Native Youth Club for Climate Change

Pakistan should tokenize water-sector assets and verified outcomes, not water itself

Pakistan’s water future will not be secured by technology alone. It will depend on whether the country can finance, govern, measure and maintain the infrastructure that moves, stores, treats, reuses and conserves water.

The idea of tokenizing the water sector should therefore be approached with care. Water is a public resource, a human need, an ecological necessity and, in Pakistan, a profoundly political subject. It should not be converted into a speculative commodity or a privately tradable claim over rivers, canals or groundwater.

But there is a serious and constructive opportunity: Pakistan can tokenize the assets, service revenues and verified water outcomes around the water sector.

That distinction matters. It separates responsible digital finance from the dangerous proposition of trading water itself.

Punjab’s irrigation history: water, geography and state power

Any discussion of water finance in Pakistan must begin with Punjab’s geography and history.

Punjab is the land of rivers and doabs – the inter-river plains shaped by the Indus and its tributaries. The historic geography of undivided Punjab included the Sind Sagar Doab between the Indus and Jhelum, the Chaj Doab between the Jhelum and Chenab, the Rachna Doab between the Chenab and Ravi, and the Bari Doab between the Ravi and Sutlej.

These regions were never identical.

The eastern and central parts of Punjab historically received relatively higher rainfall and carried denser populations. Western Punjab contained extensive bar lands: higher, drier interfluves lying away from river channels and seasonal inundation. Along the rivers were the bet or riverine tracts, where farming could benefit from floods, inundation channels and local diversions but remained exposed to variability.

This geography produced distinct irrigation needs:

• In wetter or more densely settled areas, irrigation supplemented rain-fed agriculture and supported more intensive cultivation.
• In the dry bars, perennial canal water could transform land that had previously been sparsely cultivated or used largely for grazing.
• In riverine and flood-prone areas, water management involved not only supply, but also drainage, flood control and protection from waterlogging.
• Across the province, the quality and depth of groundwater determined whether tubewells could complement canal supplies or create new risks of salinity and over-extraction.

Punjab’s modern canal system did not emerge on an empty landscape. Indigenous water-management practices, inundation canals, wells, ponds, seasonal diversions and earlier Mughal and Sikh-era works existed before British annexation in 1849. The Upper Bari Doab Canal, for example, drew upon an earlier canal tradition associated with the Ravi basin and Lahore.

The British colonial state expanded, repaired and re-engineered this inherited landscape at a much larger scale. It brought together hydraulic engineering, revenue administration, land settlement, railways, agricultural research and population resettlement. The result was not merely an irrigation system. It was a new political economy.

Productive and protective irrigation: a colonial distinction

British Indian irrigation policy commonly distinguished between “productive” and “protective” works.

Productive irrigation was expected to generate direct financial returns. A canal would supply water to land, increase agricultural production, raise land values and produce revenue through water rates and related taxation. It was treated as an investable public work whose returns could be calculated.

Protective irrigation was justified differently. It was intended to reduce the human and fiscal costs of drought and famine, protect crops and livelihoods, and reduce the eventual need for relief expenditure. It might not yield an immediate commercial return, but it could be economically justified by damage avoided and resilience created.

This distinction remains remarkably relevant today.

Pakistan still needs water investments that generate visible revenues: municipal supply systems, wastewater treatment plants, industrial recycling facilities, irrigation service companies, smart-metering systems and solar irrigation services.

But it also needs investments whose greatest value is protective: reduced groundwater depletion, avoided crop losses, flood resilience, water-quality improvement, reduced conflict at canal tail-ends and greater resilience to drought and climate variability.

The colonial distinction was technically useful, but its political economy must be read critically. Colonial irrigation was also designed to strengthen state revenue, expand commercial agriculture and consolidate administrative control. The canal colonies transformed dry lands in western Punjab, but they also reshaped land ownership, migration, labour relations and rural power.

The Lower Chenab Canal and the colonies associated with it helped create the agricultural landscape around Lyallpur, now Faisalabad. Canal colonies promoted wheat, cotton and other commercial crops, while settlement policies allocated land through categories that favoured selected cultivators, military interests, landlords and administrative objectives. Infrastructure created production, but it did not distribute benefits equally.

That is the lesson for the present: water finance must be designed not only for efficiency and return, but also for equity, public accountability and ecological sustainability.

A note on historical attribution is important. Mainstream historical accounts of Punjab’s canal system document indigenous water practices, colonial engineers and administrators, large local labour forces, and the resettlement of cultivators into canal colonies. They do not establish a distinct, leading “Gorkha” or Gurkha role in Punjab’s irrigation development. Any specific claim regarding Gorkha assistance should be made only where archival evidence identifies the unit, place, period and function involved.

The unfinished water challenge

Pakistan inherited and then expanded one of the world’s largest contiguous irrigation systems. The Indus Basin Irrigation System remains the backbone of national food production, rural livelihoods and agro-based industry.

Yet the same system now faces a new set of challenges:

• ageing canals, distributaries, outlets and drainage infrastructure;
• inequitable supply between head, middle and tail reaches;
• groundwater stress in many freshwater zones;
• waterlogging and salinity in other areas;
• energy-intensive pumping;
• untreated municipal and industrial wastewater;
• weak cost recovery and inadequate operations and maintenance;
• limited trust in water-use data; and
• climate-driven volatility in floods, droughts and seasonal availability.

Punjab illustrates the complexity. Canal water and groundwater are often used conjunctively: farmers rely on both sources to manage timing, reliability and crop requirements. That means a project that “saves” canal water may have different implications depending on whether the water is reallocated, left in the system, reduces pumping or contributes to recharge. A credible financial model must measure these outcomes rather than assume them.

This is exactly where digital systems can add value.

Tokenization is not water trading

Tokenization is simply the use of digital records or tokens to represent defined rights, claims or interests. It is not inherently speculative. The governance and legal design determine whether it becomes a tool for productive finance or an instrument of abuse.

In Pakistan’s water sector, the token should represent one of three things:

1. A beneficial economic interest in a real asset or project For example, a share of the revenue generated by a wastewater-treatment plant, a smart-metering concession or a solar irrigation service company.
2. A regulated claim on identified service revenues For example, payments from a municipality, industrial off-takers, farmers, utilities or a public-private partnership under transparent contractual arrangements.
3. A verified environmental or water-management outcome For example, independently measured reductions in groundwater abstraction, cubic metres of wastewater treated to an agreed standard, or verified irrigation-water savings.

The token should not represent ownership of a river, canal water, aquifer or a freely tradable private water right.

Public authorities must retain control over water allocation, abstraction permissions, quality standards, environmental safeguards and public-interest obligations. The purpose of tokenization is to finance better water services and make outcomes more transparent – not to privatize a public resource.

Five viable applications

1. Tokenized water-infrastructure funds

A regulated fund could pool capital for a portfolio of water-sector assets:

• wastewater treatment and reuse plants;
• industrial-water recycling facilities;
• canal rehabilitation and watercourse improvement;
• desalination or brackish-water treatment where economically and environmentally justified;
• smart meters, telemetry and digital monitoring systems;
• solar irrigation and efficient pumping;
• municipal or community water-supply projects; and
• water-sector public-private partnerships.

Investors would receive digital units representing their beneficial interest in the fund or project special-purpose vehicle. The underlying assets, capital expenditure, contracts, tariff structure, risk allocation and reporting obligations would remain clearly documented.

This structure can lower the minimum investment size, improve investor reporting and allow financing to be matched with projects that are currently too small or fragmented for conventional institutional investment.

However, fractional access must not be confused with unregulated public solicitation. Such products should be issued through an appropriate legal structure, with investor suitability rules, disclosures, custody arrangements, audit requirements and regulatory oversight.

2. Digital sukuk and green bonds

Water infrastructure is particularly suited to asset-backed and Shariah-compliant financing.

A digital sukuk could represent a proportionate beneficial interest in eligible water assets, usufruct rights or project cash flows. Depending on the structure, revenues may arise from water-treatment services, availability payments, lease arrangements, municipal offtake agreements or industrial customers.

A digital green bond could finance a defined pipeline of eligible projects, such as wastewater reuse, energy-efficient pumping, flood-resilient urban drainage or irrigation modernization.

Tokenization can improve transparency by enabling near-real-time reporting on:

• use of proceeds;
• construction milestones;
• payments to contractors;
• operational performance;
• revenue collections;
• water treated or saved; and
• environmental and social safeguards.

The essential principle is that the digital token must follow the legal instrument, not replace it. Investor rights, security, recourse, Shariah governance where applicable, dispute-resolution arrangements and disclosure obligations must be legally enforceable off-chain as well as digitally recorded.

3. Water-savings tokens

Water-savings tokens are potentially the most innovative, but also the most sensitive, application.

They could be issued only after independently verified reductions in groundwater abstraction or irrigation-water use. A farmer, irrigation service provider, industrial facility or project developer would implement an eligible intervention – for example, improved irrigation scheduling, efficient pumping, laser land levelling, drip irrigation, wastewater reuse or a shift away from excessive groundwater extraction.

The resulting outcome would be measured through a robust monitoring, reporting and verification system.

A credible water-savings token needs at least six safeguards:

• a clearly defined baseline;
• proof that the saving is additional to normal practice;
• reliable metering or defensible proxy measurement;
• independent verification;
• clear treatment of who owns the environmental claim;
• protection against double counting.

A water-saving claim is not automatically equivalent to a carbon credit. Nor should it become a licence for increased water use elsewhere. In an overdrawn aquifer, the public value may lie in leaving the saved water unabstracted, supporting aquifer recovery or reducing energy use for pumping.

Potential buyers could include government programmes, development partners, corporates with credible water-stewardship commitments, or climate-adaptation facilities. The value should come from verified public and environmental benefit, not from speculative trading volume.

4. Tokenized REIT-style vehicles

Revenue-generating water assets can also be organized through REIT-style structures, subject to the applicable legal and securities framework.

Potential underlying assets include:

• wastewater and industrial-recycling plants;
• bulk-water treatment and distribution infrastructure;
• storage and pumping facilities under long-term contracts;
• desalination plants with contracted offtake;
• water-metering and billing infrastructure; and
• industrial utility systems that supply, treat or recycle water.

Such vehicles would work best where revenues are contractually defined, payment collection is credible and operational risks can be allocated clearly between public authorities, operators and investors.

The crucial point is that a tokenized REIT-style structure should finance the infrastructure and contracted service revenue – not confer a private right to control a public water source.

5. Transparent grants and climate finance

Many water projects are funded partly through grants, concessional finance or climate facilities. Yet stakeholders often struggle to see how funds flow from approval to procurement, construction, operation and final outcomes.

Token-based tracking can create a transparent digital trail for adaptation, flood-resilience and irrigation-modernization finance. A project could record:

• approved budget and financing source;
• procurement milestones;
• disbursements;
• contractor certifications;
• equipment installation;
• operational data;
• third-party verification; and
• final climate, water or livelihood outcomes.

This could be especially useful for projects financed by multilateral climate funds, development partners, provincial programmes and public-private partnerships. It would not eliminate the need for public financial management, procurement law or independent audit. It would make those systems more visible and easier to verify.

A practical first pilot: solar irrigation and groundwater efficiency

The strongest initial pilot is likely a Solar Irrigation and Groundwater Efficiency Fund.

The fund could finance efficient solar pumps, smart meters, irrigation advisory services, high-efficiency equipment and, where appropriate, on-farm water-management improvements. Farmers could repay through affordable, transparent financing arrangements. Projects could also earn revenue from service agreements, energy savings and verified adaptation outcomes.

But solar irrigation must be designed carefully and IWMI has done extensive work on it. Cheaper pumping can increase groundwater abstraction if it is not paired with measurement, abstraction discipline and agronomic support. A responsible pilot would therefore include:

• groundwater-risk screening by location;
• smart meters on financed pumps;
• seasonal pumping thresholds or incentive structures;
• crop-water advisory services;
• farmer consent and accessible grievance mechanisms;
• independent verification; and
• transparent rules for the use of verified water-savings claims.

The fund’s token would represent an interest in the financing vehicle and its lawful cash flows. It would not represent ownership of groundwater.

The governance architecture

A credible water-tokenization framework requires five connected layers.

Layer Core function. Public-water governance, Provincial authorities retain control over allocation, abstraction, quality, environmental protection and public-interest conditions. Asset and project vehicle: A ring-fenced special-purpose vehicle owns or finances the physical asset and contracts. Regulated investment instrument: Digital sukuk, fund units, bond units or REIT-style interests define investor rights and disclosures. Digital measurement and verification: Smart meters, telemetry, satellite data, field inspections and independent audit verify performance. Market integrity and protection: KYC, AML controls, custody, cybersecurity, investor protection, grievance redress and data governance safeguard participants.

Technology is the final layer, not the first. The legal rights, contracts, public safeguards and measurement methodology must be designed before the token is issued.

The opportunity ahead

Punjab’s canal history demonstrates that water infrastructure can transform landscapes, agriculture and economies. It also demonstrates that water systems create enduring questions of power, access, accountability and ecological balance.

The next chapter should not repeat the logic of extraction and unequal benefit. Pakistan should use digital finance to mobilize capital for infrastructure that serves farmers, cities, industry and ecosystems – while keeping water under public stewardship.

The central proposition is simple:

Do not tokenize water. Tokenize investable infrastructure, contracted service revenues and independently verified water outcomes.

Done responsibly, this can create a new class of climate-resilient investments: transparent to investors, useful to public authorities, measurable for development partners and meaningful for communities whose livelihoods depend on water security.

Dr. Sardar Mohazzam

Energy & Climate Executive | Former Managing Director, NEECA