Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD1514 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 32.6 MILLION (US$45 MILLION EQUIVALENT) TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR AN ECOSYSTEM CONSERVATION AND MANAGEMENT PROJECT April 1, 2016 Environment & Natural Resources Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 29, 2016) Currency Unit = Sri Lankan Rupee (LKR) LKR144.55 = US$1 US$1.38131 = SDR1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CAP Community Action Plan IPDP Indigenous Peoples CBO Community Based Organization Development Plan DA Designated Account IPPF Indigenous Peoples Planning DWC Department of Wildlife Framework Conservation IUFR Interim Unaudited Financial EA Environmental Assessment Report EAMF Environment Assessment and LKR Sri Lankan Rupee Management Framework M&E Monitoring and Evaluation ECA Elephant Conservation Area MER Managed Elephant Range EMP Environmental Management MoMDE Ministry of Mahaweli Plans Development and Environment ERR Economic Rate of Return MoSDW Ministry of Sustainable FCO Forestry Conservation Development and Wildlife Ordinance NGO Non-Government Organization FD Forest Department NPV Net Present Value FFPO Fauna and Flora Protection OP Operational Policy Ordinance PA Protected Area FM Financial Management PDO Project Development Objective GDP Gross Domestic Product PMU Project Management Unit GEF Global Environment Facility POM Project Operations Manual GHG Green House Gas PSC Project Steering Committee GoSL Government of Sri Lanka RAP Resettlement Action Plan GRM Grievance Redress Mechanism REDD+ Reducing Emissions from GRS Grievance Redress Service Deforestation and Forest HEC Human Elephant Conflict Degradation Plus HECOEX Human Elephant Co-Existence SIA Social Impact Assessment IDA International Development SMF Social Management Framework Association TRC Technical Review Committee IP Indigenous People UNDB United Nations Development Business Regional Vice President: Annette Dixon Country Director: Francoise Clottes Senior Global Practice Director: Paula Caballero Practice Manager: Kseniya Lvovsky Task Team Leaders: Darshani De Silva, Abdelaziz Lagnaoui SRI LANKA Ecosystem Conservation and Management Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context ................................................................................. 2 C. Higher Level Objectives to which the Project Contributes .......................................... 4 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................5 A. PDO............................................................................................................................... 5 B. Project Beneficiaries ..................................................................................................... 5 C. PDO Level Results Indicators ....................................................................................... 5 III. PROJECT DESCRIPTION ..............................................................................................5 A. Project Components ...................................................................................................... 5 B. Project Financing .......................................................................................................... 8 C. Lessons Learned and Reflected in the Project Design .................................................. 9 IV. IMPLEMENTATION .....................................................................................................10 A. Institutional and Implementation Arrangements ........................................................ 10 B. Results Monitoring and Evaluation ............................................................................ 11 C. Sustainability............................................................................................................... 12 V. KEY RISKS ......................................................................................................................12 A. Overall Risk Rating and Explanation of Key Risks.................................................... 12 VI. APPRAISAL SUMMARY ..............................................................................................13 A. Economic and Financial Analysis ............................................................................... 13 B. Technical ..................................................................................................................... 15 C. Financial Management ................................................................................................ 15 D. Procurement ................................................................................................................ 16 E. Social (including Safeguards) ..................................................................................... 17 F. Environment (including Safeguards) .......................................................................... 18 G. World Bank Grievance Redress .................................................................................. 19 Annex 1: Results Framework and Monitoring .........................................................................20 Annex 2: Detailed Project Description .......................................................................................25 Annex 3: Implementation Arrangements ..................................................................................37 Annex 4: Implementation Support Plan ....................................................................................56 Annex 5: Economic and Financial Analysis ..............................................................................60 PAD DATA SHEET Sri Lanka Ecosystem Conservation and Management (P156021) PROJECT APPRAISAL DOCUMENT SOUTH ASIA Environment and Natural Resources Report No.: PAD1514 Basic Information Project ID EA Category Team Leader(s) P156021 B - Partial Assessment Darshani De Silva, Abdelaziz Lagnaoui Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 01-Jul-2016 30-Jun-2021 Expected Effectiveness Date Expected Closing Date 26-Jul-2016 30-Jun-2021 Joint IFC No Practice Senior Global Practice Country Director Regional Vice President Manager/Manager Director Kseniya Lvovsky Paula Caballero Francoise Clottes Annette Dixon Borrower: Democratic Socialist Republic of Sri Lanka Responsible Agency: Department of Wildlife Conservation, Ministry of Sustainable Development and Wildlife Contact: Sumith Pilapitiya Title: Director General Telephone No.: 0094112888585 Email: dg@dwc.gov.lk Responsible Agency: Forest Department, Ministry of Mahaweli Development and Environment Contact: Anura Sathurusinghe Title: Conservator General of Forests Telephone No.: 0094112866616 Email: conservatorgeneral@yahoo.com Responsible Agency: Ministry of Mahaweli Development and Environment Contact: Udaya R. Seneviratne Title: Secretary Telephone No.: 0094112877290 Email: secretary@environmentmin.gov.lk Responsible Agency: Ministry of Sustainable Development and Wildlife Contact: R M D B Meegasmulla Title: Secretary Telephone No.: 0094112887905 Email: sec.sdwildlife@gmail.com Project Financing Data(in USD Million) [ ] Loan [ ] IDA Grant [ ] Guarantee [X] Credit [ ] Grant [ ] Other Total Project Cost: 45.00 Total Bank Financing: 45.00 Financing Gap: 0.00 Financing Source Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) 45.00 Total 45.00 Expected Disbursements (in USD Million) Fiscal Year 2016 2017 2018 2019 2020 2021 0000 0000 0000 0000 Annual 0.36 13.14 14.00 9.50 6.00 2.00 0.00 0.00 0.00 0.00 Cumulative 0.36 13.50 27.50 37.00 43.00 45.00 0.00 0.00 0.00 0.00 Institutional Data Practice Area (Lead) Environment & Natural Resources Contributing Practice Areas Cross Cutting Topics [X] Climate Change [ ] Fragile, Conflict & Violence [X] Gender [ ] Jobs [ ] Public Private Partnership Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Agriculture, fishing, and forestry General agriculture, 100 45 5 fishing and forestry sector Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Environment and natural resources Biodiversity 50 management Environment and natural resources Other environment and natural resources 40 management management Environment and natural resources Environmental policies and institutions 10 management Total 100 Proposed Development Objective(s) The project development objective (PDO) is to improve the management of ecosystems in selected locations in Sri Lanka for conservation and community benefits. Components Component Name Cost (USD Millions) Component 1: Pilot Landscape Planning and Management 2.80 Component 2: Sustainable Use of Natural Resources and 17.00 Human-Elephant Co-existence Component 3: Protected Area Management and Institutional 24.20 Capacity Component 4: Project Management 1.00 Systematic Operations Risk- Rating Tool (SORT) Risk Category Rating 1. Political and Governance Moderate 2. Macroeconomic Moderate 3. Sector Strategies and Policies Moderate 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary Substantial 7. Environment and Social Moderate 8. Stakeholders Moderate 9. Other OVERALL Moderate Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ X ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X Legal Covenants Name Recurrent Due Date Frequency Establishment of PMU and maintenance 30-Jun-2016 of dedicated and suitably qualified staff Description of Covenant The Recipient shall establish, by no later than June 30, 2016, and thereafter maintain throughout the implementation of the Project, a Project Management Unit under the direction of qualified management provided with sufficient resources, and staffed with competent personnel in adequate numbers including, among others, a Project director, an environmental specialist, a social specialist, and financial management, procurement, engineering, and administrative staff, in each case with qualifications, experience and under terms of reference acceptable to the Association. The PMU shall be responsible for overall planning, management, implementation, coordination, monitoring and evaluation of the Project. Name Recurrent Due Date Frequency Establishment of Technical Review 30-Sep-2016 Committee Description of Covenant The Recipient shall establish by no later than September 30, 2016, and thereafter maintain throughout the implementation of the Project a Technical Review Committee with composition and terms of reference satisfactory to the Association and provided with sufficient resources. The Technical Review Committee shall be responsible for reviewing and assessing the technical soundness of activities selected through strategic landscape plans, community action plans, and human-elephant coexistence investment activities, and related research; and provide recommendations to the Project Steering Committee. Name Recurrent Due Date Frequency Submission of audited annual financial X Yearly statements Description of Covenant The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than six months after the end of such period. Name Recurrent Due Date Frequency Submission of Interim Unaudited X Quarterly Financial Reports (IUFRs) Description of Covenant The Recipient shall prepare and furnish to the Association not later than forty-five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association. Name Recurrent Due Date Frequency Maintenance of Project Steering X CONTINUOUS Committee Description of Covenant The Recipient shall maintain, throughout the implementation of the Project, a Project Steering Committee with composition and terms of reference satisfactory to the Association. The Project Steering Committee shall be responsible for providing quality and implementation guidance for the Project. Name Recurrent Due Date Frequency Carry out the project in accordance with X CONTINUOUS the Project Operations Manual Description of Covenant The Recipient shall carry out the Project in accordance with the Project Operational Manual which shall be in form and substance satisfactory to the Association; and not amend, revise or waive, nor allow to be amended, revised or waived, the provisions of the Project Operational Manual or any part thereof without the prior written agreement of the Association. In the event of any inconsistency between the Project Operational Manual and this Agreement, the provisions of this Agreement shall prevail. Name Recurrent Due Date Frequency Carry out the project in accordance with X CONTINUOUS the Safeguards Instruments Description of Covenant The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Safeguards Instruments. Whenever an additional or revised Environmental Management Plan, Resettlement Action Plan, or an Indigenous People Development Plan shall be required for any proposed Project activity in accordance with the provisions of the respective Environmental Assessment and Management Framework, Social Management Framework, or the Indigenous Peoples Policy Framework, as the case may be, the Recipient shall, prior to the commencement of such activity, proceed to have such EMP, RAP, and IPDP: (a) prepared in accordance with the provisions of the EAMF, SMF, or IPPF, as applicable; (b) furnished to the Association for review and approval; and (c) thereafter adopted and disclosed as approved by the Association, in a manner acceptable to the Association. Except as the Association shall otherwise agree in writing, the Recipient shall not assign, amend, abrogate, waive, or permit to be assigned, amended, abrogated, or waived, any Safeguards Instrument, or any provision thereof. The Recipient shall take all measures necessary to regularly collect and compile, and submit to the Association, as part of the Project Reports, information on the status of compliance with the Safeguards Instruments, providing details of: (a) the measures taken in furtherance of the Safeguards Instruments; (b) conditions, if any, which interfere or threaten to interfere with the smooth implementation of the Safeguards Instruments; and (c) remedial measures taken or required to be taken to address such conditions. In the event of a conflict between the provisions of any of the Safeguards Instruments and those of this Agreement, the provisions of this Agreement shall prevail. Name Recurrent Due Date Frequency Submission of Mid-Term Review Report 31-Dec-2018 Description of Covenant The Recipient shall prepare, under terms of reference satisfactory to the Association, and furnish to the Association no later than December 31, 2018, a consolidated mid-term review report for the Project, summarizing the results of the monitoring and evaluation activities carried out from the inception of the Project, and setting out the measures recommended to ensure the efficient completion of the Project and to further the objectives thereof. Name Recurrent Due Date Frequency Undertaking Enforcement of Laws and X CONTINUOUS Regulations Description of Covenant Unless the Association shall otherwise agree in writing, the Recipient shall ensure that any monitoring, control, surveillance, and enforcement activities under the Project are implemented in a manner designed to achieve the objective of the Project and enforce the Recipient's wildlife and/or environmental laws and regulations. Without limitations to the above paragraph, the Recipient shall ensure that: (a) all Eligible Expenditures financed for monitoring, control, surveillance, and enforcement activities are used exclusively by civilian authorities for the sole purpose of enforcing the Recipient's wildlife and/or environmental laws and regulations; (b) the Financing shall not be used to support the investigation, prosecution, and/or enforcing of judgments that targeted individuals; and (c) the Financing shall not be used for any military purposes, or the enforcement of any other non-related laws and regulation; and (d) the Financing shall not be used to purchase arms or ammunition or to train any personnel in the use of arms or ammunition. Name Recurrent Due Date Frequency Submission of Annual Work Plan and X Yearly budget Description of Covenant The Recipient shall, throughout Project implementation, furnish to the Association for approval as soon as available, but in any case not later than September 30 of each year, an annual work plan and budget for the Project for each subsequent fiscal year, of such scope and detail as the Association shall have reasonably requested, except for the annual work plan and budget for the first fiscal year which shall be furnished prior to the commencement of any activities under the Project. The Recipient shall, no later than two (2) months after furnishing each annual work plan and budget referred to in the preceding paragraph to the Association, finalize and adopt, and thereafter ensure that the Project is carried out in accordance with, such plan and budget as agreed in writing with the Association. Name Recurrent Due Date Frequency Undertaking Project Monitoring, X Quarterly Reporting and Evaluation Description of Covenant The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 4.08 of the General Conditions and on the basis of the indicators set forth in the Project Operational Manual. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the Association not later than one month after the end of the period covered by such report. Conditions Source Of Fund Name Type Description of Condition Team Composition Bank Staff Name Role Title Specialization Unit Darshani De Silva Team Leader Senior Natural resources GEN06 (ADM Environmental management Responsible) Specialist Abdelaziz Lagnaoui Team Leader Lead Environment Natural resources GEN06 Specialist management G. W. Anjali U. Perera Procurement Procurement Procurement GGO06 Vitharanage Specialist (ADM Specialist Responsible) Bernadeen Enoka Financial Sr Financial Financial GGO24 Wijegunawardene Management Management management Specialist Specialist Hiran Herat Team Member Consultant Financing and GED06 institutions Mokshana Nerandika Team Member E T Consultant Environmental GEN06 Wijeyeratne management Nadeera Rajapakse Safeguards Consultant Environmental GENDR Specialist management Nathalie Weier Johnson Team Member Senior Biodiversity GEN03 Environmental conservation and Specialist management Niluka Nirmalie Team Member Team Assistant Team assistant SACSL Karunaratne Sriskanthan Samanmalee Kumari Team Member Team Assistant Team assistant SACSL Sirimanne Sebnem Sahin Team Member Senior Environmental GEN06 Environmental economy Economist Sunethra Chandrika Team Member Procurement Procurement GGO06 Samarakoon Specialist Susrutha Pradeep Safeguards Consultant Social development GSURR Goonesekera Specialist Ulrich K. H. M. Schmitt Team Member Program Leader - SACSL Zhiyun Jiang Team Member Junior Professional GHG accounting GEN06 Associate Extended Team Name Title Office Phone Location Locations Country First Location Planned Actual Comments Administrative Division Consultants (Will be disclosed in the Monthly Operational Summary) Consultants Required? Consulting services to be determined I. STRATEGIC CONTEXT A. Country Context 1. Sri Lanka is a lower middle-income country with a total population of 20.7 million. Following 30 years of civil war that ended in 2009, Sri Lanka’s economy grew at an average 6.7 percent during 2010-2014, reflecting a peace dividend and a determined policy thrust towards reconstruction and growth. The economy is also transitioning from a previously predominantly rural-based economy towards a more urbanized economy oriented around manufacturing and services. In 2014, the service sector accounted for 63 percent of Gross Domestic Product (GDP), followed by manufacturing (29 percent), and agriculture (8 percent). Per capita GDP reached US$3,811 in 2014. The government envisions promoting a globally competitive, export-led economy with an emphasis on inclusion. Sri Lanka has also made significant progress in its socio-economic and human development. Social indicators rank among the highest in South Asia and compare favorably with those in middle-income countries. Growth has translated into shared prosperity with the national poverty headcount ratio declining from 15.3 percent in 2006/07 to 6.7 percent in 2012/13. Much of the poverty reduction was driven by the reduction in rural poverty. Extreme poverty is rare and concentrated in some geographical pockets; however, a relatively large share of the population subsists on little more than the extreme poverty line. The country has comfortably surpassed most of the Millennium Development Goal targets set for 2015 and was ranked 73rd in Human Development Index in 2014. 2. The country’s fiscal landscape is challenging. In 2014, a widened primary deficit and a slowdown in growth increased the fiscal deficit and the public debt to 5.7 percent and 71.8 percent respectively, as a share of GDP. This trend marks a slight reversal of the fiscal consolidation path observed in the post-conflict period. The fiscal budget for 2016 presented to the Parliament projects a deficit approximately 6.0 percent of GDP for the years 2015 and 2016. The newly elected government presented its economic policy statement to the Parliament in November 2015. This policy statement identified generating one million job opportunities, enhancing income levels, developing rural economies, and creating a wide and a strong middle class as key policy priorities. It proposed consolidation of fiscal operations by raising revenue. Further, it discussed far reaching reforms to improve performance of the State Owned Enterprises and enhance trade and Foreign Direct Investment. A multitude of new institutions were also proposed to be established to administer the development agenda. The implementation of this reform oriented policy statement will require continued political will and close coordination of all stakeholders. 3. The Government of Sri Lanka (GoSL) has recognized that the long-term sustainability of the environment and natural resources depends on their ability to provide benefits to people and the country. This includes the need to mobilize financing and revenue generation from sustainable use of the natural resources, such as through nature-based tourism, payment for ecosystem services, and others. The GoSL is already undertaking policy and institutional reforms and building capacity to address the Human Elephant Conflict (HEC), which exemplifies Sri Lanka’s challenge to reconcile environmental protection and economic development. The GoSL also aims at improving the sustainable use and effective management of forests and wildlife resources, which are highlighted as national priorities in the Punarudaya-Accelerated National Environment Conservation Program adopted in 2015. 1 B. Sectoral and Institutional Context 4. Sri Lanka exhibits a wide array of ecosystems with a diversity of species considered to be the richest per unit area in the Asian region. The country is ranked as a global biodiversity hot spot. Natural forests occupy about 30 percent of the total land area. Sri Lanka has several distinct climatic zones, each with characteristic forests, wildlife and wetlands associated with 103 major rivers and over 10,000 irrigation tanks. The country has rich marine and coastal ecosystems along its 1,620 km coastline. Biodiversity has been shaped by a complex geological history, altitudinal variation, and a monsoonal climate regime determined by the spatial and seasonal distribution of rainfall. Sri Lanka has an exceptional degree of endemism, including a large number of geographic relics and many point endemics that are restricted to extremely small areas. 5. About 14 percent of Sri Lanka’s land area is under legal protection. Despite conservation efforts, deforestation, forest degradation and biodiversity loss continue. About 30 percent of the Dry Zone forests is degraded, while highly fragmented small forest patches dominate in the Wet Zone. The average annual rate of deforestation has been 7,147 ha/year during 1992-2010. While logging in natural forests was banned in Sri Lanka in 1990, forest clearance for infrastructure development, human settlements, agriculture as well as encroachment, illegal timber felling, forest fires, spread of invasive species, clearing of mangrove forests for prawn farming, and destructive mining practices are contributing to deforestation and forest degradation. Sri Lanka’s National Red List of 2012 and the International Union for Conservation of Nature Global Red List of 2013 assessed a significant number of fauna and flora in Sri Lanka as threatened with extinction. 6. The HEC is a noteworthy issue in the context of Sri Lanka’s development. Sri Lanka has the highest density of elephants among the Asian elephant range states. Estimates of the number of elephants in Sri Lanka vary from about 3,000 to 5,000. However, protected areas (PAs) under the Department of Wildlife Conservation (DWC) are insufficient in size and quality to sustain the country’s elephant population. Over two-thirds of the wild elephant population can be found outside PA system. This is because the elephant is an edge species that prefers open forest habitat to dense primary forests. PAs, on the other hand, are generally primary or mature forests and provide only sub-optimal habitat for elephants. As a result, elephants graze on other forest and agricultural lands to survive, causing conflicts with farmers, including deaths of humans and elephants, and crop and property damage. Around 70 humans and over 200 elephants are killed annually. Crop and property damage is approximately US$10 million annually. With accelerating development and fragmentation of habitats, innovative landscape management approaches are needed to address the HEC. Such approaches would balance competing objectives of creating new opportunities for rural poverty reduction and employment and sustaining Sri Lanka’s unique elephant population over much of the Dry Zone. 7. Sri Lanka’s biodiversity and natural resources endowments are important assets for future sustainable development. Many communities living in the vicinity of natural forests are directly and indirectly dependent on the natural ecosystems. The collection of Non-Timber Forest Products including medicinal plants and food items – yams, mushrooms, honey and wild fruits –, as well as the extraction of fuel wood and fodder for livestock from forests are important sources 2 of livelihood in addition to farming; while the demand for wood and wood products is now mainly met from home gardens, state-owned or privately held woodlots and plantations. 8. Nature-based tourism is a fast growing segment of the global tourism industry creating opportunities for growth and to develop a successful rural development growth strategy. Due to the ease of wildlife sighting, Sri Lanka has the potential of being the best nature-based tourism destination outside Africa. Yet nature-based tourism remains underexploited. Less than 30 percent of foreign tourists visit the country’s national parks due to poor visitor experience as a result of inadequate management. Much of the sector operates as an enclave industry, generating little employment and growth benefits. Only limited portion of the monetary benefits from nature-based tourism flow to local communities. Efforts made for joint management of visitor facilities within PAs of the Forest Department (FD) have not yet been successful due to lack of quality and consistent service. The development of home stays, village trails, agriculture trails, wildlife viewing outside PAs, and others are known to have potential to succeed. 9. According to the Intergovernmental Panel on Climate Change, even under the most stringent mitigation scenarios, the world’s temperature will continue to increase, making adaptation strategies a necessity, as well as addressing the challenges posed by current aggravated climate variability. In Sri Lanka, there is evidence that wet areas are becoming wetter and dry area drier contributing to a trend of heightened annual and seasonal variability. Anthropogenic activities of people are having a significant and at times escalating impact on ecosystems; hence impacting their ability to provide the critical services that are increasingly important for communities to adapt to climate change. Under most emission scenarios and without accounting for human induced impacts, studies indicate that Sri Lanka’s forest carbon pool will remain unchanged. 10. The GoSL’s development framework commits Sri Lanka to a path of sustainable development and identifies the country’s biodiversity as part of its natural heritage and a high conservation priority. The value of the natural resources has been recognized recently and the GoSL has enacted various laws aimed at the protection of natural resources with an understanding of its importance for sustained growth and poverty reduction. Sri Lanka was the first country in Asia to prepare a National Environmental Action Plan in 1992. A number of natural resources management strategies were developed subsequently, including the Biodiversity Conservation Action Plan of 1998 (and addendum of 2006), Protected Area Gap Analysis of 2006, Haritha Lanka of 2009, and Drivers of Deforestation and Forest Degradation of Sri Lanka of 2015. These strategies identify critical areas that require strategic conservation efforts. One of the first policy documents prepared by the new Government elected in 2015 was a National Environmental Conservation Program where conservation and management of forests and wildlife feature prominently in four of the six priority areas. 11. Five dedicated government agencies have been set up for environment and natural resources management. This includes the: FD, Central Environmental Authority, Coast Conservation Department, Geological Survey and Mines Bureau, State Timber Corporation and Marine Environment Protection Agency under the Ministry of Mahaweli Development and Environment (MoMDE), and the DWC under the Ministry of Sustainable Development and Wildlife (MoSDW). In addition, there are separate institutions managing water and some of the 3 land resources. Institutional mandates of many of the institutions are overlapping and coordination, investments, incentives, and information flow is weak. In addition, there is near exclusive focus on strict protection instead of a more integrated management approach. This system, combined with outdated institutional capacity, infrastructure and financing models, is no longer capable of effectively governing the sustainable use, management and enforcing legal compliance pertaining to depleting natural resources. Conditions are now converging, with strong leadership for more effective policy decisions and strategies for greater economic and more sustainable use of natural resources, particularly actions that will invigorate local communities and ensure more inclusive growth with the initiation of Punarudaya. Strengthened integrated management of natural resources could yield a triple dividend by providing incentives for shared prosperity and reducing poverty while enhancing the sustainability of resource use by the local communities and the country. C. Higher Level Objectives to which the Project Contributes 12. The proposed project is consistent with the Bank Group’s Country Partnership Strategy for Sri Lanka (2013-2016) (Report No. 84426-LK), which was discussed by the World Bank Board of Executive Directors on May 22, 2012. The project would support the Country Partnership Strategy’s strategic themes on improved living standards and social inclusion, and improved resilience to climate and disaster risks. 13. The 2015 Systematic Country Diagnostic for Sri Lanka confirms environmental sustainability as one of the priority areas for sustaining progress in ending poverty and promoting shared prosperity. The Systematic Country Diagnostic highlights the country’s environmental management challenges, calls for the better stewardship of Sri Lanka’s natural assets, and emphasizes the importance of natural resources for the development of tourism in the country. This is in line with Sri Lanka’s own priorities of development. The Ecosystem Conservation and Management Project is directly responding to Sri Lanka’s development priorities and the World Bank’s twin goals by improving natural resources management, and protecting and improving the natural resource base on which rural communities depend. The project will support inclusive development among some of the country’s poorest communities living in the adjacent areas of PAs by addressing the HEC that impacts their lives and livelihoods and ensuring benefits to the communities from better managed ecosystems. 14. The project contributes to key national strategies and actions plans, including: (a) Punarudaya which identifies the importance of conservation of the country’s natural resources, particularly forest and wildlife resources, and institutional strengthening and reform; (b) emerging strategy on Reducing Emissions from Deforestation and Forest Degradation Plus (REDD+); and (c) other sectoral strategies on water, agriculture and energy. The project will also contribute to the GoSL’s policies of: increasing forest cover; harnessing of ecosystem benefits, including the protection of watersheds for agricultural productivity; developing mechanisms for human-elephant co-existence; improving the revenue generating capability of wildlife and forest resources; and developing the capacity for delivering institutional mandates of key natural resources management agencies. The project contributes to the higher level objective of long- term environmental sustainability and inclusiveness of growth and development in and around ecologically sensitive areas in Sri Lanka. 4 II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 15. The project development objective (PDO) is to improve the management of ecosystems in selected locations in Sri Lanka for conservation and community benefits. B. Project Beneficiaries 16. The project will generate national and local environmental and community-level benefits. At the national level, the project will develop the capacity of the key implementing agencies, the DWC and FD to manage PAs more effectively and based on modern PA and landscape management approaches, improve the quality of nature based tourism, and achieve better institutional coordination at national and sub-national levels. Locally, the project will directly benefit approximately 15,000 people out of which at least 30 percent are expected to be female beneficiaries from communities located in the adjacent areas of the participating PAs. It will also benefit other sensitive natural habitats by supporting sustainable use of natural resources, the mitigation of the human-elephant conflict, and improved capacity in natural resources management, with particular focus on women and vulnerable groups. The project will also benefit local authorities through improved awareness of natural resources management. C. PDO Level Results Indicators 17. The following are key indicators to assess the progress toward achieving the PDO: (a) Direct project beneficiaries (number), of which female (percentage); (b) People with improved access to income generating activities as a result of project interventions (number); (c) Villages and agriculture plots protected as a result of human-elephant co-existence activities (number); (d) Areas brought under enhanced biodiversity protection (hectare); and (e) Visitor revenue of selected PAs increased as a result of project interventions (percentage). III. PROJECT DESCRIPTION A. Project Components 18. The project comprises four components, which are summarized below. A detailed project description is provided in Annex 2. Component 1: Pilot Landscape Planning and Management (US$2.8 million) 19. Component 1 will provide technical assistance, training and capacity building to develop the guiding framework for landscape-level management planning and support the piloting of landscape planning and management in two selected landscapes comprising contiguous areas of unique ecological, cultural and socio-economic characteristics. Component 1 will also support 5 the capacity building of the newly formed Sustainable Development Secretariat under the MoSDW that will lead the component. These will include landscapes representing: (a) the biodiversity rich wet zone, and (b) the dry and arid zone forest ecosystems, with conservation significance. 20. The strategic landscape plans will focus on broad guidelines and principles for the management of PAs and other ecosystems within a landscape and involve: (a) defining opportunities and constraints for conservation action within the landscape; (b) identification of effective ecological networks; (c) identification of measures to secure the integrity of ecosystems and viable populations of species; (d) developing rapid assessment systems for landscape scale ecosystem quality including the identification of high conservation value ecosystems; (e) setting out a stakeholder negotiation framework for land and resource use decisions and for balancing the trade-offs inherent in such landscape approaches; and (f) recognizing and using overlapping cultural, social, and governance “landscapes” within biologically defined areas. 21. The component will be implemented by the Sustainable Development Secretariat of MoSDW. The component will use consultative and participatory approaches to ensure all relevant stakeholders views and opinions are considered in the development of the two landscape plans and their participation during implementation of the plans. Component 2. Sustainable Use of Natural Resources and Human-Elephant Co-Existence (US$17.0 million) 22. Component 2 will support communities living adjacent to PAs and other ecologically sensitive areas to plan for natural resource use and to develop biodiversity compatible, productive and climate resilient livelihood activities and to scale-up successful models that address the human-elephant conflict. 23. Sub-component 2(a): Sustainable use of natural resources for livelihood enhancement (US$6.0 million). This sub-component will finance the identification and implementation of biodiversity-friendly and climate-smart existing or new livelihood options through participatory Community Action Plans (CAPs). Typical activities in the CAPs will include: (a) improvements of small-scale social infrastructure such as rehabilitation of local irrigation tanks; (b) the establishment of woodlots; (c) improving the productivity of home gardens; (d) promotion of sustainable agricultural and non-agricultural income-generation activities; (e) development of agro-forestry; and (f) development of community-based ecotourism that promotes sustainable use of natural resources. The project will also provide financing for capacity development in livelihood development, and business development and management, and will facilitate access to finance. It will also assist in the capacity development of participating community groups on natural resources management and co-management of forest and wildlife resources. 24. Sub-component 2(b): Human-elephant co-existence for livelihood protection (US$11.0 million). This sub-component has three key areas of interventions. 25. Human-Elephant Co-Existence (HECOEX) activities. This will finance the scaling up successful human-elephant coexistence pilot projects within high HEC areas. It will fund the 6 implementation of: (a) a landscape conservation strategy aimed at allowing elephants to range outside the DWC PAs providing protection to farmers and village communities through protective solar electric fencing; and (b) management of elephants in Elephant Conservation Areas (ECAs) and Managed Elephant Ranges (MERs) outside the DWC PA network without transfer or change in land ownership through elephant compatible development. 26. Identification of economic incentives for affected communities. This will finance studies to identify viable economic incentives for affected local communities and development of policies and procedures and a governance mechanism for provision of such economic incentives. Such provisions include, for example, improving the existing insurance schemes or introduction of new insurance schemes, compensation mechanisms to mitigate the impact of elephant destruction and promotion of opportunities for community-managed nature-based tourism (such as elephant viewing) in order to demonstrate the economic benefits to communities of coexistence with elephants. 27. Update the national master plan for HEC mitigation and development of HECOEX models for other areas: This will finance the updating of the national master plan for mitigation of the human-elephant conflict and developing practical models for HECOEX in other areas. Component 3: Protected Area Management and Institutional Capacity (US$24.2 million) 28. Component 3 will support interventions in PAs in compliance with the Fauna and Flora Protection Ordinance (FFPO) and the Forest Conservation Ordinance (FCO); support nature- based tourism development, and strengthen the institutional capacity and investment capability for conservation and management. 29. Sub-component 3(a): Protected area conservation and management (US$11.6 million). This sub-component will finance the updating and/or developing of PA management plans where needed and the implementation of PA management plans. Priority PAs in the DWC and FD PA network are eligible for support under this sub-component, covering terrestrial, marine and wetland PAs. Conservation and management activities eligible for funding include: (a) the rehabilitation and development of water resources within PAs for wildlife; (b) habitat management, including control of invasive species, habitat creation and habitat enrichment, etc.; (c) rehabilitation and expansion of the road network within PAs for reducing tourism pressures and improving patrolling; (d) improvements to PA management infrastructure for better management of forest and wildlife resources; (e) species monitoring and recovery programs; (f) protection of inviolate areas for species conservation; (g) implementation of real time field based monitoring systems; (h) strengthening enforcement through the introduction of SMART (Spatial Monitoring and Reporting Tool) patrolling; and (i) improving mobility of PA staff for better enforcement. 30. The project will reward innovation, performance and accountability in PA conservation and management. A review of performance of this sub-component will be carried out at mid- term adopting the Management Effectiveness Tracking Tool of the World Bank/World Wide Fund for Nature (2007). Based on the findings of such review, project funds may be reallocated 7 to better performing PAs or to other PAs. This competitive element is expected to improve efficiency and promote more cost-effective and relevant interventions. 31. Sub-component 3(b): Nature-based Tourism in protected areas (US$6 million). This sub-component aims at enhancing the quality of nature-based tourism through planning of nature-based tourism and visitor services in PAs, based on needs and carrying capacity assessments. The sub-component will support the: (a) preparation of plans for enhancing nature- based tourism in selected PAs, including establishing the optimum number of visitors; (b) development and renovation of visitor services infrastructure, such as construction and renovation of visitor centers, comfort facilities, eco-friendly park bungalows and camp sites, and infrastructure for new visitor experiences; (c) construction of nature trails, wayside interpretation points, observation towers, wildlife hides, and canopy walks; and (d) development of comprehensive accreditation systems for nature-based tourism services, including related guidelines and others. 32. Sub-component 3(c): Institutional capacity and investment capability of DWC and FD (US$6.6 million). This sub-component will support activities to strengthen the institutional capacity of the DWC and FD to implement reforms and decentralized decision making. It will finance activities to improve skills and capacity for adaptive and effective management of PAs. It will also support capacity strengthening including the infrastructure development at the National Wildlife Research and Training Center and the Sri Lanka Forestry Institute and its affiliated institutions, setting up of the DWC Marine Unit and forensic laboratory. It will also finance development of monitoring and evaluation capabilities, targeted studies, technical assistance and equipment for long-term monitoring of status of critical biodiversity and forest resources, setting up of the project website and maintenance, monitoring and evaluation (M&E) of project results and development of capacity to co-manage wildlife and forest resources with communities and other stakeholders. Component 4: Project Management (US$1.0 million) 33. Component 4 will finance the Project Management Unit (PMU) and implementing agencies in project management, project monitoring and evaluation, through the provision of incremental operating funds, consulting services, transportation, equipment and training of administrators covering range of topics, such as administration, planning, budgeting, fiduciary activities, safeguards and monitoring and reporting on project implementation. B. Project Financing 34. The selected lending instrument is an Investment Project Financing. The Project will be financed through a US$45.0 million International Development Association (IDA) Credit. Project Cost and Financing 35. The following table provides the project costs by components: 8 Project IDA percent Project Components cost (US$ Financing Financing million) 1. Pilot Landscape Planning and Management 2.8 2.8 100 2. Sustainable Use of Natural Resources and 17.0 17.0 100 Human-Elephant Co-existence 3. Protected Area Management and Institutional 24.2 24.2 100 Capacity 4. Project Management 1.0 1.0 100 Total Costs 45.0 45.0 100 Total Project Costs 45.0 45.0 Total Financing Required 45.0 45.0 100 C. Lessons Learned and Reflected in the Project Design 36. The project design seeks to incorporate important lessons from international, regional and national conservation and natural resources management experiences. The development of an effective model for conservation and mainstreaming natural resources management into rural development will need to confront and balance the complex demands on Sri Lanka’s natural resource base and environment. Demonstrating new approaches, scaling up best practices and learning from accumulated experiences and most recent scientific and economic research can have important and longer lasting impacts – once they are shown to be effective. Therefore, the project has been designed on past experiences both locally and internationally, applied with care for local context. 37. Past donor interventions in the forestry and wildlife sectors in Sri Lanka have shown that project ownership by the respective institutions is critical for sustainable outcomes. The project therefore builds on the foundations of reform and institutional development initiated under Asian Development Bank financed Forest Resource Management Project and Asian Development Bank/Government of Netherlands/Global Environment Facility (GEF) financed Protected Area Management and Wildlife Conservation Project, where the management of forest and wildlife resources was to be decentralized. The project is designed to respond to demands at the field level, particularly those identified through participatory planning processes both at community and PA management levels. 38. Resources needed to tackle the conservation challenges and mainstreaming natural resources management into rural development in Sri Lanka far exceed the available project funds. Prioritization required difficult trade-offs that were determined in consultation with GoSL. On account of the economic magnitude and speed of the losses from ecosystem degradation, an alarmist alternative was considered that would provide funding entirely and only to protect PAs amidst accelerating ecosystem destruction. This option was rejected because it would not protect the corridors that are important for long-term genetic viability, and will not provide benefits to the people. Moreover, since a majority of wild elephants live outside the DWC PA system, this approach would not have resolved the HEC problem. This project has 9 benefited from the growing body of empirical evidence on the medium-term performance of Integrated Conservation and Development Projects. Integrated Conservation and Development Projects seemed to offer the prospect of promoting conservation and rural development simultaneously and often without any need for explicit investments in habitat and biodiversity protection and investments, becoming unsustainable as the project closes. The proposed project therefore adopts a pragmatic approach that focuses on competitive and demand-driven funding that will improve the livelihoods of people living in the adjacent areas of PAs, particularly those impacted by or impacting the integrity of environment and natural resources. Based on previous experiences, it is also recognized that sustainability will depend on linkages created to access the markets for the products and services emanating from livelihoods and having access to concessional local financing on a long-term basis. 39. Project preparation involved consideration of whether to include or exclude information/data collection needed for the management of HEC issues. Although, good policy and effective action on the ground are founded on good science, there is inadequate science- based information/data in Sri Lanka. At present, the GoSL annually incurs high cost of elephant drives, translocations and construction of electric fences around PAs (approximately US$3 million annually) with limited success in reducing the HEC. While the DWC is aware of the limited long-term effectiveness of such measures, public and political pressure, demands such actions in the absence of scientific data. Designing effective HECOEX interventions that are adaptive forms of conservation management rests on the availability of good information. Hence, data collection on elephant ranging patterns and behavior is integral to developing appropriate HECOEX models for the HEC mitigation. 40. The conventional approach to managing the HEC by translocation and confinement of elephants to the DWC PAs will not be considered under the project. Studies and implementation experiences have shown that the translocation and confinement approach is not viable and may in fact jeopardize the survival of elephants, both within and outside PAs and has little or no impact on reducing the conflict. In keeping with the national policy for the conservation and management of wild elephants in Sri Lanka, a landscape conservation strategy has been adopted that aims at allowing elephants to continue ranging outside Pas, and simultaneously protecting human habitations and permanent agriculture. Similar initiatives have been implemented in Africa, including in the Zambezi Heartland, where one of Africa’s largest elephant populations roam a vast landscape that crosses national boundaries of Mozambique, Zambia and Zimbabwe. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 41. The Project’s institutional implementation structure comprises relevant institutions at national and sub-national levels with distinct decision-making and accountabilities based on their mandates and implementation responsibilities. Institutional responsibilities are summarized below. They are described in more detail in Annex 3 and in the Project Operations Manual (POM). 42. Lead Ministry and Project Steering Committee. The MoMDE will lead overall project implementation based on the overall environmental and natural resources management 10 mandate of the Ministry. The MoMDE has an established policy and planning framework as well as capacity to manage donor-financed operations. A Project Steering Committee (PSC), co- chaired by the Secretaries of the MoMDE and MoSDW, has been established to ensure coordinated policy and implementation guidance for technical, fiduciary and safeguards from both ministries to the project implementing agencies. 43. Inter-ministerial Project Management Unit (PMU). Based on their respective mandates and jurisdictions, the DWC and FD head offices and field offices will be responsible for overall project implementation, supervision and monitoring of all project activities undertaken within their jurisdiction. Project implementation would be through regular staff of the DWC and FD. Because the two departments are located in separate ministries and have different levels of capacity to manage a Bank-financed project, an inter-ministerial PMU, headed by a Project Director, will be established that will be responsible for institutional coordination between the DWC and FD. The PMU will be housed in the MoMDE. The PMU will also be responsible for the management of fiduciary (procurement/ financial management) requirements, coordinating and undertaking safeguards, monitoring and evaluation activities, and project reporting. The PMU will also provide secretariat support to the PSC and Technical Review Committee. 44. Technical Review Committee (TRC). The TRC will be set up for Components 1 and 2 that require expertise beyond the project implementing agencies. The TRC will review the technical soundness of activities selected through strategic landscape plans, CAPs, and HECOEX investment activities and related research and provide recommendations to the PSC. It will bring experts with knowledge on wildlife and forestry research and development, project management, human-elephant co-existence, spatial planning, community business development, and social development including citizen engagement. Depending on the area of review, it will also include representatives of Department of National Planning, United Nations Development Programme GEF Small Grants Program, United Nations REDD+ Program and the Government of Australia funded Community Forestry Program. 45. Citizen Engagement. The project has identified a mechanism to involve communities and their representatives in making decisions and for ensuring greater positive impact. For the participatory planning processes under Components 1 and 2, the PMU and implementing agencies will design a citizen engagement strategy with the objective to give voice and opportunity to various stakeholders in the planning process and impelling various plans. Two citizen engagement indicators, namely, number of strategically planned pilot landscapes with citizen participation (Indicator 6) and percentage of beneficiaries feeling that properties and crops have increased protection and livelihoods have been enhanced due to project investments (Indicator 8) have been included as part of the results framework of the project. B. Results Monitoring and Evaluation 46. Overall responsibility for project results will rest with the PMU. A monitoring matrix to track inputs, outputs and outcomes, with intermediate and key performance indicators has been developed for the project. Outcomes and outputs will be monitored to evaluate progress during implementation based on data compiled by the PMU, FD and DWC. The PMU will be supported through technical assistance to undertake M&E, including targeted surveys and assessments as 11 defined in the results framework in Annex 1 and in the POM. Gender disintegrated data will be collected and assessed as part of reporting on beneficiaries and citizen engagement. Capacity building for the DWC and FD will be provided through sub-component 3(c) to monitor the project results and long-term conservation status of key ecosystems. The project has also made provisions to undertake fiduciary and safeguard monitoring on a continuous basis. C. Sustainability 47. The project is designed with environmental sustainability as its core objective. The project’s long-term sustainability will depend on the awareness and sensitivity by the government and the public of the value of protecting and nurturing its natural endowments. The results expected to be achieved under the proposed project are highly likely to be sustained beyond its five-year implementation period because of the reasons noted in the paragraphs below. 48. Technical support to the intended project beneficiaries will be provided through the existing government system whose capacity in PA and community-based ecosystems management will be strengthened under the project to ensure effective implementation of the GoSL’s policies and programs on environment and natural resources management. It is expected that demand-driven financing from the GoSL consolidated funds will continue using systems and ecosystems management modalities introduced or improved by the project. The project’s investments in institutional capacity building of the FD and DWC to implement the reforms put in place in recent past for conservation and management and developing incentives for better participation and performance, particularly focused on field offices are expected to change the governance of institutions to deliver their mandates effectively over the long-term. 49. The focus on developing revenue earning potential of natural ecosystems and assessing possibilities of introducing payment for ecosystems services are expected to yield long-term financing for ecosystems management. 50. The project is designed to address environmental and natural resources management issues as well as livelihood improvement interventions for poverty reduction and resilience building associated with environmental and natural resources management. Community beneficiaries will have financial and other incentives, such as co-management of forest resources, partnerships and technology for livelihood development and knowledge for: (a) sustaining livelihoods that are compatible to the ecosystem functioning and climate change resilient, and (b) benefiting from ecosystems services. These will generate sustainability as a result of increased understanding of the value of ecosystems for the wellbeing of communities living adjacent to and impacted by forest and wildlife resources. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 51. The overall risk rating for this project is “Moderate”. The following provides the assessment of the risks rated “Substantial” and mitigation measures to reduce these risks: 52. Institutional Capacity and Fiduciary: The MoMDE has some experience in the 12 implementation of externally-financed projects, including the World Bank-financed Dam Safety and Water Resources Planning Project (P093132). The MoSDW is a new ministry formed in September 2015 without prior experience in managing projects. The DWC and FD have limited experience with implementing externally-financed projects on their own, although there is significant technical capacity to undertake project activities. There is a proposed decentralized fund flow for some activities, which requires many levels of accountability. In order to mitigate potential issues of managing the project including fiduciary standards, a PMU with adequate number of qualified and experienced staffing will be set up under the MoMDE to provide overall project management support, as well as operational and coordination support to all project entities. In the interim the PMU of the Dam Safety and Water Resources Planning Project will provide fiduciary support until project-specific PMU is established. VI. APPRAISAL SUMMARY A. Economic and Financial Analysis 53. The economic and financial analysis for project quantifies a subset of the net benefits that the project activities are expected to provide (refer to Annex 5 for details). The project will produce both tangible and intangible benefits. In the absence of relevant data on ecosystem services and their values, it is difficult to quantify the magnitude of the benefits generated by the project. A pragmatic approach has therefore been used to determine the robustness and effectiveness of the interventions. The analysis focuses on the potential costs and benefits of project’s key investments, based on the scientific literature and recent World Bank studies undertaken on investments in natural resources management. 54. Component 1 and Sub-component 2(a) finance activities to mainstream natural resources management into spatial development and sustainable livelihoods. Conservation will only be possible if the standard of living of the key beneficiaries is improved. This improvement is associated with the incorporation of biodiversity-friendly and climate-smart production/livelihood practices, allowing production increase and diversification as a strategy for access to markets, while favoring conservation of natural resources. Important positive co- benefits of such investments will accrue ecosystem services such as improved health of watersheds, enhanced carbon sequestration and groundwater aquifer recharge while protecting natural resources. The financial returns from mainstreaming natural resources management into spatial development and livelihoods are difficult to measure as investments are difficult to predict given its demand-driven nature, diversified livelihood and productive practices, and constantly changing spatial development. However, a World Bank study (2010) finds that the total value of watershed ecosystem services in the Southern Province varies from a low of US$2,128 per hectare (ha) in the Muthurajawela Marsh to as much as US$622,845/ha for coral reefs. The Millennium Ecosystem Assessment estimates an average global value of US$3,274 for watershed benefits. In comparison, the average revenue (defined as average yield times average farm price) from paddy cultivation is estimated at about US$750/ha. After deducting input costs and the opportunity cost of time, the payoffs (profits) from paddy cultivation will be much lower. These figures imply that the public benefits from conservation will outweigh the private benefits from paddy farming (the dominant crop in this area). 55. Under Component 2(b), successful HEC management pilots already identified will be 13 scaled-up, new methods will be introduced and a strategic plan for management of elephants will be implemented with investments estimated at US$11 million over 5 years. While the HEC mitigation measures, including livelihood development, will contribute both to poverty alleviation and environmental sustainability, the benefits of Component 2(b) are economically more relevant as “avoided costs”. For the economic analysis, the avoided costs comprise: (a) damaged crops and property; (b) mitigation expenditures (i.e. fences); and (c) elephant and human deaths. Since data are highly variable on temporal and spatial terms and depend on the sources and methods used, the analysis of the specific costs involved a comparison of three scenarios: low, medium and high cases. Under the low case scenario, assuming US$11 million of investments over the project’s 5-year implementation period and a discount rate of 12 percent over 20 years, the Net Present Value (NPV) of the investment costs will be US$8.1 million while the NPV of the benefits is US$14.4 million. The net benefits of US$6.3 million imply a benefit- cost ratio of 1.8 and an Economic Rate of Return (ERR) of 25.4 percent. Component 2(b) activities are above the break-even point of viability from an economic sense under the low case scenario, even if other additional benefits generated by activities were excluded. 56. The project will entail an investment of US$11.6 million on sub-component 3(a) (enhancing ecosystem conservation and management) and US$6.6 million on sub-component 3(c) (strengthening knowledge and national capacity for ecosystem conservation and management), totaling US$18.2 million on better management of environmental services. Assuming that watershed benefits are at the lower bound (US$2,128 per ha per year) with a discount rate of 12 percent over 20 years, the project will break even, if it manages to preserve only 975 ha of habitat with benefit to cost ratio of 1.62. Under a sensitivity analysis that lowers the discount rate to 5 percent (which may be justified for environment projects), only 685 ha will have to be preserved in the lower bound scenario with benefit to cost ratio of 1.58. On the other hand, if the benefits were at the Millennium Ecosystem Assessment benefit level (US$3,274 per ha per year), then the project will need to preserve only 625 ha of habitats to be considered cost- effective with a discount rate of 12 percent. The project envisages the preservation of up to 100,000 ha midway through the project cycle, reaching 200,000 ha after 5 years. The above analysis indicates solid benefit-cost ratios and clearly justifies that the proposed investments are economically worth undertaking. 57. The project also proposes an investment of US$6 million under the Component 3(b) for the enhancement of the quality of nature-based tourism in PAs over five years. These costs can be recovered with increased economic activity from nature-based tourism. This can be achieved either through increased spending (holding visitation rates constant) or an increase in visitors (holding spending constant), or some linear combination of the two. 58. Green House Gas (GHG) Accounting. With the absence of exact geographic coverage of project investment, non-financial/economic emissions reduction and carbon stock analysis that will likely result due to project activities have been undertaken. It is predicted that 5,000 ha of degraded land will be supported with assisted regeneration activities within PAs, 195,000 ha of existing forests will be protected and 5,000 ha of reforestation of degraded forest land and community areas will be undertaken. It has been estimated that with project interventions, approximately 6.62 to -14.36 million tCO2eq of net GHG emissions can be expected during the 5 years of the project period. Once the project sites are identified during project implementation, 14 a more robust analysis of benefits of reduced emissions and protected carbons stocks will be assessed and reported. B. Technical 59. The project design is technically, institutionally and operationally sound. It is based on successful interventions on ecosystems conservation and management in Sri Lanka and other countries. The design is backed by analytical work carried out by the World Bank in recent past, including Fiscal and Economic Benefits of Environmental Actions: Policy Options Note (2014), Nature-Based Tourism and the Human Elephant Conflict in Sri Lanka (2010), and Valuation of Environmental Services in Sri Lanka: A Case Study of Agriculture and Watershed Benefits in the Southern Province (2010). The design of the project integrates the guidelines developed for ecosystems approach by the United Nations Convention of Biological Diversity. The project applies a comprehensive intervention strategy using the ecosystem as the primary planning and implementation unit, and promotes a set of technically proven demand-driven investments that take environmental, productive and social challenges and opportunities into consideration. Furthermore, the design of the project addresses the overall technical and institutional requirements for the effective provision of support services to ecosystem-level interventions. It provides adequate financing for training, technical assistance and capacity building to implementing agencies, communities and other relevant institutions. 60. Lessons from similar projects and the analysis of relevant information have been instrumental in the design of the project. The landscape approach taken up in a pilot scale within the project is still a relatively a new concept for spatial planning and management. Therefore, while reflecting the global experiences and lessons learned so far, the design has the flexibility to adapt to local context and needs. Community engagement in natural resources management and benefit sharing with communities take the experiences and lessons from a number of on-going programs. It integrates the operational guidelines developed for planning, implementation and assessing community action plans of the Community Forestry Program financed by the Government of Australia. It also takes lessons from the GEF Small Grant Program. Similarly, the design of HECOEX interventions for permanent agriculture and villages are based on successful pilot projects in Sri Lanka. Piloting activities on HECOEX in areas of slash and burn agriculture are based on research activities carried out by the DWC and strategies identified based on research data. The project design conforms to international best practices and lessons learned from GEF/World Bank and other projects on the management of PAs. These indicate, effective management and operation of PAs depends on adequate financial resources, a consistent budget and capacity to manage PAs. The project includes support to ensure sustainability of PA operations by developing revenue earning potential of PAs as a means for long-term financing and has made provisions to explore and test other sustainable financing modalities. It also gives adequate emphasis to build capacity of PA management staff on effective management of PAs. C. Financial Management 61. The proposed Financial Management (FM) procedures are in line with fiduciary requirements of World Bank Operational Policy (OP) 10.00. The project’s FM risk has been assessed as “Substantial” based on the limited FM capacity, a decentralized fund flow, and weak payment and reporting structures of implementing agencies. With qualified and experienced 15 staff in place and the adoption of accountabilities and FM processes that are described in the POM, fiduciary risks are expected to be minimized. 62. The primary responsibility for FM and oversight will be with the PMU under the MoMDE with dedicated FM staff working on a full time basis. The PMU will be established by June 30, 2016. In the interim, the FM capacity will be met by existing FM staff of the Bank- financed Dam Safety and Water Resources Planning Project under the MoMDE. When considering FM staffing options for the PMU, preference will be to draw on experienced staff of government ministries and departments that have prior experience in managing donor-financed operations. A decentralized fund flow, payment and a bottom-up reporting model is envisaged for some share of the project funds commensurate with the geographically dispersed implementation arrangements. The FD and DWC at head office as well as at regional and district levels will have responsibility for the FM of some of the project activities. Their FM functions will be streamlined according to the FM section of the POM. 63. Quarterly Interim Unaudited Financial Reports (IUFRs) will be submitted to IDA within 45 days of end of each quarter by the PMU. The project will be subject to continuous internal audit. Year-end external audits will be carried out by the Auditor General’s Department. Currently there are no overdue audits or ineligible expenditures under the main executing ministry and the two implementing agencies. A Designated Account (DA) will be set up and maintained in US$ at the Central Bank of Sri Lanka for IDA funds. Replenishment of the DAs will be based on the IUFRs. D. Procurement 64. The project Procurement risk is rated “Substantial”. Although the FD has not directly worked on World Bank-funded projects, the MoMDE which is the line Ministry to the FD is currently managing a World Bank-funded Dam Safety and Water Resources Planning Project. However, the MoSDW and DWC do not have exposure to Bank funded projects. In the interim, the procurement capacity will be met by existing procurement staff of the Bank-financed Dam Safety and Water Resources Planning Project under the MoMDE. Agreed risk mitigation measures to be implemented include: (a) the recruitment of qualified and experienced procurement staffs for the new PMU; and (b) the establishment of a procurement monitoring system within the project as described in POM. In the interim, training will be provided to the procurement staff of the MoMDE, DWC and FD by the World Bank to undertake the procurement activities until the PMU is set up. Once the new PMU is in place the risk will be reassessed and adjusted accordingly. 65. Procurement for the proposed Project will be carried out in accordance with: World Bank’s “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” of January 2011, revised July 2014 (Procurement Guidelines); “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” of January 2011, revised July 2014 (Consultant Guidelines); and the provisions stipulated in the Financing Agreement. “Guidelines on Preventing and Combating Fraud and Corruption in projects Financed by IBRD Loans and IDA Credits and Grants” dates October 15, 2006 and updated January 2011, shall also apply to the project. Unless otherwise agreed with the Bank, the Bank’s Standard Bidding Documents, 16 Requests for Proposals, and Forms of Consultant Contract will be used. In case of conflict between the Bank’s procurement procedures and any national rules and regulations, the Bank’s procurement procedures will take precedence. 66. For each contract to be financed by IDA, the procurement method, the need for prequalification, estimated costs, prior review requirements, and time frame are to be agreed between the Borrower and the Bank and included in the initial Procurement Plan for the first 18 months of implementation. The POM discusses the project procurement methods, procedures, arrangements, including appropriate procedures at the field level, and arrangements for disclosure, complaint handling and procurement audits in detail. E. Social (including Safeguards) 67. Involuntary Resettlement (OP 4.12). Involuntary land acquisition to be financed by IDA is not expected to take place under the project. Some of the ecosystem conservation and management activities, particularly landscape planning and HECOEX activities involving slash and burn agriculture areas, are likely to affect existing land use patterns and livelihood activities of some communities in the project areas and may include access restrictions to natural resources. OP 4.12 is therefore applicable. Because the details of the project-supported site- specific activities will not be available until later during project implementation, a Social Management Framework (SMF) has been prepared. The SMF includes provisions for the assessment of social impacts that may arise during implementation, measures for social risk mitigation including Process Framework for Access Restrictions, institutional arrangements for conducting Social Impact Assessment (SIAs), and monitoring. All relevant activities that have social impacts identified through social screening will be subjected to specific SIAs and subsequent preparation of social mitigation measures. 68. Indigenous Peoples (OP 4.10). OP 4.10 is applicable to ensure adequate recognition of risks, needs, and demands of indigenous peoples (IP) in the project areas. The presence of IPs have been determined based on the specific rights identified for Vedda (former forest dwelling) communities in the regulation of the FFPO. An IP Policy Framework (IPPF) has been prepared that describes the process to be followed in preparing an IP Development Plan (IPDP). This will be applicable if the project activities are to be implemented in PAs accessed by Vedda communities or in the surrounding landscape where Vedda are present. 69. Community consultations have been an integral part of the project preparation and will continue during implementation. Consultations in some of the potential areas managed by the DWC and FD have been carried out in November 2015 to share the details of the proposed project, safeguards measures proposed to be put in place and to obtain community feedback on potential social and environmental impacts associated with the project. A three-tiered grievance redress mechanism (GRM) will be established as detailed out in the SMF, once the specific sites have been identified for investments. This includes local level Grievance Redress Committees, PSC and judiciary. The records of all community grievances brought to the attention of the GRM, the processes of how the GRM dealt with those grievances, the solutions sought and further appeals made to the PSC will be filed at the PMU on behalf of project for transparency and future reference. A database containing the grievance information will be established at the PMU and relevant information will be made available to public. The SMF and IPPF have been 17 disclosed to the public on January 28, 2016 within the country and on January 28, 2016 in Infoshop. During project implementation, the relevant social safeguard documents to be prepared will be also disclosed to the public. F. Environment (including Safeguards) 70. Environmental Assessment (OP 4.01). The project is classified as Environmental Category B and it is expected to generate positive environmental impacts. Some project activities may involve small-scale civil works. The associated negative impacts are expected to be largely on-site and easily mitigated with proper planning and sound environmental practices. 71. Forests (OP 4.36) and Natural Habitats (OP 4.04) are applicable under the project. Although no adverse impacts on the quality or health of forests or any degradation of natural habitats are expected to be caused by the project, these operational policies will apply to encourage the DWC and FD to exercise maximum due diligence in carrying out project activities in PAs and other sensitive ecosystems. 72. Physical Cultural Resources (OP 4.11) is applicable because the landscapes considered and some of the potential PAs that will be supported may have historically or culturally significant sites. 73. Pest Management (OP 4.09) is applicable under the project. The project will not finance purchase, transportation or storage of pesticides. It will encourage the use of Integrated Pest Management practices in relevant livelihood support activities under the Component 2. 74. As details of site-specific activities are not yet available, an Environment Assessment and Management Framework (EAMF) has been prepared. The EAMF provides guidance for environmental screening and analysis required for all interventions supported by the project that have the potential to trigger negative environmental impacts. The EAMF includes: (a) an assessment of generic issues typically associated with the type of intervention anticipated under the project; (b) measures for environmental risk mitigation; and (c) institutional arrangements and capacity building needs for conducting environmental assessments (EAs), preparing environmental management plans (EMPs), implementing and monitoring. The project will not fund any physical activity with significant negative impacts without prior environmental screening, analysis and submission of an acceptable EMP. All EAs or EMPs will be reviewed and cleared by the Bank prior to fund disbursements. The EAMF also includes specific provisions to: (a) assess the potential impacts on sites considered to have historical or cultural significance prior to any activities being undertaken on the ground, and (b) for the management of physical cultural resources that may be discovered during project implementation. The EAMF also includes screening procedures for pest management and pesticide use for activities considered under Component 2 that may involve agriculture activities. The EAMF has been disclosed to the public on January 28, 2016 within the country and on January 28, 2016 in Infoshop. During project implementation, the relevant safeguard documents to be prepared will be also disclosed to the public. 75. Climate and Disaster Risk Screening. The project undertook a climate and disaster risk screening of the two key sectors of focus in this project (forestry and biodiversity). Based on this 18 screening and the geophysical hazard analysis, forestry and biodiversity are currently slightly exposed to climate variabilities and disaster risks with potentially low impacts. However, future changes in climate have the potential to increase the level of vulnerability and exposure. Under the current development context and population growth, the pressure on natural resources, especially land and soil, is increasing significantly. In the absence of sustainable conservation practices, including adequate legal enforcement of existing policies, the vulnerability and exposure to major weather events will increase. Therefore, the overall project design incorporates measures, both physical and non-physical investments, to reduce the level of exposure and vulnerability of forestry and biodiversity to disaster risks and potential impacts. G. World Bank Grievance Redress 76. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or can occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate GRS, please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 19 Annex 1: Results Framework and Monitoring Country: Sri Lanka Project Name: Ecosystem Conservation and Management Project (P156021) Results Framework Project Development Objective (PDO): Improve the management of ecosystems in selected locations in Sri Lanka for conservation and community benefits Cumulative Target Values Responsibility Core Unit of Base Data Source/ Results Indicators Frequency for Data Measure line Methodology YR 1 YR 2 YR 3 YR 4 YR 5 Collection PDO Level Results Indicators Indicator 1: Direct project Number Mid-term Community beneficiaries (#), of which (percent 5,000; 5,000; 15,000; and prior PMU through a 0 0 0 beneficiary female (percentage) female) (10 percent) (10 percent) (30 percent) project consultant survey closure Indicator 2: People with Mid-term improved access to income Community 5,000 5,000 10,000 and prior PMU through a generating activities as a Number 0 0 0 beneficiary project consultant result of project survey closure interventions (#) Indicator 3: Villages and PMU through a agriculture plots protected HECOEX Annually consultant with as a result of human- Number 0 0 0 25 60 75 performance (last 3 years) inputs from elephant co-existence assessment MoSDW activities (#) Indicator 4: Areas brought Mid-term Management M&E Specialist under enhanced biodiversity ha and prior Effectiveness of PMU, with 0 0 0 100,000 100,000 200,000 protection (ha) project Tracking Tool inputs from closure Report DWC & FD Indicator 5: Visitor M&E Specialist revenue of selected PAs PA ticketing of PMU, with increased as a result of Annually last data and visitor inputs from Percentage 0 0 0 5 7.5 10 project interventions (%) 3 years satisfaction DWC & FD and survey Survey by consultant 20 Project Development Objective (PDO): Improve the management of ecosystems in selected locations in Sri Lanka for conservation and community benefits Cumulative Target Values Responsibility Core Unit of Base Data Source/ Results Indicators Frequency for Data Measure line Methodology YR 1 YR 2 YR 3 YR 4 YR 5 Collection Intermediate Results Indicators Component 1: Pilot Landscape Planning and Management Indicator 6: Strategically Landscape M&E Specialist planned pilot landscapes plans and Number 0 0 1 2 2 2 Year 2 and 3 with inputs from with citizen participation (#) consultation MoSDW minutes Component 2. Sustainable use of natural resources and human-elephant co-existence Indicator 7: Community CAPs and M&E Specialist Action Plans prepared Annually Number 0 0 25 50 75 75 consultation with inputs from responding to sustainable from year 2 use of natural resources (#) minutes FD and DWC Indicator 8: Beneficiaries feel that properties and Mid-term crops have increased Community and prior PMU through a protection and livelihoods Percentage 0 0 0 50 50 75 beneficiary have been enhanced due to project consultant survey project investments closure (percentage) Indicator 9: HECOEX Mid-term PMU through a strategies adopted (#) HECOEX and prior consultant with Number 0 0 0 1 1 2 performance project inputs from assessment closure MoSDW Component 3: Protected Area Management and Institutional Capacity Indicator 10: Monitoring Monitoring M&E Specialist systems adopted to track the systems and of PMU with conservation status of PAs Number 0 0 0 2 2 2 Mid-term their inputs from (#) implementation DWC and FD review reports Indicator 11: Protected Nature-based M&E Specialist Area level nature-based Mid-term tourism plans of PMU with tourism plans adopted (#) Number 0 0 0 7 7 7 and final and inputs from year implementation DWC and FD reports 21 Project Development Objective (PDO): Improve the management of ecosystems in selected locations in Sri Lanka for conservation and community benefits Cumulative Target Values Responsibility Core Unit of Base Data Source/ Results Indicators Frequency for Data Measure line Methodology YR 1 YR 2 YR 3 YR 4 YR 5 Collection Indicator 12: Staff trained Training and M&E Specialist (#) Number Annually post-training 0 0 0 100 200 250 with inputs from (last 3 years) evaluation DWC & FD reports Indicator Descriptions PDO Level Results Indicators* Description (indicator definition, etc.) Indicator 1: Direct project beneficiaries (#), This is a core indicator and measures people who directly derive benefits from an intervention. Direct of which female (percentage) beneficiaries include community members who will receive capacity building, livelihood support, and benefits from community forestry, ecosystem services and HECOEX activities. Measurement also includes gender disaggregated data to report on percentage female amongst the beneficiaries. Surveys will be done using a consultant or third party or a Non-Governmental Organization. Baseline has been defined as zero. Indicator 2: People with improved access to This is a custom indicator and measures the number of people living adjacent to targeted ecosystems who income generating activities as a result of receives improved access to income generating activities. This will includes benefits derived within the project interventions (#) protected ecosystems and unprotected/multiple use ecosystems and will measure the extent to which local peoples’ livelihood have improved as a result of the interventions. This measure will collect data based on the activities approved from CAPs and selection of beneficiaries, which will be monitored and reported by the DWC and FD. This measure also captures gender disaggregated benefits through the community beneficiary surveys. The surveys will also collect and report on benefits with data related to ethnicity and indigenous people in adjacent area of forests where such distinction is present. The overall aggregation and reporting on ethnicity and indigenous people will be based on significant presence of ethnic minorities and/or indigenous people. Baseline has been defined as zero. Indicator 3: Villages and agriculture plots This is a custom indicator and measures the number of villages (covering both properties and lives) and protected as a result of human-elephant co- agriculture plots that will be protected as a result of activities undertaken to ensure human-elephant co- 22 existence activities (#) existence. Once the most threatened villages and agriculture areas due to HEC are identified, a survey will be carried out to collect data on properties and other non-agriculture assets, population data and agriculture types and area as well as impacts due to the HEC in the targeted areas in the baseline year. Baseline has been defined as zero. Indicator 4: Areas brought under enhanced This is a core indicator and measures the biodiversity protection by formally converting an area into a biodiversity protection (ha) protected area and establishing a functioning management system; or, improving the management system of an existing protected area. This is a proxy indicator to monitor the management of ecosystems for conservation. This will measure the operationalization of at least a basic functioning management system with a management plan, resources and capacities established at a minimal level to achieve the area’s biodiversity protection goals. The final reporting will be aggregated for the total areas of PAs in the network that will participate in the project with basic functioning management system or above. To verify the existence of a management system and the functioning level thereof, the score of at least 35 percent that results from completing the Assessment Form of Section II: Management Effectiveness Tracking Tool for Protected Areas of Objective 1: Catalyzing Sustainability of Protected Area Systems in the GEF’s Tracking Tool for Biodiversity Projects. The total possible score will be calculated by answering applicable questions in the Assessment Form based on the actual threats to biodiversity in a particular protected area. Consequently, the total possible score is specific to a protected area. It is calculated by adding the highest score corresponding to each question of all applicable questions of the Form. Baseline has been defined as zero. Indicator 5: Visitor revenue of selected PAs This is a custom indicator that measures the increase of revenue to PAs where quality of nature-based increased as a result of project interventions tourism have been promoted by the project. 2016 will be the baseline year and the indicator will be (%) established by end of the calendar year using the ticketing data. Baseline has been defined as zero. It will also measure in the final year through a survey to what extent the development of interpretation services and facilities supported under the project in participating PAs ensured visitor satisfaction, assessing information related to value for money, probability for revisiting PA and willingness to pay more for the experience. Intermediate Results Indicators Description (indicator definition etc.) Indicator 6: Strategically planned pilot This is a custom indicator and measures the number of strategic landscape plans developed with citizen landscape plans with citizen participation (#) participation by end of 3rd year. It will include the land areas brought under landscape management plans and the enabling environment put in place for sustainable land management approaches to be introduced and adopted within these landscapes. Baseline has been defined as zero. By end of each planning process, it will evaluate how the citizen engagement process has been utilized. By 23 mid-term and project closure, it will assess how key priorities are implemented. Indicator 7: Community Action Plans This is a custom indicator and measures the number of CAPs prepared that will ensure sustainable use of prepared responding to sustainable use of natural resources. It will assess how the sites for CAPs selected and relevance of prioritized activities for natural resources (#) investment as per the sub-component 2(a) guidelines defined in POM to reach its objectives. It will review the CAPs and minutes of planning meetings. Baseline has been defined as zero. Indicator 8: Beneficiaries feel that properties This is a core indicator and measures the extent to which the decision about the project, specifically planning and crops have increased protection and and implementation of CAPs that impact their livelihoods reflects community preferences and human- livelihoods have enhanced due to project elephant co-existence actions that provides increased protection to property and crops. This will be assessed investments (percentage) as part of the beneficiary survey that will be undertaken for Indicator 1 and evaluation of minutes of CAP development process. Baseline has been defined as zero. Indicator 9: HECOEX strategies adopted (#) This is a custom indicator and measures the number of successful HECOEX strategies that will be adopted using project funding. It will be measured as part of the assessments that will take place under Indicator 3. Baseline has been defined as zero. Indicator 10: Monitoring systems adopted to This is a custom indicator and measures the number of monitoring systems developed by end of 3 rd year to track the conservation status of PAs (#) track conservation status of PAs of the FD and DWC. It will also assess prior to project closure the operation of such systems and use of monitoring data for decision making. Baseline has been defined as zero. Indicator 11: Protected Area level nature- This is a custom indicator and measures the number of nature-based tourism plans developed for PAs of the based tourism plans adopted (#) FD and DWC. It will assess how the plans ensures creating supportive frameworks and partnerships with broader tourism sector, planning and managing sustainability of sites, developing authentic and memorable experiences, facilitating innovative and viable investments and effective marketing. Baseline has been defined as zero. Indicator 12: Staff trained (#) This is a custom indicator and measures capacity building activities aimed at strengthening skills of the FD and DWC staff to deliver the respective services and mandates. Skills are defined broadly to include knowledge and attitudes. This will be measured as the number of staff who have used the training that they received. Training encompasses any type of training organized or provided by the project (degree and non-degree courses, vocational, on-the-job training, study tours, etc.) that will improve skills related to natural resources planning, management and monitoring and coordinating with multi-stakeholders. This indicator will be measured by conducting a follow-up survey with the supervisors of staff who received training, around 6 months after the training was provided. Baseline has been defined as zero. 24 Annex 2: Detailed Project Description SRI LANKA: 1. The project will be implemented over five years. The project is designed along four components that are described in detail below: Component 1: Pilot Landscape Planning and Management (US$2.8 million) 2. Sri Lanka has a long history of conservation within PAs. Fragmented institutional responsibilities and overlapping mandates, however, have led to poor effectiveness of the protected area network and made more integrated development planning a challenge in Sri Lanka. Jurisdictional controls over land do not coincide with natural ecological boundaries, often resulting in the fragmentation of natural habitats and uncoordinated interventions. Environmental decision-making in Sri Lanka has also been largely focused only on mitigating the direct impacts of development projects. The lack of integrated planning has aggravated uncontrolled development pressures, degraded ecosystem quality, and diminished the potential for environmental service provision. This trend will continue unless the GoSL reviews its current approach to biodiversity protection and takes a new more integrated planning and development approach that aligns and balances development programs with ecological or environmental priorities. More comprehensive and integrated planning is particularly important for development in areas where the country’s priority protected areas are located. In support of an alternative and modern conservation approach, this component will apply a framework for making landscape-level conservation decision making developed by the World Wide Fund for Nature and the World Conservation Union to help facilitate the planning, negotiation, and implementation of activities across entire landscapes dominated by conservation areas. The approach will also seek to better integrate top-down planning with bottom-up participatory approaches. 3. The component will support the preparation of strategic conservation landscape plans on a pilot basis for two landscapes and the implementation of selected priority interventions identified in these strategic landscape plans. The landscape level planning process will be led by the Sustainable Development Secretariat of the MoSDW in collaboration with relevant spatial planning agencies of the GoSL. It will also be supported by external technical experts that will be recruited under this component, and led in consultation with key stakeholders active in the landscape, including local authorities and communities. The component will also support the capacity building of the Sustainable Development Secretariat that will lead the component. The strategic landscape level planning process for the two selected landscapes is expected to be completed within the first year of project implementation. 4. The two landscapes pre-identified for strategic planning will include focus on a biodiversity rich wet zone landscape and a dry and arid zone forest landscape. These landscapes are also representative of different types of development pressures, in particular threats from urbanization and infrastructure development that would compromise the viability of existing ecosystems, and environmentally sensitive areas fragmented by high population densities and poor land use practices. The landscapes will contain ecologically sensitive sites and wildlife corridors outside the designated PA network and were identified in the Portfolio of Strategic 25 Conservation Sites/Protected Area Gap Analysis in Sri Lanka as priorities for strategic conservation interventions. 5. The strategic landscape plans will provide guidelines and principles for the management of PAs and ecosystems outside the designated PA network located in the landscape and involve: (a) the definition of opportunities and constraints for conservation action within the overall landscape; (b) identification of effective ecological networks; (c) identification of measures to secure the integrity of ecosystems and viable populations of species; (d) development of rapid assessment systems for landscape scale ecosystem quality, including the identification of high conservation value ecosystems; (e) setting out a stakeholder negotiation framework for land and resource use decisions and for balancing the trade-offs inherent in such large-scale planning approaches; and (f) recognition and use of overlapping cultural, social, and governance “landscapes” within biologically defined areas. Designated PAs in the landscape are expected to already have their own specific PA management plans. If not, PA specific management plans will be developed or updated under Component 3. 6. Landscape management prescriptions for areas outside designated PAs are expected to emerge from the planning and may include guidelines for smart green infrastructure. These will be used to influence national spatial planning agencies and other stakeholders in the planning of large infrastructure, settlements, industrial zones, and agriculture activities that need to be compatible with the surrounding ecosystems. Landscape management plans will highlight habitat needs of flagship species and related biodiversity considerations, and connectivity of forests for consideration in the GoSL’s national and sectoral plans. PAs and critical wildlife corridors will be gazetted as “no development zones” because this measure will be the least costly way of ensuring compatibility between development and conservation. The planning exercise will also advocate a mitigation hierarchy that includes ecosystem conservation zones, stakeholder engagement, benefit sharing mechanisms developed for sustainable natural resources use, conservation services by the communities, environmental management systems, and biodiversity offsets. 7. The Component will also support stakeholder workshops to identify challenges, opportunity and needs for applying the strategic landscape planning and management. It will also support activities to assess the economic value and opportunity cost of environmental service of different ecosystems, particularly outside the PA network as input into the GoSL decision making on development interventions. It will further support the implementation of key elements identified in the strategic landscape plans to enhance conservation and management activities outside the PA network. Once the plans are in place and disclosed to public, the PMU will call for proposals. The FD and DWC will take the lead - individually or jointly - in submitting funding proposals to the PMU on behalf of the MoSDW for key interventions. On joint proposals, one agency will be the lead agency for ease of fund management and reporting. Proposals will proactively seek involvement of various stakeholders to enhance local ownership and sustainability in the landscape, including local communities, the GoSL institutions (planning agencies, local authorities, divisional secretariats, national or provincial government agencies), NGOs, universities and research institutions, private sector and community groups. Interventions can also be proposed by other stakeholders. However, proposal submission will be through the DWC or FD. Funds for implementing activities in the landscape management plans will be spent 26 by the FD and DWC. The MoSDW will convene the TRC for review and recommendation to be endorsed by the PSC. Component 2: Sustainable Use of Natural Resources and Human-Elephant Co-existence (US$17.0 million) 8. Component 2 will support communities living in adjacent areas of PAs and other sensitive ecosystems to plan natural resource use and develop biodiversity compatible, productive and climate resilient livelihood activities including activities to reduce deforestation and forest degradation. This component will also scale up successful pilot models to address human-elephant conflict, which impacts the lives and livelihoods of communities living in the elephant ranges. The component include two-subcomponents. Sub-component 2(a). Sustainable use of natural resources for livelihood enhancement (US$6.0 million) 9. This sub-component will finance the development of biodiversity-compatible and climate-smart rural agriculture systems or new livelihood options, such as community-based ecotourism that promote sustainable use of natural resources for communities living adjacent to PAs or other sensitive areas. The identified livelihood options will be based on community demand and competitiveness to ensure ownership and sustainability respectively. The activities will be articulated in participatory Community Action Plans (CAPs). The detailed implementation procedures for this sub-component are included in the POM. 10. CAPs will be developed to ensure the activities identified are based on the demand and criteria of economic viability, climate resilience, and biodiversity protection. CAPs will aim to: (a) reduce deforestation and forest degradation by lowering the dependency on extractive forest resources through alternative agricultural and non-agricultural income generating opportunities; (b) enhance the productivity and environmental sustainability of agricultural lands; (c) increase business development and management capacity of communities; (d) improve soil and water conservation in agricultural lands and home gardens; (e) increase the quality and quantity of timber produced from designated woodlots and home gardens; and (f) create conservation and resource management awareness among communities. Typical activities in the CAP will include: (a) activities to improve social infrastructure, such as the rehabilitation of local water tanks for irrigation and domestic purposes; (b) the establishment of woodlots; (c) improving the productivity of home gardens; (d) agricultural and non-agricultural income-generation activities that are based on biodiversity-friendly and climate smart production and management practices, such as non-timber forest products (honey, spices, essential oils), soil conservation measures, climate resilient varieties of plants, etc.; (e) development of agro-forestry; and (f) promotion of community-based ecotourism. The sub-component will also support a community forestry program for forest-dependent communities. This program has been implemented successfully over 10 years by the FD. It is aimed at reducing deforestation and forest degradation and build on the principles of developing partnerships with local communities; introducing community management of forest resources; and benefit sharing with communities. 27 11. Funding of CAPs will entail a three-stage process: (a) identification and approval of sites; (b) community mobilization, capacity building and CAP preparation; and (c) proposal development for priority community actions and review by TRC to ensure adherence to the sub- component criteria and technical soundness. The PMU will convene the TRC. In areas where CAPs already exist and are ready for implementation or where implementation of some aspects of the plan are proceeding, the proposals could be submitted directly to the TRC for funding recommendation for implementation. 12. The sub-component will also support capacity building of communities and technical support on CAPs. Such support will be provided to community-based organizations (CBOs) with support from external technical assistance procured by the project and focused on improving production systems, mainstreaming biodiversity into production systems, business development and management skills, marketing strategies, and stewardship and management of land and natural resources, including local resource assessments and awareness programs. In order to foster ownership, the participating community will be expected to contribute to activities that will be financed by the project through in-kind and/or cash contributions, which will be reflected clearly in the proposals and subsequent monitoring reports. The project will not finance interventions that are detrimental to the environment and natural resources and those that are not marketable. 13. The sub-component will support the formation of CBOs in villages where such groups do not exist. CBOs are envisaged to become advocates for conservation. Membership in CBOs will be based on the family unit; and both men and women will participate and benefit from the program. Past efforts indicate that a substantial proportion of the group leaders are women and they play a leading role in the management of the affairs of the groups, thereby strengthening their status within the community. Facilitating female participation in the self-help groups and CBOs is important for increasing women’s roles as producers, community members and advocates of conservation. Sub-component 2(b). Human-elephant co-existence for livelihood protection (US$11 million) 14. Elephant habitats are declining and the frequency and severity of the HEC is increasing, calling for alternative approaches to the HEC management. Studies undertaken in Sri Lanka have shown that translocation and confinement are not a viable management strategy and jeopardize the survival of Sri Lanka’s elephants, both within and outside PAs and with no l ong term benefit for reducing the HEC. This is largely because restricting elephants to the DWC PAs reduce their current habitat to about 30 percent of what they use at present. Most national parks are already at or even beyond carrying capacity and hold the maximum number of elephants they can support. Additionally, national parks are generally primary or mature forests providing only sub-optimal habitats for edge species, such as elephants. Over two thirds of elephants in Sri Lanka have home ranges that go beyond areas controlled by the DWC. 15. The translocation of individual crop raiding and other problem elephants have shown that the translocated elephants either try to return to their home range or indulge in problem activities in new locations close to release areas. Often translocated elephants create greater problems to communities after their release in new sites, resulting in translocation of the problem as well. 28 Research has shown that elephant drives that are conducted mainly in response to political and social pressures have failed to eliminate crop raiding elephants from the drive areas. While herds tend to be driven, the crop raiding males often remain behind. Communities have confirmed that the remaining males become more aggressive and develop into a bigger threat to people proceeding such drives. Construction of electric fences along the administrative boundaries of the DWC PAs has failed to yield the expected outcome of the HEC mitigation since the DWC PAs are often surrounded by forest reserves. This results in fence breaking by elephants. 16. The availability of recent telemetry data on elephant movements provides the GoSL with the opportunity to pioneer new science and observation-based adaptive management approaches which can be replicated across the elephant ranges in Sri Lanka and if successful, in the other Asian elephant range states. Successful pilot projects of HECOEX have been implemented by NGOs, which are ready to be adopted in the government’s program. The concept used in these pilot projects is to provide assistance to communities to build permanent protective fences around villages (village fences) and seasonal fences around their paddy lands (paddy-field fences). Communities have taken the leadership in implementing these models with part contribution of initial costs and full responsibility for construction and maintenance of the fences. The successful HECOEX pilot projects of innovative approaches over a representative area in the South-Eastern and North-Western regions have been completed based on research, observational data, and field trials1. These experiences have contributed to the preparation of Sri Lanka’s National Policy on the Conservation and Management of Wild Elephants ratified by Cabinet in 2006 and the National Human Elephant Conflict Mitigation Plan prepared by DWC in 2014. 17. Scaling up and piloting HECOEX models. Under this sub-component, the project will scale up successful pilots of HECOEX models. Support will be provided to explore opportunities for reducing HEC by managing elephant populations along ecological habitat boundaries rather than administrative boundaries of land. The sub-component will support the principles of the National Human Elephant Conflict Mitigation Plan of 2014 and fund key activities of the existing landscape conservation strategy that aims at allowing elephants to continue ranging outside the DWC PAs while protecting villages and paddy cultivation by fences. The agricultural fencing interventions include a seasonal electric fence erected on the perimeter of the consolidated land by the farmer organizations at the start of the cultivation season. Upon harvesting the crop, farmers will remove the fence, allowing elephants to feed on the crop residue. 18. The sub-component will also support the continuation of shifting cultivation in areas outside PAs on a pilot basis as fallow-fallen areas in shifting cultivation areas are considered optimal elephant habitats. It will also explore and implement benefits to farmers for participating in elephant conservation. 1 Successful pilot projects have been implemented in two Grama Niladari divisions the Center for Conservation and Research (CCR) in partnership with the recipient communities consisting of 15 villages in the North-Western Province and a few villages of the South-East and East, with communities experiencing minimal crop and property damage. Protective fencing on the ecological boundary surrounding villages, constructed and managed by the village communities have proven successful in the pilots implemented by CCR. 29 19. Sites for implementing the HECOEX models will be identified during the initial stages of project implementation. Site identification will be led by the MoSDW together with the DWC, FD, the Divisional Secretariats, and other government agencies. As the HECOEX models involve extensive community participation, site selection has to be through a consultative process. Detailed proposals for the proposed sites are expected to be prepared during the first year of project implementation, including supportive assessments such as SIAs and EAs. The TRC will be responsible for reviewing the proposals and recommending them for approval to the PSC. The details of the implementation procedures are provided in the POM. 20. The people of Sri Lanka have had a benevolent attitude towards elephants throughout history, due to their religious and cultural traditions. Attitudinal surveys conducted among HEC affected populations in southern Sri Lanka confirm the benevolent attitude towards elephants, with the community requesting that measures be taken to reduce (not eliminate) elephant destruction rather than remove elephants from their areas. Such benevolence by the HEC- affected communities provides a sound foundation for up-scaling and developing HECOEX models. HECOEX models will be pioneered in MERs where elephant depredation of human settlements and paddy cultivation will be prevented by electric fencing, while elephants will be allowed to range freely in other forms of compatible land use. The sub-component will also provide incentives for regulating and managing the seasonal agricultural practices in MERs to minimize conflict and optimize habitat quality. 21. Project funds will not be used to fund translocations and elephant drives or the capture and domestication of problem elephants. 22. Identification of economic incentives for affected communities. To ensure that HECOEX models are effective tools to manage the HEC, there is a need to find mechanisms that turn wild elephants from economic liabilities to economic assets for the affected communities. This sub-component will assess the feasibility and effectiveness of a series of economic incentives, such as: (a) community benefits from activities that contributes to HECOEX; (b) payments for environmental services; (c) insurance schemes and compensation mechanisms to mitigate the impact of elephant depredation; and (d) opportunities for community-managed nature-based tourism such as elephant viewing, in order to demonstrate that coexisting with elephants has economic benefits to the community. A study will be carried out on viable economic incentives and its implementation mechanisms. Experiences in other countries of sustainable funding mechanisms from conservation revenue will be explored during implementation and adopted to suit the situation in Sri Lanka. 23. Update the national master plan for HEC mitigation and development of HECOEX models for other areas. This sub-component will support the updating of the National Master Plan for Mitigation of the Human Elephant Conflict and will finance the costs associated in procuring technical experts and consultations to update the national master plan. This activity will be led by the MoSDW. 24. It will also support the development of HECOEX models for other areas in Sri Lanka. Research on HECOEX models is currently only available for South East and North West regions while data on elephant ranging patterns the other areas of the dry zone are limited. The sub- 30 component would support activities to generate new information on elephant behavior, ranging patterns, ecology, demography, temporal and spatial use of the mosaic of protected and unprotected habitats and the response to management actions, to assist the DWC and the scientific community to gain a better understanding of human-elephant interactions as basis for developing the approaches for geographic locations where HEC exists but has not yet been covered by pilots. For example, data on the extent of the HEC in the Northern Province are non-existent. The data collected prior to the civil conflict indicate the presence of large elephant populations in the forests of the Northern Province. While elephants are known to have suffered some casualties from the armed conflict, habitat changes caused by the conflict as well as abandonment of villages and agricultural areas that have now been taken over by shrub jungle are likely to have increased elephant populations in some areas. With the end of the armed conflict and re-settlement of the internally displaced persons in their villages, there is evidence of escalating HEC in the region. With the resettlement and opening of agricultural land, the HEC can become a serious issue. 25. The project will issue call for proposals from research organizations, conservation organizations, academia and individual researchers to undertake studies aimed at gathering relevant information. The proposals will be reviewed by the TRC and approved by the MoSDW. These studies will be conducted in collaboration with the DWC and/or FD and funds for external selected groups or individuals will be provided through non-consulting services. Funds under this sub-component will be also be set aside for the collection of data on the elephant distribution, ranging patterns, habitat and land use as well as the development and implementation of a pilot HECOEX in the Northern Province if necessary. Component 3. Protected Area Management and Institutional Capacity (US$24.2 million) 26. Sri Lanka’s PA network is primarily managed by the DWC and FD.2 Component 3 will support demand-driven interventions in PAs in compliance with the FFPO and FCO that govern the management of various PA categories; strengthening the institutional capacity and investment capability for conservation and management; and providing assistance to develop the long-term financial sustainability for managing the PAs by improving quality of nature-based tourism in PAs. Component 3 includes three sub-components. Sub-component 3(a). Protected area conservation and management (US$11.6 million) 27. The Government has identified the PA network as priority for investment in conservation and protection, as outlined in Punarudaya. The DWC and FD are eligible for receiving funding for activities within their respective PAs. To ensure collaboration and complementarity in the management of adjacent PAs, collaboration between the DWC and FD will be encouraged. Even in instances where individual proposals are submitted by respective PA managers of the DWC and FD for interventions in adjacent PAs belonging to the same ecosystem, activities funded under the project must be complementary. Investment activities identified for funding under this sub-component must be in compliance with the FFPO and the FCO. Activities must also be 2 Protected Areas are defined for the purpose of the project as land identified and designated for conservation and protection belonging to the Department of Wildlife Conservation and Forest Department. 31 compatible with the existing PA management plans. Where management plans do not exist yet, the project will support the preparation of management plans before identifying priority activities to be supported. The identification of priority activities within PAs will be led by PA managers because of their local knowledge and experience. 28. Criteria for selection of priority PAs to be supported under the sub-component have been agreed, as follows: PAs must be: (a) areas of high biodiversity significance; (b) threatened ecosystems; (c) locations with observed high presence of endemic species as well as flagship species; (d) locations with potential for non-consumptive ecosystem services; (e) PAs at risk of surrounding development pressures; (f) with high nature based tourism potential and requiring intensive management; and (g) PAs with priorities identified in the Biodiversity Conservation Action Plan, the PA Gap Analysis and other environmental plans for addressing issues faced by PAs. The DWC and FD will be required to prepare proposals for each PA that justify the above criteria, as well as justify the proposed solutions particularly for those activities that changes the existing habitat status, activities for species recovery and rehabilitation. 29. Typical activities to be funded include: (a) rehabilitation and development of water resources within PAs for wildlife; (b) habitat management including control of invasive species, habitat creation and habitat enrichment; (c) rehabilitation of the road network within PAs for reducing tourism pressures and patrolling; (d) improvements to park infrastructure for better management of forest and wildlife resources; (e) species monitoring and recovery programs; (f) wildlife rehabilitation/transit sites and related activities; (g) protection of inviolate areas for species conservation; (h) implementation of real time field based monitoring systems; (i) strengthening enforcement through the introduction of SMART patrolling; and (j) improving mobility of PA staff for better management and enforcement. Infrastructure with significant adverse environmental consequences will not be supported. Any activity supported within PA systems will be required to undertake an environmental screening, followed by an environmental assessment and/or preparation of EMPs to mitigate any adverse impacts as required by the EAMF for the project. 30. This sub-component also aims to reward innovation, performance and accountability in PA conservation and management. A review of performance of this component will be carried out prior to mid-term of the project, and depending on the utilization of the resources, funds may be reallocated to the better performing agency and PAs. This is expected to improve efficiency and promote more cost-effective and relevant interventions.3 In view of the lessons from experience elsewhere, funding will be based strictly on verifiable and quantitative performance targets to assure transparency and PA management effectiveness. Conservation and management activities of terrestrial, marine and wetland PAs in the country are eligible for funding under this sub-component. Funds will be disbursed only to the DWC and FD under this sub-component. Sub-component 3(b). Nature-based tourism in PAs (US$6 million) 3 Such incentive-based approaches to conservation are being more widely used across the world (see, e.g., A. Arend odo “Green Auctions”, Ecological Economics (forthcoming), E Bulte and R Damania “Modeling the Economics of Interdependent Species”, Natural Resource Modeling, 2002, 16 pp 21-33; T. Cason and R Gangadharan, “A Laboratory Based Test of Conservation Auctions” Journal of Environmental Economics and Management, 2004, 46, pp 446-57. 32 31. Sri Lanka is well placed to boost revenues from nature-based tourism using its renowned natural beauty and biodiversity. The scope for diversifying into alternative tourist products that cater to travelers with interest in the natural environment is significant. The proximity of national parks to cultural attractions and beaches presents opportunities for tapping a more lucrative segment of the tourist market attracted by the combination of “nature, culture and beaches.” Unlike its regional competitors, Sri Lanka has a uniquely high density of natural and cultural assets, including the renowned “cultural triangle” and a rich array of celebrated species such as elephants, leopards and sloth bears. Sri Lanka is ranked among the best places in the world for leopard watching, the best location for viewing large herds of Asian elephants, and a destination for whale watchers. Moreover, nature-based tourism could significantly contribute to conservation and management of PAs by providing sustainable revenues, environmental education etc. Observability of wildlife in Sri Lankan PAs is considered better than most countries outside Africa. 32. Sri Lanka is however unable to reach its potential in nature based tourism due to inadequate tourism facilities in PAs and poor visitor experiences. While PAs have attracted a sizeable number of domestic visitors, international tourist visitation has been only around 30 percent, which is low as compared to other countries in the region. This is largely due to the limited facilities and services for visitors to PAs and the poor quality of interpretation services. According to a recent World Bank contingent valuation survey, visitors rank wildlife viewing highly but are dissatisfied with every other aspect of the tourism experience (facilities, interpretation, guides, crowding, etc.).4 Without service improvements, there is little scope to extract further fees from visitors. With enhanced services, the willingness to pay rises dramatically (by about 30 percent on average with basic improvements). 33. This sub-component aims at enhancing the quality of nature-based tourism opportunities in priority PAs under the jurisdiction of the DWC and FD, including marine PAs. The development of nature-based tourism, if appropriately managed, provides opportunities for the local populations to benefit from ecosystems conservation, thereby promoting a culture of environmental protection and stewardship. By providing first-hand knowledge, communities can serve as tourism operators, guides, interpreters, retailers or service providers. Skills enhancement is an imperative element of priority PA development plans to bolster local capacity in nature- based tourism. 34. The sub-component will fund the investments needed for nature-based tourism and visitor services for PAs that have been identified as potential sites based on carrying out needs assessments.5 The investments will be based on a strategic view of the range of nature-based tourism opportunities available and the mechanisms for developing them in an optimal way, without exceeding the carrying capacity of PAs.6 Some PAs are experiencing over-visitation already and this is detrimental to the ecosystem. In PAs such as Yala National Park, Minneriya 4 Nature-Based Tourism and the Human Elephant Conflict in Sri Lanka, World Bank, 2010. 5 Areas for assistance may include: (i) identifying nature-based tourism needs within the PA network; (ii) prioritizing, enhancing and developing nature-based tourism opportunities of current and potential new attractions; (iii) piloting benefit sharing mechanisms with communities as identified in the 2010 World Bank policy note; and (iv) training and capacity building of tour guides and other relevant staff. 6 Ecotourism and the Department of Wildlife Conservation in Sri Lanka, Phil Dearden, Protected Area Management and Wildlife Conservation Project, Asian Development Bank, TA No. 3273-SRI, April 2000. 33 National Park, Horton Plains National Park, Uda Walawe National Park and Sinharaja World Heritage Site, where visitation may be near to or exceeding the carrying capacity, the sub- component will support studies to establish the optimum number of visitors based on carrying capacity limits or alternative means to manage the visitation. In the cases where over-visitation is identified and considered detrimental to the long term sustainability of fauna and flora in the PA, the project will assist the DWC and FD in implementing programs for ensuring visitation within the carrying capacity of the PAs. 35. The sub-component will not support major infrastructure that will have significant adverse environmental consequences within PAs. Activities to be supported in PA will require an environmental screening, followed by EAs and the preparation of EMPs to mitigate any adverse impacts, as required by the EAMF for the project. 36. The sub-component will also support the development of nature-based tourism strategies and plans for the DWC and FD, including marketing strategies and plans. The DWC and FD will closely collaborate with the Sri Lanka Tourism Development Authority to ensure the proposed strategies and plans are incorporated into the overall country tourism strategies. Specific activities to be supported are: (a) preparation of plans for enhancing nature-based tourism in selected PAs; (b) development and renovation of visitor services infrastructure such as construction and renovation of Visitor Centers, comfort facilities; eco-friendly accommodation and camp sites, and infrastructure for new visitor experiences; (c) the construction of nature trails, wayside interpretation points, observation towers, wildlife hides, and canopy walks; (d) development of comprehensive accreditation systems for nature-based tourism services; (e) the development of innovative nature-tourism experience, such as nature walks, night safaris, non- motorized boats for wildlife viewing, kayaking, etc.; and (f) improvement of interpretation services and language skills as well as an accreditation program for both game guards and volunteer guides. The project will also support training and accreditation for drivers along with a program of monitoring compliance and imposing penalties for non-compliance with park rules. Sub-component 3.3: Institutional capacity and investment capability of DWC and FD (US$6.6 million) 37. This sub-component will support activities to strengthen institutional capacity of the DWC and FD to implement and institutionalize already adopted reform measures. It will assist the DWC and FD to consolidate the gains from the reform process and support any new changes that may be necessary. It will finance capacity and skills improvements to enhance adaptive and effective management of PAs. This will include internal and external training courses, study tours and basic equipment, and short-term, task-oriented international and domestic technical assistance. It will also support the strengthening of capacity at the National Wildlife Research and Training Center and the Sri Lanka Forestry Institute and their affiliated training centers. 38. The long-term sustainability of PA management, biodiversity conservation and environmental management in Sri Lanka depends on the availability of specialized human resources in wildlife, forestry and environmental management. Some field level skills are taught at the National Wildlife Research and Training Center and Sri Lanka Forestry Institute, managed by the DWC and FD, respectively. Upgrading of the technical capacity of the resource persons 34 and the quality of the training programs, including curriculum revisions, will be addressed by the project. Basic improvements to available infrastructure facilities at the National Wildlife Research and Training Center and significant improvements to the Sri Lanka Forestry Institute and its affiliated facilities will also be supported. The sub-component will also assist the DWC and FD in strengthening their training capabilities and in mainstreaming learning through the implementation of training evaluation procedures. Opportunities for twinning arrangements with international training institutions or well-managed PAs will be explored to get exposure to wildlife conservation and forest resources management. The potential for the National Wildlife Research and Training Center to become a regional research and training institution in collaboration with a regional or international wildlife research and training institution—such as the Wildlife Institute of India or the Smithsonian Conservation Biology Institute—and national universities will be explored under this sub-component. Similarly, Sri Lanka Forestry Institute is planning to collaborate with Forestry Institute in India and other research and development facilities in other parts of the world. 39. The sub-component will also support capacity building for the FD and DWC in community approaches to reducing forest deforestation/ degradation and human-wildlife conflicts. It will assist the FD in further developing and implementing community participation and the DWC to develop methodologies for community engagement in conservation, adopting the FD model. It will also fund monitoring and evaluation of community-related activities. 40. The sub-component will also finance the development of the Marine Unit and setting up of a Forensic Laboratory in the DWC. It will support the development of long-term ecosystem monitoring mechanisms in the DWC and FD. Such monitoring information is needed for the timely identification of threats to the resources, understanding the impacts of threats to the resources and ecosystems, including climate change impacts, and responding with adequate conservation actions. The sub-component will provide technical assistance to develop such mechanisms or update the existing mechanisms, including technology for data and information collection, synthesis and dissemination. The monitoring mechanism will closely collaborate with other databases and mechanisms such as national International Union for Conservation of Nature Red Listing process, mechanisms developed to monitor deforestation and forest degradation and monitoring of the achievement of sustainable development goals. The FD and DWC will be required to submit an annual program of institutional capacity building and training based on the principles outlined above for review by the World Bank prior to the utilization of funds. This sub-component will also monitor the achievement of project results and setting up of the project website and maintenance. Component 4: Project Management (US$1.0 million) 41. Component 4 will finance the PMU and implementing agencies in project management, project monitoring and evaluation, through the provision of incremental operating funds, consulting services, transportation, equipment and training of administrators covering a range of topics, such as administration, planning, budgeting, fiduciary activities, safeguards and monitoring and reporting on project implementation. 35 36 Annex 3: Implementation Arrangements SRI LANKA: Project Institutional and Implementation Arrangements 1. Overall arrangements. The Ministry of Mahaweli Development and Environment (MOMDE) is the lead ministry overseeing overall project implementation. The MoMDE is the national lead agency in environmental and natural resources management, as mandated by the National Environmental Act and it has experience in managing World Bank financed projects. Project implementation will be under the responsibility of the Forest Department (FD) of the MoMDE and the Department of Wildlife Conservation (DWC) of the Ministry of Sustainable Development and Wildlife (MoSDW). Project implementation will be through FD and DWC and their sub-national level offices. The Sustainable Development Secretariat of the MoSDW, in collaboration with relevant government planning agencies, will lead the strategic landscape planning process. The MoSDW will also take the lead in implementation of the HECOEX activities. Implementation of community-led activities will be through selected and registered CBOs, using community contracting. They will supervised and monitored by the FD and DWC to ensure sustainability and in partnerships with local authorities, non-governmental agencies and/or private sector. The following specific project implementation arrangements have been set up. 2. Project Steering Committee (PSC). Overall implementation progress and performance will be reviewed and policy level guidance will be provided by the PSC, jointly chaired by the Secretaries of the MoMDE and MoSDW. The PSC will oversee and provide guidance and direction to ensure and enhance the performance of project activities, safeguards, procurement and financial management and monitoring and evaluation. The PSC will include: Project Director of the PMU; Additional Secretary – Natural Resources Management of the MoMDE; Additional Secretary – Development of the MoSDW, Conservator General of Forests; Director General of Wildlife Conservation, Conservator of Forests – Planning (project focal point of FD); Deputy Director – Planning (project focal point of DWC); Director General, Sustainable Development Secretariat; Director General, National Planning Department; Director General, External Resources Department; Director, MoMDE (project focal point of the MoMDE); Director, Biodiversity Secretariat, MoMDE; Director General Central Environmental Authority; Director General, Department of Agriculture; Director General, Sri Lanka Tourism Development Authority; Head, Department of Zoology, University of Colombo; Head, Department of Forestry and Environment, University of Sri Jayawardenapura; and two environmental civil society organizations. Relevant Provincial Council Secretaries and District/Divisional Secretaries will be invited depending on the need to obtain their views especially on Components 1 and 2. The PSC will meet quarterly and the PMU will provide secretariat support. 3. Project Management Unit (PMU). The PMU will be responsible for ensuring effective inter-ministerial coordination between the two lead implementing agencies, the FD and DWC. The PMU’s will also ensure operational compliance with project regulations and World Bank polices, as defined in the Financing Agreement, Project Appraisal Document, POM, and applicable government policies. The PMU will be led by a Project Director and will include a team of specialized staff responsible for project management, financial management, 37 procurement, environmental safeguards, social safeguards, monitoring and evaluation, civil works design review and contract management, as well as support staff such a secretary, fiduciary support staff, office assistant and drivers. The PMU will also recruit specialized consultants necessary for specific technical assistance for overall implementation of activities and M&E of project results. The PMU will liaise closely and also ensure overall coordination of all project entities to ensure necessary data and information are shared and collated for reporting to PSC and the World Bank. The PMU established for Dam Safety and Water Resources Planning Project financed by the Bank will provide interim PMU functions for the project until a dedicated PMU is set up by June 30, 2016. 4. Technical Review Committee (TRC). The TRC will be responsible for assessing the technical rigor of activities identified through the planning processes and prioritized for implementation under Components 1 and 2. The TRC will include experts with knowledge on wildlife and forestry research and development, project management, human-elephant conflict and co-existence management, spatial planning, community business development, and social development including citizen engagement. Depending on the area of review it will also include representatives of the Department of National Planning, UNDP GEF Small Grants Program, UN REDD+ Program, and the Community Forestry Program. The TRC will include a minimum of seven committee members. The TRC for matters concerning Component 1 and Sub-component 2(b) will be chaired by the Secretary, MoSDW. The TRC for Sub-component 2(a) will be chaired by an independent expert appointed by the TRC members within the TRC. Selection of TRC members for a review will be conducted in ways that prevent any conflict of interest vis-à- vis project proponents. If a particular proposal presents a conflict of interest, the respective member will have to recuse oneself from the evaluation and approval process for that proposal. Details of TRC operational modalities are provided in the POM. 5. Citizen engagement. The project has identified a mechanism to involve communities and their representatives in making decisions and for ensuring greater positive impact. Proactive citizen engagement is expected to yield: (a) wide acceptance of the investments for solutions; (b) increased ability to identify more effective solutions drawing on local knowledge that are practical and effective; (c) improved community knowledge and skills in identifying issues and solving them; (d) empowerment and integration of people from different backgrounds; (e) networks of community members who will ensure project goals are met; (f) opportunity to deal with problems or discuss concerns in time; and (g) increased trust between the communities and government institutions in managing environment and natural resources. For the participatory planning processes under Components 1 and 2, the PMU will design a citizen engagement strategy with the objective to give voice and opportunity to various stakeholders in the planning process. The citizen engagement strategy will also include implementation of citizen’s monitoring committees that review and follow up on quality and completion of the community interventions. The citizen engagement strategy will be implemented parallel with the implementation of plans under the Component 1 and 2. Financial Management, Disbursements and Procurement Financial Management 38 6. FM Capacity Assessment. The MoMDE has exposure to several donor financed operations implemented under the ministry and is familiar with the procedures and processes of donor financed operations including the World Bank. The FD has experience in the implementation of two foreign donor funded projects with Government of Australia and UNDP, which are currently under implementation. The DWC has last implemented an Asian Development Bank-funded project in 2009. Based on the findings of the FM capacity assessments carried out at the head office level of the FD and DWC and a sample of regional and divisional offices, FM arrangements and risk mitigation measures have been designed, including the following: the PMU will be equipped with dedicated, qualified full-time FM staff, drawing on experienced government staff from other ministries and departments who have prior experience in managing donor financed operations or through recruitment of external FM specialist. FM activities and the majority of payments under the project will be carried out by the PMU. Some FM responsibilities, including payments and reporting, will be handled by the FD and DWC in accordance with their specific responsibilities or will be decentralized to Regional/Assistant Director Office levels and Divisional Office levels respectively to be commensurate with the geographically dispersed implementation arrangements. The share of payments to be handled by the FD and DWC or at sub-national levels will however be small. Existing FM staff at the FD and DWC is deemed adequate to handle such FM aspects. The FM arrangements and responsibilities are detailed in the POM. 7. FM staffing. The dedicated Financial Management Specialist hired for the PMU will be the overall key FM contact point of the project. Respective Finance Heads of the FD and DWC will be the key contact points for FM for the components/sub-components implemented by them. The FD and DWC as well as the PMU under the MoMDE will implement their respective FM activities with assigned finance staff. Once the PMU is established, a Financial Management Specialist will be recruited to be involved full time in FM activities of the project. The PMU will be responsible for the preparation of the Interim Unaudited Financial Reports (IUFRs), with the inputs of both the FD and DWC. The PMU will be established by June 30, 2016. In the interim, the FM capacity will be met by existing FM staff of the the Dam Safety and Water Resources Planning Project financed by IDA under the MoMDE. 8. Budgeting. The project will be included in the Government’s budget with adequate budgetary provisions to the MoMDE. The PMU will have dedicated budget line, required for IDA financing and counterpart financing, for project implementation. 9. Accounting policies and procedures. Accounts will be maintained on a cash basis and will comply with the government’s Financial Reports and relevant circulars. Project-specific accounting and reporting procedures are described in the FM Section of the POM. It will provide clear direction for all FM related activities of the PMU and other spending units, such as the FD and DWC. The FM sections in the POM complement the existing FRs and circulars and elaborate on the administrative and other procedures. 10. Information system. The project will use a customized computer accounting system. The system will have the flexibility to accommodate specific project requirements, such as accounting for project expenditure on a component and subcomponent basis. The project will have the computer system in place and functional within one year into project implementation. 39 11. Safeguarding project fixed assets. The PMU will set up a system of recording, managing and monitoring of project fixed assets. The PMU will maintain an assets register with details and information on all assets purchased by project funds adequately maintained. The PMU will also carry out physical verification of assets on a periodic basis to ensure that the assets purchased by project finances are safeguarded and traceable. 12. Internal controls. The PMU, FD and DWC will follow the central government’s circulars, which address all aspects of procedures and controls necessary for authorizing, approving, executing, recording, and reporting expenditure. These procedures/controls are considered to be adequate. Any additional internal control procedures relating to the project are specified in the FM Section of the POM. 13. Internal audit. Internal audit of the project will be outsourced to a firm of chartered accountants to address capacity constraints in the internal audit units of the MoMDE, FD and DWC. The project will be subjected to a continuous internal audit. Internal audit reports will be shared with IDA on a quarterly basis along with the responses of the PMU, FD and DWC, as appropriate. 14. Fund Flow Arrangements. A Designated Account, on terms and conditions acceptable to IDA, will be set up at the PMU for the management of IDA funds and maintained in US$ at the Central Bank of Sri Lanka. The MoMDE will have a dedicated budget line to enable the PMU to utilize IDA and government funds. The Designated Account will be opened after establishment of the PMU of the project. The PMU will open a Rupee Account (LKR Account) in a state commercial bank. Funds from the DA will be transferred to the LKR Account on a monthly basis for the day-to-day operations based on the financial statements to be submitted by the PMU to the Treasury through the MoMDE. The PMU will ensure that there will not be excess funds in the LKR Account to minimize foreign exchange losses. In case of large payments, IDA will make direct payments to suppliers. Direct payments to suppliers can be made on the basis of instructions and documentation provided by the PMU copied to the Treasury. 15. FD, DWC and their Divisional Forest Offices or Assistant Directors’ Offices, as relevant, will have separate LKR accounts maintained for project activities. The PMU will transfer funds to their LKR account on “imprest basis”. In instances where finances are required to go down to lower levels, due to GoSL regulations, funds need to go through the head office, regional office and then to district offices of the FD. In the case of the DWC, the funds need to go through the head office, and the Assistant Director’s offices. However, for the Bank finances, it has been agreed with the respective implementing agencies that levels of funds flow will be minimized and fund transfers will not be delayed to ensure timely implementation of activities. Any foreign exchange loss that may arise during project implementation will have to be borne by the GoSL. 16. Some activities are envisaged to be carried out at the field level through community participation. Under component 2(a) such activities will be carried out by involving CBOs. These will be carried out by way of contractual agreements between the PMU and CBO, whereby the CBO would be a service provider and will be paid in the form of a contract, as per terms and conditions laid out in the contractual document. Under sub-components 3(a) and 3(b), 40 some activities will involve communities through labor contributions whereby individual payments to personal bank accounts are envisaged. A FM assessments relating to a sample of field offices (park warden office and range forest office) were carried out. There is a circular that specifies arrangements laid out in the GoSL to handle such nature of payments and necessary controls. To mitigate the risks of handling cash payments to laborers/ communities, the Bank has introduced additional measures that include payments only to beneficiary bank accounts. These additional measures are described in the POM. Bank financed activities will all be paid through checks that will get deposited into beneficiary accounts and cash payments will not be practiced. 17. Only payments incurred at the end user point will be recognized as expenditure for Bank reporting and documentation purposes. Accordingly, all implementing agencies will report back on a regular basis to the PMU on actual expenditure incurred at each agency level and advances released to the implementing units will not be treated as expenditure. 18. Financial Reporting. For replenishment of the DA, the PMU will submit a consolidated Interim Unaudited Financial Report (IUFRs) on a quarterly basis along with the relevant withdrawal applications (WA) to IDA. All supporting documents to prepare the IUFRs will be submitted by both the FD and DWC to the PMU. IUFRs should be submitted within 45 days after the end of each quarter. The PMU will also submit monthly project financial statements to the Treasury and MoMDE. For the replenishment of the respective LKR account, the PMU will submit expenditure statements and relevant documents on a monthly basis to Central Bank through the Treasury. Details are described in the POM. The formats of IUFRs, designed in accordance with the guidelines issued by IDA, has been agreed with the government. 19. The Secretary of the MoMDE will be held accountable overall to IDA for the appropriate and diligent use of project finances. The Project Director of the PMU, in turn, will be answerable to the Secretary of the MoMDE for the use of project funds. 20. External Audit. The audit of the project will be carried out annually by the Auditor General of Sri Lanka. The Auditor General is the supreme audit institution of Sri Lanka and has been accepted by IDA. The audit report on the project’s annual financial statements will be submitted to IDA by the PMU. The audit reports will be due within six months from the end of the financial year, i.e. on June 30 (Table 3.1). 21. Audit Reports. The following audit reports will be monitored in IDA’s Portfolio Risk Management System (PRIMA). Table 3.1 Audit Reports Implementing Audit Report Auditor Date Agency PMU under Project Annual Financial Statements Auditor General June 30 the MoMDE 22. Financial Covenants. The following financial covenants have been identified that are required to be fulfilled by the project: 41 a) Audited annual financial statements to be submitted to IDA no later than six months of the following fiscal year. b) IUFRs to be submitted to IDA no later than 45 days following the end of the reporting quarter. 23. Disbursement Categories. IDA will finance 100 percent of eligible expenditures, including taxes, duties for goods, works, non-consulting services, consulting services, training and workshops, incremental operating costs of the project. The proceeds of the IDA credit will be disbursed against eligible expenditures in the following categories: Table 3.2 Disbursement Categories Amount of Percentage of Category Financing Expenditures to be Allocated Financed (including (in US$ Million) taxes & duties) (1) Goods, works, non-consulting services, consultants’ services, and Training under Parts 44.0 100% 1, 2 and 3 of the project (2) Goods, non-consulting services, consultants’ services, and Incremental Operating Costs and 1.0 100% Training under Part 4 of the project Total 45.0 100% 24. Incremental Operating Costs. This includes the normal expenditures of the project, such as reasonable costs of goods and services required for the day-to-day implementation of the project including maintenance of vehicles and equipment, fuel, office supplies, utilities, consumables, office rental and maintenance, bank charges, advertising expenses, travel of staff (including per diems, accommodation), and salaries of selected contracted support staff, but excluding salaries and salary top ups of officials of the Recipient's civil service. The GoSL will provide budgetary allocation for the counterpart funding under the project to finance salaries of the GoSL staff, as required. 25. FM Implementation Support Plan. The proposed project has a “Substantial” FM risk rating. Consistent with the risk-based approach to supervision, a substantial portion of the supervision activities will consist of desk reviews of internal and external audit reports including verifying the adequacy of the resolution of major audit observations, reviewing quarterly financial reports, fixed assets physical verification reports supplemented by dialogue with the project staff as needed, especially in the initial years. The supervision activities will include a FM supervision mission at least once every six months. As and when required, other FM supervision tools and resources such as transaction reviews, site visits, field visits, and joint reviews with procurement will be used in an effort to periodically monitor the adequacy of FM systems. Procurement 42 26. Procurement for the proposed project will be carried out in accordance with: World Bank’s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" of January 2011, revised July 2014 (Procurement Guidelines); "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" of January 2011, revised July 2014 (Consultant Guidelines); and the provisions stipulated in the Financing Agreement. “Guidelines on Preventing and Combating Fraud and Corruption in projects Financed by IBRD Loans and IDA Credits and Grants” dates October 15, 2006 and updated January 2011, shall also apply to the Project. Unless otherwise agreed with the Bank, the Bank’s Standard Bidding Documents, Requests for Proposals, and Forms of Consultant Contract will be used. 27. In case of conflict between the Bank’s procurement procedures and any national rules and regulations, the Bank’s procurement procedures will take precedence. The general descriptions of various items under different expenditure categories are described below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frames are agreed between the Borrower and the Bank project team and included in the initial Procurement Plan. 28. Retroactive Financing. If requested by the Borrower, the IDA may provide retroactive financing under the IDA Credit. Retroactive financing may only be provided when: (a) the activities financed by retroactive financing are related to the Development Objectives and are included in the project description; (b) the payments are for items procured in accordance with the applicable Bank procurement procedures; (c) the total amount of retroactive financing is SDR 815,000 (US$1.125 million equivalent) or less; and (d) the payments are made by the Borrower prior to the date of the Financing Agreement but on or after January 1, 2016 for eligible expenditures. 29. Procurement of Works. Works procured under this project shall be procured following International Competitive Bidding and National Competitive Bidding and may involve shopping in some cases. Bank standard documents will be used for International Competitive Bidding contracts. Standard Bidding Documents of the Borrower as agreed with the Bank will be used for National Competitive Bidding contracts. Procurement of such works shall be guided by the provisions applicable to those as laid down in the corresponding paragraphs of Procurement Guidelines as well as the processes detailed out in the POM of the project. 30. Procurement of Goods. Goods procured under this project shall be done using Bank’s SBDs for all International Competitive Bidding and National Standard Bidding Documents agreed with (or satisfactory to) the Bank for all National Competitive Bidding and Shopping. Small value procurements (up to US$500 or equivalent) may be carried out following Direct Contracting. 31. The following methods will be applicable for procurement of Goods and Works and Non- Consulting Services, consistent with the relevant sections of the Bank’s Procurement Guidelines:  International Competitive Bidding; 43  National Competitive Bidding;  Shopping (Quotations);  Direct Contracting;  Force Account; and  Community Participation. 32. Requirements under National Competitive Bidding. In order to ensure economy, efficiency, transparency and broad consistency with the provisions of the Procurement Guidelines, goods, works, and non-consultant services procured under the National Competitive Bidding method shall be subject to the following requirements: (i) Only the model bidding documents for National Competitive Bidding agreed with the Bank shall be used for bidding; (ii) Invitations for bids will be advertised in at least one widely circulated national daily newspaper, and bidding documents will be made available at least twenty one (21) days before, and issued up to, the deadline for submission of bids; (iii) Qualification criteria will be stated in the bidding documents, and if a registration process is required, a foreign firm declared as the lowest evaluated responsive bidder shall be given a reasonable time for registering, without let or hindrance; (iv) Bids will be opened in public in one location, immediately after the deadline for the submission of bids, as stipulated in the bidding document (the bidding document will indicate the date, time and place of bid opening); (v) Except in cases of force majeure or exceptional situations beyond the control of the implementing agency, the extension of bid validity will not be allowed; (vi) Bids will not be rejected merely on the basis of a comparison with an official estimate; (vii) Except with the prior concurrence of the Bank, there will be no negotiation of price with bidders, even with the lowest evaluated bidder; (viii) A bidder's bid security will apply only to the specific bid, and a contractor’s performance security will apply only to the specific contract under which they are furnished; and (ix) Bids will not be invited on the basis of percentage premium or discount over the estimated cost, unless agreed with the Bank. 33. Selection of Consultants. Major consultancy services to be procured shall follow the World Bank guidelines for selection of consultants and standard documents of the Bank shall be used. Short lists of consultants for services estimated to cost less than US$300,000 or equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The Bank’s Standard Request for Proposal (April 2015) will be used as a base for all procurement of consultancy services under the project. The following methods will be applicable for selection of consultants, consistent with the relevant sections of the Bank’s Consultant Guidelines:  Quality- and Cost- Based Selection;  Quality-Based Selection;  Least Cost Selection;  Fixed Budget Selection; 44  Selection based on Consultants’ Qualifications: for services estimated to cost less than US$300,000 equivalent per contract, in accordance with the provisions of paragraph 3.7 of the Consultant Guidelines;  Single-Source Selection;  Selection of Individual Consultants as set forth in paragraphs 5.2 and 5.3 of the “Consultant Guidelines” ; and  Sole Source Procedures for the Selection of Individual Consultants. 34. Thresholds for Procurement Methods and Prior Review. Review thresholds and requirements for different methods of procurement of works, goods, non-consulting services and selection of Consultants based on the current procurement risk rating are listed in the table below. 35. These thresholds and review requirements may be modified on the basis of reassessed risk ratings during project implementation in agreement with the Bank. Table 3.3 Thresholds for procurement methods and prior review Expenditure Contract Value Procurement Contracts/Processes Subject Category (Threshold) Method to Prior Review Works ≥US$7,500,000 International All contracts Competitive Bidding