In Lima, the reduction in the volume and quality of water resources is a growing threat to the livelihood of its citizens. The watersheds servicing Lima are affected by significant seasonality, with the city experiencing a deficit of water between June and December. Lima depends on 4 main watersheds to meet its water demand – Mantaro, Rimac, Chillon and Lurin. The city faces a significant degree of water insecurity, with estimated water reserves for 330 million m3 against an annual demand of over 660 million m3. In case of prolonged droughts, the city has an autonomy of roughly 180 days. The government of Peru (GoP), through the National Sanitation Authority (SUNASS), the water regulator, identified 5 main interrelated causes of water scarcity, (a) deforestation and soil degradation, (b) intensive agriculture practices by local communities. (c) water contamination, (d) climate change, (e) inefficient coordination among key stakeholders.

The project objective is to support SEDAPAL, the public water utility of Lima, close the financing gap that limits the implementation scope of the PES scheme. This project will be delivered with a two-phase approach i.) Scoping Phase (5 months): Fundraising Strategy document outlining viable options to close SEDAPAL financing gap will be developed ii.) Delivery Phase (19 months): External funding from sources identified during the Scoping Phase will be secured. Building on Peru’s innovative PES policy that earmarks a percentage of the water tariff for ecosystem restoration and conservation, GGGI will identify funding options for SEDAPAL to raise the funds needed to implement the PES scheme. During the Scoping Phase of this project (January to May 2019) the project team will engage with key stakeholders and assess viable funding options with the aim of developing a fundraising strategy to close the USD 10m short-term and USD 412M long-term gap hindering the implementation of PES scheme by SEDAPAL. For this purpose, GGGI will work alongside PROFONANPE, Peru’s GCF Direct Access Entity (DAE) which is set to administer the PES funds and develop a PES-aligned project pipeline. GGGI will pursue a blended finance approach aimed at mobilizing public, private and ODA resources.

Impact: N/A

Outcome:

• Government of Peru secures funding for natural infrastructure project.

Project Outputs completed in 2019:

i. Green Growth Policies: N/A

ii. Green Investments: N/A

• Advisory outputs that aim to create enabling environment: The redesigned output of the project has informed Sunass’ decisions on public investment in PES and natural infrastructure. They now see bridging the expected financial gap of the PES projects a key issue to consider in the near future, which can be attained through international sources and innovative financial mechanisms such as green bonds. They are devoting time and resources to generate information and create the conditions to be able to apply for those international financing options, following our recommendations

iii. Capacity Building and Knowledge Products: N/A

Project Manager: Aaron Drayer

Ferro Santetti, Lasse Ringius, Pablo Pena, Paola Aparcana