Companies or governments create benefit-sharing mechanisms (BSMs) to distribute to communities a share of the revenue generated from carbon credits, oil and gas extraction, or water use, with an eye to conserving natural resources, protecting biodiversity, and improving local livelihoods. Monetary or non-monetary, these benefits are predicated on the idea that communities are key to ensuring the success of an investment: compensating them as investment partners with a stake in the project, the reasoning goes, reduces the project’s investment risk and boosts the likelihood of long-term sustainability. However, establishing these mechanisms is complex; if they are to have a chance at success, they must be locally led and appropriated, particularly with respect to community structures and local governance.
The U.S. Agency for International Development (USAID) Supporting the Policy Enabling Environment for Development (SPEED) project in Mozambique is supporting the creation of a BSM for communities located in areas intended for liquid natural gas extraction. Christy Owen talks to Chief of Party Kate Heuisler about the challenges and lessons learned.
What Challenges Did SPEED Encounter?
There are numerous challenges to overcome when establishing a community BSM, whether part of a carbon project or, as in the case of Mozambique, in the oil and gas sector. Globally, the private sector often progresses quickly with advanced skills, resources, and systems. However, this can create an imbalance, as communities may lack the literacy, legal knowledge, and skills required to engage fully with or benefit from these initiatives. In some cases, private sector deals can be made through legal channels that are not fully transparent, sometimes before communities are aware that their lands and resources have been negotiated for use by outside interests.
Three challenges stand out in Mozambique. First is the difficulty in having a diverse set of stakeholders come to a consensus, whether it is around the percentage of total revenue or who exactly is a beneficiary. Expect a compromise through a discussion in real terms about the pros and cons of different models, alongside pressure to make decisions that allow investment to flow. The devil is in the detail, and it requires careful attention to what the words on paper mean to everyone who will be affected. A national decree or legislation may be interpreted differently at provincial, district, and community levels, and it is crucial that benefit-sharing processes are understood in the same way by all—to limit potential conflicts that could arise from multiple interpretations.
The second challenge is a clear understanding of the terms by all stakeholders. What is meant by budget allocation, distribution, and use of proceeds? More fundamentally, what is meant by the term benefit sharing? Lack of agreement on the terms can lead to conflicts.
Thirdly, to date, there is inconsistent community ownership of the benefit-sharing process and lack of alignment on expectations. Sometimes, the community expectation is for cash. However, cash distributions may be insufficient to change overall community behavior. A model that establishes a community-managed fund that pools and disburses the revenue according to a community-approved development plan may be more valuable and sustainable in this scenario. It is critical that roles and responsibilities are clear in the legislation and implemented consistently to ensure communities are the decision-makers about how the money is used.
What’s the Model for Mozambique’s Oil and Gas Development?
The benefit-sharing model in Mozambique is centered on promoting the sustainable use of natural resources through the participation of local communities and other stakeholders. To facilitate transparency and accountability in the oil and gas sector, civil society organizations—funded by numerous development partners and USAID through projects like SPEED—serve as coordinating bodies for local government and community members in provinces opening up to extractive industries.
The national decree on benefit-sharing for the oil and gas sector, which SPEED helped the government develop, has increased the benefit from revenues for communities from 2.75 to 10 percent, with the additional 7.25 percent going to the provincial capital to finance infrastructure projects and development programs, which will have a multiplier effect on the local economy. The Community and Consultative Councils will decide how the 2.75 percent is allocated for the benefit of the community. No deposits are made into individual accounts.
While there are examples of benefit-sharing models in use around the world that favor more direct transfers between companies and communities, without a legal structure, there are risks associated with operating outside of a legal framework. These include conflicts with and within the communities over time because of factors such as changes in leadership or company direction or unclear expectations.
What Has Been DAI’s Role?
Through SPEED, DAI’s focus is to balance the long-term benefits for all stakeholders. In the example of Mozambique, our support cut across three elements of the process.
- First, we provided technical expertise to develop a national decree that establishes the legal requirements for benefit sharing related to oil and gas revenues from one set of projects known as Rovuma 4. This set of liquid natural gas projects alone is projected to bring in $95 billion in revenues over the next 20 years, effectively doubling Mozambique’s state budget.
- Second, DAI provided grants to two Mozambican civil society organizations to help targeted communities understand, analyze, and manage the budget process, with a focus on demystifying the government’s budgeting process and benefit-sharing commitments.
- Finally, we helped civil society partners design and host awareness-raising activities.
What Lessons Have We Learned in Mozambique?
Invest in the transparency of the process. Not all the district governments in Mozambique have fully digitized systems. This means that many of the actions relating to the distribution of benefits are happening through official letters, which makes it difficult to get good data and, thus, a clear picture of revenue flows. A centralized system or website that enables stakeholders to track the allocation, distribution, and use of funds and provides reliable data would help address this challenge.
Formalize benefit-sharing mechanisms to help establish a common understanding. Legislation or similar national policy frameworks can remove many of the questions and risks that companies, investors, and communities face related to the processes and expectations involved in benefit sharing. All stakeholders need to understand the policies. A robust education campaign, with information about investment opportunities, especially at the community level, will minimize the power imbalance that comes with uneven access to information.
Take the time to build trust—there are no shortcuts. DAI’s framework placed community members at the center of the process as integral actors, not passive beneficiaries. Faithful application of the free and prior informed consent (FPIC) process can take several months. Any experiences that communities have had with similar efforts will likely color their vision for the proposed mechanism.
Pair legislation with an operating plan. Development partners and donors must think beyond the initial passage of policy to the longer-term course of activities that will support implementation. For example, land use and community-level planning will help guide investments using BSM capital. Basic skill building at the community council level, or similar organized body, is essential.
Looking Forward
As countries turn more attention to taking advantage of corporate net-zero commitments and the increasing global interest in carbon trading, the benefit-sharing model may well gain traction. While each country’s context will be different, any viable model will require BSMs that are perceived as fair and legitimate by all stakeholders. Ultimately, BSMs should evolve to work so well that communities and local governments will have access to resources to finance education, infrastructure, and agricultural inputs, among other community needs, in ways that make development grants from donors—an inconsistent revenue stream—increasingly unnecessary.
