Action-learning to develop and test upstream-downstream transactions for watershed protection services: a diagnostic report from Segara River basin, Indonesia

Water resources in Indonesia face increasingly complex management problems, associated with deterioration in water availability, quantity and quality. Policy to date has emphasized utilization of water. At the same time landslides, soil erosion and floods have increased in numbers, areas and losses. People who live in watershed areas are usually expected to bear the cost and risks of watershed management. Meanwhile water users tend to have little understanding of the need for, or means of, watershed protection. In general there are no direct links between the water charges paid by downstream users and investment in watersheds upstream. Inadequate payment
mechanisms for watershed protection services and weak law compliance can threaten
hydrological functions of watersheds. Moreover, rising demand for water and increasingly complex management problems will lead to deterioration of food security and public health, and constrain Indonesia's economic development. It is therefore essential to change inappropriate water policies and regulations by using more effective and inclusive institutional frameworks, management and planning. In this regard, Indonesia has initiated policy reform for water resources management, which is currently underway through a Water Resources Sector Adjustment Loan (WATSAL) from the World Bank. Specific objectives of this reform are to set up: (1) national institutional frameworks for water resources development and management, (2) organizational frameworks for integrated river basin management, (3) regional regulatory institutions and implementation to monitor and maintain water quality, and (4) national irrigation
management policies, institutions and regulations. One of the big challenges is how to link the fees paid by water users with the quantity, quality and reliability of the water they receive. One possibility is to improve the tax or water charge system for water. Another, potentially more efficient, approach is to support the development of market-based payment mechanisms for protection of watersheds. Transfer payments for watershed protection services could combine benefits of maintained watershed functioning and improved livelihoods of people in watershed
areas. This project aims to explore the potential for market-based payment mechanisms
to deliver returns to livelihoods and watershed functions. An inception phase of actionlearning
on this subject has been implemented at Segara River basin on the island of Lombok, West Nusa Tenggara Province, Indonesia.