Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5972 Project Name EU Natura 2000 Integration Project Region EUROPE AND CENTRAL ASIA Country Croatia Sector General public administration sector (70%); General agriculture, fishing and forestry sector (15%); Forestry (15%) Lending Instrument Specific Investment Loan Project ID P111205 Borrower(s) REPUBLIC OF CROATIA Implementing Agency Ministry of Culture Nature Protection Directorate Runjaninova 2, 10 000 Zagreb Croatia Tel: 385 1 4866 102 Environment Screening Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared August 31, 2010 Date of Appraisal Completion September 29, 2010 Estimated Date of Board Approval January 18, 2010 Decision Project authorized to proceed to negotiations. I. Country Context Over the last 15 years, Croatia achieved impressive economic and social progress. Prior to the onset of the global crisis, the Croatian economy grew at a healthy 4-5 percent annually, incomes doubled, and economic and social opportunities dramatically improved. Croatia’s per capita income reached about 63 percent of the European Union (EU) average, and EU membership is well within reach. However, Croatia like most countries in the region has not remained immune to the crisis and the impact is being felt across all segments of the economy and society. Croatian economic output contracted by 2.5 percent in Q1 2010, from a 4.5 percent decline in Q4 last year. The decline in Gross Domestic Product (GDP) growth came on the back of weak domestic demand and investment activity falling 13.9 percent year over year (y/y). However net exports remain the strong offsetting factor, contributing around 2.5 percentage points to the growth rate due to export-led growth by 3.6 percent y/y versus imports declining by 4.8 percent y/y. On the supply side, almost all sectors, except agriculture, had a negative contribution to growth. The largest contraction came from construction (18.7 percent y/y), hotels and restaurants and transport, which went down by more than 5 percent. Page 2 The government’s new Economic Recovery Program, announced in April and under implementation, will help safeguard sustainability and growth. The program aims to redefine the role of the state (fiscal policy; public administration and state asset management), provide support to growth and recovery (promotion of the Croatian economy, judicial reform, labor market reform and economic recovery); and increase responsibility to future generations (education and science, environment, social security). Tourism and its related sub-sectors rely heavily on Croatia’s reputation as a country with outstanding cultural and biological diversity, and is an integral component of the recovery program. Tourism revenue currently contributes to over 14.1 percent of GDP (2009), with the major sub-sector of hotels and restaurants contributing 3.9 percent of gross value-added in GDP (2009). The system of protected areas in Croatia supports this level of economic activity and through its conservation, can help ensure that tourism remains an important source of sustainable income in the future. II. Sectoral and Institutional Context European Union Accession Challenge . Following successful completion of the Karst Ecosystem Conservation (KEC) Project in December 2007, the Government of Croatia requested continued support from the World Bank for a follow-up loan to help expand and support Croatia’s preparations for EU integration in the Nature Protection Sector. The KEC project demonstrated a systematic approach to addressing biological data collection gaps, participatory park management planning, and community investments to enhance biodiversity benefits across five parks in Croatia. EU accession requires an expanded ecological network beyond the core National and Nature Parks to be protected and aligned with EU Nature Protection Legislation; the Bird and Habitat Directives. Based on these Directives, EU members must determine which areas are important for conservation of endangered species and habitats. Croatia’s National Ecological Network (NEN), proclaimed in November 2007, covers 47 percent of Croatian Land Territory and 39 percent of the Territorial Sea and serves as the preliminary basis for negotiation of the future Natura 2000 network in Croatia, a requirement for accession. The Natura 2000 network is comprised of Special Protected Areas for wild birds, designated under Birds Directive, and Special Areas of Conservation (SAC) 1 designated under the Habitat Directive. This network of areas extend across public and private lands with varying degrees of legal protection and requires new approaches for public and private collaboration to ensure biological values are maintained. The European Union does not grant transition periods for countries to establish their Natura 2000 network, even though extensive preparation time is required; this network will legally go into effect on the date of Accession. Over the past decade several EU infringement cases have been brought against New Member States that failed to adequately establish their part of the Natura 2000 network, underscoring the importance of early preparation work and continued commitment to effective implementation after accession. The EU has estimated the annual costs 1 Once a SAC is designated, member states must establish measures to maintain “favorable conservation status.” Natura 2000 management plans are used to establish conservation strategies for the habitats and species present, as the Habitat Directive does not dictate what conservation measure must be taken. Page 3 of maintaining the existing 25 country Natura 2000 network at Euro 6.1 billion —each member state is responsible for financing its own component. 2 To help meet these costs, EU members are eligible to draw from a variety of EU grant programs that support co-financing investments to operate and maintain the network. While Croatia would become eligible for these funds after accession, capacity to absorb and program EU grant resources are still low, especially at county and park levels. Further work is required prior to accession to build capacity for its management and prepare for longer-term access to EU grant funds to help support financial sustainability. In the 2007-2013 programming period, EU Member grants for nature protection became more complex with introduction of mainstreaming across other EU instruments: The European Agriculture Fund for Rural Development has 21 articles of relevance to Natura 2000; the European Fisheries Fund has 15 articles of relevance; the European Regional Development Fund has 27 articles of relevance; and the European Social Fund, Cohesion Fund, and Research Framework Programs (FP7) each has three or less articles of relevance (but of equal importance). EU LIFE+ is the only EU grant instrument with a dedicated focus on biodiversity and nature; however its scope was limited by requiring that grant proposals first justify why other grant programs cannot support it. Thus, access to EU grant funds for nature protection is relatively complex and will depend on a strong proactive capacity to identify opportunities. Ongoing Programs and Gaps. Several donor programs (e.g., EU, Norwegian,) are helping Croatia to prepare for accession in the area of nature protection; however, significant additional resources and efforts are urgently required over a relatively short time frame if Croatia is to avoid the mistakes of other countries and maximize access to EU grant funds after accession. Croatia deferred introduction of agri-environment measures for the NATURA 2000 network under its pre-accession funds 3 due to start-up complexity, and has had difficulties initiating agri- environment pilots under current funds in a 3 pilots in or near protected areas. Substantial efforts are still required to prepare stakeholders and to enable future EU grant Natura 2000 payments. Marine areas have been the most significant gap in Croatia’s current ecological network, and several donor funded projects are currently underway to help address this gap, including to better understand the biological resources in existing marine protected areas and to secure other important marine areas for protection. 4 Several ongoing EU grants are focused on early-stage capacity-building efforts for marine Natura 2000 sites, and this loan would complement these efforts and help further strengthening of the institutions in existing protected areas network as well as the county public institutions responsible for ecological network conservation. Legal Framework. Croatia’s National Ecological Network (NEN), proclaimed in November 2007, is the basis for the future Natura 2000 network in Croatia. The NEN includes 19 national and nature parks, approximately 5% of Croatian Land Territory, managed by dedicated park administrations. It also includes an additional 42 % of Land Territory of national and regional conservation importance, including formal protected areas in different categories and non- protected lands with management oversight by County Public Institutions [for nature protection]. The County Public Institutions are still relatively young with most being established since 2007 2 Financing Natura 2000-Guidance Book, DG Environment, June 2007. 3 Croatia started with SAPARD, which has now transitioned to IPARD 4 EU legislation seeks designation of Marine Special Areas of Conservation to protect areas used by marine wildlife from pollution or over-fishing (e.g., feeding/spawning grounds, reefs, lagoons, intertidal areas). Page 4 in response to a widened role for counties to promote and manage all parts of the NEN within their borders. National Parks and Nature Parks continue to report at a higher level to the Ministry of Culture. Management Planning as a Driver for Investment Prioritization. Management Plans (MPs) are required for all National and Nature Parks under Croatia’s Law on Nature Protection, and are required for all Natura 2000 sites under the EU Habitats Directive. A critical input to the management planning process and their action plans is assessment of biological data at each site. The planning process and Management Plans prepared earlier under KEC for five parks provided a model for completing similar plans for the remaining National and Nature Parks by the end of 2010 and for marine protected areas by the end 2011. These plans are also being extended and adapted to other sites within the NEN. Key elements include: extensive stakeholder consultation and participation; a concise statement of the vision and mission for each Protected Area (PA) outlining strategic objectives and guidelines for management; and Action Plans that identify specific management objectives, and detailed activities with resources to achieve them. While each Management Plan is different, reflecting objectives, assets, and circumstances of each PA, they share important elements, including vision statements that emphasize restoring and preserving natural processes and wilderness features, preserving biodiversity and cultural values, providing education and recreation for visitors, and generating economic and other benefits for local populations and the nation. Action Plans address a wide range of objectives from biodiversity research and monitoring, to sustainable use of natural resources, developing visitor infrastructure and educational programs, improved marketing and promotion and enhancing public participation in park management. Every national park, nature park and county public institution also develops an Annual programme for protection, maintenance, conservation, promotion and use of a protected area , where their activities are envisaged. The annual program is submitted to Ministry of Culture or their respective County Assembly for approval and budget allocations. Integrating the Nature Protection System. In addition to the specific objectives of each park or PA, the overall NEN has important objectives that can best be met through a system-wide approach. This includes data collection and analysis for national-level monitoring of the status and trends of biodiversity, providing a diverse and sustainable basis for better integration with other sectors such as water management, forestry, fisheries, agriculture, regional development etc. A more unified system is also needed to help educate national and international visitors about the value and challenges of nature protection. The proposed system in Croatia is considered representative of local ecosystems, except for marine areas, which are still in the process of early identification. Links with Local Population. Most protected areas in Croatia have local populations whose activities can have a significant impact on the PAs, and conversely, the PAs can have a significant impact on the welfare of local people. Therefore, establishing incentives for local people to cooperate and share benefits is important for NATURA 2000 management. EU Accession opens possibilities for several grant programs under the broad umbrella of Rural Development (e.g. Agri-Environment/Natura 2000 payments) which can complement NATURA 2000 specific conservation objectives, and Croatia is still in the early stages of preparing for Page 5 these programs. The proposed loan will help prepare model for the use of these EU grant instruments in the context of the ecological network. Links to Tourism and the National Economy. Nearly one out of every five international and almost one third of domestic tourism visits currently include the National and Nature parks. Croatia’s tourism image is justifiably heavily marketed on its unique combination of scenic beauty, rural landscapes, and historic and cultural monuments. 5 Several parks are internationally known and receive between 500,000 and one million tourists each year, generating special challenges for nature conservation efforts. Other parks are less visited because they lack infrastructure, but are equally interesting and can be made more accessible to tourists with improved services. There is a need to spread tourist visits across parks both geographically and throughout the calendar year while raising the quality of services, investing in conservation, enhancing parks as a vehicle to educate the public, and maintaining them as important sites for rest and recreation. From an agricultural perspective, Croatia has been developing a market niche in higher value-added ecological production and natural products that are compatible with Croatia’s special strengths and can be integrated even further in the nature protection and tourism offers. Croatia has also invested over the last decade in improved internal domestic air and highway transportation links which has cut travel time and improved ease of mobility within Croatia. The “shrinking” of distances provides a timely opportunity for more tourists to better understand the true geographic, ecologic, and cultural diversity Croatia has to offer, and spread economic benefits of tourism more deeply into rural areas. Rationale for Bank Involvement. The World Bank is one of the largest international financiers of biodiversity investments and draws on substantial international experience which no other international financial institution (IFI) in the Europe and Central Asia (ECA) Region has. The client has specifically requested that the Bank continue its support, based on highly successful earlier collaboration in Croatia on Nature Protection. The loan will draw on lessons and experience from the earlier Global Environment Facility financed Karst Ecosystem Conservation project, plus add several distinct features that will expand support directly in line with EU accession goals. The Bank is actively supporting the agriculture sector accession harmonization process, land registration and cadastre reforms, and water sector investments which have linked agendas with the proposed loan. The cross-government perspective the World Bank teams have in supporting the larger Croatia program provides a unique perspective which further strengthens World Bank capacity to provide real time client support in this sector. It has become clear in hindsight that several New Member States could have benefitted more from a larger and longer term financial and technical support program to help with preparation and early stage of integration with the Natura 2000 network. This IBRD loan provides Croatia with timely resources to both complement and attract other finance to the sector at an important bridging period when urgent investments and capacity reforms are needed. The loan also helps fill an important financial gap in light of across the board government-wide budget cuts in response to the global financial crisis at a moment when sector budgets were projected to increase rather than decline. Opportunity costs for failing to absorb EU grants are highest in the initial years of EU membership when this loan will provide support. Finally the loan supports 5 2.2 million tourists (1.8 million foreign) visited Croatia National and Nature Parks in 2009 (95 percent between April and June), or 19% of international and 28% of Croatian tourists. Page 6 economically important investments needed to promote a more sustainable path for future growth and helps build on Croatia’s strengths as an internationally recognized destination for nature based tourism. III. Project Development Objectives The overall development objective of the proposed project is to help support Park and County Public Institutions to implement Natura 2000 objectives in investment programs; strengthen capacity for EU-compliant reporting and monitoring biodiversity; and introduce programs that involve a wider group of stakeholders in Natura 2000 network management. IV. Project Description The project is comprised of three project components which mutually support and reinforce each other: Ecological Network Investments; Ecological Network Data Systems; and Ecological Network Capacity Building. · Ecological Network Investments : Protected area and national ecological site (proposed Natura 2000 site) investments to help demonstrate and strengthen the integration of Natura 2000 objectives, consultant services for nature interpretation design, and engineering services. Priority technical equipment will be provided for park rangers, the State Institute for Nature Protection, and the Ministry of Culture, and fire protection equipment for coastal protected areas. Ecological Network Investments organized in two phases in line with different levels of readiness and nature institution capacities, will be used to actively engage nature institutions in learning to design and implement investments using requirements similar to those demanded by future EU Structural Funds. A key outcome targeted is a more explicit demonstration of how investments, including educational and interpretive materials, can support the goal of maintaining “favorable conservation status” at Natura 2000 sites as defined by the EU Habitats Directives. Beneficiaries in parallel will be supported through consultant services to use newly acquired skills to develop next stage investments for the future Structural Funds pipeline. Forest fire protection equipment responds to a gap analysis revealing vulnerability of certain Nature Parks in the dry Mediterranean coastal region to forest fire risk. · Ecological Network Data Systems: Consulting services to help plan, prioritize, and organize biological inventory and populate data systems to fulfill EU reporting requirements; field work to perform biological inventory of species and habitat mapping services; consultant services to harmonize data systems with the EU INSPIRE Directive requirements, and computer hardware and software upgrades. The State Institute for Nature Protection (SINP) is tasked with the primary responsibility for consolidating nature protection data, organizing biological monitoring and inventory work which responds to EU reporting requirements under the Bird and Habitat Directives. Investments will help SINP strengthen their capacity to better manage, organize, generate Page 7 habitat map, and report from common data collection protocols and standards aligned with the European Environment Agency requirements so that a wide group of researchers and scientists can participate in data collection. As natural resource data is one of the 17 spatial data themes under the EU Inspire Directive, the project will support data system compliance with EU INSPIRE Directive requirements.   · Ecological Network Capacity Building . Consultant services to help promote inter-sectoral cooperation; and pilot programs to i) develop proposals for agri-environment measures for Natura 2000 sites, ii) improve protected areas boundary demarcations, iii) introduce a park volunteer program, and iv) and diversify protected areas finance. It will also support training on access to EU grant programs for nature protection and tools to improve park management; learning through study tours and seminars; a public information campaign; and project management and operating costs. The project will support a variety of needs to help build capacity for better cohesion and integration of the protected areas and ecological network system; to help attract additional resources and improve financial sustainability of investments in protected areas; help improve public awareness, involvement, and education on the need for and purpose of protected areas and ecological network and better integrate the local community in the management of the ecological network by introducing agri-environment incentive programs. It will help introduce volunteers across the nature protection institutions. V. Financing Source: (Euro) Park and CPI Beneficiary Contributions 2.88 International Bank for Reconstruction and Development EU Structural Funds (Parallel) Co-Finance 20 20 Total 42.88 VI. Implementation 1. The project would be led by the Ministry of Culture, which is the central state body for Nature Protection in Croatia. Other key institutions with implementation roles include the State Institute for Nature Protection (responsible, among others, for preparing the proposal of the Natura 2000 network), the staff of Croatia’s 19 protected areas and 20 county level nature protection institutions. Close collaboration on the Natura 2000 system is required with Ministry of Agriculture, Fisheries and Rural Development, State Geodetic Administration, Ministry of Regional Development, Forestry and Water Management and Ministry of Environmental Protection, Physical Planning and Construction. The project would help promote collaboration with other sectors so that joint decisions will benefit nature protection. The project will fund full time dedicated consultant staff to complement the work of existing government staff—namely to supervise project management, ensure regular reporting, fulfill fiduciary requirements for financial management and procurement, and support project M&E. It Page 8 is expected that the currently supported Project Preparation Unit staff positions will be maintained and additional positions such as the M&E/economist position will be added. In addition, existing beneficiary government institutions will assign staff to specific project activities. These arrangements including terms of reference for key staff will be specified in more detail in the project operations manual. The fiduciary functions would be conducted by hired consultants under the existing PPF. Significant strengths of the project financial management arrangements include: (i) availability of staff with prior experience in the implementation of Bank - financed projects (Karst Ecosystem Conservation, the PPF under the project), (ii) PIU has experience in preparing withdrawal applications, IFRs and annual project financial statements for the previous project and (iii) a track record of unqualified audit opinions for the Karst Ecosystem Conservation project financial statements. The financial management risk identified in ORAF is that the current part-time FM arrangements in the Ministry might not be sufficient to provide the implementation support required, and also staff in SINP and park institutions is not familiarized with WB procedures so this could delay processing of payments and disbursements, and cause internal controls deficiencies. It has been determined that already engaged FM person would be hired full-time in MoC and paid through the Loan proceeds. In addition training on the World Bank procedures and guidelines should be provided to MoC, SINP and Park staff, and clear responsibilities related to the project need to be assigned within these structures. Partnership Arrangements . During project preparation the European Commission through its Zagreb Delegation has been a key partner as the project is directly supporting an area of mutual interest. The Government of Croatia will however take over full responsibility for administration of EU funds for nature protection once it becomes a member State, anticipated during implementation of this loan. After accession, the project would focus more on supporting Croatia’s efforts for reporting progress in implementation of the relevant EU Directives and building capacity to program and build a strong pipeline for future EU grants. The Project Coordination Committee will be used as an inter-Ministerial coordination and data sharing mechanism. The project will also support strong working level cooperation with the Ministry of Agriculture, Fisheries and Rural Development given the importance of the National Rural Development instruments to Nature Protection. Partnerships with all coordinated donor programs will be ensured through the implementation team embed within the Ministry of Culture Nature Protection Directorate. VII. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( ( OP // BP 4.01) 4.01) [X] [ ] Natural Habitats (Natural Habitats ( OP // BP 4.04) 4.04) [X] [ ] Pest Management (Pest Management ( OP 4.09 )) [ ] [X] Physical Cultural Resources (Physical Cultural Resources ( OP/BP 4.11 )) [X] [ ] Involuntary Resettlement (Involuntary Resettlement [] [ X] Page 9 ( OP // BP 4.12) 4.12) Indigenous Peoples (Indigenous Peoples ( OP // BP 4.10) 4.10) [ ] [X] Forests (Forests ( OP // BP 4.36) 4.36) [ ] [X] Safety of Dams (Safety of Dams ( OP // BP 4.37) 4.37) [ ] [X] Projects in Disputed Areas (Projects in Disputed Areas ( OP // BP 7.60)*7.60)* [ ] [X] Projects on International Waterways (Projects on International Waterways ( OP // BP 7.50) 7.50) [ ] [X] VIII. Contact points at World Bank and Borrower World Bank Contact: Karin Shepardson Title: Lead Operations Officer, Country Sector Coordinator Tel: 1-202-458-1398 Email: kshepardson@worldbank.org Contact: Vera Dugandzic Title: Operations Officer Tel: +385-1-235-7253 Email: vdugandzic@worldbank.org Borrower — Government of Croatia Contact: Mr. Zoran Šiki Title: State Secretary Tel: 385 1 4866 315 Address: Ministry of Culture Runjaninova 2 Zagreb 10000 Croatia IX. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 10