for the OCF
o HR
management: human resources recruitment, human resources
management (HRM) and human resources development (HRD)
o Administration: full range of administration functions for the Fund, including
document administration, support services, etc.
· Marketing management: a key function for the Fund, particularly whilst fund-raising
from donors remains an important income stream responsible for all elements of
marketing and fund-raising
o Marketing and promotion: fund-raising through development of appropriate
marketing and promotion material, scoping opportunities and packaging
proposals
o Institutional relationships: management of relationships with shareholders and
key stakeholders, and development of partnerships with allied and
complementary institutions
This functional description assumes that the Fund will be implementing some project (B or C
in Figure 4), while it will be sourcing funding for others (D) and routing funding for yet others
(A). It is important to recognise that if this assumption is true, then the functions described
here will be required, irrespective of the institutional-business model of the Fund (Figure 2).
6.2 Organisational structure
Based on an understanding of the early Fund as a small entity, with relatively limited
resources and small project load, an early Fund structure can be developed (Figure 6). This
structure is built on the assumption that the early Fund will conclude a management contract
with ORASECOM, and that ORASECOM will employ a Fund Manager to implement that
contract, accountable to the ORASECOM Executive Secretary, but also reporting to the OCF
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Board (together with the Executive secretary). The Fund Manager will be responsible for all
of the functions described above.
Management contract
OCF
ORASECOM
Fund
Orasecom
board
council
Executive
secretary
Fund
WR
Financial
Admin
manager
specialist
officer
support
Figure 6: initial organisational structure for the OCF, based on a management contract between the Fund
and ORASECOM
As the workload in the functional areas expands, linked to increasing access to resources
and increasing assignment, so more staff may be required and the institutional-business
model for the Fund may change.
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7 Financial considerations
7.1 Financial arrangements
Financial arrangements describe the flow of funds through the OCF (Figure 7).
Parties
Donors
Other income
ORASECOM
FUND
Project
Parties
Implementing
Agents
Projects
Figure 7: financial arrangements for the Fund
Sources of finance may include a combination of party contributions, donor funds and other
sources such as investment income and user charges.
The Fund, apart from holding some of the funds back to cover its overhead costs, then has
two alternatives for distributions, reflecting the management arrangements described in
Figure 4. The first is to distribute to the Parties, for them to spend on projects (via
disbursement to Programme Implementing Agents). This is likely to be the case where the
Parties have not assigned responsibility to the Fund, and instead prefer to retain control over
the projects. Contractual arrangements between the Fund and the parties governing this
transfer of funds will be required. The second alternative sees the Fund disburse funds to
the PIA's, reflecting a contractual arrangement between the Fund and the PIA.
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7.2 Financial requirements of the Fund
See Mitigation Measures Assessment Report for details of the costs of selected mitigation
measures.
7.3 Cost of the OCF
The cost of the Fund is largely going to be determined by the role the Parties require it to
play. The most cost-intensive model is where the Parties assign responsibilities to the Fund,
and the Fund implements the projects through contracts with Programme Implementing
Agents. Staffing is then required to manage the projects, as well as manage the pool of
funds received from Parties, donors and other sources. On the other end of the scale, a
limited number of staff (and overheads) are required if the Fund is only going to play a
financial facilitation role, where it links projects to Parties to donors, without the funds flowing
through the Fund. The Parties retain control over the projects and over the related financing
thereof. The Fund's role is then limited to facilitating the project initiation, ensuring that
projects are coordinated, and playing an advisory role on the project steering committees.
As described in the previous chapter, the OCF will initially only consist of a Fund Manager,
with all support functions performed by ORASECOM. All four management arrangements
for the Fund (Figure 4) can be implemented through this organisational structure, with the
Fund manager assuming the range of functions outlined in Figure 5.
7.3.1 Cost-model assumptions
The OCF will initially consist of a Fund Manager, with all support functions performed by
ORASECOM. It is assumed that ORASECOM will need to scale up its capacity for its own
purposes and should therefore be able to cope with the demands of the Fund as and when
needed.
7.3.2 Establishment costs
Establishment costs are estimated to be in the region of R210, 000. These are primarily the
recruitment costs of employing the Fund Manager (R180, 000 being 20% of the annual
salary cost plus the cost of drawing up the employment contract). Another R40, 000 may be
required for setting up the workstation (furniture, computer, networking, stationery, etc.)
7.3.3 Operating budget
The operating costs of the OCF cover the salary and related overhead costs of the Fund
Manager. These are estimated to be in the region of R1.6m per year. Any project related
costs will be on a `variable cost' basis in that they will only be incurred where they are
covered by specific funding.
No budget is provided for outsourcing costs. It is expected that ORASECOM will provide
management services related to finance and administration on a no-fee basis.
7.3.4 Cost summary
Table 7 provides a summary of the costs expected in the first few years of operation.
Table 7: summary of costs for the OCF
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Budget
2010/11
2011/12
2012/13
Board Costs
R 464,584 R 330,673 R 347,206
Staff Costs
R 651,667 R 848,925 R 891,371
Overheads
R 169,597 R 484,120 R 508,326
Outsourcing
R - R - R -
Establishment
R 217,785 R - R -
TOTAL COSTS
R 1,503,632 R 1,663,718 R 1,746,903
7.4 Sources of finance
There are four broad sources of finance open to the Fund. These are discussed in more
detail below.
7.4.1 Contributions from the Parties
These may be from the Parties' general tax revenue, or could be from specific taxes
collected. Party finance may be ongoing finance as part of an annual allocation to mandated
government institutions, or may be once-off programme finance for specific conservation
initiatives that support party objectives.
The Parties have fiscal resource limitations and this may constrain the amount of money that
can be allocated to transboundary conservation initiatives, except where these are aligned
with national strategic priorities. Where these objectives are aligned, countries may be
resistant to allocating money to the OCF for implementation at a transboundary level, rather
that implementing the intervention at a national or catchment level. The exception to this is
where joint intervention between countries is imperative for effective implementation or it is
viewed as a transboundary flagship project.
In summary, government (party) financing can be expected to cover:
· institutional operating costs,
· transboundary flagship projects and
· catchment initiatives recommended by the OCF but implemented under the auspices
of a national or catchment institution.
7.4.2 Donor Funds
The second source is donor funds. This includes all money provided by external institutions,
including cooperating partners (donors), private sector and non-governmental groups. This
may be directly into the OCF or to an implementing agent on behalf of the OCF. The
important element is that these grants need to support activities that are consistent with the
transboundary priorities and objectives. Cooperating partners are already providing
significant funding to ORASECOM projects, but this may be translated into some level of
basket funding under the direct control of the OCF. Private sector and civil society
organisations provide a potentially untapped source of donations that may be relevant with
the increasing public and corporate recognition of the importance and vulnerability of water
resources.
In summary, grants and donations are likely to be the largest source of funding (initially from
cooperating partners, but then potentially from private sector and nongovernmental
organisations), at least in the next few years as the OCF establishes itself within the basin.
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7.4.3 Investment income
Funds often generate passive income by virtue of sitting on a large pool of capital. Returns
from investments will be significant in the case of an endowment fund, and may still be
significant especially in the early years for a sinking fund and a capital fund. Large
endowments allow funding to be made from interest (or other investment) income on the
capital. However gaining this level of endowment initially is unlikely, particularly in the current
financial climate.
The Fund could contain a revolving element, which would see cash flows generated from
interest income on the loans as well as repayment of the loans themselves. This would suit
specific interventions that have relatively quick payback periods (such as water loss control
in urban areas), with savings or local tariff income covering debt repayment, which then
becomes available for further loans. However these types of projects should be supported
by PPPs and other government or private financing. They should only be considered by the
Fund if they contain a transboundary element which makes government or private finance
too complex or unattractive for private finance.
7.4.4 Charges or taxes
Non-investment income may include tariffs, user charges, levies, earmarked taxes (applied
to water users or property), payment for environmental services schemes, carbon and
biodiversity finance, patents, and sale of goods and services. These options are not likely to
feature as a source of finance in the short to medium term. Typically, these charges must be
legislated (empowered) at a national level and require fairly sophisticated financial
management systems to ensure payment, which restricts the likelihood of direct charging
and collection at a transboundary (OCF) level. Dedicated basin-wide management or
pollution charges would require aligned legislative processes to enable them, which is
logistically and politically unlikely. Joint infrastructure charges have and can be applied to
cover the costs of infrastructure development and operation, but are unlikely for more
localised infrastructure. It is also clear from the review of financial requirements that the
Fund should not be servicing projects that are eligible for private sector or government
finance. Infrastructure projects that generate returns via user charges would fit the category
of projects that do not need to be funded by the OCF.
Pollution charges have not been implemented in the riparian states, although South Africa
has developed the possibility for a waste discharge charge, which currently does not cater
for cross-border impacts. Economic charging (taxes to reflect the value rather than the cost
of managing water) has not been developed by the riparian states (although South Africa is
exploring this). Users are politically resistant to this type of tax and national treasuries are
usually unwilling to earmark this for specific purposes.
Including costs for transboundary conservation initiatives into existing user charges may be
considered, but currently payment levels are low and are dedicated to managing local
priorities.
Payment for environmental services (PES) may be considered in quite targeted local
situations, where beneficiaries pay another group to maintain environmental functioning, but
this must be locally negotiated. Alien vegetation removal may be partially funded by
beneficiaries of the water (such as South Africa's Working for Water programme), but this
currently does not have a cross-border element and has evolved a PES and government
financing focus.
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In summary, while user charges and taxes may be implemented at a catchment level, they
are unlikely to be allocated to transboundary initiatives, except where these align with the
local priorities against which the money was collected, while PES systems may be
negotiated between local groups even in a cross-border context.
7.4.5 Summary
Given the options discussed above, it seems evident that the OCF can expect to have its
institutional costs funded by the Parties, with project costs being funded by donors. The
Parties are also expected to contribute to projects, but probably only where these are
flagship projects for ORASECOM, or where the funds are channelled directly to institutions
in the Party's own country.
Income generated from investments, charges and taxes are expected to be inconsequential
or non-existent in the short-term.
7.5 Financial systems
The Fund will initially utilise the financial systems of ORASECOM and will therefore have no
need for a separate financial system. ORASECOM will need to maintain separate financial
records to allow the OCF to report separately.
The future financial systems of the Fund will depend on the extent of financial intermediation
and project management required. At most the Fund's CFO will be responsible for: Fund
management, Project management, and administration costs. Fund management is likely to
be fairly straightforward, with the Fund likely to adopt a conservative investment strategy.
The financial systems will therefore be straightforward, although the governance systems will
need to be strong to avoid mismanagement and the risk of fraud.
The financial systems required for project management, if this is undertaken by the Fund,
will require the capacity to deal with multi-currency accounting and multi-year work-in-
progress accounts. Most standard small business accounting packages now have the ability
to deal with this level of complexity. The Fund should therefore not have to invest in a
customised financial system.
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8 Risk analysis
There are several risks facing the conservation fund, some that are internal to the Fund
itself, and which relate to the standard business and governance risks facing any institution,
and some which are external to the Fund and are driving by the specific context within which
the Fund operates.
8.1 Identification of key risks
· Insufficient funding: In the current context of a global financial crisis and the slow-
down of economies both internationally and in the basin states, the potential exists
that less money may be available for basin management activities than may have
been expected. This is compounded by the competition for funding for other
purposes in the riparian states, all of which still have some way to go to meet, for
example, the Millennium Development Goals.
· Poor financial management: In any body managing substantial funds, the potential
for poor financial management poses a significant risk. In this case, the Fund will be
managing funds obtained from a number of sources, and will need to be able to
account to such sources for the effective and productive use of those funds.
· Poor governance: Closely linked to the risk of poor financial management is the
more general risk of poor governance of the institution. It is envisaged that the
Conservation Fund will have a Governing Board, with full fiduciary responsibility. It is
important that the members of the Board have, between them, the appropriate
capabilities to exercise their full fiduciary and legal responsibilities to ensure good
governance of the Fund.
· Lack of agreement and co-operation between member states: The Fund will
serve, in essence, the four member states of ORASECOM. The potential exists for
disagreement between the states on the allocation of funds to projects, particularly
where certain projects are seen to benefit specific states and not others. This
potential may be exacerbated if the establishment of the Fund is seen to divert
funding possibilities away from the individual states to a common pool from which
they may not benefit to the same extent.
· Lack of implementation capacity: There is limited capacity (in the private sector,
NGOs and the state) in the four member states to implement some of the work that
needs to be done in the basin. While the potential exists to buy in capacity from
outside the member states, this must be done within an approach that ensures
sustainability in the long term. It is critical that projects that are envisaged are
aligned with sustainable and available capacity.
· Lack of credibility: The sustainability of the Fund will depend on the credibility not
only of the Fund, but of ORASECOM, both within the basin and within the broader
donor community. Sustainable, long-term funding will depend on the Fund being
seen as credible, and offering good value for money. Lack of credibility will impact
negatively on the willingness of donors, stakeholders and states to provide resources
to the Fund.
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8.2 Risk quantification and management
RISK
IMPACT
LIKELIHOOD
MANAGEMENT
Insufficient
High
Medium
Development of a realistic financing strategy;
funding
diversification of financial sources; matching of
finances to projects
Poor financial
High
Low
Appropriate determination of required staff
management
capacity; appointment of skilled and experienced
staff; development and implementation of good
financial management systems; effective
monitoring and oversight;
Poor governance
High
Low
Appointment of appropriately qualified/
experienced people to Board; training for Board
members; appointment of effective Audit
committee; Board performance assessments
conducted;
Lack of
Medium
Low
Development of agreed principles and criteria for
agreement
selection of projects; transparent and inclusive
between
process of selecting projects; dispute mechanism
member states
in place; identification of new sources of funding
rather than competition with existing sources of
funding for member states;
Lack of
Medium
Medium
Tailor projects to existing capacity (state, NGO
implementation
and private) for implementation; buy in capacity
capacity
where appropriate and where sustainability can be
ensured;
Lack of
High
Medium
Ensure Fund is responsive to the needs of the
credibility
basin states and stakeholder groups; identify
"quick wins" to establish ORASECOM and the
Conservation Fund as effective and important
players in basin management
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9 Implementation considerations
The following key steps are required in taking this process forward:
· Political support for the ORASECOM Conservation Fund from ORASECOM Council,
including a mandate to move towards legal and functional establishment
· Initiate the legal and functional establishment process, through a OCF Establishment
Project
· Legal establishment of the OCF
o Select appropriate legal form and location
o Select appropriate institutional model
o Draft require legal documentation, including institutional agreements
o Leading to a legally established entity with clear institutional and management
arrangements
· Functional establishment of the OCF
o Organisational design, including job evaluation and description
o Organisational policies and systems
o Financial policies and systems
o Recruitment of key staff
o First business plan for the OCF
· Financial strategy for the OCF
o Sources of funding, focussing on sustainability of the OCF
o Secure funding
o Investment strategy developed
o OCF funding strategy
· Contract development and implementation of first conservation measures
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Appendix A
Examples of interventions to priority conservation issues
CONSERVATION
POSSIBLE MITIGATION
INSTITUTIONAL
COST
ISSUE
INTERVENTION OR PROJECT
RESPONSIBILITY
IMPLICATIONS
High water
Water Conservation and
Kuruman
>R10 million
demands in
Demand Management in the
municipality
municipal centres
town of Kuruman covering: A
supported by RSA
compounded by
survey of the current status
DWAF
poor asset
water services infrastructure. In
management.
order to improve asset
management, water audits and
determination of the water
balance, leak repair/ retrofitting
programme, pressure logging
and possible pressure reduction
and consumer awareness
Water Conservation and
Mafikeng
>R10 million
Demand Management in the
municipality
town of Mafikeng covering:
supported by RSA
Leak repair/retrofitting
DWAF
programme, pressure logging
and possible pressure
reduction, consumer awareness
and verification of existing
irrigation water use.
Water Conservation and
RSA Local
>R10 million
Demand Management in the
government
town of Upington around
implementation of the existing
leak reduction strategy.
Support of the Richtersveld
SANPARKS, RSA
<R1 million
COWEP programme which will
DWAF, RSA local
require partnership with the
government
local community, RSA DWAF,
SANPARKS and the local
municipality.
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CONSERVATION
POSSIBLE MITIGATION
INSTITUTIONAL
COST
ISSUE
INTERVENTION OR PROJECT
RESPONSIBILITY
IMPLICATIONS
Repeated releases
Support the upgrading of
RSA Local
>R100million
of non-compliant
various wastewater treatment
government, RSA
wastewater effluent
works
DWAF
across the Orange-
Senqu river basin
Extensive mining in
Collection and treatment of
RSA DWAF, RSA
>R100million
Witwatersrand
mining decant currently
DME, Mining
mining basin
threatening the Cradle of
companies.
resulting in decant
Humankind World Heritage Site,
of contaminated
water users, and the
mine water from
Krugersdorp Game Reserve.
Vaal River system
High return flows
Support of the (on-site) physical
Working for
<R1million
(containing high
rehabilitation of the Klip River
Wetlands, RSA
levels of untreated
wetlands which includes the
Local government
effluent) in Klip river
construction of additional
catchment as well
gabions and earth structures to
as (low pH) mining
prevent river bank erosion.
water pollution
Support of the rehabilitation of
Working for
R10million-
the Klip River wetlands by
Wetlands, RSA
R100million
addressing the upstream
Local government,
contamination of wastewater
RSA DWAF, RSA
and mining effluent.
DME, Mining
companies.
Possible mitigation intervention
Institutional
Cost implications
or project
responsibility
Addressing sand mining and
Local mining
<R1million
removal of spoil dumped in and
companies, RSA
around estuary
DWAF, Northern
Cape Department of
Environment &
Conservation,
Orange River
Interim
Management
Committee
Support to Lower Orange
RSA DWAF,
<R1million per
Transfrontier Conservation Area
Working for Water,
annum
(LOTCA) Invasive Alien Plant
Namibian Ministry of
Management Programme for:
Agriculture, Water &
Establishing joint technical
Forestry, Namibian
working group for invasive alien
Ministry of
plant management.
Environment &
Quantification of extent of
Tourism and
invasive alien plants in the
Namibian Ministry of
LOTCA.
Lands &
Carrying out livelihoods and
Resettlement.
socio-economic assessment
Developing invasive alien plant
management plan for LOTCA.
Developing and transferring
technical capacity for
management of invasive alien
plant control programmes in
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Namibia
Coordination of management of
Local mining
<R1million per
the Orange River Mouth estuary
companies, RSA
annum
with involvement from the
DWAF, Northern
Northern Cape provincial
Cape provincial
Department of Environment &
Department of
Conservation, the Orange River
Environment &
Interim Management Committee
Conservation, the
and Richtersveld community.
Orange River
Interim
Management
Committee
Support to Black Fly Control
RSA DWAF, WRC,
<R1million
programme for:
RSA Department of
Per annum
Funding and research support
Agriculture, RSA
to pilot control programme
Agricultural
upstream towards Vaal-Orange
Research Council
River confluence.
Funding for surveys and
monitoring, hiring of helicopters
for applications, and purchase
of larvicide.
Installation of additional flow
measurement stations along the
length of the river.
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CONSERVATION
POSSIBLE MITIGATION
INSTITUTIONAL
COST
ISSUE
INTERVENTION OR PROJECT
RESPONSIBILITY
IMPLICATIONS
Degradation of the
Addressing sand mining and
Local mining
<R1million
Orange River
removal of spoil dumped in and
companies, RSA
Mouth estuary and
around estuary
DWAF, Northern
Lower Orange
Cape Department of
River area
Environment &
Conservation,
Orange River
Interim
Management
Committee
Flow reductions
Support to Lower Orange
RSA DWAF,
<R1million per
which have created
Transfrontier Conservation Area
Working for Water,
annum
conditions
(LOTCA) Invasive Alien Plant
Namibian Ministry of
favourable for the
Management Programme for:
Agriculture, Water &
proliferation of
Establishing joint technical
Forestry, Namibian
reeds and other
working group for invasive alien
Ministry of
invasive alien
plant management.
Environment &
species.
Quantification of extent of
Tourism and
invasive alien plants in the
Namibian Ministry of
LOTCA.
Lands &
Carrying out livelihoods and
Resettlement.
socio-economic assessment
Developing invasive alien plant
management plan for LOTCA.
Developing and transferring
technical capacity for
management of invasive alien
plant control programmes in
Namibia
Collapse of Orange
Coordination of management of
Local mining
<R1million per
River estuary due
the Orange River Mouth estuary
companies, RSA
annum
to absence of
with involvement from the
DWAF, Northern
natural seasonal
Northern Cape provincial
Cape provincial
flow patterns and
Department of Environment &
Department of
local mining
Conservation, the Orange River
Environment &
activities
Interim Management Committee
Conservation, the
and Richtersveld community.
Orange River
Interim
Management
Committee
Blackfly prevalence
Support to Black Fly Control
RSA DWAF, WRC,
<R1million
due to low flow
programme for:
RSA Department of
Per annum
conditions, absence
Funding and research support
Agriculture, RSA
of natural seasonal
to pilot control programme
Agricultural
flow patterns and
upstream towards Vaal-Orange
Research Council
reed
River confluence.
encroachment.
Funding for surveys and
monitoring, hiring of helicopters
for applications, and purchase
of larvicide.
Installation of additional flow
measurement stations along the
length of the river.
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Appendix B
Review of Conservation Funds
Introduction
A key element of the inception phase is a review to inform the feasibility assessment
(business case) of a basin-wide fund to support conservation measures. A specific element
of this review is to identify and describe conservation type funds successfully implemented
elsewhere in the region and globally that may provide ideas and lessons applicable to the
Orange-Senqu basin. The terms of reference indicate a number of questions, all of which are
necessary for the business case:
1. What will the fund be used for?
2. Who will administer the fund?
3. How will the funds be collected?
4. How can financial sustainability in the immediate, short, medium and long term be
assured?
5. How can we be sure that the fund is achieving the objective of ensuring the
conservation of the basin's water and natural resources? What sort of indicators can
be developed in this respect?
This chapter provides the review of international funds comparable to the proposed
ORASECOM water and environmental conservation fund. This task involved the review of
20 international funds, spanning the full range of possible objectives for the proposed
ORASECOM conservation fund and including funds in the region and beyond, in developed
and developing countries.
Table: List of funds reviewed
No. FUND
COUNTRY / REGION
1
Arizona Water Protection Fund
USA
2
Clean Water State Revolving Fund
USA
3
Drinking Water State Revolving Fund
USA
4
Cooperation Fund for the Water Sector
ASIA
5
Environmental Funds of the Ukraine
UKRAINE
6
Environmental Pollution Prevention Fund
KOREA
7
Fund for the Protection of Water (FONAG)
ECUADOR
8
Great Lakes Protection Fund
USA
9
Land and Water Conservation Fund
USA
10
National Environmental Protection Fund
BULGARIA
11
National Fund for Environmental Protection and Water Management
POLAND
12
National Trust EcoFund,
BULGARIA
13
Nile Basin Trust Fund
NILE BASIN
14
Pan-African Infrastructure Development Fund
AFRICA
15
Provincial Water Protection Fund
CANADA
16
Sangha Tri-National Foundation
CAMEROON, CAR, CONGO
17
SADC Regional Development Fund
SADC
18
Shanghai Water Resource Protection Fund
CHINA
19
Table Mountain Fund
RSA
20
Water Infrastructure Fund
USA
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This review presents a synthesis of this analysis, and rather than only providing a summary
of the funds, it provides an analysis of the funds against a set framework. This framework
considers:
· The purpose
· The institutional models
· The institutional relationships and arrangements (including trust funds)
· The financial arrangements
The framework then provides an analysis of this information distilling key lessons and issues
for consideration in the design of the proposed ORASECOM conservation fund.
One particular fund that was reviewed - the Nile Basin Trust Fund is described in some
detail, given potential similarly with the proposed ORASECOM conservation fund.
Purpose of the Funds
Water quality maintenance
The first category of funds seek to maintain water quality, to maintain drinking water quality,
support productive use of the resource or to protect aquatic ecosystem goods, services and
functions.
Such funds vary widely in their size and application, but many of the developed world funds
focus on infrastructure development to support wastewater treatment. These funds usually
provide resources to local authorities (municipal service providers) to support a range of
wastewater infrastructure capital costs, including maintenance, refurbishment, betterment
(upgrading) and replacement. Examples include the Drinking Water State Revolving Fund
(USA), the Clean Water State Revolving Fund (USA), the Provincial Water Protection Fund
(Canada Ontario) and the Shanghai Water Resource Protection Fund (China).
Another group of funds support a wider range of environmental quality / pollution control
objectives, including:
· Rehabilitation of contaminated land
· Removal and disposal of toxic waste
· Accident and emergency response to pollution incidents
· Prevention of pollution
· Research and technology development
While these funds do not relate specifically to the water resource, they clearly support
prevention of water pollution through activities that prevent pollution or manage pollution
impact on land, in water and in the atmosphere generally. Examples of such funds include
the USEPA Superfund (USA) and the Environmental Protection Fund (Zambia).
Infrastructure development
A large number of funds exist for the development of infrastructure in the water sector.
Besides the water quality related infrastructure funds discussed above, these funds can
broadly be classed into two categories:
1. Funds for the development of new water resources infrastructure, such as dams,
pipelines, irrigation systems (e.g. the Pan African Infrastructure Development Fund); and
2. Funds that support water conservation through rehabilitation, refurbishment,
maintenance and betterment of existing infrastructure (e.g. the Water Infrastructure
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Fund, the Clean Water State Revolving Fund and the Drinking Water State Revolving
Fund of the USA).
Aquatic ecosystem protection
A number of funds focus on the protection of aquatic ecosystems as their primary purpose.
Such protection serves environmental quality objectives and seeks to create or maintain an
environment that resembles the natural state. Specific activities that such funds finance
include:
· Environmental engineering and construction activities, such as the creation of
artificial wetlands, restoration of channels, and the removal of man-made structures
(e.g. weirs);
· Biological interventions, such as riparian re-vegetation, the re-introduction of certain
aquatic species, and the restoration of wetlands and uplands;
· Agricultural management activities, such as fencing and grazing improvement,
improved agro-chemical use; and erosion control;
· Strategies and management plans;
· Environmental awareness and education; and
· Applied research.
Examples include the Arizona Water Protection Fund (USA), Great Lakes Protection Fund
(USA) and the National Fund for Environmental Protection and Water Management
(Poland).
Land and conservation
A further large group of funds exist that support land conservation initiatives. Here one can
distinguish the following broad groupings:
· Acquisition of land for conservation purposes (e.g. Land and Water Conservation
Fund, USA);
· Payment for environmental services (e.g. FONAG, Equador);
· Funding of particular biodiversity conservation activities, often within a particular
geographic area (e.g. Table Mountain Fund, Sangha Tri-National Foundation);
· Awareness, advocacy and education; and
· Conservation related research.
Whilst these funds do not pertain exclusively to the aquatic environment, conservation of
land and water are closely related and many of these funds focus on protection of the
aquatic (including marine) environment.
Institutional development and support
This final category of funds within the water sector focus on developing the water sector
management institutions, through:
· institutional establishment support, including development of institutional
infrastructure;
· institutional capacity building, and co-finance for human resource recruitment and
retention;
· funding of particular institutional programmes or processes (e.g. strategy
development); and
· to provide resources for funding regional water sector initiatives of a regional
development institution.
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Examples of these funds include the Nile Basin Trust Fund, the SADC Development Fund
and the ADB's Cooperation Fund for the Water Sector (CFWS). The Funds can either serve
as a means to pool resources (often provided by member states) or as a conduit for grant
funding (often from donors).
Table: Purpose of the funds reviewed
FUND
COUNTRY / REGION
WATER AND ENVIORNMENTAL QUALITY MAINTENANCE
National Fund for Environmental Protection and Water Management
POLAND
Clean Water State Revolving Fund
USA
Drinking Water State Revolving Fund
USA
Environmental Funds of the Ukraine
UKRAINE
Environmental Pollution Prevention Fund
KOREA
Shanghai Water Resource Protection Fund
CHINA
National Environmental Protection Fund
BULGARIA
INFRASTRUCTURE DEVELOPMENT
Water Infrastructure Fund
USA
Pan-African Infrastructure Development Fund
AFRICA
Cooperation Fund for the Water Sector
ASIA
AQUATIC ECOSYSTEM PROTECTION
Arizona Water Protection Fund
USA
Fund for the Protection of Water (FONAG)
ECUADOR
Great Lakes Protection Fund
USA
LAND AND BIODIVERSITY CONSERVATION
Provincial Water Protection Fund
CANADA
Sangha Tri-National Foundation
CAMEROON, CAR, CONGO
Table Mountain Fund
RSA
National Trust EcoFund,
BULGARIA
Land and Water Conservation Fund
USA
INSTITUTIONAL DEVELOPMENT AND SUPPORT
Nile Basin Trust Fund
NILE BASIN
SADC Regional Development Fund
SADC
Fund Institutional Arrangements
The institutional arrangements describe how the fund is constructed in relation to other
institutions. The term Fund refers to the process of Funding or to a collective investment
scheme or vehicle. The distinction is significant:
· the former definition refers to a financial arrangement through which finance is
received, administered and disbursed
· the latter refers to an institutional arrangement that has strategic, governance and
accountability implications.
These arrangements are described diagrammatically below (Figure 3.1Figure) through three
possible institutional models:
· Institutional Fund
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The Fund may be an institution in its own right, established as a legal entity with a
governing board structure and management capacity. In this case, the fund develops
strategy for the institution, including sources and disbursement of funding, and is
accountable for the implementation of that strategy (and the expenditure against the
strategy). Whilst the fund may outsource some of its peripheral functions (including
investment), the Fund retains the core Fund functions of strategy, revenue
management, financial management and disbursement.
· Managed Fund
In this mixed model, the Fund is established as an independent entity (may or may
not be a legal entity) with stakeholder representation through an advisory committee,
steering committee, board of trustees or governing board. However, much of the
administrative and technical functions of the Fund are transferred to an allied
institution, which is responsible for the financial management including disbursement.
Strategy may be set by the board, or may be informed by the stakeholder grouping
(steering committee or advisory committee).
· Fund Account
On the other extreme, the fund may simply be a financial vehicle for the collection,
management and disbursement of finances, and to support fund accounting. In this
simplest form, the fund is a bank account or a ring-fenced line item within an existing
account. A separate institution is responsible for the account, and develops a
strategy according to which funding and disbursement is undertaken. This separate
institution is accountable for the fund, assumes the risk associated with the fund and
performs all the management and administrative functions associated with the fund.
INSTITUTIONAL
MANAGED
FUND
FUND
FUND
ACCOUNT
Source of
Source of
Source of
finance
finance
finance
FUND
FUND
FUND
Fund
Fund Management
Institution
Institution
Disbursement
Disbursement
Disbursement
Figure: Institutional models for a Fund
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EXISTING INSTITUTION
NEW INSTITUTION
Trust Fund
Dedicated line-
New account
Foundation /
Item within
with new
Non-Government
existing budget
budget
Organisation
Special Purpose
Vehicle
through
Legislation
INCREASING
institutional independence, separate governance & risk
Figure: Institutional / legal vehicles for the Fund
Table: Examples of Funds fitting the institutional models
INSTITUTIONAL FUND
MANAGED FUND
FUND ACCOUNT
FONAG, ECUADOR
Nile Basin Trust Fund, NILE
Water Infrastructure Fund, USA
BASIN
Sangha Tri-National Foundation,
Shanghai Water Resource
Drinking Water State Revolving
CAMEROON, CAR, CONGO
Protection Fund, CHINA
Fund, USA
Great Lakes Protection Fund, USA
Table Mountain Fund, RSA
Clean Water State Revolving
Fund, USA
National Fund for Environmental
Arizona Water Protection Fund,
Provincial Water Protection Fund,
Protection and Water
USA
CANADA
Management, POLAND
Pan-African Infrastructure
Environmental Pollution Prevention
Environmental Funds of the
Development Fund, AFRICA
Fund, KOREA
Ukraine, UKRAINE
National Trust EcoFund,
Land and Water Conservation
BULGARIA
Fund, USA
National Environmental Protection
Fund, BULGARIA
Cooperation Fund for the Water
Sector, ASIA
SADC Regional Development
Fund, SADC
Functional areas
In understanding the distinction between the models, it is useful to unpack the functional
areas typically associated with funds and funding. The functional areas are allocated to
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different institutions and imply differing institutional relationships between the three broad
institutional models described above.
· Funding strategic framework
This is the broad framework according to which the fund operates and described the
sources of funding, what funding will be used for (the purpose of the fund) and the
rules for allocation
· Funding allocation and monitoring
This pertains to the determination of funding allocation, based on the framework and
an assessment of applications / priority areas. This functional area develops the rules
for allocation into a set of practical guidelines and procedures, and involves the
administrative process of identifying and evaluating projects / initiatives for funding. In
addition, this functional area evaluates the effectiveness and efficiency of the fund
against the defined objectives / purpose through ongoing monitoring and evaluation
of funded initiatives.
· Financial administration and control
This refers to the financial and administrative management of the fund, including
disbursement, loan repayment and investments, and accounting.
· Reporting
This refers to the accountability function with various reporting on fund allocation and
disbursement, fund investment and debt management, and financial management.
· Information and marketing
Is the provision of information regarding the fund and funding to wider stakeholders,
including prospective fund beneficiaries.
These functional areas are distributed differently in the three institutional models described
above:
· The Institutional Fund model assumes all strategic and core functional areas within
the Fund it develops the strategic framework, does the fund allocation and
monitoring, is responsible for reporting and for information management and
communication functions. This model usually also internalises funding administration,
but may make use of professional services for fund investments or debt
management.
· The Managed Fund model sets the strategic framework and may assume some of
the core functional area of funding allocation and monitoring. However, often this
model utilises the close institutional relationship with the fund management institution
to delegate the allocation and monitoring, administration, reporting and information
functions. Accountability against the strategic framework is maintained through
reporting arrangements between the Fund and the management institution.
· In the Fund Account model a separate institutional structure for the fund does not
exist, and its functional areas are part of the larger functional areas and strategy of
the host institution (fund institution). This institution's mandates and functions are
significantly greater than those of the fund, and the fund constitutes a part (often
small) of the activities and strategy of the host institution.
Institutional relationships
The fund has particular relationships with the accountable authority; partners and mandated
institution/s, the funders and financiers, projects and initiatives, and the public (Figure
3.2Figure). Broadly, relationships centre on:
· Responsibility for strategy and governance;
· Input to strategic direction and accountability against the direction;
· Financial accountability;
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· Project (funding) application and evaluation, financial support, oversight and
monitoring; and
· Information.
Executive
authority
Funders and
Strategy &
financiers
governance
Financial
accountability
Partners &
mandated
FUND
Strategic
institutions
direction
Information
Application,
financial support,
oversight & monitoring
Public
stakeholders
Projects &
initiatives
Figure: Relationships for the fund
The extent to which these relationship manifest as institutional arrangements depends on
the institutional model and the distribution of functional areas.
· Relationships for the Institutional Fund centre closely follow the institutional
arrangements depicted in Figure 3.2Figure, except that the accountable authority is
internal to the Fund (governing board, trustees, etc.). This is the most complex
institutional form of the Fund and therefore has the most complex institutional
arrangements associated with the fund.
· Relationships for the Managed Fund centre on the institutional arrangements with
funders and financiers, and with partners and mandated institutions. As with the
Institutional Fund, the accountable authority is internal to the Fund (governing board,
trustees, etc). Relationships with projects and with the wider public stakeholders
(information) are often delegated to the fund management institution.
· Relationships for the Fund Account are simple, with all the relationships undertaken
through the separate institution that houses the fund. Because that institution has a
wider mandate than the fund, the institutional arrangements for the fund often form
part of existing institutional arrangements that emerge as part of the host institution's
broader mandate and functions.
Strategy development, risk and stakeholder participation
The development of strategy for the fund and the associated accountability for the fund and
risk varies greatly between the different forms of funds described above. However, ultimately
the institution that assumes accountability for the fund must have responsibility for strategy
formulation. Where the fund has a designated governing board or trustee structure, which
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assumes responsibility for governance and risk management, this structure sets the
strategy.
However, where the purpose of the fund has overlapping mandates with other institutions,
stakeholder input to strategy development is often required to ensure alignment of fund
objectives with the strategic framework (policy and objectives) of the other mandated
institutions. This is particularly the case where the fund assumes a regional mandate that
requires alignment with national objectives. In addition, significant funders (and founders)
often require representation for strategy development, to ensure alignment with the funders
objectives. Such representation can be achieved through designated positions on the
governing board (trustees), but for governance reasons it may require the establishment of a
joint strategy development forum. Where this parallel structure for input to the strategy is
required, custodianship of the strategy (and associated risk) still rests with the accountable
authority (i.e. board), but with a requirement that the strategic input from the forum be taken
into consideration.
Where the fund is effectively a designated item or ring-fenced account within a larger
institution, the fund strategy is part of the broader strategy of the institution, which is
developed outside the ambit of the fund through the institution's governing structure.
BOARD
JOINT
INSTITUTIONAL
STRATEGY
STRATEGY
STRATEGY
Fund
Fund board
Fund board
Institution
(trustees)
(trustees)
Board
Strategy
Institutional
development
stakeholders
forum
Institutional
Fund strategy
Fund strategy
strategy
Fund strategy
Figure: Strategy development and stakeholder participation
Nature of the institution: organisational and cost implications
Depending on the institutional model, functional areas, institutional arrangements, the
responsibility for strategy and risk management, the fund assumes significantly different
organisational and cost implications.
The Institutional Fund, with only limited outsourcing (perhaps of the fund administration
functions), is the most complex organisationally, as it must build capacity for the full range of
functional areas (perhaps with the exception of some of the technical financial capacity).
Accordingly, this institutional form is the most costly and utilises few economies of scale or
shred services.
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The Managed Fund is an intermediate form, with some capacity required for the strategy,
allocation and monitoring functions, but with significant cost and skills efficiency introduced
through the sharing of services and outsourcing of functions.
The Fund Account is the simplest organisational form of the fund, requiring very few staff
and limited skills as most of the fund functions are performed within the greater functional
areas of the host institution.
Trust Funds
A relatively recent development is the emergence of trust funds so called Conservation
Trust Funds (CTF) or Environmental Trust Funds (EFT) as financial instruments for the
collection, management and disbursement of grant funding for conservation activities.
Broadly, trust funds are a pool of financial resources that are collected for a specified
purpose, that are kept and administered separately from other finance (e.g. government
revenue) within a designated account and that are managed by a professional entity
including an independent governing body.
These CTFs have a number of common features:
· They are independent legal persons, with all the related juristic powers;
· They are governed by an independent, professional board that is typically composed
of individuals from a mix of private and public institutions;
· Political representation is limited, to ensure the institutions are apolitical / non-
aligned;
· They make grants to government, civil society and private sector institutions
accordingly, they are financing mechanisms rather than implementing agencies;
· CTFs typically provide finance in four broad areas: (i) conservation projects; (ii)
institutional strengthening; (iii) sustainable livelihoods; and (iv) private sector
partnerships for conversation.
· They often finance part of the long-term management costs of a country's protected
area (PA) system;
· Administrative costs (overheads) are typically 10-20% of the annual budget, while
investment returns are typically around 10%;
· Because they are professional, accountable and non-align institutions, they serve as
an effective means for mobilizing funding from the public and private sector.
Four key conditions or prerequisites for successful CTFs have been described in the
literature:
1. The funding requirements are long-term and sustained CTFs do not cover short-
term, emergency funding requirements;
2. They support conservation systems including a number of protected areas or
conservation initiatives, rather than individual protected areas;
3. There is political and financial commitment to support the fund and participate in its
work; and
4. There are appropriate legal and financial practices and institutions that support the
fund, to provide the confidence for raising capital.
A number of different kinds of CTF can be described:
· Grants Fund
Channels resources to target groups, typically civil society, for a broad range of
conservation and sustainable development projects, not limited to PAs
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· Green Fund
Primarily finances activities related to biodiversity conservation
· Brown Fund
Finances activities such as pollution control and waste treatment, and are financed
by pollution charges or fines
· Parks Fund
Finances the management costs and sometimes the establishment costs of specific
protected areas, or of a country's entire protected area system, including financing
livelihoods or sustainable development activities in protected area buffer zone
communities
Fund Financial Arrangements
Sources of conservation finance
Water conservation finance refers to the provision of financial resources for the
development, implementation and management of water conservation programmes or
initiatives. As such, water conservation finance is a wide and diverse field, covering all
manner of financing arrangements from individual projects and initiatives to government
funding for national (state) conservation mandates. Increasingly, governments, multilateral
donor agencies and civil society are recognizing the need to develop sustainable water
conservation finance mechanisms, and are pioneered innovative and successful economic
instruments that dedicate long-term funding for water conservation.
Another element of conservation finance is funding for environmental conservation and the
protection of natural capital within the context of sustainable utilisation. Finance for this type
of conservation is developing rapidly, but it is widely held that the efforts to date have not
achieved the scale of impact required to meet the global conservation funding challenge.
New initiatives, like debt-for-nature-swaps (debt redirection) have helped to close the gap,
but significant challenges remain to find sustainable mechanisms that are institutionally and
financially responsive to the conversation funding challenge.
Conservation finance can be distinguished according to the source of funding, which also
typically informs the purpose of funding:
· Government finance in the form of fiscal allocations from general tax revenue
(including debt-for-nature swaps), earmarked government (tax) revenue or
allocations from government grants or loans. Government finance may be ongoing
finance as part of annual allocation to mandated government institutions, or may be
once-off programme finance for specific conservation initiatives that support
government's objectives;
· Income through user charge and levies, earmarked taxes, payment for environmental
services schemes, carbon and biodiversity finance, sale of goods and services,
patents, amongst others. Such income is often relatively stable and forms the basis
for operational cost recovery; and
· Grants and donations from cooperating partners, private sector and/or
nongovernmental organisations.
Types of funds
While the preceding section has described various differing institutional forms of funds, funds
can also be distinguished based on the source of their finance and the sustainability of
funding. Broadly, four types of funds are described in the literature:
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· Endowment Fund
Capital is invested in perpetuity, and only the resulting investment income is used to
finance grants and activities the capital base is maintained or grown over time.
Disbursement capacity of the fund is maintained or grows over time. Large initial
funds (seed funding / endowment) are required to ensure a reasonable investment
return after costs and inflation are covered.
· Sinking Fund
The entire principal and investment income is disbursed over a fairly long period
(typically 10 to 20 years) the capital base is eroded over time until the fund is
depleted. Disbursement capacity of the fund reduces with time. Moderate initial
investment is required, depending on the nature of the funding to be undertaken.
· Revolving Fund
Loan repayments and / or income from taxes, charges, fines, or PES schemes
regularly go into the fund and therefore the asset base of the fund is maintained or
grows over time. Disbursement capacity increases with time and moderate initial
funding (seed funding) is required to initiate the loan cycle.
· Mixed Fund
That has both a capital portion and an investment portion, often operated through
separate accounts. The investment portion may be based on endowments, income or
may be built on a loan arrangement. These funds are often the most popular, as they
allow different arrangements for different funders i.e. donors can contribute capital
to specified programmes on a sinking fund basis, other funders can provide
endowments aligned with the general fund strategy, while financiers can enter into
loan-type revolving fund arrangements.
Accounting and financial reporting
Fund accounting serves any non-profit organization or the public sector where the main
purpose is stewardship of financial resources received and expended in compliance with
legal or other requirements, rather than profit. Accordingly, such organizations have a need
for special reporting to financial statements users that show how money is spent, rather than
how much profit was earned. Fund accounting follows the principles of GAAP (Generally
Accepted Accounting Principles) developed for the Public Sector.
Implications for ORASECOM
Purpose of the fund
The first key consideration for a Fund is the purpose. This purpose may be focussed or
broad however, where a broad purpose is pursued, the fund should have sufficient
resources to enable effective execution of a wide mandate. Similarly, the fund should be
institutionally aligned to enable it to deliver its broad mandate without institutional complexity
and inefficiency arising owing to overlapping mandates. As such, most funds with broad
mandates are government supported funds located within key government institutions
(Treasury, Environmental Regulator, etc.).
Funds for other institutions are, therefore, often more focussed in mandate. This reflects the
lower resources typically available and the reduced mandate. A distinctly focussed mandate
with clear objectives and success indicators is a key success factor in these funds.
Applying this rule-of-thumb to a possible ORASECOM conservation fund suggests that a
focussed purpose for the fund should be established, with the fund responding to the key
issues that reflect the mandate of ORASECOM, are within the funding capabilities of the
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organisation (or its donors) and are sufficiently significant to solicit support (both financial
and political).
Legal establishment and corporate form
Following clarification on the purpose of the fund, the legal and corporate form of the fund
should be carefully considered. A number of legal forms are available where the fund is
established as a separate institutional structure:
· Common law trust fund;
· Civil or common law foundations;
· Civil or common law not-for-profit corporation;
· Created by special legislation as a public entity or public-private partnership; or
· Created by international agreement between donor and beneficiary countries.
In addition to these independent entities, a fund may be established within an existing
institution (separate bank account or ring-fenced line item), with or without an advisory
committee established to provide strategic input, enable stakeholder participation and to
ensure an element of governance and oversight.
Where a separate legal entity is required, the chosen legal form may be either in-country or
offshore (i.e. either in one of the beneficiary countries or in a third-party country). Important
considerations in selecting the appropriate legal form include the legal and institutional
strength of the host country, taxation issues for the fund, taxation issues for donors and
issues of perception linked to the host country. The final form listed here by international
agreement between participating countries may be particularly relevant to the proposed
fund, given the international nature of funding and disbursement.
Ultimately, the nature of the fund, where it should be established, various legal and taxation
considerations, its statutory governance structures and its reporting requirements depends
significantly on considerations of risk and credibility, stakeholder acceptability, economy and
cost minimisation and administrative efficiency. This requires a detailed analysis of what is
most suitable, combined with extensive consultation with stakeholders on stakeholder
preferences.
A further consideration will be the institutional-organisational form of the Fund, with
distinction between a separate entity to house the Fund or the use of an existing entity to
share services and reduce overhead costs.
Political support
Political support for the fund concept, the specific fund purpose and the selected fund
institutional and organisational models is of critical importance to ensure that buy-in to the
fund is achieved. Such support is central to ensuring a streamlined mandate, efficient and
effective execution of functions, and ongoing financial support. This is particularly important
for regional funds that cross administrative and political boundaries, as the institutional
arrangements for such funds are particularly complex and require widespread political
support to ensure effective fund implementation.
Gaining and maintaining this support implies particular governance structures and systems
that keep the key stakeholders member states and national mandated institutions closely
involved in the process and confers a degree of ownership of the process to those
stakeholders. Such structures and systems involve both the nominations process for
representation on the governing board of the Fund, and the establishment of additional
governance structures such as advisory councils or stakeholder committees that input to the
fund strategy and performance review.
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Governing board and structures for representation
Where a separate institutional structure is deployed, and hence a governing board is
required, board composition should be a mix of governmental and non-governmental
representatives, and board size should be compromise between adequate representation
and efficiency in decision-making. Board composition should be in the majority non-
government, with some key government ex officio positions to represent government
interests. Civil society should be represented, as the Board should be responsive to the
needs and concerns of NGOs and community groups. However, representation should be
such that the Board is not pulled in too many directions by a wide range of constituencies
with conflicting interests. Representation of the private sector is also useful, as the private
sector often have experience serving on boards, and often bringing a level of financial
expertise not usually found in either government or the NGOs.
Board selection should be through a participatory approach, with good representation by the
Fund's beneficiaries, government, donors, and private sector, so that stakeholders have
confidence in decisions that are taken. The roles and responsibilities of Board members
must be very clear, and board procedures should be clearly articulated. Board tenure should
be considered to enable sufficient time for implementation of strategy, but also adequate
turn-over to enable the introduction of new ideas. Consistency between one board and the
next should be ensured by retaining a critical mass of board members and through good
induction processes.
Strategic planning
A strategic planning process that is closely aligned with that of the support organisation and
reflects the strategic objectives of ORASECOM, the member states and mandated national
institutions is required. The strategic plan of the fund must reflect that of ORASECOM, which
in turn reflects the strategic intent and objectives of the member state. Accordingly, a step-
wise planning process is required.
Strategic planning is a critical area for stakeholder involvement, and structures to ensure that
ensure that the strategy reflects stakeholder perspectives, is widely supported and enables
alignment between the fund and partner institutions are required.
Risk management
Significant financial and risk management capacity is required within the fund, to ensure
good governance and appropriate execution of fiduciary responsibilities, and to ensuring
ongoing financial (and technical) support from donors and funding institutions associated
with perceptions of credibility, accountability, professionalism, transparency, efficiency and
effectiveness. This implies governance structures and systems within the organisation that
ensure that the highest standards of governance and risk management are maintained, and
that relationships with key stakeholders and funders are nurtured. It also implies the need for
specific and specialised skills at board and executive level within the organisation.
Consultation and stakeholder participation
The need for extensive stakeholder engagement and for dedicated stakeholder
representation structures has been outlined under the need for political will and for strategic
planning above. In summary, consultative structures must be established that reflect the
need for political will, that understand and internalise the strategic objectives and imperatives
of key stakeholders, and that maintain good relationships and efficient institutional
arrangements with key stakeholders and funders.
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Such consultative structures may go beyond governance structures to imply an
organisational design that reflects the importance of ongoing consultation and collaboration
with stakeholders, partners, beneficiaries and allied initiatives.
Human resources and capacity
Human resource capacity must reflect the significant challenge posed by a regional
conservation finance initiative, with the various complex institutional, strategic, financial,
political and organisational elements to the proposed fund. Outstanding fund leadership will
be required, not only to ensure effectiveness and efficiency of fund administration, but also
to ensure ongoing strategic re-alignment, as the strategic direction of stakeholders,
beneficiaries, funders and other players changes. A carefully designed description,
recruitment, evaluation and performance management system will be required to ensure
access to and retention of the requisite management skills.
Organisational performance
A clearly defined and quantifiable purpose and objectives, linked to measurable and
reportable criteria that enable constant and careful assessment of the performance of the
organisation against a set of commonly accepted key performance indicators, to ensure that
the organisation remains true to its mandate and the expectations of its stakeholders,
funders and beneficiaries. A balanced score-card type approach may be appropriate for
such an organisational assessment.
Summary: best-practice in fund assessment and establishment
Based on the international experiences in the establishment of functional and efficient
conservation funds, the following process can be outlined:
1. Defining specific, priority conservation objectives
a. Undertake a careful assessment of the need for public expenditures to
achieve these objectives;
b. Assess the institutional arrangements for achieving the objectives to
determine existing mandates and initiatives; and
c. Define the conservation finance gap to enable the development of a focussed
mandate for the fund.
2. Determine the financial requirements
3. Identify possible sources of funding and assess viability of sources meeting required
funding
4. Develop the main elements of an expenditure program
a. such as specific objectives, cost estimates, description of eligible project
types and beneficiaries, terms of financing, procedures, principles and criteria
of project appraisal and selection, procurement rules, time frame, indicators of
performance
5. Conduct an institutional assessment to select the best institutional arrangement for
managing the expenditure program
6. Develop a business case describing the institutional arrangements, governance
requirements, organisational implications and financial arrangements for the
institution
7. Develop the legal instruments for the establishment of the institution
8. Commence functional establishment of the institution through recruitment of senior
(executive) staff CEO or similar to drive the functional establishment, and
strategic and business planning process.
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Nile Basin Trust Fund
Given the apparent similarly of the fund considered by ORASECOM with the Nile Basin
Trust Fund (NBTF), this fund is summarised here based on available information.
History
The Nile Basin Initiative is supported by contributions from the NBI countries themselves and
through support from several multilateral and bilateral donors. The financial mechanisms in
support of the NBI were designed with several objectives in mind: to maximize riparian
ownership and control of the process; to meet donor requirements for fiduciary
accountability; and to provide timely and efficient administration of funds. Given the nascent
nature of the cooperative Nile institutions, the magnitude of financial resources involved, the
imperative for early implementation of projects, a multi-donor trust fund was proposed by the
Nile Council of Ministers as the preferred initial funding mechanism (requested in March
2001 and launched in January 2003). This was to allow funds to be transferred according to
established disbursement and procurement procedures. The objective is the eventual
transfer of the trust fund to a Nile Basin institution as program implementation progresses
and a permanent institutional framework established.
Purpose
The NBTF is a funding mechanism that helps administer and harmonize donor partner
support pledged to the Nile Basin Initiative (NBI). The NBTF has an institutional purpose (as
defined above) and specifically supports the preparation and implementation of NBI
programs. The majority of funds supporting NBI programs and projects are administered
through the NBTF, and it has proven to be a very effective mechanism for harmonizing
donor support to the NBI and ensuring a unified and coherent approach to managing funds.
At the basin-wide level, the NBTF supports:
· Strategy (Shared Vision Program);
· Stakeholder engagement through the process of NBI dialogue and engagement; and
· Institutional capacity through strengthen the NBI institutions
At the sub-basin level, the NBTF supports:
· The development of investment programmes (ENSAP and NELSAP); and
· The preparation and implementation of joint investment projects.
Institutional form, arrangements and governance
The NBTF exists as a separate legal entity (a Trust Fund) and follows the institutional model
described above as the Managed Fund.
The NBTF is governed by a committee (NBTF Committee) that is responsible for overseeing
the operation of the trust fund and ensuring that resources used meet NBI program
objectives. This Committee is comprised of representatives from contributing agencies, the
NBI, and the World Bank. Formal NBTF Committee meetings are held once a year in one of
the Basin countries.
The World Bank administers the NBTF on behalf of contributing donors, in accordance with
the NBTF Agreement and the World Bank's Trust Fund Policy and Procedures. Accordingly,
the World Bank is responsible for fiduciary management of pooled multi-donor resources
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and for preparing and supervising NBTF-financed projects in accordance with the Bank's
rules and procedures.
NBTF funds are transferred to the NBI, which has the primary responsibility for the
implementation of project activities. Almost all (about 95 percent) NBTF-financed NBI
projects are recipient-executed. This helps ensure ownership of NBI activities and
contributes to building institutional capacity to implement regional projects.
As progress is made in program implementation and a permanent institutional framework for
the NBI is agreed, the NBTF will be transferred to an NBI institution.
Financial arrangements
The contributors to the NBTF are Canada (CIDA), Denmark (DANIDA), European
Commission (EC), Finland, France, Netherlands, Norway, Sweden (SIDA), United Kingdom
(DFID), and the World Bank.
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APPENDIX C
ORASECOM Institutional Review
Introduction
A possible conversation fund for ORASECOM will be situated within an institutional-legal
environment at a regional (SADC), basin and country level. It is important to clarify the legal
mandate of ORASECOM, its emerging institutional relationships with other institutions and
the national policies that provide the context for conservation measures to be implemented.
It is against this context that potential institutional models of funding can be identified and
evaluated.
Institutional Arrangements for ORASECOM
Mandate and Role of ORASECOM
ORASECOM's activities are bound by the terms of the ORASECOM Agreement, signed on
behalf of the Parties in Windhoek. ORASECOM is founded on the SADC principles of
increased regional integration and cooperation of the use of shared water resources to
address poverty and food security. Importantly, the ORASECOM Agreement recognizes the
existing water sharing arrangements in the Basin (bilaterals) and that the rights and
responsibilities of the Parties are not affected under these agreements.
The ORASECOM Agreement establishes the Council as the highest body of ORASECOM. It
is the technical advisor to the Parties on matters relating to the development, utilization and
conservation of the water resources in the River System. The Parties may also assign other
functions, pertaining to the development and utilization of the water resources in the basin,
to the Commission. However, mechanisms for the Parties to assign additional functions to
ORASECOM have not been clarified or tested.
The objectives, functions and powers of the Council specified in the Agreement are
instructive as to the role of ORASECOM. The Objectives are to "serve as technical advisor
to the Parties relating to the development, utilisation and conservation of the water resources
in the River System" and "other functions . . . as the Parties may agree to assign" [Article 4].
This is captured in the functions of Council "to make recommendations or to advise the
Parties" [Article 5], many of which relate directly or indirectly to catchment conservation
measures:
o
Measures and arrangements to determine long-term safe yield of the water resources in the
River System
o
equitable and reasonable utilisation of the water resources in the River System to support
sustainable development on the territory of each Party
o
the investigations and studies conducted separately or jointly by the Parties with regard to the
development of the River System, including any project or the construction, operation and
maintenance of any water works
o
extent to which the inhabitants in the territory of each Party concerned shall participate in the
planning, development, utilisation, protection and conservation of the River System, as well
as the harmonisation of policies in that regard and the possible impact on the social, cultural,
economic and natural environment
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o
the standardised form of collection. Processing and disseminating data or information with
regard to al aspects of the River System
o
the prevention of the pollution of water resources and the control over aquatic weeds in the
River System
o
contingency plans and measures for responding to emergency situations or harmful
conditions resulting from natural causes such as droughts and floods, or human conduct such
as industrial accidents
o
the regular exchange of information and consultation on the possible effects of planned
measures
o
measures with a view to arriving at a settlement of a dispute between one or more of the
Parties
The Agreement also includes the catch-all provision, `such other matters as may be
determined by the Parties.' Hence, ORASECOM has a mandate to make recommendations
to Parties on measures to conserve catchments. To do this the Council has the powers to
establish "working groups or committees" and to "appoint technical experts to provide expert
opinion and advice".
Currently no additional functions or powers have been assigned to ORASECOM by the
Parties. An important element of this is that ORASECOM is empowered to provide advice
and make recommendations, but not to implement this unless requested to by the Parties. It
is therefore an advisory rather than a water management body.
The underlying principle of ORASECOM is that the Parties must retain the discretion to
implement the recommendations emerging from the Council. Hence, ORASECOM is not
able to implement recommendations unless it is assigned this function by the Parties. The
Parties and the relevant national and sub-national water institutions have a mandate and
resources for delivery. These institutions are likely to resist assignment of implementation
functions to ORASECOM, except where joint action between two or more countries is
imperative and the focus of the intervention is of a flagship transboundary nature.
Nevertheless, resources to implement catchment conservation measures are limited, and
therefore financial assistance in the implementation of ORASECOM recommendations is
likely to be well received.
Furthermore, recommendations provided by ORASECOM must also include estimates of the
cost of implementing the recommendation and may suggest how these costs may be
apportioned between the Parties. Recommendations to Parties must not only indicate what
must be done, but also how it must be done. In a resource limited environment, it may not
always be pragmatic to request the parties to provide resources, but rather to assist the
Parties to obtain resources to assist implementation. Consequently, there is scope for
ORASECOM to make funds available to Parties or to indicate the way in which funding may
be sourced for conservation measures. Recommendations which are supported through a
funding mechanism may be more likely to be implemented.
In terms of the typical planning cycle for conservation measures, there are three main
stages, each of which ORASECOM has varying mandates to effect and each of which
requires differing levels of financial resources:
· ORASECOM clearly has a mandate to plan in order to make recommendations to
the Parties on issues of a transboundary nature, although as planning moves into
design, there may be a need for the Parties to agree to the need for such an
intervention.
· ORAECOM only has a mandate to implement a measure or initiative within an area
of the basin on assignment from the relevant countries, and in the foreseeable future
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it is likely that the Parties would require greater control over implementation of most
conservation measures in their jurisdictions.
· ORASECOM has a need to monitor the status of water resources within the basin,
in order to identify issues of transboundary significance and to plan effectively, but
while ORASECOM has no direct mandate to monitor it does have the role of
ensuring that monitoring is adequate, compatible and accessible.
It follows that any funding mechanism must enable either ORASECOM to plan, implement
and monitor a conservation measure, or alternatively must enable the Parties to do so with
coordination and support provided by ORASECOM at a basin level.
Since being established as an international body in South Africa, ORASECOM has the
powers of a juristic person in South African law. This means that ORASECOM has
considerable latitude in the legal establishment of any funding mechanism, including a
separate trust or possibly even a legal corporate entity.
ORASECOM Institutional Relationships
This mandate and legal context provides the basis for the institutional arrangements of
ORASECOM, particularly in the relationships between ORASECOM and other institutions
relating to the planning, implementation, funding and monitoring of conservation measures in
the basin. The following diagram outlines the key legal, cooperative or consultative
relationships between ORASECOM and other institutions.
Figure 4.1 Relationships between ORASECOM and other groups / institutions
Parties
SADC
Stakeholders
ORASECOM
Projects
legal
Cooperating
cooperative
Partners
consultative
The important aspects of these relationships are:
· Parties are the principles of the ORASECOM Agreement and determine the mandate
and involvement of ORASECOM in catchment conservation measures (through
assignment) or endorse the recommendations that ORASECOM makes.
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· SADC (represented by the Secretariat: Water Division) is responsible for
cooperatively ensuring implementation of the SADC Protocol on Shared
Watercourses, with monitoring and dispute resolution elements, while the Parties
also represent ORASECOM in SADC in terms of the SADC Treaty.
· ORASECOM projects are the key vehicle for ORASECOM to achieve its advisory
mandate (with limited permanent capacity) and are conducted by legally contracting
implementing agents and/or consultants to provide services these projects may be
studies to generate recommendations or where assigned the projects may involve
implementation in one or more of the four countries.
· Cooperating Partners provide important sources of funding and technical support, but
this is primarily through projects, that are cooperatively agreed between ORASECOM
and the group of cooperating partners.
· Stakeholders (private sector, civil society and local government) within the basin may
be consulted at a project level, or more broadly by ORASECOM at a basin level or by
the Parties (governments) at a national/sub-national level.
All four states are signatories to the SADC Revised Protocol on Shared Watercourse
Systems (2000), which was initially adopted in 1995 and then revised in 2000, in order that
its provisions were brought in line with those of the United Nations Convention on the law of
the non-navigational uses of international watercourses (1998). The Protocol makes
provision for management institutions for shared watercourses, and sets out five
components that guide the development, use and protection of international watercourses.
They are as follows:
Balancing development with conservation
Inter-state co-operation
Equitable sharing of water courses
Developing compatible national systems
Notification of emergencies
The Protocol provides for the guiding principles for equitable and sustainable allocation of
international waters in the SADC region. As the four Parties are signatories to the Protocol, it
provides the overarching framework for the management of international waters in the
Orange-Senqu basin. This framework should provide for the `harmonized legal regime' for
the Orange River in which the revised SADC Protocol, the ORASECOM agreement and the
national legislative arrangements for the four countries are consistent and aligned.
Each basin state has its own legal, policy and institutional framework governing the use of
both national and international waters, adding to the significant layers of complexity to water
management at basin level. Furthermore, the four states vary considerably in both economic
power and levels of development, with highly divergent needs in terms of the use of the
waters of the Orange Senqu basin. And so it is essential that the existing institutional
framework be mapped nationally and internationally in order to understand the levels of
complexity better.
Review of National Policy and Legislation
While the Protocol on Shared Watercourses and the Agreement provides SADC legislative
framework for ORASECOM, each of the Parties has a national water policy, legislation and
strategy that provide the framework for water management within that part of the basin,
including conservation measures and potential funding mechanisms. While there are moves
towards harmonization of policy, legislation and strategy between countries in SADC and
particularly those that share transboundary river basins, these are not entirely aligned. This
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is a result of the different pathways in developing national water policy and legislation, as
well as the institutional arrangements and capacity in each country.
Therefore, it becomes important to understand the mandate and function of the national
water (and related) policy and legislation. Importantly, Member States can only perform or
assign what they are empowered to do through policy and legislation, and as such the
Parties' national policy and legislation forms an integral part of the institutional arrangements
within which ORASECOM operates.
An important nuance of this is the way in which water related conservation measures are
defined at a national level, as well as the distinction between those conservation issues
having a transboundary nature and those with local or sub-national characteristics. The
former are clearly ORASECOM's domain, while the latter are typically of national interest.
However, this distinction is not always clear, so the legislative framework for the key
conservation issue areas is unpacked in this section.
The tables in Appendix B outline the legal and institutional framework within which water
resources management occurs in the four counties. Of particular interest is the level of
alignment in a number of areas, namely:
· Water use authorisation, control and enforcement of both abstraction and discharge
related water use:
o All four countries have an established licensing system, while South African
and Namibia have national registers of water use and South Africa has the
ability to require re-licensing under compulsory licensing.
· Water resources protection and environmental flows, including wetlands.
o South Africa has Reserve requirements in law, while Namibia is developing
policy around environmental flows and Lesotho has established
environmental flow requirements associated with the Lesotho Highlands
Water Project.
· Environmental and agricultural management, including soil conservation / erosion
management.
o These functions are typically fragmented between water, agriculture and
environmental ministries in all four countries, with some policy misalignment
even within the counties.
Currently, the institutional and legal frameworks vary between the four basin States, but their
development and implementation are currently in a state of transition. Interestingly, from the
institutional perspective:
· Institutional arrangements for water resources management.
o South Africa and Namibia are in the process of establishing basin level
institutions for water resources management, while Botswana and Lesotho
maintain management at a national level.
· Raw water pricing and funding, distinguishing between water management, water
infrastructure and pollution charges.
o South Africa and Namibia have implemented comprehensive water resources
management and infrastructure charges, as well as policy scope for waste
discharge / pollution charges that are not yet implemented.
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Possible Institutional Models for Conservation Funding
Sources of Funding for Transboundary Conservation Measures
As indicated in the funding review, there are four broad sources of funding for conservations
measures in the transboundary context, namely transfers from Parties' government finance,
income streams through user charges or levies, income from financial activities, and receipts
from grants or donations. The opportunities and applicability of each of these sources and
their specifics depends entirely upon the political and legal context of the basin and
countries. It is therefore important to understand these sources in the context of
ORASECOM.
Government Financing:
This represents fiscal allocations through the annual budget vote by one or more of the
countries, either as recurring allocations or for specific conservation initiatives that support
the governments' objectives. The original source of this finance may be the general revenue
base, earmarked revenue or even government loans, but in each case the finance is
transferred from government funds.
· This is a possible form of funding for ORASECOM and is the basis for the operating
costs of the institution.
· The Parties have fiscal resource limitations and this may constrain the amount of money
that can be allocated to transboundary conservation initiatives, except where this is
aligned with national strategic priorities.
· Where these objectives are aligned, countries may be resistant to allocating money to
ORASECOM for implementation at a transboundary level, rather that implementing the
intervention at a national or catchment level.
· The exception to this is where joint intervention between countries is imperative for
effective implementation or it is viewed as a transboundary flagship project.
In summary, government financing is likely for institutional operating costs, possibly
funding of transboundary flagship projects and catchment initiatives from
ORASECOM recommendations implemented under the auspices of a national or
catchment institution.
Income from charges and levies
This includes a range of tariffs, charges, levies or taxes applied to water users (or potentially
other property, such as land). In this category, it is important to distinguish between user
charges related to cost recovery for services rendered and levies-taxes that do not relate to
benefit received. Other possibilities are targeted payments for environmental services and
even carbon finance.
· Typically, these charges must be legislated (empowered) at a national level and require
fairly sophisticated financial management systems to ensure payment, which restricts the
likelihood of direct charging and collection at a transboundary (ORASECOM) level.
· Dedicated basin-wide management or pollution charges would require aligned legislative
processes to enable them, which is logistically and politically unlikely.
· Joint infrastructure charges have and can be applied to cover the costs of infrastructure
development and operation, but are unlikely for more localised infrastructure.
· Currently pollution charges have not been implemented in the riparian states, although
South Africa has developed the possibility for a waste discharge charge, which currently
does not cater for cross-border impacts.
· Currently economic charging (taxes to reflect the value rather than the cost of managing
water) has not been developed by the riparian states (although South Africa is exploring
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this), users are politically resistant to this type of tax and national treasuries are usually
unwilling to earmark this for specific purposes.
· Including costs for transboundary conservation initiatives into existing user charges may
be considered, but currently payment levels are low and are dedicated to managing local
priorities.
· Payment for environmental services (PES) may be considered in quite targeted local
situations, where beneficiaries pay another group to maintain environmental functioning,
but this must be locally negotiated.
· Alien vegetation removal may be partially funded by beneficiaries of the water (such as
South Africa's working for a water programme), but this currently does not have a cross-
border element and has evolved a PES and government financing focus.
In summary, while user charges and levies may be implemented at a catchment
level, they are unlikely to be allocated to transboundary initiatives, except where
these align with the local priorities against which the money was collected, while PES
systems may be negotiated between local groups even in a cross-border context.
Income from financial activities
This specifically refers to investment income on endowment capital in a fund or other
mechanism, as well as debt repayments on possible loans for conservation measures
implemented by local agencies (government or other).
· Large endowments allow funding to be made from interest (or other investment) income
on the capital, but gaining this level of endowment initially is unlikely, particularly in the
current financial climate.
· For specific interventions that have relatively quick payback periods (such as water loss
control in urban areas), soft or commercially-based loans may be provided to fund the
capital costs of a conservation measure, with savings or local tariff income covering
operating costs and debt repayment, which them becomes available for further loans.
In summary, financial activity income may be considered, depending upon the
available capital and disbursement mechanism.
Income from grants and donations
This includes all money provided by external institutions, including cooperating partners
(donors), private sector and non-governmental groups. This may be directly into a fund or to
an implementing agent on behalf of ORASECOM. The important element is that these
grants need to support activities that are consistent with the transboundary priorities and
objectives.
· Cooperating partners are already providing significant funding to ORASECOM projects,
but this may be translated into some level of basket funding under the direct control of
ORASECOM.
· Private sector and civil society organisations provide a potentially untapped source of
donations that may be relevant with the increasing public and corporate recognition of
the importance and vulnerability of water resources.
In summary, grants and donations are likely to be the largest source of funding
(initially from cooperating partners, but then potentially from private sector and
nongovernmental organisations), at least in the next few years as ORASECOM
establishes itself within the basin.
Institutional Models for Funding and Implementation
From the preceding discussion, it is apparent that conservation financing mechanisms within
the basin may either be established at a transboundary level (i.e. funding under the control
of ORASECOM) or may be located at a national level (i.e. funding under the control of
institutions within one or more countries that are party to the agreement). The former are
most likely to be funded by donations or government contributions into a basin fund, while
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the latter may be government financed or user charge income through national or catchment
institutions.
The purpose of this project conservation funding is only of interest in so far as it relates to
transboundary conservation issues and measures, which would reflect issues or
recommendations addressed by ORASECOM. This introduces a second key distinction
around the responsibility for implementation of a measure, once endorsed by the Parties.
This may either be assigned to ORASECOM acting at the basin level or be conducted by the
relevant national, catchment or local institution within a country.
These two distinctions may be reflected as a two-by-two matrix presented in Figure 4.2
below. It is important to note that these models relate to the implementation of conservation
measures on the ground, not to their planning which ORASECOM is mandated to perform
and fund in its advisory capacity. On the other hand, the performance and financing of basin
monitoring activities may be interpreted as a special sub-set of this implementation
framework.
Option 1: Recommendation
The option in the bottom left square relates to ORASECOM making recommendations to the
Parties to implement, together with an estimate of the costing and source of funding from the
Parties' own resources. The Parties either separately or even jointly delegate or contract an
implementing agent (IA) to perform the work (which in some cases may be the national
Department/Ministry of Water). This would most likely be funded through government fiscal
allocations or user charges, for activities that are aligned with national and/or catchment
strategic priorities and objectives. This approach may be suitable where it is necessary to
ensure basin level alignment of activities that are already being performed and financed to
some degree within one or more of the countries. This may be particularly relevant for many
basin monitoring activities.
The important issue for ORASECOM to make effective recommendations of this
nature is for the organisation to have an understanding of the institutional
arrangements within countries, the strategic priorities at a catchment level within the
basin and the potential sources of water conservation finance at a national and
catchment level.
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Figure 4.2. Institutional models related to conservation funding
Implementation
Implementation with funds
Funding
Donor
ORASECOM
ORASECOM
Payment
Contract
Recommendation
ORASECOM
Recommendation
(with costing)
(with commitment)
Assignment
implementation
Assignment
Parties
& finance
Parties
IA
IA
Recommendation
Recommendation with funds
Funding
Donor
Country
ORASECOM
ORASECOM
implementation
Payment
Recommendation
Recommendation
(with costing)
(with financing)
Parties
Parties
Delegation/
IA
Delegation/
Contract
IA
Contract
Country funding
ORASECOM funding
mechanism
mechanism
Option 2: Recommendation with financing
The option in the bottom right relates to ORASECOM making recommendations to the
Parties to implement, but also supported by the costing and the availability of external
sources of finance. The Parties would delegate or contract an implementing agent that
would most likely receive funds directly from ORASECOM sources (in the case of a fund) or
from specific cooperating partners. It may be most appropriate for ORASECOM to establish
a dedicated fund to manage these finances in a strategic and transparent manner. There
are various management arrangements that may achieve this outcome, depending upon the
level of operational and financial control required by the different institutions. It may be that
this is the most common arrangement for ORASECOM in the short to medium term, as the
Parties require operational control over intervention activities that occur in their countries. It
may also be an appropriate model for additional monitoring activities required in the basin.
The important issue for ORASECOM is to mobilise external sources of finance to
support the strategic priorities at a basin level, and to ensure that recommendations
are aligned to national and catchment priorities within a clear basin level strategic
framework.
Option 3: Implementation by ORAECOM with Parties' funding
The option in the top left relates to ORASECOM making recommendations to the Parties
(with the costing and proposed allocation of funding between the Parties), and that once
endorsed are assigned back to ORASECOM to implement, together with the required
funding (most likely from government sources or collected user charges). ORASECOM
would delegate or contract an implementing agent that may be paid directly from
ORASECOM sources (in the case of a fund) or from specific cooperating partners (as is
currently the situation with planning projects), and would establish a steering committee
consisting of the Parties' nominated representatives. Again, there are various management
arrangements that may achieve this outcome, depending upon the level of strategic,
operational and financial control required by the different institutions. It is important to
consider that the management requirements of these types of projects may be significant
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and must be met by the internal capacity of ORAECOM. Given the current resource
limitations of the Parties, this option is only likely for "flagship" transboundary conservation
issues with high political support, and that absolutely require joint basin level intervention
(rather than coordinated implementation at a national level), such as initiatives on the
estuary. It is important to note though that this is the way in which ORASECOM costs are
financed, and so may provide the basis for basin initiatives of an institutional nature.
The important issue for ORASECOM is to focus this approach on potential "flagship"
basin initiatives that are affordable by the Parties and that will be politically supported
by the Parties.
Option 4: Implementation by ORAECOM with funding
The option in the top right square relates to ORASECOM making recommendations to the
Parties (with the costing and availability of finance), and that once endorsed are assigned
back to ORASECOM to implement with its own funds. The intervention and project
management would be similar to Option 3, except that it would be appropriate for
ORASECOM to establish a dedicated fund to manage these finances in a strategic and
transparent manner. This provides an important approach to basin level interventions that
require coordination and consistency of implementation across countries, particularly where
these activities are not being performed adequately within the countries. Again, because
assignment to ORASECOM would be required, this would be most appropriate for "flagship"
transboundary conservation issues that achieve the basin strategic objectives and that
ORASECOM has mobilised funds for. This type of approach will be most successful if
implemented through a dedicated ORASECOM funding mechanism, rather than piece-meal
through individual projects.
The important issue for ORASECOM is to mobilise adequate finance to support the
basin level strategic objectives and to make clear recommendations around "flagship"
basin initiatives that align with the national and catchment objectives of the Parties.
All four approaches are possible and may be implemented over the next few years. Each of
them
requires
slightly
different
institutional
arrangements
and
implementation
considerations.
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