Document of The World Bank FOROFFICIAL USEONLY ReportNo: 27353-MAG PROJECTAPPRAISAL DOCUMENT ON A PROPOSEDIDA GRANT INTHE AMOUNT OF SDR26.8 MILLION(US$40MILLIONEQUIVALENT) AND A GRANT FROM THE GLOBAL ENVIRONMENTFACILITY TRUST FUND INTHE AMOUNT OF US$9.0MILLION TO THE REPUBLICOF MADAGASCAR FORA THIRD ENVIRONMENT PROGRAMSUPPORT PROJECT APRIL 20,2004 Environmentally and Socially SustainableDevelopment AFTSl - Country Department 8 Africa RegionalOffice This document has a restricteddistributionand may be usedby recipientsonly inthe performance oftheir official duties. Its contents mav not otherwisebe disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective 04/20/2004) Currency Unit = Malagasy Franc FMG 1.00 = US$0.0001468 US$l.OO = FMG6,SlO FISCAL YEAR January 1 -- December 3 1 ABBREVIATIONS AND ACRONYMS ANAE Association Nationale d'Actions Environnementales ANGAP Association Nationalepour la Gestion des Aires Prote'ge'es CAS Country Assistance Strategy CBNRM Community BasedNatural ResourceManagement CDCF Community Development Carbon Fund CEPF Critical Ecosystem Partnership Fund CI Conservation International CIME Inter-Ministerial Committee for Environment CITES Convention on International Trade inEndangered Species of Wild Fauna and Flora COAP Code des Aires Prote'ge'es cos Comite' d'orientation et de Suivi CNE National Council for Environment CRO Regional Orientation Committee DEF Direction Ge'ne'raledes Eaux et For& DGE Direction Ge'ne'ralede I'Environnement EP I,11, & I11 EnvironmentalProgram, phases 1,2 and 3 EU European Union FAGEC Support Fundto Environment Management of Communes FMR Financial Management Reports FPAB Foundation for Protected Areas and Biodiversity FTM National Geographic Institute GEF Global Environment Facility GELOSE Local and Secure Management ofNatural Resources GIS Geographic Information System GoM Government of Madagascar HIPC Highly IndebtedPoor Countries (Initiative) ICR Implementation Completion Report (for projects) IUCN The World Conservation Union Kf-W Kreditanstalt fur Wiederaufbau MDS Multi-Donor Secretariat MECIE National Environmental Impact Legislation Mise en Compatibilite' des Investissements avec 1'Environnement MinEnvEF Ministryofthe Environment, Water and Forests NEAP National Environmental Action Plan (or PAE) NGO Non-Governmental Organisation ONE OfJice National pour I 'Environnement OP Operational Program OSF Forest Observatory PA Protected Area FOROFFICIALUSEONLY PADR Action Plan for Rural Development PAGE Programme d 'Appui h la Gestion de I'Environnement Plan GRAP Plan de Gestiondu Re'seauNational des Aires Prote'ge'esde Madagascar PRSP Poverty Reduction Strategy Paper SAGE Servicesd'Appui h la Gestionde 1'Environnement SCAC Servicede Coopbration et d'Action Culturelle (France) SEA Strategic Environment Assessment SFC Sustainable FinancingCommission SNRM Sustainable Natural Resource Management STAP Scientific and Technical Advisory Panel TFSC Trust Fund SteeringCommittee UNDP UnitedNations Development Program UNDP-TRAC UNDP-Target for Resources Assignment from the Core UNDAF UnitedNations Development Assistance Framework UNOPS UnitedNations Office for Project Services USAID U.S. Agency for International Development WCPA World Commissionon Protected Areas wcs Wildlife Conservation Society WWF World Wide Fund for Nature / World Wildlife Fund (US) WB The World Bank Vice President: Callisto Madavo Country ManagedDirector: Hafez M.H.Ghanem Sector ManagedDirector: Richard Scobey Task Team LeadedTask Manager: Martien Van Nieuwkoop (TTL), - Christophe Crepin (Co-TTL) This document hasa restricteddistributionand may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. MADAGASCAR THIRD ENVIRONMENT PROGRAMSUPPORT PROJECT CONTENTS A. Project DevelopmentObjective Page 1. Projectdevelopment objective 3 2. Global objective 3 3. Key performance indicators 4 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2. Main sector issues and Government strategy 5 3. Sector issues to be addressedby the project and strategic choices 10 C. Project Description Summary 1. Project components 14 2. Key policy and institutional reforms supported by the project 18 3. Benefits and target population 20 4. Institutional and implementationarrangements 21 D.ProjectRationale 1. Project alternatives considered and reasonsfor rejection 25 2. Major related projects financed by the Bank and/or other development agencies 27 3, Lessons learned and reflected inthe project design 25 4. Indications of borrower and recipient commitment and ownership 30 5. Value added of Bank and Global support in this project 30 E. Summary ProjectAnalysis 1. Economic 31 2. Financial 33 3. Technical 35 4. Institutional 37 5. Environmental 39 6. Social 41 7. SafeguardPolicies 44 F. Sustainability and Risks 1, Sustainability 45 2. Critical risks 48 3. Possiblecontroversialaspects 49 G. Main Conditions 1. EffectivenessCondition 49 2. Other 49 H. Readiness for Implementation 50 I.CompliancewithBankPolicies 51 Annexes Annex 1: Project DesignSummary 52 Annex 2: DetailedProjectDescription 64 Annex 3: EstimatedProjectCosts 83 Annex 4: Cost BenefitAnalysis Summary 84 Annex 5: FinancialSummary 99 Annex 6: (A) ProcurementArrangements 100 (B) FinancialManagementandDisbursementArrangements 107 Annex 7: ProjectProcessingSchedule 121 Annex 8: Documents in the ProjectFile 123 Annex 9: Statementof Loans and Credits 124 Annex 10: Country at a Glance 126 Annex 11:Letter ofEnvironmentPolicy 128 Annex 12: Social and EnvironmentalAnalysis 153 Annex 13: GEF - IncrementalCost Analysis 164 Annex 14: GEF STAP Roster Review - 173 Annex 15: InsitutionalFramework 177 MAP(S) IBRD32940 MADAGASCAR ThirdEnvironment ProgramSupport Project ProjectAppraisal Document Africa RegionalOffice AFTS1 Date: April 20,2004 Team Leader: MartienVanNieuwkoop sector Managermirector: RichardG. Scobey Sector(s): Forestry(90%), Renewableenergy (10%) Zountry Manager/Director: Hafez M.H.Ghanem Theme(s): Biodiversity(P), Environmentalpoliciesand ProjectID: PO74235 institutions (P), Other environment andnaturalresources LendingInstrument: Specific InvestmentLoan(SIL) management(P) Slobal SupplementalID: PO74236 Team Leader: MartienVanNieuwkoop Sector Managermirector:RichardG. Scobey Sector(s): Forestry (100%) LendingInstrument:Specific InvestmentLoan (SIL) Theme(s): Biodiversity(P) , Environmentalpoliciesand FocalArea: B Biodiversity - institutions(P) SupplementFullyBlended? Yes [ ]Loan [ ] Credit [XI Grant [ ]Guarantee [ ]Other: For LoanslCreditslOthers: Amount (US$m): IDA Grant: US40 million; GEF Trust FundGrant:US$9 million Foreign Total 0.00 29.20 US: AGENCY FORINTERNATIONAL DEVELOPMENT 8.20 27.70 [USAID) FRANCE, GOV. OF (EXCEPTFOR MIN.OF FOREIGN 2.40 8.10 AFFAIRS-MOFA) SWITZERLAND,GOV. OF (EXCEPT FORFOFEA) 1S O 5.10 IDA GRANT FOR POORESTCOUNTRY 11.80 40.00 GERMANY:KREDITANSTALTFURWIEDERAUFBAU 3.60 12.40 (KFW) UNDEVELOPMENTPROGRAMME 1.90 6.30 NON-GOVERNMENTORGANIZATION(NGO) OF 3.30 11.10 BORROWINGCOUNTRY GLOBALENVIRONMENTFACILITY 6.50 2.50 9.00 Total: 113.70 1 35.20 148.90 BorrowerlRecipient: REPUBLICOF MADAGASCAR Responsible agency: MINISTRY OF THE ENVIRONMENT,WATER AND FORESTS MINISTEREDE1'ENVIRONNEMENTET DES EAUX ET FORETS Address: Antananarivo Contact Person: SylvainRabotoarison, Minister Tel: 261-20-22-25999 Fax: 261-20-22-30693 Email: minenv@dts.mg Other Agency(ies): OFFICENATIONAL DEL'ENVIRONNEMENT Address: Antananarivo Contact Person: Jean ChrysostGme Rakotoary, Directeur GCnCral Tel: 261-20-22 25999 Fax: 261-20-22-30693 Email: jcrakoto@pnae.mg Association Nationale de Gestion des Aires ProtegCes Address: Antananarivo Contact Person: Guy Suzon Ramangason Tel: 261-20-22-41538 Fax: Email: angap@dts.mg 10.00I 18.00 I 26.00 I 34.00I 40.00 I Annuall 1.00 I 1.50 1 ~~ 2.00-r 2.00 Cumulative 1.00 I 2.50 I 4.00I 6.00 I 8.00I 9.00I Project implementation period: 2004-2009 (five years) Expectedeffectiveness date: 07/01/2004 Expected closing date: 12131/2009 cnPu)F&nn RCI M.m am - 2 - A. Project Development Objective 1. Project development objective: (see Annex 1) The Government o f Madagascar (GoM) adoptedan ambitious 15-yearinvestmentprogram in 1989known as the Madagascar Environment Action Plan (PAE or NEAP) with the following goal: `natural resources are conserved and wisely utilized insupport of sustainable economic development and abetter quality of life". The Plan was to be executedinthree phases (EP I/ HI), each with discrete objectives. II/ The first phase ofNEAP was initiatedin 1991 inthe face of a limitedconservation baselinewith the support o f a broad coalition of bilateral donors (Germany, France, Switzerland, USA), international agencies (WB-IDA,UNDP) andNGOs (Conservation International, WWF, Wildlife Conservation Society). Activities inthis phase aimed at nurturingpolicy andregulatory reform and creating the basic institutional framework for protected area managementand for ecologically compatible development. The secondphase of NEAP, initiated in 1997, expanded the field coverage of conservation activities, while further strengthening institutionalcapacities, anddeveloping the policy framework to improve conditions for sustainability. The thirdand final phase ofNEAP (EP 111)-which will be supportedthrough this project-aims at improvingthe protectionand sustainablemanagement of critical biodiversity resourcesat the field level, mainstreaming conservation into macroeconomic managementand sector programs and establishing sustainable financing mechanisms.IDNGEF financing i s geared towards assisting the GoM inthe implementation of selective elementsof EP 111,for which two subsidiary Development Objectives have beenspecified: e Development Objective 1:The biodiversity and renewable natural resourcesof representative eco-regions i s conservedand managedon a sustainable footing with active multi-stakeholder participation; and 0 Development Objective 2: The fi-amework for sustainable environmental managementis further strengthenedthrough the incorporation of said managementobjectives into public policy making and investments. The project i s complementary to, and buildsupon, support providedby other partners and co-financiers under a sector-wide approach. 2. Global objective: (see Annex 1) The global objective ofthe project is to contribute to the preservation ofthe quality of regional and global commons through improvednatural resourcesmanagementand biodiversity protectionincritical ecological regions, defined as nationalprotected areas and their corresponding buffer zones and corridors. Madagascar is one of 17 recognized megadiversity countries that collectively harbor up to three quarters of the world's biological diversity.The Islandhas been identifiedas one of the highest global biodiversity conservation priorities, owing to its combination of highdiversity and endemism, andthe degree of anthropogenic threat to its ecosystems. Although Madagascar occupies only about 1.9% of the land area of the African region, it is home to about 25% of all African plants and has more orchids than the entire African mainland. Its rich fauna diversity i s unique; remarkablyMadagascar harbors endemism at the highertaxonomic level (genus and family level). It is a repository for 5 endemic botanic families and 5 endemic primate families. O f the 280 birdspecies recorded (204 species breed inMadagascar), 110 species are listedas endemic. O fthe 346 reptile species recorded, 314 are endemic. Only two other eco-regions in the world, i.e., Caribbean and Meso-America, can match Madagascar's diversity inreptiles. - 3 - The ecosystems of Madagascar include fragments o f the once extensive lowland humidtropical forests in the east, the still widespread, mid-altitude humidtropical forests centered on the eastern escarpment, high altitude mountain ecosystems, the greatly diminished range o f dry forests inthe west and the highly unique spiny forests o fthe southwest. The southern portionof the country extends into the temperate zone. WWF has identified 7 critical Madagascar eco-regions, rankingamongst the richest globally on account o f their biodiversity and highendemism. These include Madagascar Forests and Shrublands, the Moist Broadleaf forest biome inthe East, Madagascar Dry Forests inthe West, Madagascar Spiny Thicket inthe South and South West, MadagascarMangroves, and the West Madagascar Marine System, including coral reefs and sea grass beds (WWF Global 2000). These ecosystems, with their irreplaceable fauna and flora are highly vulnerable to anthropogenic pressures, and have suffered considerable degradation since the Island was first settledby humans some 1,800 years ago. Pressures on remaining ecosystems, particularly fragile terrestrial habitats have accelerated over the past 50 years. Absent substantial and sustained management intervention, there i s a real risk that numerous endemic species will eventually be forced into extinction, leading to the forfeiture o f unique global environmental benefits. 3. Key performance indicators: (see Annex 1) The following key performance indicators have been identifiedfor the project. Increasedproportion o f terrestrial, marine andforest ecosystems under conservation and sustainable management: (i) 6 million ha of natural forests; and (ii) ha o f coastal zone and marine 100,000 resources Increasedareas o f ecosytems includedinthe national protected areas systemmanaged by ANGAP: from 1.468.111ha inyear 1 to 2.253.848 ha inyear 5; Improvedprotected areas management efficiency index (from 41%to 70%) Rate o f degradation o f forest and wetland resources i s less than half the 1993-2000 degradation rate. Operationalization o f the Malagasy Foundation for Protected Areas and Biodiversity and establishment o f an endowment under the Trust Fundto be managedby the Foundation. Harmonizationo f sector specific legislation, environmental legal framework and international conventions through 15 strategic EIAs Improvedvoice of communes inP A management through operational CROs in27 protected areas and 80% o f CROs complying with their rights and obligations as defined inP A management plans. B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 27063-MAGDate of latest CAS discussion: November 18,2003 The proposedproject is folded into the new CAS for Madagascar(page 23). The project is consistent with the main goal o f the CAS aimed at assisting Madagascar inacceleratingpoverty reduction. Following the close linkagebetween poverty and environmental degradation, the CAS recognizes that "Madagascar's unique biodiversityresources offer interesting revenue generating potential, which, ifrealized, could contribute to the reduction of poverty as well as the conservation o f these resources". To unleash potential inthis arena, there is a needto set access to biodiversity resources ona more rationaland transparent footing as well as to develop revenue generating sources from non-extractive forest products and environmental services, of which eco-tourism, hydrological services, carbon storage andnon-timber forest products are the most promising." Consequently, the need to "continuing to place the environment at the center o f our strategy" i s listed as one o f the five guidingprinciples that are at the heart o f the new strategy. Following this principle, the proposed CAS lending scenario makes room for the ThirdEnvironment - 4 - Program Support Project (FY04) as an operation that "seeks to improve forest management, to protect biodiversity and to put inplace sustainablefinancing mechanisms for the environment". Inline with sector-specific goals, it i s expected that the project would reducepoverty by contributing to broad-based economic growth, sustainable natural resourcesmanagementand improving govemance. The CAS recognizes that "considering that Madagascaris a mega-diversity country, this project is also of crucial importance to attain the sustainable environmental managementobjectives as specified under the MDGs". The proposedproject componentsare inline with the orientation specified inthe CAS. Similarly, the CAS monitoringindicators related to the environment are the same as the impact indicators of the proposed project. la. Global OperationalstrategyRrogram objectiveaddressed by the project: Inrecognitionofthe global significance ofthe country's biodiversityandthe needfor its urgentprotection, the GoMwas the first government inAfrica to elaborate aNEAP. Madagascarratified the Convention on Biological Diversityon March4th 1996. The proposedproject (EPIII) directly addresses all three of the main objectives of the Convention on Biological Diversity-conservation o f biodiversity through protected areas, conservation through sustainableuse of biologicalresources and equitable sharing of benefits derivedfrom the use ofbiodiversity. The proposedproject addresses the objectives of the GEF Operational Programs (OP) 1:Arid and semi-arid zone ecosystems, OP2: coastal, marine and freshwater ecosystemsand OP3: forest ecosystems, in the biodiversity focal area. Overall, the project meets the eligibility criteria for GEF fundingby takingan ecosystem approachto conservation management. Inparticular it is consistent with the objectives of the three OPs by supporting threat remediation activities at discrete PA sites o f high global significance, and promoting the broad-basedparticipationof local communities residenton lands adjacent to project supportedPASinsite managementactivities. Furthermore, the project will facilitate the development and adoption of sustainable natural resourcemanagementpractices for wild naturalbiodiversity resources in PA support zones. This will be facilitatedthrough pilot activities aimed at removing barriers to sustainable resourceutilization inecosystemswhere gaps inknow-how are foreclosing integratedmanagement. The project is also aligned with GEF Strategic Priority #1: Catalyzing Sustainability of Protected Areas- and, Priority # 11:Mainstreamingbiodiversity inproductionlandscapesand sectors. GEF support will make a significant contributionto strengthening the national systemofprotected areas, buildingon the success of PA management support under EP 11, and accompanying sustainableuse management demonstrations. The key objective is to consolidate and strengthen managementof the PA systemwith a view towards assuringits long-term sustainability. The project will, inter alia,provide support to ensure the sustainableutilization of biological resources, to protect the ecological integrity of critical landscapes bufferingprotected areas, to buildcapacities for assuring stakeholderparticipation and to strengthen benefit sharing arrangements. The proposed activities are consistentwith eligible activities under this Strategic Priority, including broad-basedcapacity building, strengtheningcommunity-government-private sector partnershipsfor PA management, and identifyingand strengthening financial mechanismsto assure sustainability. The project also focuses upon integrating the conservation priorities and sustainable use in forestry, tourism ,agriculture and fisheries by catalyzing mainstreaming through support for institutional capacity buildingof government, policy and institutional structures. Activities have been carefully designed to maximize the catalytic role and impact of GEF investment (whether through the WB or UNDP), and to avoid diffusion ineffort. 2. Main sector issues and Government strategy: The reality of rural Madagascar is characterized by widespread, extreme poverty and significant pressure - 5 - on the country's uniquebiodiversity andnatural resources.Seventypercent of the population is poor. Close to 80% of the poor live inrural areas. Their livelihoods almost exclusively dependon agriculture and related natural resource-basedactivities, suggesting an intimate linkage between poverty and natural resource degradation. Root Causes of NaturalResourcesDegradation The root causes of natural resources degradation are many and often inter-related. First, low and stagnant productivity incombinationwith a rapidly growing population generates pressures for agricultural expansion through forest conversion under slash-andburnproductionsystems. At the same time, environmental degradation, and associatedtop soil erosion, is reducingagricultural productivity and increasing rural poverty. Second, further contributingto natural resourcedegradation are poorly defined propertyrights and a breakdown intraditional regulatory mechanismscaused by increasing human migration within the country. Third, more productive agricultural practices that could have helpedmitigate naturalresource destruction have beenhamperedby the lack of (i) basic infrastructure; (ii) market integration; (iii) resource inputs; and (iv) adequate access to credit. Fourth, the widespreaduse of charcoal and fuelwood for domestic energy purposes is another root cause of deforestation. It is estimatedthat 85% of domestic energy needs are covered from these sources, which translates into an annual demand of about 10milliontons of wood. Fifth,poorly regulatedcommercial exploitationof forests for timber, due to weaknesses incentral policies and institutions, and a failure to invoke the cooperation of all stakeholders, particularly those at local and regionallevels, also contribute to deforestation. Sixth, poor governance in the forestry sector has beenconducive ingenerating a climate under which illegal logging and species collection practices could flourish. TransparencyInternationalrated Madagascar 98th out of 102 countries on its corruptionperception index in2002; under the new Government this has improved to 88th in2003. Seventh, weak institutional capacity, especially so at the field level, seriously hampers surveillance and law enforcement efforts. The operating budget of the Forest Department is about US$400,000 per year for which it is called uponto manage about 6-7 millionha of natural forests as well as to effectuate forest and bushfire control inthe entire country. The situation inthe rural sector was further exacerbatedbythe political crisis that brought the country to a halt during the first semester o f 2002. Terms of trade of the rural sector were affected negatively by falling producer prices and risingconsumer prices of basic life necessities. Inaddition, the political crisis increased already mounting govemance problems surrounding the managementof natural resources as evidenced e.g. by illegalexports of endangeredspecies, illegal loggingandlack of transparencyregardingthe allocation of fishingrights. As a result of these factors, it is estimated that Madagascarlost about 12million ha of forest between 1960 and 2000, effectively reducing forest cover by 50 percent injust 40 years. Following the launch of the National Environment Action Plan inthe late 1980s, deforestation rates have since declined from over 400,000 hdyear in 1975-1985 to around 100,000 - 200,000 ha/year duringthe 1990s. Basedon satellite imagery, it is estimated that the total area of natural forest inMadagascar declined from 9.4 millionha in 1993 to 8.5 millionha in2000, reflecting a national averagerate of deforestation of about 0.86 percent per year (CI, 2002). Achievementsand Challenges Inorder to reducenaturalresource degradationtrends, aNational EnvironmentalAction Plan(NEAP) was launchedinthe late 1980s, which is generally considered one of the most ambitious and comprehensive environmental programs to date inAfrica. The NEAP was given legalpower by adopting the National - 6 - Environment Charter andthe National EnvironmentalPolicy in 1990 (Law 90-033, December 21, 1990). The Plan, recognizes the link between environmental protection andeconomic development and includes six elements: (i) protectingand managing the national heritage o f biodiversity, with a special emphasis on parks, reserves and gazetted natural forests, inconjunctionwith the sustainable development o f their surrounding areas; (ii) improving the living conditions o f the populationthrough the protectionand management o f natural resources inrural areas with an emphasis on watershed protection, reforestation and ago-forestry; (iii) promoting environmental education, training and communication; (iv) developing mapping and remote sensing tools to meet the demand for natural resources and land management; (v) developing environmental research capacities for terrestrial, coastal andmarine ecosystems; and (vi) establishing mechanisms for managing andmonitoringthe environment. The NEAPwas designed from its inception as a fifteen year investment programdivided into three five-year phases. The first five year phase aimed at creating a properpolicy, regulatory and institutionalframework so as to generate the conditions for genuine country ownership o f the environmental agenda which prior to the NEAPused to be set and driven by the donor community. The second phase o f the NEAP aimed at consolidating the programs initiated under the first phase by puttingthe established national institutions firmly inthe driver's seat. The thirdphase, which is currently beinglaunchedand supportedby the proposedproject, is focused on consolidating the varied past efforts and establishing sustainable financing mechanisms for the environment. Major achievements o f the NEAPup untilto date include: (i) the enactment o f enabling legislationfor the protectiono f country's natural resources and the promotion o fproper environmental management; (ii) the set-up o f environmental institutions (such as the park service ANGAP) for the implementation o f environmental activities and programs; (iii) the development and implementation o f community-based approaches for natural resources management; (iv) the emerging evidence o f positive field-level impacts in terms o f reduced deforestation rates; and (v) the establishment o f a platform for sustained donor support and coordination for the environment inMadagascar. At the same time, as indicated inthe Bank's Rural andEnvironment Sector Review (2003), there are numerous areas where the NEAP could improve its track record. The application o f policies and regulations remains a challenge due to weak institutionalcapacity and serious governance problems, particularly inthe forestry sector. Resources under the NEAPhave been disproportionately invested in parallel structures at the central level, while too little has been invested to strengthen institutional capacity on the ground. Lack o f rigorous priority setting has also ledto a situation inwhich NEAPtends to drift somewhere between conservation and rural development, sometimes seeking to fill gaps that other programs such as the PADR now seeks to fill. Consequently, there is the notion that the operational programs o f the NEAP have spread themselves too thinly, thereby contributingto the widespread feeling that more could have been achieved than actually has been. The challenge for mainstreaming o f the environmental agenda is reflected in: (i) the relatively modest budget allocations for the sector; (ii) the existing limited knowledge and awareness o f the Malagasy population concem+g environmental issues; and (iii)the slow development o f market mechanisms for the valuation o f environmental services. This latter point is o fparticular importance as the thirdphase o f the NEAP is specifically geared towards puttinginplace sustainable financingmechanisms for the environment. Progress inthis field has been limited. Park entrance fees now cover about 7% o f ANGAP's costs. ONE has been able to generate some revenues from environmental permit related fees, but these are insufficient to even cover variable costs. However, economic analysis shows that biodiversity conservation, eco-tourism and watershed protection benefits that are associated with environmental investments inMadagascar along the lines proposed under the thirdphase o f the NEAP exceed management and opportunity costs. Consequently, the potential to put inplace sustainable financing mechanisms forthe environment doesexist andthe challengeis to findways - 7 - andmeans to increase benefit capture o fthe environmental institutions concerned. Inview ofinternational experience, there i s however a needto be realistic about the immediate revenue generating capacity o f sustainable financing sources. Government Agenda and Strategy Conservation as Guiding Principlefor Natural Resources Management. The government o f Madagascar has undergone a substantial restructuring inJanuary 2003 that is highly significant for the rural / environmental sector. Key changes have been: (i) integration o f economic programs, land use planning, transport and public works into a single 'super-ministry' under the vice Prime Minister; (ii) combination o f Agriculture with Livestock and Fisheries into a single ministry; and (iii) combination o f Waters & Forests with Environmentinto a single ministry. These changes are important to the rural/environment sector for various reasons: (i) the fusion o f economic programs, land use planning, transport and public works will facilitate an integrated approach to national spatial development planning and represent an important opportunity for the sector to incorporate rural and environmental dimensions into national spatial planning; (ii) combinationofagriculture, livestockandfisheriesregroupsthe'foodproducing' sectorsandshould the facilitate a greater emphasis within the fisheries sector on food security, rural development and poverty reduction as a complement to the established orientation on generating revenues from fisheries exports and licenses; and (iii) o f forests and water with environment may be seen as a radical move to create a fusion transformed forests sector oriented towards conservation and biodiversity as opposed to extractive production. This should greatly facilitate the development o f conservation programs outside protected areas, improved sector governance and the efficient capture and distributiono f benefits from biodiversity. Inline with this observation, the President o fthe Republicannounced at the World Parks' Congress in Durban in September 2003, that Madagascar, inline with I U C Nnorms, would increase the area under effective conservation arrangements (covering forest, wetland andmarine ecosystems) from 1.7 million ha to 6.0 million ha. Doing so reflects the GoM's overall strategy adopted under the PRSP (fmalized inJuly, 2003), which, inline with the Millenium Goals, calls for ensuring environmental sustainability so as to consolidate Madagascar's unique position as a mega-biodiversity country. Indicators o f the PRSP reflect that success o f the strategy will among other be measured against progress inreducingthe actual deforestation rate, thereby underscoring that sustainable natural resources management is regarded as a strategic national interest. Renewed commitment to NEAP. The Government recognizes that the strategic approach adopted at the time o f the NEAP remains valid today; that is: (i) the time scale o f decades; (ii) process o f learning and the adapting from stage to stage; (iii) mainstreaming environmental concerns as far as possible into sectorial policies and investments; (iv) creating and maintaining a system o f conservation areas which are ecologically representative; (v) ensuring sustainable management o f Madagascar's unique terrestrial, coastal and marine ecosystems; and (vii) targeting complementary development activities to reduce pressures on the natural resources base. For this purpose, the Minister o f the Environment, Water and Forests has prepared a Letter o f Environmental Policy that confirms the GoM's commitment to the NEAP, while at the same time providing an actualized context o f the Planthat was put inplace more than ten years ago. The Letter lays out an overview o f the environmental problems that Madagascar faces today, indicates achievements as well as lessons learned from NEAP'Sprevious phases, presents a sector specific vision for 2015, confirms the design o f EP-111, specifies key program implementation principles, details how monitoring andevaluation o f results will be achieved, and identifies critical factors for success. The following key messagescan be distilled from the Letter. First,although considerable progress has been made, there i s a need for sustained efforts to improve biodiversity conservation and sustainable natural resources management. Second, to improve program effectiveness it is recognized that there is a need for greater focus on those themes and geographical areas where the NEAP has a clear comparative advantage, - 8 - while improving coordination with other sector programs. Third,to set the stage for better results on the ground, the needfor greater institutionalpresence on the ground along with effective participation mechanismsfor local stakeholdersand civil society is emphasized. Fourth, to improve institutional efficiency and accountability ,the Letter stresses the needfor result-basedimplementation mechanismsas well as the need for dedicated efforts to improve sector governance. Fifth,the Letter makes the point that law enforcement efforts are a necessary complement of providingincentives and support to improve sustainable natural resources management. Parallel to the GoM's commitment to the NEAP is also its renewed support for the Rural Development Action Plan (PADR), which was launched in2001. This Action Plan provides the framework for the implementation of the country's rural development policy and coordinatespolicies andpublic investment programs as pursuedby the participating sector ministries.The GOM i s committed to pursue implementation of the PADR as, among other, reflectedby its intentionto strengthenthe role of Regional Working Groups for Rural Development (GTDRs). These Groups, which include representativesfrom grassrootsmembership organizations, ONGs, private sector, local government andregionaloffices of the sector ministries, have been set-up as regionalchampions to translate the overall orientations of the Plan into concrete actions that are adjustedto the specific agro-ecological conditions of each of the distinguished 23 agro-ecological regions inthe country. The importance of the PADR for the NEAP i s that the focus of the PADR on increasing ruralproductivitythrough agricultural systems intensification, allows the NEAP to focus itself more on core environmental hctions and natural resourceconservation inareas of high priority biodiversity. Doing so would reduce excessivedispersion of activities as was the case under previous phases of the NEAP. Close coordination between the PADR and NEAP is o f crucial importance to achieve the objectives of both, which is the reasonwhy the MAEP and MinEnvEFhave signed a specific protocol for this purpose. Overall Focus on Governance Provides Unique Sector Omor!mitv. The Government's intense focus on improving governance, provides a unique window of opportunity to deal with this issue inthe forestry sector ina mannerthat was not possible previously. Inline with this, the Ministry of the Environment Water and Forests(MinEnvEF)has successfully moved forward incanying-out an Action Plan to improve governance that was agreedunder the previous GoM. This Action Plan includedamong others, the following actions: (i) publicationof permits so as to increase transparency; (ii) transfer of 70% of the permitfees to the regions so as to provide better incentives for law enforcement to local stakeholders; (iii) cancellation of permits with fee payment arrears; (iv) measures to enforce fauna management rules adopted under CITES andpublicationof CITES monitoring reports; and (iv) the use of GPS unitsto better delineate permitboundaries. As part o f the project preparation process, the MinEnvEFhas sustainedits efforts to improve governanceby: (i) collectionquota for CITES and non-CITES species at zero in keeping 2002; (ii) banning the export of non-processedprecious wood; (iii) cancelling permits of nonpaying holders; (iv) effectuating a moratorium on the allocation of new forest exploitationpermits; (v) canying-out anintensive forest fire and slash-and-bum control program; and (vi) launching initiatives for the auto-regulation of private sector operators. It is agreedthat these measurespave the way for the implementation of structural measures to improve governance inthe sector that have been included inthe designof the program insupport of the thirdphase of the NEAP. Streamlined Sector Institutional Framework for Greater Effectiveness on the Ground. The newly created MinEnvEFhas quickly movedforward indeveloping aninstitutionalvision that reflects the notion of conservation as the guidingprinciple for naturalresourcesmanagement inMadagascar. Inline with this vision, it is envisagedthat the MinEnvEFwill structure itselfina manner that will enable it to carry out core public sector hctions related to policy making and regulatory measures. Core operational responsibilities will be concentrated inspecialized semi-public institutions for respectively: (i) protected - 9 - areas management; (ii) ecosystems management; and (iii) forest application o f environmental impact legislation. To improve synergy with other programs notably inthe transport, agriculture, tourism, and energy sectors, the institutional structure provides for strong institutionalcoordination capacity. Last, but not least, the structure includes specific arrangements to operationalize support for sustainable natural resources management at the commune level through the creation o f a dedicated funding mechanism. 3. Sector issuesto be addressed by the project and strategic choices: Buildingonthe Government's strategy and agenda, the project would assist the GOM inaddressing the root causes o f natural resource degradation inthose themes and geographical areas where EP-I11has a clear advantage. In line with this notion, the project would specifically address the following sector issues: (i) need to expand area under effective conservation management; (ii) improve governance inthe needto forestry sector; (iii)need for focused complementary efforts that provide alternatives to forces that drive pressure on natural forests; (iv) need to put in place a streamlined institutional structure and increase capacity; (v) need to align conservation agenda with economic interests through sustainable financing over the long term. The project would not specifically address sector constraints that stand inthe way to increase agricultural productivity through production systems intensification, as it i s felt that these are better addressed under the PADR through dedicated operations such as the Bankfinanced Rural Development Support Project and EUfinanced rural development activities inthe provinces o f Fianarantsoa and Toliara. Although envisaged under the thirdphase o f the NEAP, the project would not support addressing urban pollution problems as it is felt that doing so would spread the operation too thinly, thereby jeopardizing its effectiveness and impact. Expansion of Area under Effective Conservation Management Protected Areas. The Madagascar ProtectedArea Management Authority, ANGAP, has built a solid reputation as a relatively effective manager o f the country's system o f national parks and reserves. Through effective donor coordination under earlier phases o fNEAP, ANGAP has developed into a stable, organized and functional organization, which i s responsible for the management o f 46 protected areas covering roughly 3% o f the country's total area and 15% of its existing forests. The network o f Madagascar's protected area system i s composed of 18National Parks, 5 "Integral" Nature Reserves and 23 Special Reserves. Nevertheless, the PA system faces a number o f challenges that will be addressedunder the project. First, not all ecosystems are currently adequately represented inthe national protected areas system, particularly coastal zone andmarine ecosystems and also some key terrestrial ecosystems. Consequently, there is a need to improve the representativeness o f the system under EP 111.ANGAP has prepared a five-year action plan for the management and expansion o f the existingProtectedArea System, the "Plan GRAP", to be implemented between 2001 and 2006. The action plan provides a comprehensive overview o f the existing P A network, and the proposedexpansion program. The expansionprogram is organizedby priorities specified for each o f the six ecoregions andthe three transitional zones characterizing the country. ANGAP i s progressively taking direct managementresponsibility for protected areas that were initially being managed by service providers, either on a stand alone basis or as part o f conservation projects. Second, although the management o fprotected areas i s relatively effective, there is room for improvement. ANGAP's current IUCN-basedindex for effective management stands at 41%. Areas that specifically require attention include : (i) strengthening management and implementation capacity at the field level; (ii) establishing more effective measures to reduce encroachment; and (iii) developing tourism potential. Third, relations between ANGAP andneighboring communities are generally good. However, they tend to be maintained at the level o f consultation, thereby falling short o fproviding decision-making power to local stakeholders whose life one way or the other i s affected by the creation o f PAS.Consequently, there i s a needto lift participationo f local stakeholders up to a higher level by - 1 0 - exploring and strengthening mechanisms for joint decision-making between communities and ANGAP, while strengthening community basednatural resource management systems that provide a conservation- compatible means of assuringlocal livelihoods. Natural Forests. Most of Madagascar'sbiodiversity occurs inforest areas. While 13% of the area of these forests is located within a relatively well-managed protected area network, the vast majority of forests (national gazetted forests, and a mosaic of non gazettedforests inthe rural landscape) are unmanaged or poorly managed, constituting a de-facto free access resource. Inline with the Government's objective to increasethe area of natural forest under effective conservation arrangements,a two-pronged approachto move away from the actual situation of de-facto free access would bepursued. First, there would be an aggressive move towards the creation of so-called conservation sites, covering an area o f about 4 millionha bythe end of EP-111. Conservation sites are delimited zones with a legalstatus for which the classification is basedon ecological and socioeconomic criteria. They are intendedto provide a complement to the network o fmore formally protected areas. Their existence is consideredan ecological and economic necessity giventheir importance for the conservation of biodiversity, their current and future importance for eco-tourism and for the hydrological servicesthey provide for people, agriculture and industry.Along these lines, the potential management goals for conservation sites have been identifiedas the following: (i) to complete the representativity of national network of protected areas; (ii) to conserve species only found outside the national network; (iii) to conserve viable populations ofkeystone wide-ranging species; (iv) to contribute to connectivity and genetic bridges between protected areas; (v) to conserve important habitats; (vi) to provide essentialecological services; and (vii) to provide economic benefits. Second,basedonthe lessons and experiences generatedduring the secondphase of the NEAP and with the PPIM (Energy 2) in Mahajanga, where a woodfuel masterplanwas developed, the managementtransfer of forest resourcesto communes would be scaled-up significantly. Doing so would imply, as envisagedunder EP-111: (i) a simplification and streamliningof existing managementtransfer proceduresas recognized under the current GELOSE (Gestion Locale SLcuriske) and GCF (Gestion Communautaire Forestiere) legislation; (ii) elaboration and diffusion of step-wise guidelines of which a start was made inFebruary 2003 through the publication of a guide for simplified landuse managementplans (Plan dymenagement et de Gestion SimpliJie);and (iii) integration of identificationand definition of income-generating activities inthe management transfer process. Governance Over the years Madagascarhas been able to streamline environment into many of the sector policies, and develop institutions capable of dealing with many important aspects of environmental governance. However, a widening disconnecthas emergedbetween statedpolicies andregulations, and the capacity to monitor and ensure enforcement of the new frameworks on the ground. Lack of transparency and efficiency inparticularly the forest sector and to a lesser extent the application o f MECIE legislationhas been a constant, yet unresolved, topic of debate duringthe secondphase of the NEAP. Based on this experience, EP-I11departs from an explicit recognitionthat poor governance and law enforcement is underminingcostly ongoing environmental managementprograms, anddiscouragesmost qualified long-term investors from doing business with Madagascar inthe field of biodiversity and environmental services. Inthis context, the following issues o f transparency, accountability and improved governance will be addressed. First, improvedforest control to ensure adequate application and enforcement of decrees definingforest products exploitationinand around sensitive areas, andrestrictingthe export of logs of high value timbers. Second, the set up of a transparent system for the issuanceof new cutting permits along with a systemof checks andbalances that include the participation of ONE, regionaland local authorities and community-based organizations, as requiredby existing MECLE legislationand forest policy. Third, improving the managemento f the nationaland regional forestry (FFN and FFR) funds, by ensuring a -11- transparent monitoring of the collection system, establishing a mechanism for disbursing funds at all levels, merger o f the AFARB (action en faveur de l'arbre) and FFNRFR accounts such that they are all used to support sustainable forest management. Fourth, the expansion o f the autonomous forest observatory' activities (OSF) at the regional levels so as to improve monitoring o f forest resources' management andthe collectiono f forest taxes. Inaddition, there is a need for better communication to inform communities, civil society, etc. o f their rights with respect to forestry management. Fifth, the needto significantly modify the size o f forest permits (land unitswhere regulated commercial exploitation takes place) so as to stimulate the emergence o f more accountable forest investors that work with regulatory agencies inpublic-private partnerships arrangements. Sixth, better control of slash-and-burn practices andforest fires through comprehensive enforcement campaigns incollaboration with communal fire control committees. Seventh, improve compliance with MECIE legislation by loweringtransactioncosts throughthe establishment o f a one-stop-shop inONE. ComplementaryEffortsto ReducePressureonNaturalForests Woodfuels constitute for more than 85% o f Madagascar's total energy balance and are an important deforestation factor. The latter i s particularly the case inthe provinces o f Mahajanga, Toliara and Antsiranana where woodfuels are produced from natural forests. Inlight o f this, it no surprise that deforestation rates o f spiny forests located inthe Southem and Westem regions of Madagascar are the highest among all types o f existing forest ecosystems. Given that woodfuels are expected to continue to play an important role to meet Madagascar's energy needs for a long time to come, there i s a need for measures that reduce the pressure o f woodfuel use on natural forests. Inthis context, the project would address the following issues. First, it would aim to introduce measures that would make the productiono f woodfuel more efficient by supporting promotiono f more sustainable forest management practices and more efficient carbonation techniques. Second,it would aim at reducing demand for woodfuels through the development and dissemination o f more efficient end-use cooking stoves. Third, it would aim at reducing demand for woodfuels through the development and promotion o f substitution fuels. Fourth, it would aim to increase the available forest area for woodfuel productionthrough support for reforestation programs associated with foodhash-for-work programs that are aimed at establishing communal forest reserves ( Reserves ForestiBrespour le Reboisement). Sector Institutions Under the previous phases o f the NEAP a large and relatively complex institutionalframework for environment has evolved, including: (i) ONE; (ii) ANGAP; (iii) ANAE; (iv) SAGE; and(v) CNE. The Ministryofthe Environment was created rather late inthe process as the overarching authority on environmental affairs. Unclear division o fresponsibilities between ONE and the Ministry,coupled with the weak institutional capacity of environmental units in sector Ministries has seriously hampered efforts to mainstream the environment into public policy makingand investment decisions. The Evaluationo f the World Bank's Assistance for Madagascar's Environment Programs (2000) questioned the sustainability o f the established intricate institutional latticework at the central level and noted an inherent paradox with the principal operating logic of these institutions which states that natural resources can best be managed through demand-driven, decentralized management. Following this evaluation, a process o f institutional consolidation has been set inmotionunder which SAGE was spinned off from ONE andANAE was put at somewhat more arms lengthfrom the NEAP. With the merger of the Ministryo fWater and Forests andthe Ministryo fthe Environment into a single MinistryofEnvironment, Water andForests(MinEnvEF)inJanuary 2003, the stage has been set for further consolidation of the institutional sector framework that would lead to: (i) appropriate division o f - 1 2 - responsibilities between the Ministry and ONE which i s subsequently reflected inthe functional structure o f both the organizations; (ii) clarificationo f the division o f responsibilities between the MinEnvEFand environmental units inthe sector Ministries and the development o f a capacity buildingprogram for these unitsthat reflects the agreeddivisionofresponsibilities; and (iii) definition o f the division o f roles and functions between the central and decentralized levels aligned with a corresponding institutional consolidation program for the central and an institutional strengthening program for the decentralized level. To move the institutional structure into that direction an institutional development planhas beenprepared as part o f the project preparationprocess which was subsequently endorsed by the GoM. The project would support the transition o f the actual structure to the envisaged institutionalframework inthe following areas: (i) strengthening presence o f MinEnvEFat the field level; (ii) facilitating the establishment o f specialized institutions responsible for the operational aspects of core environmental functions; (iii) adjusting MinEnvEF'sstructure inline with policy-making and regulatory functions; and (iv) enabling effective interaction between MinEnvEFand environment units located inother sector ministries. SustainableFinancing One o fthe principal objectives o f the NEAP'Sthirdphase covering the period 2002 to 2007, aims at reinforcing the accomplishments o f the previous phases and thus providing the basis for sustainable financing o f the environmental program inMadagascar. Inline with the identifiedeconomic benefit categories o f EP-111, including those associated with eco-tourism, hydrological benefits and international willingness to pay for globally important biodiversity, the project will pursue a number o f avenues to set financing for the environment on a more sustainable footing. First,the project would facilitate the development o f the eco-tourism industry through expansion and improvement o f park infkastructure and facilities. Inline with this, the project would support the development o f mechanisms that would ensure an appropriate share o f ANGAP inthe revenues generate by the eco-tourism sector. Success inthis field depends among other on the quality and effectiveness o fthe relationship o f MinEnvEFwith the Finance ministryand other sector ministries. Second, the project would explore the establishment ofmarkets for environmental services under which downstream beneficiaries (e.g. farmers owning irrigated lands, urban water consumers) would compensate upstreamproviders o f hydrological services. However, inview o fthe highincidence o fpoverty among downstreambeneficiaries actual revenues generatedunder this mechanisms should reasonablybe expected at very modest levels inthe short run. Third,the project support sustainable financing o f the protected areas system through the newly establishedMalagasy Foundation for Protected Areas and Biodiversity. It i s expected that the establishment o f this Foundation would be the center-piece o f the project's efforts inthe sustainable financing arena. Inaddition, a start would also be made with the development o f reforestation initiatives for carbon sequestration purposes as a mean to capture international willingness to pay for climate change containment measures. Success o f the project inthis field depend among other on progress in international climate change discussions. Last, but not least, EP-I11may also support exploring the development o f revenue generating capacity associated with bioprospecting rightsinthe context o fthe recently established Alliance o f MegabiodiversityCountries. Besides these initiatives, the project would also support the establishment o f institutional capacity in MinEnvEFthat would allow for upstream analysis aimed at improving positive and reducing negative environmental externalities that are associated with the way taxes are raised and the levels they are set as a mean to put financing o f the environment on a more sustainable footing. GEF incremental assistance will help focus upon mainstreaming the lessons learnt and capacities, into government, civil society andprivate sector initiatives and, further consolidating policy reform and capacity building. All efforts will be geared towards consolidating country-led actions that would continue the relay - 13- after EP 111.Donor assistance to individual projects and programs will likely continue after EP 111, but will then be part o f a country-led and coordinated programmatic framework, reflecting the consistent commitment o f government, civil society and private sector to environment management. C. Project Description Summary 1. Projectcomponents(see Annex 2 for a detailed description andAnnex 3 for a detailed cost breakdown): Inorder to translate the thirdphase ofthe NEAPinto operational terms, the MinEnvEFalong withdonors and other stakeholders have elaborated andagreed on a comprehensive investment program (EP-111). Following a participatory process, a sector-wide approachhas been developed comprising the following elements: (i) Letter o f Environment Policy that provides the political umbrella and conceptual orientation; (ii) Frameworkthatspecifiesobjectives,resultsandactivities, alongwithcorrespondingimpact, Results output and input indicators; (iii) agreed FinancingPlanwith participating donors based on commitments to achievement o f specific outputs defined inthe Results Framework; (iv) M&E framework under which all stakeholders are committed to define success o f their contributions based on agreed impact indicators inthe Results Framework; and (v) narrower definition o f program intervention areas to reflect the need for greater focus and avoid dispersion o f activities. The project would support the thirdphase o f the NEAP, commonly called EP-111. The agreed Results Framework o f EP-I11i s presented inAnnex 1A. The goal o f EP-I11 i s stated as follows: "natural resources are conserved and wisely utilized insupport o f sustainable economic development and a better quality o f life". It distinguishes seven results that are stated as: (1) sustainable development activities are developed; (2) forest ecosystems and water resources are sustainably managed; (3) sensitive ecosystems are conserved andmade valuable as protected areas and "conservation sites"; (4) the potential o fcoastaland marine ecosystems i s sustainably managed; (5) a positive change inbehavior vis A vis the environment is observed; (6) the financial basis for sustainable financing o f rational management o f natural resources andthe environment i s established; and (7) better environmental policies and governance are developed. IDA and GEF financing insupport ofEP I11have beencarefully programmed and focusedto maximize the catalytic role o f interventions and assure sustained impact. Activities have been designed taking into account the planned investment inbaseline activities by other donors. Accordingly, the proposedproject to be financed by IDA and GEF would support selected elements o f EP-I11by focusing on results (I), (2), and a number o f activities under (5), (6) and (7), that will be grouped under the heading o f "environmental mainstreaming. Based on this orientation, the project is organized into three components, including: (i) forest ecosystems management; (ii) protected areas management; and (iii) environmental mainstreaming. GEF financing administered by the Bank would be concentrated solely upon component (ii): protected areas management. IDNGEF financing would not focus on result (1) o fthe EP-I11Results Framework as it is felt that the on-going IDA-financed Rural Development Support Project could assist the EP-I11inthis field. IDNGEF financing would also not cover result (4) as it has been agreed that GEF financing administered by UNDP would be concentrated inthis area. Component 1:Forest EcosystemManagement(IDA: US$18.0 million) 1.1. Governance (IDA: US$ 6.0 million): IDA financing would support formulation and implementation o f (i) zoning,(ii) controland(iii) upofaninformationsystem.IDAfinancedactivities forest forest setting would improve govemance inthe forest sector by strengthening the concession rights allocation framework -14- and fee collection systemand strengthening institutional arrangements for regulatory enforcement, including support to the Forest Observatory (Observatoire du Secteur Forestier, OSF). The project would contribute to the enhancementof forest management at the local level by supporting the formulation and implementation of forest zoning and managementplans; activities are expectedto reduce threats linkedto. agriculturalpractices inthe forest sector, decrease illegal forest exploitationby commercialfirms and community-enterprises and improve fire management. 1.2. Conservation sites (IDA: US$4.0 million): IDA financing would support the creation andmanagement of conservation sites, setting up economic andregulatory standards and other economic and regulatory tools. Creating conservation sites would allow boththe preservation of biodiversity outside the network of protected areas and the maintenanceof watersheds. These conservation sites will contribute towards achieving the 2015 goal of maintainingthe forest cover at the current level and will focus specifically upon areas outside the PA network to ensure better geographic coverage and a holistic approach to ecosystem conservation. The project would put inplace guidelines and provide financial and technical resourcesfor the managementof the sites. 1.3. Management transfer (IDA: US$4.5 million): The key focus of this activity would be the transfer of forestry managementrightsto local communities under GELOSE/GCF contracts and maximizing financial benefits for the communities under these contracts guided by sustainablemanagementplans. Inparticular IDA would fundefforts to accelerateand scale-up suchtransfer of forestry managementrightsto provide a utilitarian incentive for improvedmanagement. It will also involve improvements to biodiversity product supply chains associatedwith managementtransfers (e.g usingenhancedcarbonization techniquesunder managementtransfers includedinthe household energy relatedactivities). 1.4. Reforestation (IDA: US$ 1.O million): IDA would provide fundingfor the creation of Land Reserves for Reforestation (Rberves FonciBres pour le Reboisement or RFRs) at the level of communes through the DEGFandeventually through anewly created Support Fundfor Communal EnvironmentManagement. Itwould support reforestation and forestry managementactivities for carbon sequestrationpurposesand where possible associate itselfwith foodcash-for-work programs. Activities would also contribute to develop ecological corridors and reduce threats linkedto agricultural practices inthe forest sector, decrease illegal forest exploitationby commercial firms and community-enterprises and improve fire management. 1.5. Household eneru (IDA: US$2.5 million): Activities havebeendesignedfor improving the efficiency o f energy production(charcoal from biomass). Inparticular, IDA financing would support an improvement inthe technical output ofcarbonization, decrease incharcoal consumption through scaling-up the use efficient stoves that are eco-labeled and, producing & promoting substitution fuels. IDA would support the introductionof improved fuel wood managementutilization practices as well as communicationand extension activities aimed at inducing local populations to discontinue unsustainablewoodfuel production practices. The project would put inplace guidelines and provide financial and technical resources for managementof the sites. New financial instrumentsto uncover and capture the economic benefits of conservation will be established, including recreational uses, hydrological services and carbon markets. IDA would supportthe promotionofenergy alternatives through organizing pilot activitieswith the aim to facilitate private sector investments insuch activities. Component2: ProtectedArea SystemManagement (IDA: US$13.5 million,GEF:-US$9million) The ProtectedArea network of Madagascarmanagedby ANGAP aims to consist of 36 Management Units (Unitede Gestion- UG), corresponding to 46 ProtectedAreas. This component is concerned with supporting 22 UG, corresponding to 27 Protected Areas. The GEF will lendsupport to 15 UG, while the - 15- remaining 7 will be supportedby IDA (refer to project files and Annex 16 for sites description, and selection process). The component includes the five following sub-components. 2.1. Reducing Pressures, Cauacitv building, Awareness and Civil Societv involvement around selected PAS (IDA: US$ 0.79 million; GEF: US$0.46 million): IDA and GEFwould aim to increase participation o f local communes inthe management o f protected areas by strengthening and expanding the mandate o f the Regional OrientationCommittees (CROs), settingup o f COGES/CODEAP (village associations) and their capacity buildingand partnerships with NGOs. Itwould also provide management, technical and planning assistance, and on the ground support to the program o f activities aiming to promote alternative actions for reducing pressures around selected protected areas through (i) actions having direct links with pressures and with conservation targets; (ii) operationalization o f decentralized management principles recommended inthe manualfor managemento fPRDEAP funds (park entrance fees). 2.2. Enhance comulementaritv value, a l i m e n t and eco-regional representativeness o fthe ProtectedArea System (GEF: US$ 1.10 million: IDA:US$ 0.90 million): GEF and IDA resources will finance the implementation o f the COAP and the Plan"GRAP" (five-year action plan for management and expansion o f existing P A system), aimed at ensuring the representativeness o f ecosystems under the national protected area system. Support will be providedto integrate conservationmanagement planning inPASand support zones at an eco-regional level, such as reclassification o f certain PAS,identification and creation o f new PAS,and reconfiguration o f the boundaries o f certain PAS,where warranted to reflect current land uses and ensure ecological integrity. Specifically the activities will be aimed at: (i) status change o f 4 protected areas, (ii)reclassification o f boundaries o f 6 existing protected areas; (iii) creating 1terrestrial P A and 2 marine parks; and (iv) re-delineating 9 protected areas. 2.3. Conservation Management programs to consolidate the P A svstem (GEF: US$ 4.58 million; IDA: US$ 3.17 million): The project through IDNGEFwill finance: (i) ecological monitoring and application o f measures for conservation o f terrestrial and marine ecosystems; (ii) surveillance and control; (iii) o f setup conservation infrastructure and operationalisationof zoning; and (iv) targeted research programs aimed at developing a better understanding o f practices for biodiversity conservation and management. Inorder to improve conservation management o f the protected area system, project efforts are oriented towards prioritizingactions and developing referential documents. The investments inthe PASwill be guided by a participatory management plan, a need-based threat analysis and an extensive stakeholder participation plan. Support i s expected to more specifically focus upon activities to remove barriers to conservation and management activities such as capacity building support, planning, targeted research programs, zoning and a contributionto surveillance and control, but also to finance investments to infrastructure and equipment. 2.4. Sustainable use o f PAS Svstem andimprove governance o fANGAP (GEF: US$ 2.40 million: IDA: US$ 1.60 million): IDNGEF would provide support to improve recreational facilities including critical visitor infrastmcture and services, revise tourism fees to capture the consumer surplus and increase revenues from park entrance fees to stimulate the local (eco)-tourist industry and strengthen guiding services. To improve guide services and harmonize guide status under a standard partnership contract, the following activities will be carried out: open the market for guide services to regionaland national service providers and by inciting competition inorder to raise local service provision; involve the private sector in tourist guide training and service provision; involve the private sector inguide based training and service provision through the creation o f partnership and collaboration with the Ministryo f Culture and Tourism in the licensing o f professional guides. Project support will focus upon efforts to overcome barriers to the advancement o f eco-tourism inexisting and new PA sites selected for GEFIWB support. It i s expected that these efforts will focus six Management Units (UG), covering eight protected areas. These barriers include: absence o f suitable tourism products, including trails and interpretation facilities; lack o f articulation o f - 16- PASintourism markets; and development o fprotocols and infrastructure to engender responsible tourism. Project support is expected to increase visitation and gate fee retums, contributingto an improvement in ANGAP's financial sustainability. This sub-component will also provide financing for technical assistance and capacity buildingto further improve ANGAP's govemance by focussing on the development and implementation o f a cost reduction action plan, improving financial and administrative management, and providing strategic and technical support to prioritize the investments (inparticular relatedto ecotourism) inalignment with the PA management plans andthe new business plans, and supportingquality reviews o f the implementation o f the M&E system designed duringpreparation. Support will also be provided to develop and implement the replication plan. 2.5. Endowment o f the new Malagasy Protected Areas and Biodiversity Foundation for long.term funding. /GEF:O; IDA:US$ 7.50 million): This activity aims to strengthen the national financial capacity to support the P A system and biodiversity conservation over the long-term. The project will provide a seed contributionto an endowment fund managed by the Malagasy Foundation for Protected Areas and Biodiversity o f which the interest would be used to finance biodiversity conservation activities in Madagascar's protected areas. Endowment funds have typically been established when: (i) funding public to ensure long-term financing i s insufficient; (ii)efficient market-based or altemative financing options are absent; (iii)there i s strong local support and an enabling environment for their establishment; and (iv) inactionleads to irreversible losses o f global public goods and national economic potential. All these conditions present themselves inMadagascar. Inview of the specific purpose o f the endowment fund, its ability to contribute to the generation o f local benefits, the existence of significant leveraging opportunities and strong government support for its establishment, IDA resoures will be deployed to support capitalization o fthe endowment fund. The Malagasy Foundationfor Protected Areas and Biodiversity, to be created under the new Malagasy Foundation Law i s expected to be created by July 2004, and established initially by the Government, WWF andCI. Other donors (Germanu, France) have also already expressed strong interest insupporting the Foundation. An additionalGEF contributionto match IDA, WWF, CI and others contributions towards an endowment fund will be requested at mid-term review following compliance with specific benchmarks and the establishment o f a sound track record o f the Foundation. Key benchmark indicators include effectiveness o f the Board; quality o f the Executive Secretariat o f the Fund; effectiveness o f Asset manager; disbursement conditions o f the investments; commencement o f grant making activities and; effectiveness o f the institutional structure to carry out defined activities under the Trust Fund. The objective o f the project is to generate US$ 50 million by the end o f EP 111. Component3: EnvironmentalMainstreaming(IDA: US$8.5 million) 3.1 Environmental Information, Education and Communication (IDA: US$ 1.5 million) As far as Environmental Information is concemed, the project will support ONE inthe operationalization o f Environmental MIS (TBEs) particularly to the regional level, thereby establishing a system o f environmental information. As far as Environmental Education and Communication is concemed, IDA will finance a selective number o f activities that reflect the comparative advantage o f the institutions that are associated with the EP 111, including (i) the preparation o f educational materials; (ii) providing relevant environmental information on-line and developing environmental information packages andtraining materials for opinion-makers, EP I11target communes as well as the mass-media, (iii) support the DGE in carrying-out environmental training and dissemination activities. 3.2. Environmental Legislation, Policv-Making. and Regulations (IDA: US$ 2 million): IDA financing will be available to enable the DGEto carry out a total o f 15 strategic environmental assessment (SEAS). This - 17- will permitthe DGEto ensure the coherence of sector legislation with the environmental legal framework as reflected inboth national legislation as well as Madagascar's participation ininternational conventions and treaties. It will also support the establishment of aunit inthe DGEto carry-out upstream environmental analysis of proposedlegislation andpolicy measures. Last, but not least, it would provide capacity buildingand institutional strengtheningfor the development of carbon finance transactions in Madagascar, and other sustainable financing mechanismsfor the environment inMadagascar, such as payments for ecological services. 3.3. EnvironmentalComdiance (IDA:US$3.0 million): IDA financing will particularly aim to improve the applicationof MECIElegislation by supporting efforts that would increasethe speed of the EIA process, reduce costs, while ensuringminimally acceptablequality. IDA financing will be available to position ONE to effectively assume its role to operate a EIA one-stop-shop for MECIE legislation compliance and put in place a result-based and service-oriented approach. This will entail support for: (i)institutional capacity buildingaimed at ensuring compliance with I S 0 9001quality standards; (ii) decentralization o f the MECIE process by strengtheningthe CFWs as provincial platforms of information and expertise; and (iii) promotion of environmental auto-regulatory mechanismssuch as I S 0 14000, MSC, FSC and GAA. 3.4. EnvironmentalManagement and Coordination (IDA: US$2.0 million'): IDA will support the MinEnvEF: (i) put inplace a financial management systemthat would enable the Ministryto position to itself for budget support programs after EP 111; (ii)following recommendations from SOATEG, to establish a M&E evaluation system that would enable tracking of EP I11results and impacts; and (iii) basedon the results of institutionalassessment carried out by BIODEV, implement agreedinstitutional reforms that would strengthenits presence on the ground as well as reinforce its coordination mechanism with other public sectorprograms and the donor community. Inaddition, IDA financingwould be available to support the institutional strengtheningprocessof environmental units inthe sector ministries. Sustainable Development 38.70 26.0 0.00 Forest EcosystemsManagement 34.40 23.1 18.00 ProtectedAreas Management 45.90 30.8 13.50 Marine andCoastalZone Ecosystems Management 2.40 1.6 0.00 EnvironmentalMainstreaming 27.50 18.5 8.50 Total Project Costs 148.90 100.0 40.00 Total Financing Required 148.90 100.0 40.00 2. Key policy and institutionalreformssupportedby the project: Most of the groundwork concerning the establishmentof a relatively sound and coherent policy and institutionalframework for the environment has already beenlaidunder the previous phases of the NEAP. Consequently, the policy and institutionalreform agenda of the project is relatively limited inscope and primarily aimed at: (i) mainstreaming environmental policies; (ii) further improving sector governance; and (iii) financingfortheenvironmentonamoresustainablefooting. putting Furthermainstreamingenvironmentalpolicies Importantpiecesof the policy agenda would include the incorporationof more explicit environmental - 18- considerations into landmanagementand tenure policies, energypolicy as well as water management policies. Efforts underthe project would focus on definingandputtinginplace an optimal mix of carrots andsticks that would provide incentives for the conservationandsustainablemanagementof land, energy and water resources. To promote mainstreamingof environmental policies from a processpoint of view, the mandate of environmental units insector ministrieswould be enhanced so as to integrate EIAs into the review processof legislative proposals. Compliance with existing MECIE legislation would be facilitated by reducing transactionscosts through the creation of a one-stop-shop inONE. Inview ofthe actual situation there is a needthat sector ministries make specific and sufficient budget allocations to ensure that public investments fully comply with MECIE legislation. ImprovingSector Governance Following the creation of a single Ministryof Environment, Water and Forest (MinEnvEF),the GoM has moved rapidly to develop an integrated vision of the institutional framework for the sector. The project would support implementation of this framework that seeks: (i) to focus MinEnvEF'smandateon core public sector responsibilities associatedwith policy-making andregulatory functions; (ii) to locate core operational environment functions in specialized institutions for protected areas management, forest managementandEIA management; (iii) to strengthenMinEnvEF's coordination capacity with other sector ministriesandprograms; and (iv) to concentratesupport for sustainableNRMat the commune levelby facilitating the establishment of a specialized fund (Fonds deAppui au Gestion Environnementale Communale, FAGEC). As far as forest-related issues are concerned, the project would pursue a reform agendathat couldprovide the foundation for puttingthe sector on a more accountableand sustainable footing. This agenda would include the following elements: (i) an institutionalreform to re-focus the mandate, programs and funding of key institutions dealing with forests inline with the agreedinstitutionalframework; (ii) completion, discussion anddissemination of the zoning planwith local governing bodies and local communities, demarcation andeffective preservation of areas to be managedpermanently under forests; (iii) recasting the rules for usingor managementofproduction forests and forests where land conversion to other uses i s an option; (iv) design o f transparent, competitive systems for selectingcompanies interested incommercial forest operations; (v) undertakinga review, simplification and consistency check of regulations, including modalities to actually enforce rights and obligations, apply penalties effectively; (vi) development of a transparentplanto discontinue current logging contracts and other forest use concessions over aperiod of three years, and to allocate newly-designedpermits to qualified candidates; (vii) a forest taxation reform and creation of ajoint forest revenue security program by the Ministries incharge o f Forests and Finance; (viii) accelerationand quality improvement of current managementtransfer schemes (GELOSE, GCF and alike); and (ix) setting up of an informationsystemto better help decision making. The project would particularly coordinate activities inthe forest governance arena with envisagedUSAID-support so as to ensure complementarity and optimize synergy. As far as transitional measures for good governance inthe forest sector are concerned, it has beenagreed duringNegotiations that the GoM would maintain abanonthe export of non-processedprecious wood ( bois ebene, bois de rose, palissandre) and a moratorium on the allocationof new permitsof bois ebene, untilatransparent, competitive allocationsystembasedon licensing agreementshasbeenput inplace.New permits for all other wood species would only be allocated following a transparent and competitive process, based on an objectively verified forest inventory. Ithas beenagreedthat underno condition permits would beprovidedon a single-sourcebasis. OSF would be informedof all new permits for post-review. As far as the allocation and managemento f collection and export quota for CITES flora and wildlife trade are concerned, the GoM duringappraisal has reconfirmedits commitment to the Action Planthat has been - 19- agreed with CITES. It has been agreed that the Action Planwould be used as an explicit reference by OSF for compliance monitoring purposes. It is envisaged that proper implementation o f the Action Planwill result in: (i)sufficient institutional capacity to effectively monitor flora and wildlife collectionand expert permits; and (ii) operational cost recovery system under which permit fees pay for the required an allocation and monitoring system. Puttingfinancing for the environmenton a moresustainablefooting Support for the development of sustainable financing mechanisms for the environment are closely linked with the type o f economic benefits generated by the project, includingthose associated with eco-tourism, hydrologicalservices and international willingness to pay for globally significant ecological services. In this context, the projectwould pursue discussions onreforms that would leadto abetter alignment between taxation mechanisms and tax rates on the one hand and incentives for the conservation and sustainable use o f natural resources on the other hand. Examples may include: (i) allocation o f reasonable share o f revenues from tourist visas to ANGAP; (ii) establishment o f a commune levy on charcoal, favoring sustainably produced charcoal; and (iii) fiscal measures that could promote accelerated adoption o f substitute fuels for charcoal and fuelwood. The project would help establishing and contribute to the proposed endowment fundto be managedby the Foundation for Protected areas and Biodiversity in Madagascar so as to put inplace a sustainable financing mechanismfor biodiversity conservation and protected areas management inthe country. Inaddition the project would provide capacity buildingand institutional strengthening for the development o f carbon finance transactions inMadagascar, and other sustainable financing mechanisms for the environment inMadagascar, such as payments for ecological services Additionally, the project will support the development and implementation o f a result based cost reduction action plan within ANGAP, and has agreed upon a 50:50 ratio o f operating and investment costs with regards to IDA and GEF funding to avoid issues such as little investments andhighoperating costs faced duringthe course o f implementation o fthe EP-11. Last, but not least, the project would seek regulatory reforms that would improve competitiveness and transparency into the allocation o f forestry management and logging rights. It would improve the fee collection recordo f logging permits through outsourcing. It would reduce transaction costs associated with surveillance and control o f logging permits through improved economies o f scale achieved by an increase in the minimumsize o f the permits. 3. Benefitsandtarget population: The main benefits o f EP-I11 relate to maintenance of ecosystem functions and services, conservation o f flora and fauna species and of genetic biodiversity for both local and global benefits, coastal protection, carbon sequestration and amenity values for tourism and recreation. The project's strategy seeks to diminishhuman pressures inPAS,P A support zones andnatural forests by demonstrating sound alternatives to the present unsustainableproductionpractices, thereby promoting sustainable economic activities for the local populations. Alternative revenue generating activities targeting forest edge and coastal communities neighboringPASwill be developed as part o f the management o f these areas. Thus, better management will have a positive impact on the livelihoods o f the people living inand around the PAS.Women will particularlybenefit from the focus on gender balance inmanagement activities. Local communities and other stakeholders will benefit from the capacity-building measures to be undertaken in the proposedproject. - 20 - Local benefits and beneficiaries Communities that are neighboringnational parks would benefit from increased revenue sharing transfers by ANGAP o fpark entrance fee receipts. They would benefit from increased employment opportunities inthe tourist industry as well as the multiplier effects o f an expanding tourist sector through diversification o f the local economy. Communities located incritical eco-regions would be able to capture benefits associated with soil, water and biodiversity conservation subprojects financed under the program. Improved govemance in the forestry sector would improve fee collectionrecords, thereby increasing revenue transfers to communities under the National Forestry Fund. Transfer o f forestry managementrightsunder GELOSE/GCF contracts would generate benefits for rural communities that are located at the agricultural frontier. Improved local planning capacity as reflected in PCDs and marine and coastal zone management plans would set NRMon a more sustainable footing, thereby stabilizing revenue streams o f communities that depend on their use and exploitation inthe mediumto long run. Improvedwood-fuel use, coupled with the introduction o f substitution fuels, would reduce the risk o f respiratory diseases, thereby positively impacting the health status o f rural households. Research and development o f non-wood forestry products is expected to generate concrete opportunities for income diversification that would benefit communities in rural areas. National benefits and beneficiaries Improved park visitor infrastructure and services would contribute to accelerated growth o f the tourist sector which would benefit the diversified range o f operators inthe value-chain as well as generate employment opportunities for the population at large. Improved govemance inthe forestry sector would increase fee collection o f logging permits which would subsequently benefit the fiscal position o f the G o M at all levels. Soil erosion control measures carried out under the program could provide valuable benefits to downstream users o f watersheds (e.g farmers, hydroelectric power generators and water consumers). Streamlining o f environmental institutions would generate efficiency gains with positive fiscal impacts for the public sector. Improved compliance o f public andprivate investments with EIAs and corresponding mitigationmeasures would generate benefits interms o f foregone negative extemal effects. Biodiversity conservation initselfwould represent potential benefits through option values that could be capturedby puttinginplace a system of bioprospecting rights.Eco-certification schemes to be promotedunder the project could provide value-added for consumers. Reforestation schemes for carbon sequestration purposes could start providing a valuable contributionto the nationaleconomy. Global benefits and beneficiaries Improvedbiodiversity conservation inMadagascar would generate benefits for the international community through protectiono f existence values, future use option values (e.g. medicinal plants awaiting discovery), and carbon sequestration benefits. Consolidating or increasing forest cover would provide benefits to the international community interms o f available carbon emission capture capacity to control global warming and its possible effects. Inaddition, intemationaltourists visitingMadagascar would benefit from improved infrastructure and other ecotourism related services, life-fulfilling functions provided by the country's unique biodiversityresources. 4. Institutional and implementation arrangements: Implementation Period The project would be implemented over a 5 year period from 2004-2009. Project effectiveness is expected by July 1,2004. A mid-term review would be conducted before December 31,2006. The project is -21 - expected to be completed by June 30,2009. Recipient and Executing Agencies The Recipient o f the IDA Grant and GEF Trust FundGrant to finance the project would be the Republic o f Madagascarrepresented by the Ministryo f Economics, Finance and Budget. The Ministryo fthe Environment, Water and Forests would coordinate execution o f the project. The Department o f Water and Forests (DGEF) would take a lead role inthe execution o f the Forest Ecosystems Management component. The Department o f the Environment (DGE) would take a lead role as far as the policy and regulatory functions associated with the Environmental Mainstreaming component are concerned, while the National Office o f the Environment(ONE) would take direct responsibility for selected items o f the environmental mainstreaming agenda, including: (i) environmental information, education and communication; and (ii) operational aspects o f reducing transaction costs and improving compliance with EA legislationin Madagascar. The NationalAssociation for the Management o fProtectedAreas (ANGAP) would take a lead inimplementingthe Protected Areas Management component o f the project. Proposed reforestation activities under the project might be channeled through the Fond deAppui a la Gestion Environnementale des Communes (FAGEC), following the intentiono f the GoM to create this fund. Malagasy Foundationfor Protected Areas and Biodiversity A TrustFundSteering Committee (TFSC) appointedby the Minister o fthe Environmentin2001 is currently working on the establishment o f a Foundation for ProtectedAreas and Biodiversity. It is expected that the Foundation will be operational by July 2004. The Foundation represents one o f the pillars o f the larger sustainable financing agenda that is pursuedunder EP-111. The Foundation i s expected to leadto mobilization o f substantial funding necessary to gradually cover the core costs o f the protected areas network and its expansion, selected projects in support zones, andthe sustainable development o f priority ecological corridors. It is expected that by the endo o f the project, the Foundation would have raised US$50 million. The proposed Malagasy Foundation for ProtectedAreas and Biodiversity, would be established as a foundation under a new Foundation Law to be submitted to Parliament inApril 2004. Although the Foundation would be legally registered inMadagascar, most o f its assets would be invested offshore. It i s expected that the Foundation would be established initially with pledged seed money from WWF, CI and the G o M under debt-for-nature swap with the Government o f Germany. This provides the basis for specific fund-raising activities that address the public and private sector. The project may help operationalize the Foundation by usingit as a pass-through once enabling fiduciary conditions are inplace. The project would contribute to an endowment fund managedby the Foundation trough an envisaged IDA contributiono f US$7.5 million. Policy Guidance Overallpolicy coordination o f the NEAP is currently providedby the existingInterministerial Environment Committee (IEC), chaired by the Minister o f the Environment. The IEC is guided by independent advice from a consultative National Environment Council. The need for greater integration o f the NEAP with other sector programs such as the PADR, PST etc., the strong focus on rural development inthe recently completed PRSP, as well as the new ministerial structure that has beenput inplace since January 2003, has fueled discussions within the Government and donor community to put inplace a mechanism for policy guidance that is based on a more holistic view o f rural space. Rather than having Interministerial Committees organized along sector lines, this might well lead to a single Interministerial Committee for Rural Development and Environment that works inpartnership with the donor community. Proposals along these lines have been developed and it is expected that a final decision will be taken sometime inthe Spring o f 2004. Consolidation o f the intersectoral arbitrage functions, currently carried out by the IEC, - 22 - should be ensured within the new structure. ProjectOversight A Joint Committee, consisting of relevant government agenciesand donors, presidedbythe Minister ofthe Environment, Water and Forests and co-presided by a representative o f the EP-I11donor community, would be responsible to coordinate program activities under the thirdphase o f the NEAP. Rather than coordinating inputs and resources as was done under EP-11, the Joint Committee would: (i) ensure that government and donor investments are defined andimplemented inclose relationto the agreed results agreement o f EP-111; and (ii) monitor progress towards the agreed results o f EP-111. ProjectManagement A Project Implementation Support Unit(PISU) would be responsible to assist ONE, DGEF, DGEand ANGAP inthe execution o f the project at the operational level. The Unit would be established within the Ministryo fthe Environment, Water andForests, The PISUwould consist ofa team o fdedicated professionals with relevant disciplinary backgrounds for the purposes o f the Project. They would include a coordinator, procurement and financial management specialists, an internal auditor, as well as M&E specialists. The PISUwould have the following functions: (i) consolidate annual operating plans and ensure their execution once approved; (ii) elaborate semestral monitoring reports with approved annual operating plans as reference; (iii) elaborate and propose modifications to project manuals and guidelines; (iv) coordinate execution o fapproved procurement plans; (v) arrange for the contracting o f the external auditors o f the project; (vi) manage a system o f result-based disbursements from the Special Account to ONE, DGEF, DGEand ANGAP basedon results agreements o fthese institutions with the Minister o fthe Environment, Water and Forests; (vii) ensure compliance with agreed norms andprocedures specified in the Grant Agreement; and (viii) interact with the World Bank regarding all project related themes, including the preparation and presentation o freports and no-objection requests and the coordination o f all supervision missions. Incase other donors would decide to directly transfer resources through MinEnvEfin support o f EP-111, it i s understood that the PISUcould play a similar role to assist inthe implementationo f it. Procurement Technical aspects o f the procurement process (drafting TDRs, technical specifications etc.) would be the direct responsibility o f the executing agencies. On its tum, the PISUwould be responsible for carrying-out the procurement process, following Bank guidelines andprocedures. Accounting, FinancialReportingand Auditing Arrangements The Ministry o f the Environment, Water and Forest would be responsible for all financial management aspects o f the Project with assistance from the PISU. Duringthe project preparation process a financial management assessment has been conducted in accordance with OPBP 10.02 and Financial Management Sector Board Guidelines inorder to: i)determine whether these entities have acceptable financial management arrangements (accounting and budgeting systems, internal controls, reporting and auditing); ii) define the required support to the Ministryo f the Environment andthe Ministryo f Water and Forests to effectively assume all required financial management functions. Based on this assessment an actionplan has been agreed that would bringthe financial management capacity o f the Ministryo f the Environment and the Ministry o f Water and Forests inline with Bank requirements. FundsFlow (seeAnnex 6B) The flow o f funds from IDA, GEF, the government and other donors i s presentedas follows : - 23 - I +I I I - Special PISU Account IDA Grant -- Project Special Account GEF - Other accounts Account Foundationfor Protected FAGEC: Areas andBiodiversity Community Env. -- AccountstInterestfromCapital Mgmt Support EP3 funds account Fund I f I Communes ~ I I I Contractors, Suppliers of Goods and Services t+ Monitoring and Evaluation A M&E systemhas been developed as part o fthe project preparationprocess with available PHRD resources. Operational responsibility of monitoring and evaluation arrangements o f project activities would be the responsibility o f the implementing agencies. The PISUwould be responsible to integrate M&E results at the EP-I11program level and differentiate according to financing source. The Joint Committee would meet at least once a year to monitor program development and to reorient the program as needed. ONE would play an important role inproviding the PISU with environmental data and information as part o f its responsibility to prepare Tableaux de Bord Environnementaux at different levels (national, provincial, regional). External reviews to assess the outcome o f the M&E scheme will be carried out at least once a year. A mid-term evaluation will be undertaken to evaluate progress and recommendmid-term - 24 - corrections. A final evaluation similar to that at mid-termwill be performed relative to the output and outcome performance indicators, to evaluate the impacts of and lessons learnedfrom the entire duration of the 15-yearNEAP. Details about the M&E system are provided inAnnex 15. Donor Coordination Rather than ajoint program, as was the case under the second phase of the NEAP, the thirdphase would be supported by a series of parallelprojects financed by IDNGEF, UNDP/GEF, USAID, FAC, KfW, GTZ, Tany Meva, WCS, WWF and CI. Doingso would enable a more direct linkage between financing source and results on the ground, while avoiding the needfor coordination among donors at the activity and input level, which has proven to be difficult under EP-11. To ensure a Sector Wide Approach, ajoint GoM-donor results framework has beendeveloped that lays out the expectedoutputs of EP-111. Participating donors in EP-I11have committedthemselves to organize their investmentsin such a manner that they would contribute to the realizationof these outputs. At the same time, participatingdonors have agreedto be held accountable for the contributionof their investmentsto the expectedresults of EP-I11by having their programs subject to EP-111's common M&E system. The Joint Committee would provide ajoint GoM-Donor platform to discussprogress of EP-I11basedon the agreedresults framework, while the Donor Secretariat (SMB), set-up under EP-11, would continue to play an important role to ensure smooth functioning of the Joint Committee. Although the Sector Wide Approach focuses on coordinating efforts at the output levelmainly, the establishmentof the Trust Fundfor BiodiversityProtection bythe Madagascar Protected Areas Foundation, as well as the envisagedFAGEC, provides an opportunity for donors to pool their resourcesfor a commongoal ina significant manner as it is envisagedto raise US$50 millionfor the trust fundby the end of EP-111. Intervention Area With the aim to better focus activities as well as to better take into account efforts of other public sector investment programs (notably those under the PADR andPST), the geographical interventionarea of EP-I11has been defined following a formal prioritizationprocess. Prioritization criteria include: (i) biodiversity importance; (ii) levels; (iii) threat expected costs and benefits; (iv) opportunities for local collaboration; and (v) interventionareas of other public investment programs. Based on these criteria, EP-I11will concentrate its field-based activities in 530 communes, covering a population of about 4.9 million people (41% of Madagascartotal population) and an area of 32 millionha (55 % of total territory). The ProtectedArea network of Madagascarmanagedby ANGAP aims to consist of 36 Management Units (Unitede Gestion UG), corresponding to 46 ProtectedAreas. The IDA andGEF contributionto - ANGAP's protected area system will be selective under EP-111. I t will support a total of 22 UG, corresponding to 27 ProtectedAreas. The GEF will lend support to 15 UG, while the remaining7 will be supported by IDA (refer to Annex 16 for site description, and selection process). D. Project Rationale 1. Projectalternatives considered and reasons for rejection: Four other project alternatives were consideredbut were rejectedlargelybecause they addressed the envisageddevelopment objective of the project ina non-integrated manner. The first altemative consisted of a project that would support the proposed thirdphase ofthe NEAP as a financier of last resort as has beenthe case under the on-going secondphase. This alternative was rejected following the conclusion of the QAG that the support of the Bank to the secondphase of the NEAP has been spread too thinly, thereby complicatingthe achievement of expectedimpacts. Inaddition, beingthe - 25 - financier o f last resort also complicates establishing a clear linkage betweenBank financing and results on the ground. The second alternative consisted of a project that would focus solely on the management o f protected areas. Because o f ANGAP's relative institutional strength, this altemative i s attractive as it would ensure relative effective and efficient implementation o fproposedproject activities. However, this altemative was not pursued as concentrating biodiversity conservation onjust a number o f protected areas does not address the root causes o f environmental degradation inthe country. The thirdalternative consisted o f a project that would focus solely on the development o f sustainable financing mechanisms. Doing so would be inline with the stated objective o f the thirdphase o f the NEAP as was envisaged at its launch in 1989. This alternative was not pursued because it would ignore the financing needs o f critical environmental investments and institutions inthe periodprior to which sustainable financing mechanisms could be effectively put inplace. The alternative was also rejected as the feasibility o fputtingsustainable financing mechanism inplace strongly depends on the extent to which existing governance issues could be addressed inan effective manner. The fourth alternative consisted of a project that would focus solely on the forestry sector. This alternative would be based on the consideration that mounting govemance problems inthe sector are serious and complex and that it would take a dedicated operation to address these problems effectively. Although this alternative appeared attractive, it was rejected based on the consideration that the advantage o f focusing narrowly on a single sector would most probably be outweighed by the disadvantage o fnot being able to pursue opportunities for environmental mainstreaming that are equally important to create enabling conditions for good govemance. Concerning household energy, the outright subsidization o f LPG has been rejected as it would mainly benefit already better-off households, while its effectiveness and efficiency as a mean to reduce pressure on natural forests is questionable. The alternative chosen, that i s to generate income from sustainable woodfuel exploitation at the village level, has muchhigher economic benefits. However, the distributiono f LPG in smaller containers could be attractive for a large portion of the population and marketing tests o f 3 kg and 1kgLPGbottles will be carried out under the project to view ifandhow this can leadto scaling-up LPG use. IDA Credit versus IDA Grant Five criteria have been set out by IDA donors as part o f the IDA 13 replenishment framework for eligibility of IDA Grant financing, including: (i) HIV/AIDS, (ii) disaster, (iii) natural post-conflict, (iv) poorest IDA-only country, or (v) particularly debt-vulnerable poorest IDA-only country. Madagascar qualifies under the fourth criterion. Inview of this, the CAS proposes to use the entirety o f the country's IDA13 grant allocation for 2004 for the proposed Third Environment ProgramSupport Project. Doing so reflect the project's capacity to effectively address issues o f rural poverty by buildingon the positive linkages between poverty and environment, particularly through the generation of hydrological benefits. Inaddition, with Madagascar being a mega diversity country, itrecognizesthat the project would generate global benefits associated with improved biodiversity conservation. Inline with this notion, the project aims to ensure proper management o f Madagascar's protected areas system and bringingforest and biodiversity assets outside protected areasunder effective conservation regimes. Inline with existing I U C Nnorms, this reflects Madagascar's commitment to bring 10%(up from 3%) o f its territory under effective conservation regimes, as expressed by the President of the Republic at the World Parks Congress inDurban in September 2003. - 26 - 2. Major related projects financed by the Bank and/or other developmentagencies (completed, ongoingand planned). I I I Latest Supervision Sector issue I Project (PSR) Ratings (Bank-finance wojects only) Implementation Development Bank-financed Progress(IP) Objective(DO) Rural Development Rural Development Support S S Project (3524-MG) Community Development Community Development S S Project (3498-MG) Energy Energy SectorDevelopment S S Project (2844-MG) Economic Policy and Governance SAC-2 (3218-MG) S S Transport Rural Transport Project S S (3717-MG) Environment Environment Program I1 S S (1537-MG) Other development agencies USAID LandscapeDevelopment Initiatives , UNDP/GEF EP-11: Biodiversity and Marine Components 1 GTZ GreenMad: Efficient charcoal tc protect natural forest National parks management EP-11: Natural resources I managementand training NORAD Zombitse Reserve Management IBemerahaNationalpark conservation (IPIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), I (Highly Unsati! ctory) EP I11will seek to develop effective coordination with rural development programs, inparticular with the large Bank-funded rural development operation (PSDR), but also with similar programs or projects inthe areas of rural roads (PST), rural infrastructure (FID), energy and tourism. At the national level, it has been agreedto seek formal agreementswith such operations, starting with PSDR through a protocol between MinEnvEFand MAEP. Similarly, activities under the Critical Ecosystem Partnership Fund(CEPF) program inMadagascar for 2001 and 2002, have served as additional inputinto the design of the full GEF EP I11proposal, thus providing a complimentary linkage. CEPF is funding conservation initiatives ledby civil society organizations. A primary emphasis o f CEPF fundinginthe region i s on integrating local groups and individuals inthe managementof protected areas and reserves. Throughout the hotspots, and especially in Madagascar, increasedfinancial and technical support for NGOs i s neededto enhance the managementof existing parks and reserves.Investments under the CEPF program are being carefully targetedto avoid any duplicationof effort with other GEF activities and maximize synergies with the said activities. Efforts are -27 - focused on organizing and buildingcapacities withincivil society to implement conservation activities, taking a `leaming by doing' approach. 3. Lessons learned and reflectedin the project design: As part o fthe EP-I1completionprocess, considerable efforts have beeninvestedto assessperformance as well as distill lessons learned from EP-11. For this purpose, a detailed matrix has been preparedthat links EP-I1Results and Impacts, Lessons Leamedand Gaps to Expected EP-I11Outcomes (copy inProject Files). The most important lessons are the following. Streamlined Program Approach. Under EP1 the implementation o f the NEAP had taken the form o f a number o f separate donor-driven projects without obvious linkages between each other. EP-I1insteadwas largely based on the proposals developed initially by the implementing agencies (AGEX) o fEP1, on a multi-donor appraisal and negotiations process, and on the establishment o f a donor coordination mechanism inthe form o f a Multi-Donor Secretariat. The key mechanisms o fthe program were: (i) an annual consolidated programmingand budgeting process, through periodic multi-donor meetings; and (ii) a consolidated monitoring and evaluation system. Inretrospect, the system hadthe benefit o f promoting close collaboration between AGEX and between donors, but also proved overly time consuming, as well as ill-adapted to the way o f working o f bilateral donors as indicatedby a QAGReview in2000 as well as the draft EP-I1ICR. A possible solutionto this problem could have been to structure EP-I11according to the more recently established Rural Development Action Plan (PADR). The PADR is a reference framework, which permits grouping o f different interventions that share a common focus and common intervention principles. However, it lacks an explicit coordination mechanism and commonly agreed outputs that would enable linkingthe contributiono f different interventions to explicitly defined program results and outcomes. Inlight o f this, EP-I11has been developed as a sector-wide program approach with the following characteristics. First,the program is based on overall policy guidance providedby the Ministero f the Environment, Water and Forests through a specific Letter o f EnvironmentalPolicy. Second, the program is based on a commonly agreed Results Framework that defines objectives, results and activities along with corresponding impact, output and input indicators. Third, participatingdonors agree to measure the success o f their contributions to EP-I11based on the commonly agreed program impact indicators, while being committed and prepared to be held accountable for the financing o f a set o f specific outputs included inthe ResultsFramework. Fourth, arrangements for poolingofresources underthe approachhavebeen set-up through the Madagascar Foundation for Protected Areas and the Fonds de Appui de Gestion Environnemental Communale. Fifth,the programwill deploy a result-based monitoring and evaluation system and organize information flows to capture the outputs o f the various program contributions financed by participating donors that together will make up EP-111. Improved Coordination with other Programs. Inorder to better integrate the environmental program with the country's overall development and for the sake o fpursuingenvironmental mainstreaming, EP-I11would seek to enhance coordination with other sector ministries and investment programs. For this purpose, MinEnvEFhas already signed aprotocolwith MAEPto ensure coordination with the large Bank-funded rural development operation (PSDR) for sustainable development activities inprotected areas buffer zones and eco-corridors. Similarly, MinEnvEFwill seek coordination with the Ministry o f Culture and Tourism, Ministryo fEnergy, andthe Ministryo fEducationthrough specific agreements to ensure appropriate complementarity and synergy inrespectively P A visitor infrastructure development, domestic energy and environmental education. More specifically, these agreements will cover five domains: (i) division o f responsibilities: this could be based on the type o f activity (e.g. regarding energy, EP I11will deal with fuel wood, charcoal and the like, while rural electrification should be left to the Energy program) or geographical location (EP I11has identifiedpriority areas o f interventioncorresponding to some o f the key - 28 - objectives); (ii) complementarity: when several operations deal with the same activity (e.g. supporting the formulation o f Communal Development Plans), they should make sure that their coverage will complement each other; (iii) synergy: crop intensification inan area might decrease pressure on a nearby Park; (iv) duplication: avoiding having several major operations undertaking very similar activities in support o f the same beneficiaries; and (v) conflict management: arising as a result o f the availability o f credits versus grants, or varying levels o f beneficiaryparticipation. Last but not least, EP-I11would launch a tavy and forest fire monitoringprogram aimed at effectuating cross-sectoral conditionalityfor public investment eligibility based on the effectiveness o f agreed control measures at the commune level. The MinEnvEFwill coordinate application o f the results o f this monitoringprogramwith other relevant sector ministries and investment programs, including PST, FID etc. Emphasis on Performance-based Implementation Mechanisms. EP I1was implementedby the environment agencies established by the program including ONE, SAGE, ANGAP, and ANAE, and by line departments (Water and Forests, Land Registration) and other public agencies (FTM, the Geographic Institute; CFSIGE, a training institute), under the coordination o f ONE and the oversight o f the Environment Ministry.Duringtherestructuringof2001,the number ofproject agencies was reducedfrom sevento four. At the same time, ONE hasbeenre-structuredto focus on its core hctions. The review o fthe lessons emanating from the various structures established during EP Iand EPII is near completion. Key findings pertinent to the implementation and sustainability o f EP I11include: (i) transfer o f control over natural the resources to communities has been a critical tool for puttingan end to defacto open access and for empowering communities to control access to "their" natural resources, this confers with the experience in Mahajanga under the Energy Sector Development Project (completed); (ii)key weakness inEP I1design a was the false assumption that there were natural resource management systems ready for transfer to communities. Resources were not targeted towards the development o f pilot systems and lessons learned in sustainable use from other countries have not been properly exploited; (iii) potential for the commercially-oriented natural resource management that generates incentives for sustainable use and that contributes to poverty alleviation, has been frequently ignored. Most transfers have been for noncommercialu s u h c t rights only; and (iv) support to participatory planning has resulted ina unique dynamism that contributes to good governance, brings civil society into the decentralization process and brings divergent groups together to confront common environmentallnaturalresource problems. Based on the lessons o f EP-I1and the call for more flexibility and for the participationo f more agencies, EP-I11will therefore be implemented by a larger number o f entities (AGEX, local governments, communities, NGOs, service providers, etc.) under a system o f result agreements between MinEnvEFand implementing agencies, along with performance monitoring by the PISU. Explicit Measures to Address Governance. Governance issues have seriously hampered achieving positive outcomes inthe forestry sector duringthe EP-111. They also have had a negative impact on the image and credibility o f the program. Lessons from EP-I1 demonstrate that governance issues can not be left unattended. Itwas only late in the EP-I1 implementation process that governance issues were dealt with in more explicit terms and moved towards the center o f the sector dialogue. Action plans to deal with specific governance issues were agreed, which led to partial successesconcerning fee collection from logging permits, moratorium on the delivery o f CITES collection and export permits, etc. However, rather than dealing with forest governance issues ina responsive mode through action plans as was the case under EP-11, EP-I11proposes to follow a more structural andpro-active approach, consisting among other o f the following elements: (i) improving institutional checks-and-balances by spinning-off operational forest management functions into a specialized organization and keepingonly policy-making and regulatory and control functions within DGEF; (ii) expanding forest zoning coverage as a mean for better informed and more transparent decision-making; (iii) transferring forest management functions to communes under - 29 - GELOSE/GCF arrangements, whereby they directly benefitfinancially from sustainable management practices; and (iv) strengthening watch-dog functions o f OSF so as to ensure constant pressure for better governance on all parties involved inthe sector. 4. Indicationsof borrower andrecipientcommitmentandownership: Inrecognition ofthe global significance ofthe country's biodiversity andthe needfor its urgentprotection, the Government o f Madagascar (GoM) was the first inAfrica to elaborate a National Environmental Action Plan (NEAP) as early as 1989, six years prior to signing the Convention on Biological Diversity. The corresponding EnvironmentalCharter, promulgated in 1990, states inter alia that: (i) environment the i s a major concern for the government (Article 3); (ii) NEAP constitutes the basis for all actions inthe the environmental field (Article 5);and (iii) Environmental management is ensured by the government, local authorities, legally created NGOsand all citizens (Article 7). To implement the NEAP and objectives o f the Charter, the EnvironmentProgramwas designed from the beginninginthe early 1990s as a long term effort, consisting o f three phases covering a period o f 15 years. The Letter o f EnvironmentalPolicy (Annex 1I), signed by the Minister o f the Environment, Water and Forests reflects the on-going commitment o f the current Government to the NEAP, while at the same time laying-out a clear vision and guidingprinciples to achieve this, based on lessons learned under the previous phases o fthe NEAP. At the World Parks Congress inDurbanin September 2003, the President o f the Republic declared Madagascar's commitment to bringthe area under effective biodiversity conservation measures inline with IUCN's norm of 10% o f countries' territories. Inorder to put conservation, rather than exploitation, as the guiding principle for natural resources management inMadagascar, the President o f the Republic already in January 2003 put the existing Ministryo f Water and Forest into the Ministry o f the Environment into a single Ministryo f the Environment, Water andForests. Madagascar's commitment to environmental issues and nature protection is also reflected by its good record o f recognizing and ratifying pertinent international and regional conventions inthe environmental arena. The importance o f the environment is also reflected in the country's PRSP by indicating and referring to the needto address the linkages between poverty and environmental degradation as well as including some performance indicators that are specifically related to the environment and natural resources management. 5. Value addedof Bankand Globalsupportinthis project: The Bank Group's comparative advantage inbiodiversityconservation as well as demand driven rural investment projects, places it ina position to provide strong support to the G o M inimplementingthe third phase o f its Environment Program. Due to its capacity to respond to multisectoral needs inthe form o f assistance inpolicy, infrastructure and capacity development all at once, the Bank is uniquely positioned to provide the muchneeded coordination o f the forestry and PA systems inMadagascar. The proposed project covers all these aspects. The Bankpossesses considerable experience inMadagascar through its participation inEPI and EPII. Also through policy conditionalityin SAC-2, the Bank has been able to address issues o f environmental concern as they related to fisheries, forestry and mining.By being the lender o f last resort, the Bank has facilitated involvement o f other donors inthe environmental program, while at the same time assuming a key role in donor coordination, among others through its substantial support to the Multi-Donor Secretariat that was established under EP-11. Although its role as residual financier would be substantially reduced under EPIII, the Bankwill be able to continue to provide value-added, particularly inview of its envisaged contributionas a global financial institution to the stated objective o f developing sustainable financing mechanisms for the environment and inview o f the potential leverage it can provide as a global development institution inadvancing the governance agenda inthe environment sector. Additionally, both the Bank and GEF provide a significant and influential inputto the biodiversity and - 30 - protected area management activities by focusing upon key sites requiringurgent attention. This i s mainly due to the Bank's increasing experience in, andability to facilitate long-term, programmatic approaches to biodiversity management, poverty alleviation and sustainable resource use. It will also buildupon and enhance the progress Madagascar has made inthe areas o fpolicy, legislative and structural reform inthe environmental sector as a whole. The Bank i s well placed to support on-going efforts inthe protected areas management sector inMadagascar, which is by far the most comprehensive and well-developed o f the natural resource management sectors, and thus offers the greatest potential for economic and biodiversity conservation success. The Bank is also ina position to use its influence across sectors to support the "environmental mainstreaming" component by assuring that projects and agencies receiving fundinginthe relevant sectors include biodiversity conservation criteria and actions. The incremental activities supported by GEF will also promote alternative livelihoods, working to support both economic development and sustained protection o f natural resources. The project involves multiple stakeholders and is multidonor-financed. The value added o f the Bank's support in mobilizing additional finance from bilateral donors is based on its previous experiences where it has developed strong and positive relationships with international and local NGOs and the donor communities involved innatural resource management. Without GEF andBank involvement it will be very difficult to consolidate the protected areas system inMadagascar and bringinlessons from other countries and regions. E. Summary ProjectAnalysis (Detailed assessmentsare inthe project file, see Annex 8) 1. Economic (see Annex 4): Cost benefit NPV=US$16.7 million; ERR = 25 % (see Annex 4) 0Costeffectiveness 0IncrementalCost 0 Other(specify) Inthe absence o fthe project, the rate ofdeforestation is expectedto be about 1% per year. This rate is closed to the one observed by LANDSAT satellite images over the past ten years. With the project, 6 million hectares o f natural forests will be preserved, presenting all different forest ecosystems in Madagascar. The area represents about 10%o f Madagascar's territory, thereby bringingthe country in line with I U C N conservation norms. This objective was confirmedby the President o f Madagascar at the World Parks Congress inDurban in August 2003. To achieve this objective would implya deforestation rate approaching zero based on three different management modalities, including: (i) protected areas covering 2 million hectares; (ii) conservation sites covering 3 million hectares; and (iii) community based forest management covering 1million hectares. Contrarily to the protected areas management modality for forest ecosystems which has been operational on about 1.5 millionhectares since ten years under EPIandEP 11,the two other management modalities have not been used on a large scale inMadagascar as o f to date. Economic benefits associated with the three natural forest management modalities pursued under the project include: (i)Direct and Indirect Use Value (DW and W), (ii) and Non-Use Value (NW),the sum o f which represents the Total Economic Value (TEV) o f Madagascar's natural forest resources. The first two management modalities (protected areas andconservation sites) clearly focus on: (i) preservation o f the the non-use value o f forests (Malagasy endemic biodiversity with lemurs as symbol); and (ii) to a certain extent, indirect (non-extractive) use value through watershed and hydrologicalflow protection. They explicitly prohibit the direct, consumptive use o f natural resources but do authorize the direct, non-consumptive use through eco-tourism, particularly insome o fthe protected areas which are - 31 - well-equipped for this purpose. The third management modality o f community-based forest management does allow for the direct extractive use value o f forests, essentially with regards to biodiversity friendly activities such as fuelwood and Non-Timber Forest Products (NTFP) collection, based on sustainable use managementplans that are agreed with the communes as part o f the management transfer process. At the same time, forest management transfer schemes do not provide significant watershed protection because they are expected to mainly concern lowlands natural forests that are relatively well connected to markets. Inall cases, conservationofnaturalforests provide globalbenefits(an other nonextractive or indirectuse value) by preserving existing carbon stock. Unfortunately, conservation o f standing forest is not currently eligible under the Kyoto Protocol. Consequently, carbon sequestration is not, like watershed protection, counted as an environmental service with corresponding economic benefits, that is providedby natural forests conservation inMadagascar. As a result, the nationalbenefits o f halting deforestation inMadagascar's natural forests, in simple terms, include : (i) fuelwood and NTFP's net revenues associated with the transfer o f management responsibilities to grassroots communities; (ii) foregone productivity andor product quality reduction inirrigated areas and improved provisionof drinkable water to towns downstream o f watersheds containing natural forests (in the case o f protected areas andconservation sites), and (iii) payments for biodiversity conservation direct from developed countries to Madagascar (also inthe case o f protected areas and conservation sites) as indicated inTable 1. Table I:National benejts types and naturalforests management choices TEV componentlmanagement Protected areas Consetvationsites Management transfer choices 1. Direct usage value Fuelwood, NTFP (consumptive) 2. Direct usage value (non- Eco-tourism consumptive) 3. Indirect usage value (non Watershed protection Watershed protection extractive) 4. Non usage Value Biodiversityconservation Biodiversityconservation Costs associated with the preservation o f natural forests include: (i) management costs associated with the given management modality (investment and recurrent cost), and (ii) opportunity costs that reflect lost economic opportunities due to natural forests conservation including revenues associated with natural forest conversion through slash and burnagriculture (tavy) andwith non-sustainable fuelwood harvesting and NTFP collection. Inorder to evaluate the economic benefits ofthe IDNGEF supportedEnvironment Program111,the streams o f national costs and benefits o f the three management modalities have been compared over a 15 years time horizon (5 years duringthe project and 10years post project) using a 10%discounting rate, approximating the opportunity cost of capital inMadagascar. The detailed calculations were first made for preexisting protected areas, which over the last 10 years already have been the subject o f a partial economic analysis; the results o f which have been transferred with caution to the whole protected area network, and further expanded to conservation sites and management transfers (see Annex 4 for the hypotheses and results o f the calculations). As a consequence o f site specificity, the results should be taken as order of magnitude, especially for conservation sites and management transfers. - 32 - The results were positive (NPV>O and ERR>10%) for all three managementchoices (see Table 2 for details), even when hypothesesledto an overestimation of the managementand opportunity costs and an underestimation o f the economic benefits, especially watershedprotection benefits, because of watershed specificities. Consequently, it can be concluded that the investment innatural forest conservation of the IDNGEFsupportedEnvironment Program I11contributes to the welfare of the country. Table2: Natural Forest Conservation Cost/BeneJitAnalysis Present value (IO%, 15 years, $ million)Protected areas ConservationSites Managementtransfers Total Managementcosts ($79.39) ($31.48) ($10.38) ($121.25) tavy foregone revenues ($37.26) ($42.86) ($14.29) ($94.41) fuelwood foregone revenues ($11.07) ($13.38) ($4.46) ($28.91) Biodiversity conservation 34.60 35.91 $70.51 Eco-tourism 60.28 $60.28 Watersheds Protection 58.91 68.67 $127.58 Sustainablefuelwood collection 13.62 $13.62 INPV 113.66 12.56 10.48 1$16.70 132% 120% 112% 125% The principal beneficiaries of EP I11are poor irrigatedrice growers and urban potable water consumers located downstream of protected areas and conservation sites who profit from the significant hydrological benefits associatedwith the Program. The benefits o f the gainers surpass the opportunity costs incurredby upstream farmers engagedinslash-and-bum agriculture who, because of the project, cannot continue to clear forests for this purpose. Inother words, the IDNGEF supported Environment Program I11has a net positive social impact and should contribute to alleviating poverty inMadagascar. It should be notedthat of the three managementmodalities pursuedunder the project, the results of the costhenefit analysis are much more sensitive for conservation sites and community basedforest managementthan for protected areas. This reflects various factors. First,giventhe already globally recognized biodiversity assets of the protected areas system, the probability that biodiversity conservation payments will be reduced or decreasedfaster than anticipated is lower for protected areas than for conservation sites, especially inview o f the envisagedendowment fund for protectedareas. Second, the probability of successfulcommunity based sustainable forest management(by collecting fuelwood and NTFP's) mightbe lower than the probability of eco-tourists continuing to visit the protected areas. Consequently, investmentsinconservation sites and community managementtransfers are more risky than for protectedareas (see Switching Values and SensitivityAnalysis inAnnex 4 for details). 2. Financial(see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) The economic costhenefit analysis shows a positiveNPV for eachofthree managementmodes. Consequently, compensationfor lost economic opportunities as well as recurrent cost financing of the three conservation managementmodalities is inessence a problem of transfers of benefits amongst and between - 33 - the beneficiaries o f the sustainable management o f Madagascar's natural forests andupstream farmers involved inunsustainable forest management practices. The distribution o f benefits from different types o f natural forests management is closely tied to the category o f benefits providedby the three types o f management. For example, preserving the protected area network benefits four types o f stakeholders: (i) rice farmers inirrigated plains; (ii) consumers in water urban centers where water is supplied by riversoriginating from protected areas, (iii) operators; tourism and lastly (iv) the National Association for the Management o f ProtectedAreas (ANGAP). With the identificationo fthe gainers and losers and monetary evaluation o f eamingdlosses as presented in detail inAnnex 4, three remarks can be made about distribution. First, ANGAP i s worst-off as its main source o f revenues (direct payment for biodiversity conservation) i s uncertain and is likely to decrease. Second, ANGAP receives almost nothing from eco-tourism benefits, as the quasi totality o f earnings are captured by tourism operators. Third, the earnings o f the 300,000 households o f irrigatedrice farmers and potable water consumers compensate the losses o f the 50,000 slash and burnfarmers practicingtuvy. Water users' willingness to pay (irrigated rice farmers and drinkable water consumers) downstream the watersheds protected within the network o f protected areas and conservation sites is intheory a sustainable andsufficient source of financing to compensate the revenues lost bythe communities who can no longer continue to converse natural forests for rice cultivationand wood-fuel collection. However, inview o f widespread poverty inrural areas, transferring downstream water users' willingness to pay inthe form o f Payment for Environmental Services (PES) to potential slash-and-bum practitioners upstream is not a conceivable solution inMadagascar at present. Inlight ofthis situation, compensationfor thesehouseholds would involvethe provisionoftechnical altematives currently tried inMadagascarand financed through Overseas Development Assistance (ODA) under the Environment Program and others, including: (i) hillside conservation activities and improvement o f sustainable farming practices inthe periphery o f Conservation sites, protected areas and community based forest management areas; (ii) improvements incharcoal making incommunities associated with forests under community based forest management; and(iii) growth reforestation inprovinces where fast wood for energy comes from natural forests (Mahajanga, Toliary and Antsiranana). Investments inthese three activities themselves are likely to be beneficial for the country. Indeed assessmentsconducted at the end o f EP I1has shown the economic viability o f these investments even when off site benefits associated with conservationagriculture and reforestation, healthbenefits and reductionincarbon dioxide emissions fromimprovement ofcharcoal makingandwood stoves have not been included inthe calculations. Over 15 years, cumulative losses intavy paddy productiondue to avoided deforestation are close to 4 million tons. Usingconservative hypotheses, the relative increase inup-land rice cultivation yields from soil protection is o f around 14tons per hectare over 15 years compared to the situation without the project (see Annex 4 for details o f the calculations). Consequently, inorder to offset the loss o f tuvy production from the halt o f deforestation inthe project area, there i s a need to cover 280,000 ha o fuplandrice cultivationwith soil conservation practices. Inthis context, activities o f the Bank-financed PADR aimed at promoting conservation agriculture are an important complementary activity besides the EP III programmed activities inthis arena. Over 15 years, cumulative losses innon sustainable fuelwood collectionproduction due to avoided deforestation are near 8 million tons. Using conservative hypotheses, the progressive transfer to community based forest management over a period of 5 years allows for an increase inwood for energy harvest o f 0.35 tons per hectare as compared to the situation without the project. Over a period o f 15 years the 1million -34 - hectares o f community managed forest will yield4.5 million tons o f wood for energy, almost half o f the non-renewable loss due to the halt o f deforestation on the project's 6 million hectares o f natural forest. Furthermore, improvements incarbonization and wood stoves will reduce the cumulative consumption over 15 years o f wood for energy by 7.5 milliontons, maintainingnational consumption at the current level o f 10million tons per year. These improvement neutralize the effects o f population growth on wood for energy consumption. Usingthese hypotheses, 55 000 hectares o f reforestation are necessary to accompany the renewable harvesting o f wood incommunity based forest management areas and provide the second half o f the non-renewable loss due to the halt o f deforestation on the project's 6 million hectares o f natural forests. Thus the realchallenge interms ofnatural forests management sustainable financing is to be met outside forests themselves and recourse to ODA i sjustified to complement redistribution mechanisms o f national benefits generated by natural forests conservation. Unlike a pure financial system o f compensation, this source o f financing, though not sustainable, may bringabout a long lastingchange o f mentalities, which is another contribution o f the project to poverty alleviationMadagascar. Fiscal Impact: Once the project i s finished, the increase inrecurring costs for the MinEnvEFfrom the project will include: (i) management costs o f 2 million hectares o f protected areas, (ii) management costs o f 3 million hectares o f conservation sites; and (iii)costs associated with 1million hectares o f community managed forests. A detailed calculation o fthe recurrent costs has been conducted for protected areas and extrapolated to conservation sites (see Annex 4 for details). The costs breakdown as follows, $5 per hectare for protected areas or $10 million per year and $1 per hectare for conservation sites and community managed forest or an additional $3 million per year for the MinEnvEF and $1 million for the concemed communities. Given the ineffectiveness o f the Ministryinits current form and structure, one could argue that increased efficiency o f existing operational costs could go a long way in absorbing costs associated with conservation sites. When considering the specific situation o f Madagascar and particularly the extreme poverty o fboth the urban and the rural population, the identified sources o f financing for these recurrent costs include: (i) eco-tourism rent, (ii) willingness to pay o f developed countries for the preservation o f Madagascar's endemic biodiversity, and (iii) a green tax to promote sustainable productionpractices o f charcoal. A s noted above, the long term financing o f conservation sites i s the most problematic due to reliance on a single source o f revenue that i s not sustainable unless it i s capitalized inan endowment fund. 3. Technical: EP-I11Results Framework. The considerable amount o f time and efforts that have been invested inthe elaboration o f the Results Framework by the stakeholders under the guidance o f a specialized consulting firmhas resulted ina common andwidely shared understanding o fhow proposed activities, results and impacts o f a large program such as EP-I11relate to each other. Lengthy discussions have also contributed to the establishment o f a set o f monitoring and performance indicators that are generally consideredto be realistic, thereby avoiding the trap that overly ambitious targets agreed duringpreparationbecome unrealistic benchmarks during implementation. Last, but not least, the elaboration o f a common Results Framework has led to an orientation on outputs and results on the ground which i s expected to have a positive impact on implementation quality. Protected Areas Management. The GEF STAP Roster Technical Review carried out for the protected -35 - areas management component of the project confirms that "it presents an excellent balance between conservation, sustainable use o f biodiversity and capacity buildingat local and governmental level". In addition, planned investments to improve the representativeness and increase the coverage o f national protected areas system is based on an explicit prioritizationmatrix, including the following criteria: (i) diversity; (ii) uniqueness; (iii) vulnerabiliv, (iv) hydrologicalimportance; (v) actual visitor numbers and eco-tourism potential; (vi) impact on local development; (vii) infrastructure and equipment needs; (viii) capacity buildingneeds; (ix) self-financing capacity and financing needs. The STAP review i s provided in Annex 14. Forest Ecosvstems Management. Designo f the component draws on a review o f the forest sector carried out by the Bank inAugust 2002 as a background study for the Rural and Environment Sector Review ESW, published in2003. Following recommendations o f this review, the project emphasizes addressing the governance agenda as well as investingininstitutional capacity at the field level based on an agreed institutionalvision. Perceived complexity o f GELOSE/GCF procedures is addressed by usingthe recently completed guide for a simplified approach for land use management plan as a reference for the proposed forest management transfer activities under the project. Designo f the domestic energy subcomponent buildsonpilot activities put inplace by the Bank-financed Energy-I1project which closed inJune 2003. Community implementationmechanism andthe developed incentive framework also reflect the design o f a successful domestic energy project inChad. Environmental Mainstreaming. Project support for the establishment o f a one-stop-shop for MECIE legislation compliance buildson the results o f an evaluation carried out by WWF which was published in July 2003. Arrangements on the division o finstitutional responsibilities betweenDGEandONE concerning the application o f MECIE legislation, buildson recommendations o f the InstitutionalAssessment that was carried out as part o f the project preparation indicating that operational responsibilities should be concentrated inspecialized institutions, while the Ministry itself should focus on policy-making and regulatory functions. - 36 - 4. Institutional: The institutional framework for the environment has beenevolving over the courseofthe implementation of the NEAP. Under EP-IandEP-I1there was a strong drive to increaseinstitutional coveragethrough the creation of specialized institutions, including ONE, ANGAP, ANAE, SAGE and CFSIGE. Followingthe creation of the Ministry of the Environment inthe late 1990s, aprocessof consolidation, also recommended by an OED evaluation in2000, was slowly set into motionunderwhich ANAE, SAGEand CFSIGEwere put at arms lengthfrom EP-I1and requiredto operateas independent serviceproviders. The lack of a clear division of institutionalresponsibilities between the Ministry and ONE has beena major source of institutionalfiction during EP-11. Environmental units that have beenset-up inthe sector ministriesunder EP-11, with the aim to mainstream environmental issues into sector programs, are very weak. Recognizing the need for a broader landscape approach to promote biodiversity conservation outside protectedareas, brought the Ministryof Water and Forestson board of the environment programwith the launch of EP-11. Mounting governanceproblems inthe forest sector however frustrated attempts to improve capacity and performance o f forestry-related institutions under EP-11. The merger o f the Ministryof Water and Forests and the Ministry o f Environment into a single Ministryof Environment, Water and Forests inJanuary 2003 again changedthe institutional set-up substantially, albeit ina positive manner as it provides a strong signal that the GoM, inline with its overall orientation of "rapid and sustainabledevelopment", emphasizes conservation, rather than exploitation, as the guidingprinciple for natural resources managementin Madagascar. Recognizingthat the creation of a singleMinistryhad created a unique window of opportunity to align the sector institutional framework with this principle, a comprehensive institutional assessment has beencarried out as part of the project preparation process to translate this idea into a concretevision for the sector. Details ofthe institutionalassessment are provided inAnnex 15. 4.1 Executing agencies: Experience under EP-I1learns that institutionalefficiency mighthave beencompromised as a result of excessive concentration of regulatory, enforcement, advisory, training, research, donor coordination and NEAP oversight functions within ONE. As far as IDNGEF support to EP-I11i s Concerned, the goal would be to work directly with the executing agencies concerned, rather than indirectly through ONE as under EP-11. Hence, execution of activities under the BaMGEF project would come under full control of ANGAP, ONE, DGEF and DGE. It is expected that this would improve the quality of the dialogue as it would provide better opportunities to interact with the regional structures of the executing agencies. DGEF will subcontract part of the household energy activities to the Cellule Energie Domestique inMahajanga that will be scaled-up as part o f overall strategy to increase GoM's implementationcapacity inthis field. 4.2 Project management: A Project Implementation Support Unit(PISU) would be responsible to assist ONE, DGEF, DGEand ANGAP inthe execution of the project as far as procurement, financial management, M&E andreporting functions are concerned. The Unitwould consist of a team of dedicatedprofessionals with relevant disciplinary backgrounds for the purposesof the Project. It would include a manager, procurement and financial management specialists, internal auditors, as well as M&E specialists. The PISUmanagerwould report directly to the Minister o f Environment, Water andForest. Based on agreed annual operative plans and correspondingresult agreementsbetween the executing agencies andthe MinEnvEF,the headof the agencies would have full authority to execute these plans. Financingof the operative plans will be authorized by the Minister or his representativebasedon agreed deliverables as verified by the PISU. In order to maintaina strictly technical focus of the PISU, operational procedures of the project would be designed insuch a way that the selection o fprofessionals is done on an objective basis ina transparent and competitive manner.After fiduciary conditions are met, it is expectedthat the Foundationfor Protected areas and Biodiversity could also be usedas a pass-through to support its operationalization prior to the endowment to be provided later. - 37 - 4.3 Procurement issues: The third Country Procurement Assessment Review (CPAR) for Madagascar was conducted inNovember 2002, followed by a workshop inJune 2003 for the validation o f ajoint CPAWCFAA action plan to ensure rapid implementation o fprocurement reforms. Key elements o f the intended procurement reforms are: (i) revision o fthe draft procurement code to ensure transparency, to simplify procedures, and to comply with intemational standards, (ii) establishment o f effective procurement institutions to ensure that the new regulations will be adequately applied and to provide sufficient oversight and control andto improve efficiency through adequate delegation o f responsibilities and (iii)implementation o f adequate training and capacity building to ensure the sustainability o f the procurement reforms. The existing Procurement Code o f 1998 will continue to be applied untilthe enactment o f the new code. The World Bank ascertained that deficient features identified in the 1995 CPAR have beenproperly addressed. IDA standard bidding documents (SBDs) are widely used. An area o f concem, however, is the cumbersome and overly bureaucratic approvalprocess for contract signingby the Govemment which causes unnecessary delays. In addition, insufficient programming and procurement planningcontribute to delays inproject implementation which results in slow disbursement. To mitigate risks o f delays for the proposedproject, proper prerequisites for the use o f Bank standard biddingdocuments, including evaluation reports for National Competitive Biddingprocedures (NCB) have been agreed upon with Government during negotiations. The procedures manual will be updated as a part o f the Project Implementation Plan. A ProcurementCapacity Assessment ofthe PISUincluding trainingneeds and arrangements, was conducted as part o f the project preparation. On the basis o f the initial assessment, an action plan was drafted to address areas where the PISUneeds to be strengthened. The action plan includes (i) a specific section on procurement inthe Project Implementation Manual; (ii) the organization o f the filing o f procurement-related documents; (iii) procurement training sessions for project staff; and (v) the financing o f independent procurement andtechnical audits to be carried out on a regular basis (see Annex 6 for details), 4.4 Financial management issues: The financial management arrangements o f the PISU, ONE and ANGAP incharge o f the implementation o fthe project have been reviewedduring pre-appraisal inorder to determine whether they are acceptable with regardto IDA requirements. The conclusion o f this review proposed the implementation o f an action planto strengthen the financial management systems ofthe PISU, ONE and ANGAP and to buildtheir capacity to produce quarterly FinancialMonitoring Reports (FMRs) with the designed format provided in the Annex A o f the FMRs Guidelines for World Bank-financed Projects. The agreed measures to be implemented include the following: 0 For the main implementing. agency -- the PISU- incharge o f the financial management o f the program as well as the maintenance of the DGEF andthe DGE accounts: (i) recruitment o f the accounting staff, namely the three accountants for the PISU, DGEF and DGE; (ii) preparation and implementation by a consultant acceptable to IDA o f an accounting and financial manual o f procedures inorder to facilitate adequate record keeping, satisfy reporting requirements and ensure consistent application o f control procedures; (iii) review of the accounting software used by the Ministry o f EnvironmentduringEP-I1 to allow timely production of all financial reports required for managing and monitoring project activities; (iv) users training providedby the manufacturer o f the accounting software; (v) recruitment o f an accounting firm acceptable to IDA to audit the EP-I11 accounts; 0 For ONE: (i) o f the current accounting manual o f procedures and the accounting software in review place to satisfy reportingrequirements; -38 - 0 For ANGAP: (i) recruitment o f a director o f finance; (ii) definition o f the entity's organizational clear structure and responsibility assignments with respect to the following functions: budgeting, accounting, administration o f cashhank accounts and procurement; (iiijupdate o f the accounting manual o f procedures by a consultant to facilitate adequate record keeping and the maintenance o f proper control over assets; (iv) adjustment o f the accounting software inplace by the manufacturer and organization o f users training to allow timely production o f all financial reports required for managing and monitoring the entity's activities; (v) implementation o f an internal audit department with an adequate number o f qualified staff. Regarding the DGEF andDGE also involved inthe implementation o f EP-I11activities, no financial management assessment was carried out as they are part o f the MinEnvEF. Ithas been agreed that within the context o f EP-I11their accounts will be maintained by the PISUto be established within the MinEnvEF.However to facilitate the flow o ffunds and ensure timely payments o fprivatefirms, consultants and other agencies they have contracted, DGEF and DGEwill be staffed with treasurers responsible for: i)assuring individualpayment o f works completed and services rendered; ii)maintaining a simple cash book showing clearly cash received, payments made and cash balances. Both DGEF and DGE have qualified staff to perform this cash management function. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. A full environment assessment (EA)for the EnvironmentProgramphase 3 has been carried out by recruited local consultants. This study provides a systematic analysis o f all potential biophysical and social impacts associated with the implementation o f program and activities generated under EP 3. The EA includes: (ija diagnostic o f each sub component (forestry, protected areas and environmental mainstreaming activities) interms o fpolicy, institutional, regulations, conventions relevant to environment preservation; (ii) an analysis o f project impacts on social aspects and the environment; (iii) propositions o f mitigation measures to limit these impacts, and (iv) the establishment o f an environmental management plan. The EA methodology is based on documentation and technical analysis and a consultation o f I concerned stakeholders ineach sub-component.The analysis has highlightedthe fact that under the project no major effectdimpacts relatedto displacement o f population are foreseen. Major effectdimpacts in category 2 are recorded inactivities related to the creation and classification o fprotected areas and conservation sites, as well as ineco-tourism development actions. For the specific case o f the Mikea Forest, a strategic framework (see annex o f the EMP) has been prepared to serve as a basis for the elaboration o f an Indigenous Peoples Development Plan. Such IPDP should be developed by and for the Mikea people and will define the program andactivities that Mikea consider as beneficialfor them interms o f social, economic and cultural development. 5.2 What are the main features o f the EMP and are they adequate? The project, through its EMP, includes mitigation measures and would finance the development o f mechanisms for the review o f components with regard to potential negative impacts, and for their supervision and monitoring. The EMP includes a typology o f activities categorized 2 and 3 that would require integrated environmental assessment`analysis. The development o f capacity and awareness for environmental management, at the beneficiary level, would be emphasized. Moreover, communication programs and legal surveillance would be undertaken. The EMP defines, then, the role o f different entities concernedwith the implementation o f EP-I11 at different levels to ensure that environmental concerns are incorporated throughout activities that are inrelation with natural resources. The EMP would form the basis for the implementation o f site-specific environmental screening and assessment inrelation to - 39 - investments that are proposed to be financed under the project as part o f annually agreed operative plans. 5.3 For Category A andB projects, timeline and status o f EA: Date o f receipt o f final draft: September 2003 ASPEN has cleared the report for disclosure and the Government has disclosed it for consultation and review by the general public on November 24, 2003. 5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) drafi EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? (a) ANGAP has prepared a Process Frameworkwith active involvement o f the Comitks Regionales d'Orientution (CROs), consisting of representatives o f communities inand around protected areas, local government, deconcetrated public services and partner NGOs. As far as the elaborated Indigenous Peoples Development Strategy for the Mikea population i s concerned, the EA team visited the Mikea forest area to consult with the Mikeapopulation, local administration, andlocal organizations inorder to establish the Development Plan of the Mikea Population. The social impact analysis focusing on the Mikea forest has been carried out inclose collaboration with WWF, the technical services o f ministries involved, researchers and local authorities. A small Steering Committee inthe MinEnvEFhas been set up inview to coordinate the EA/EMP andto provide assistance to the consultants. The agreed EP-I11results framework, along with defined indicators as well as the results o f the institutionalassessment have beenused as a point o f departure to draft the EA/EMP report. Subsequently, each component and its correspondent activities have been discussed in detail with each EP-I11implementingagency inorder to identify potential negative environmental impacts. This screening task has resulted inthe classification o feach activity under a specific environmental impact category following World Bank Safeguards Guidelines and national categorization criteria defined in MECIEDecree No. 99-954 o fDecember 15, 1999. Based on the initial screening, the following steps have been carried out: (i) information related to maps, figures on deforestation, biodiversity and impact o f degradation have been checked with IntemationalNGO's; (ii) information related to impact by eco-tourism activities has been discussed with tour operators; (iii) sectorial Ministries have been consulted regarding land tenure and fisheries aspects; (iv) field visits have been conducted for a sample o f envisaged intervention areas where a participatory process of consultation has been taken place representatives o f communities, civil society and local administration. Based on these discussions and consultations a draft EA/EMPhas beenpresented to thejoint GoM-donor EP-I11Task force for comments and feedback. Subsequently, the documents have beenpresented to ONE and MinEnvEFinorder to verify its compliance with national legislation. Finally, the draft EA/EMP has been submittedto the Bank for review according to its Operational Guidelines. Following approval by the Bank, MinEnvEF has launched the disclosure process o f the EA/EMP. For this purpose, it has: (i) launched disclosure workshops on November 24, 2003, with the participation o f government agencies, donors, intemational NGOsthat co-finance EP-111; and (ii) organized a national TV debate session with the participation o f civil society and private sector. The executive summary would be translated inMalagasy language and published through daily newspapers and disseminated to communes located inEP-I11intervention areas. The EA emphasizes the need for capacity buildingo f beneficiaries. Inthis respect, training and IEC activities will be planned for monitoring and evaluation systems to follow-up on the impact o f proposed measures. Lastly, each implementing agency will include an environmental assessmendmanagement section inits operational procedures that reflects the results o f the EA report. - 40 - 5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? Do the indicators reflect the objectives andresults o f the EMP? A framework agreement betweenthe MinEnvEFand the Executing Agencies o f EP 3 would be set up. Based on the results o fthe EA, the agreement would define the modalities and indicators for the monitoring and evaluation systems needed to assess the impact o f proposed measures indicated inthe EMP. Then, it i s envisaged that all protected areas and natural forests will eventually dispose o f zoning plans and management plans that are agreed on with neighboring communities and local government and that could be use as a benchmark for monitoring environmental quality by the respective executing agencies. During appraisal it has been agreed that both ANGAP and DGEF would deploy a dedicated safeguards coordinator to ensure proper implementation and o f agreed safeguard measures. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. As part ofthe projectpreparationprocess, a number of social analytical activities havebeencarried out covering the following subjects: (i) stakeholder analysis, (ii) assessment; (iii) gender resettlement process framework; and (iv) a strategy for the preparation o f an indigenous peoples development planfor the Mikea population. Implementationo f these activities was carried under coordination o f the G o M and involved extensive field visits and consultations with local populations. Results o f these activities are included in Annex 12 and the Project Files.The central premise o f these activities has beento optimize the project design ina manner that would enable achievement o f desired positive social outcomes andput inplace adequate mitigation measures and mechanisms aimed at avoiding or reducing possible negative social impacts. The results o f the social analysis suggest that effective participationand voice o flocal populations, adequate environmental knowledge, and altemative revenue-generating potential are key determinants for effective biodiversity conservation and sustainable natural resources management. Specific social issues that come into play inrelationto achieving the project's major social development outcome aimed at improving livelihood conditions for people incritical eco-regions are various, including: (i) access o f local communes to revenue-generating potential o f protected areas; (ii) need for collective responsibility for forest fire control at communal level; (iii) required knowledge and organizational capacity o f communes to effectively reap benefits associated with forest management transfers; (iv) mobilization o f representative local voice inpreparation o f forest zoning and management plans; (v) explicit recognition o f local cultural heritage inP A management plans; (vi) compatibility o f existingNRMstrategies o f local populations with biodiversity conservation objectives o f new to be established PASand conservation sites; and (vii) protection o f the unique culture and livelihood o f the indigenous Mikea populationunder any new biodiversity conservation arrangement affecting their territory. Inorder to effectively deal with these issues, a range ofelements andarrangements havebeenincludedinto the project design. First,inorder to avoidpotential negative social impacts it has been agreed with the GoM, and inline with its commitment to the principle o f "parks with people", that the creation o f new protected areas would not involve any resettlement o fpeople. As far as the establishment of new protected areas is concerned, this agenda is also kept relatively limited under EP-111. Even though existing revenue sharingandincome and employment-generating activities should provide benefits to local communities, it is recognizedthere could be negative impacts affecting them inthe short-term, following restrictions on the use o f natural resources within protected areas and corresponding buffer zones and corridor areas. Inorder to deal with this and inline with OP 4.12, a process framework has been developed that would be applied for all new PASto be established under EP-I11inorder to reach agreement on the arrangements for -41 - compensation for loss o f access and property o f livelihoods within newly established protected areas, conservation sites and reforestation areas. The conservation o f Mikea Forest requires special attention as the dry Mikea Forest inthe south-west is inhabitedby the Mikea people who are indigenous people to Madagascar. The Mikea have an identitywhich i s dependent on living inthe forest and a subsistence based on forest resources. The forest is progressively reducedby deforestationwhich is caused in-moving migrants practicing slash and burntechniques. Inline with requirements o f O D 4.20 a strategy has been preparedwhich will result inthe design o f an Indigenous People's Development Planwhich will be a condition for establishment of any biodiversity conservationarrangement affecting Mikea temtory. During appraisal it has been agreed with the G o M that the establishment o f any formal biodiversity conservation modality for the Mikea forest will be subject to the adoption o f a Mikea Development Plan acceptable to IDA.For this purpose, the Minister o fthe Environment, Water and Foresthas sent a written communication to the Bank, confirming GoM's agreement. Second, inorder to create enabling conditions for positive social outcomes, the project design calls for the following: (i) incorporation o f specific capacity building,awareness and civil society involvement activities inPA management; (ii) prolonged TA for communes involved inforest management transfer contracts (GELOSE/GCF) with specific support for the development o f niche markets for biodiversity products; (iii) establishment o f local stakeholders committees at level o f each CIREF to accompany forest zoning exercise; (iv) support to creation o f permanent communal fire control committees andalternative solutions to tavy withperformance linked to scope of communalpublic investment program; (v) inclusion of gender as a transversal theme; and (vi) inclusion o f explicit environmental education and information activities inEP-111. 6.2 Participatory Approach: How are key stakeholders participatinginthe project? Key stakeholders include: (i) local populations inprotected areas, natural forests, P A bufferzones and eco-corridors; (ii) local ONGs: ANAE, SAGE and others; (iii) sector ministries: MAEP, relevant Education, Tourism, Energy; (iv) private sector: eco-tourist operators, economic operators inthe forest sector, and (v) International NGOs. Their specific interests inEP-I11are outlined inAnnex 12. Representatives o f each category o f stakeholders have participated inthe formulation o f the EP-I11Results Framework through various workshops organized by MinEnvEFduringthe course o f the project preparation process. Local populations will participate inthe project through various activities, mechanisms and structures. As far as protected areas and buffer zones are concerned, participatory P A management committees (COGES) and regional committees (CROs) with representatives o f communes inand around PASplay an active role inthe preparation, implementation andmonitoring o fPA managementplans. Specific trainingactivities are geared towards increasing employment o f local park guides inPAS.Communes inP A buffer zones will also receive 50% o fpark entrance fees that can be used for the financing o f communal infrastructure. In order to provide voice o f communes at the strategic/policy-making level and set the stage for a participatory model towards joint decision-making, it has been agreed during appraisal that at least one representative o f the CROs would become member o f ANGAP's Board o f Directors. As far as participation o f local populations inforest management activities are concerned, a number o f platforms will be established, including: regional committees to accompany forest zoning; communal fire control committees, and communal reforestation reserves. Envisaged forest management transfer arrangements (GELOSE/GCF) are geared towards empowering local communes to take management o fnatural resources into their own hands so as to maximize financial benefits from goodmanagementpractices, while clarifying their rightsvis-a-vis outsiders. Local populations will also have a voice inEP-I11monitoring andevaluation efforts focus group discussions and beneficiary assessments. As far as the participatory process concerning the establishment of new protectedareas, conservation sites - 42 - and landreserves for reforestation are concerned, the agreedprocessframework calls for the following steps ineach specific case: (i) consultation; (ii) public identificationand census of affected populations and vulnerable groups; (iii) participatory diagnostics; (iv) participationof affected groups inthe local and regionalmanagement structure of newly establishedprotected areas, conservation sites and landreserves for reforestation. Local ONGs, including ANAE and SAGE, will participate inthe project as service providers for the deliveryof specific EP-I11outputs, particularly those that relate to activities at the commune level, including: (i) managementtransfer; (ii) forest reforestation; (iii) investments inbufferzones and NRM eco-corridors. At the same time, they will have a voice at a more strategic level through their participation inthejoint GoM-donor EP-I11taskforce. EP-I11will coordinate activities with programs and investmentsof other sector ministries through the envisagedhigh-levelGoM-donor Rural Development and Environment Group (Groupe de Concertation Conjointpour le Developpement Rurale et L'Environnement), chaired by the PrimatureNice-Primatre and co-chaired by the (rotating) President of the Donor's Group (Groupe de Multi-Bailleurs de Fond). For activities with an inter-ministerial nature (e.g. domestic energy, rural productionintensification, environmental education, eco-tourism), MinEnvEFwill enter into specific protocols to ensure adequate coordination at the operational level. For this purpose, protocols have already beenagreed with the Ministryof Agriculture, Livestock andFisheries,the MinistryofEducation andthe Ministryof Energy. Private sector operators, including those inthe eco-tourism sector as well as the forestry sector, have actively participated inthe project preparationprocess and will continue to do so duringEP-I11 implementation. As far as visitor service and infrastructure inPASis concerned, ANGAP will maintaina permanentdialogue to ensure that envisagedinvestment respondto eco-tourism sector needs. Eco-tourism client surveys will bepart of the EP-I11M&E system so as to obtain feedback about the relevance and performance of these investments. As far as the forest sector i s concerned, DGEFwill establish a partnershipwith economic operatorsinorder to professionalize the sector andput inplace co-responsibility arrangementsfor good governance. InternationalNGOs, including WWF, C I and WCS, participate inEP-I11as donors as well as service providers to take on specific tasks. They have playeda very significant role inshaping the EP-I11Results Frameworkthrough their active participationinthejoint GoM-donor EP-I11taskforce and will continue to do so duringprogram implementation. Participationo f WWF and C I inEP-I11also takes on an important dimension as being founders and membersof the Board of Directors of the MadagascarProtectedAreas Foundation that will be establishedas part of EP-I11with the aim to put financing of the environment on a more sustainable footing. 6.3 How does the project involve consultations or collaboration withNGOsor other civil society organizations? Collaboration with international NGOs i s very close as they participate inEP-I11as cofinancingpartners (e.g. CI, WWF, WCS). They will continue to provide strategic guidance and operational support during EP-I11implementation through their participation inthe joint GoM-donor EP-I11taskforce, as well as their active involvement inthe launching and managementof the MadagascarProtectedAreas Foundation. Local NGOs and other civil society organizations have had and will continue to have the opportunity to participate inconsultations that have beenandwill continue to be organized as part o f the project preparation process. Moreover, they will have ample opportunities to participate inEP-I11as service providers. At the same time, through the existingNational Council for the Environment, civil society at - 43 - large has a permanent voice as far as environmental issues are concerned. 6.4 What institutional arrangements have beenprovidedto ensure the project achieves its social development outcoines? CROs will be the main vehicle to ensure that PA management plans are established and carried out ina manner that reflects the interests and aspirations o f localpopulations. Under EP-111, at least one representative o f the CROs will be included inANGAP's Board o f Directors so as to provide a direct voice o f local stakeholders as far as strategic decision-making is concerned. Communal fire control committees and communalreforestation reserves (Reserves Fonciers Communalpour le Reboisement) will be key participation platforms and delivery mechanisms for EP-111activities related to forest ecosystems management. Envisaged project support to OSF, aimed at strengthening independent oversight and watch-dog functions, will play an important role to prevent that privileged groups or individuals disproportionately capture andor exclude others from benefits. The proposed new institutional framework o f MinEnvEF, to be put inplace under EP-111, would strengthen the presence o f the Ministryon the ground, thereby puttinginplace conditions for improvedpublic service delivery which i s expected to positively affect the achievement o f expected social development outcomes o f the project. 6.5 How will the project monitor performance interms o f social development outcomes? The EP-I11Results Framework includes specific social development indicators at the impact as well as the output levels. At the impact level, these indicators focus on people, while at the output level they have been formulated ininstitutional as well as ineconomic terms. Inorder to generate corresponding data that will allow adequate monitoring o fproject performance based on these indicators, the M&E system will deploy a number of specific instruments, including: (i) focus group discussions; (ii) beneficiary assessments; (iii) commune feedback surveys; (iv) site inspections; and (v) OSF audits. Inthis context, ONE'S Environmental Dashboard to be supportedby the project, will be expanded so as to cover specific regions. As part of EP-111's communicationstrategy, M&E informationand reports will be disseminatedto local populations inEP-I11interventions zones, decision-makers, as well as the general public. 7. SafeguardPolicies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. An overview o fthe provisions to ensure project compliance with applicable social andenvironmental safeguard policies are described inAnnex 12. As far as environmental safeguards are concerned and inline with requirements under environmental category B, screening mechanisms have beenprepared andwill be put inplace for visitor infrastructure investments inprotectedareas. As far as social safeguards are concerned, it has been agreed that the creation o f new protected areas would not imply any involuntary - 44 - resettlement. Inaddition, a process framework has been prepared and agreed that defines procedures to be followed incase conservation measures result inloss o f access to resources that are exploited by people living inand around protected areas. Inthe particular case o fthe Mikeapopulationwho are recognizedas Indigenous Peoples under OD 4.20, an Indigenous Peoples Development Strategy has been elaborated that lays out the steps for the preparationo f an Indigenous Peoples Development Plan. It has been agreed that establishment o f a protected area covering the Mikea Forest, will be subject to the presentation o f an IPDP, acceptable to IDA, that demonstrates that the creation o f a protected area i s confirmed by the Mikea people as a true reflection o ftheir views and aspirations. Both ANGAP and DGEFwould appoint a dedicated safeguards coordinator to ensure proper implementation and monitoring o f agreed safeguards arrangements. F. Sustainability and Risks 1. Sustainability: Institutional sustainability The NEAP has supported successive iterations o f capacity building, reflecting the evolution o f conservation needs and opportunities over the past decade. Institutionalcapacities to perform a broad array o f conservation functions have been developed, evidenced amongst other inthe establishment o f a nationalmanagement system for protected areas. Individual capacities have been strengthened across a range o f conservationmanagement disciplines. An underlying policy and legislative framework for conservation has beenput inplace. Notably, a framework has been established to transfer usufruct rights and management responsibilities for natural resources to local communities, addressing a key determinant o f habitat destruction, rooted inopen access to common property resources. Communities now have a utilitarian incentive to better protect and manage natural resources. Inthe medium-longer term, the clarificationo f these rights and the strengthening o f incentives through the development o f market-orientedmanagementmodels is expected to put a break on population in-migration to the forest edge. NEAP interventions have demonstrably reduced threats to biodiversity. EP I1has made a start inmoving towards environmental sustainability. There i s emerging evidence that environmental degradation inareas covered by EP I1is notably slower than elsewhere, According to the most recent figures provided by Conservation Intemational, based on analysis o fN A S A satellite imagery, the area under natural forests in 2000 was 8.9 million ha or 8.6% less than in 1990. Deforestation inprotected areas (1.9%) was however significantly lower than inordinary forest reserves (12.9%). For the ten year periodbetween 1990 and 2000, the rate o f habitat clearance in core protected sites supported under NEAP has been around 1.9%, which is considerably less that the mean o f 8.6% for the country as a whole. However, it is accepted that further support is neededto address conservation needsat the larger landscape level, where anthropogenic pressures on ecosystems remain high. Accordingly, a further iteration o f capacity support for institutional development, policy reform and training and knowledge management will be provided under EP 111. Inparticular, targeted support willbeprovidedunder EPI11from IDA,USAIDand others to strengthen management o f the forest sector, and introduce new regulatory tools andmanagement systems to improve the instruments already developed for forest conservation. GEF support will be targeted at further maturing operational capacities for protected area management, at selected sites, which will act as a nucleus for further management innovation, as necessary to improve sustainability. Community level management capacities for sustainable natural resource management would be strengthened through the development o f improvedmodels for integrated resource management. Asymmetries in current capacities between regions and institutions will be addressed through the improvement o f communications systems, and knowledge management. Collectively, these interventions are expected to compound gains under earlier phases o f - 45 - NEAP, and improve prospects for assuring the sustainability o f conservation interventions. Financial sustainability Economic analyses undertaken duringEP I1have identified substantial derivative domestic benefits from conservation. These include dividends from the development o f unrealized recreational tourism, the maintenance o fvital hydrologicalservice functions, and sustenance o f other environmental goods and services. Many conservation sites are expected to yield a positive financial internal rate o f return on investment, were these benefits to be monetized. Park entrance revenues, although still modest in absolute terms, have shown steady growth and are increasingly important for ANGAP as well as communities located inbuffer zones o f protected areas. EPI11aims to accelerate andbroadenthe move towards financial sustainability through the following measures. First, a trust fund, to be managed by the Madagascar ProtectedAreas and Biodiversity Foundation, will be established which would provide assured and long-term financing for protected areas in Madagascar. Second, revenues from the tourist sector are also considered an important source o f sustainable financing. Third, MinEnvEF aims to complete restructuring o f the concession fee system under which most o f the revenues will be channeled to communities, thereby providing greater incentives for the collectiono f concession fees. Fourth, the National Office o f the Environment will implement a strategy for higher cost recovery o f its environmental impact assessmentreview h d . Fifth, the development o f new sustainable financing mechanisms would be explored under EP 111, covering, among other, carbon sequestration, bioprospecting rights, non-wood forest products, and others Results to date include progress indevelopment o f a marketing andbusiness plan for ANGAP andrevision o f the entry fee system for flagship parks, reconstruction o f the concession fee systemthrough MinEnvEF including greater decentralization for management and use o f funds, and preparation o f a strategy for higher cost recovery o f ONE'S environmental impact assessment review fund. It i s recognizedthat the prospect o f effectively puttingsustainable financing mechanisms for the environment inplace depends strongly on the ability o f EP I11to: (i) generate success on the ground; (ii) existing governance address problems; and (iii) communicate its results and achievements to relevant stakeholders andthe general public. Financialsustainability over the long-term would be secured and i s based upon four pillars, namely a cost reduction strategy and action plan, an increased management efficiency index, sufficient fund raisingto contribute to the endowment and leveraging donor financing. Inthis context, Madagascar has created an exceptionally strong economic incentive for communities surrounding protected areas to protect and conserve the PAS.A full 50% of park entrance fees are shared with these local communities. DuringEP 111, greater emphasis will also be placed on mainstreaming improving'developing sustainable, replicable natural resource management models that become self-financing. Clear opportunities exist for improved models that generate economic benefits and incentives while conserving biodiversity and ecosystem functions. EP I11would support the development o feconomically andecologically sustainable models for small scale enterprises, such as non-timber forest products; community plantations; and sustainable harvesting o f fisheries, forests andwetlands (mangrove management), that can contribute to poverty reduction and rural development. It will also support the development o f markets for environmental services. A portion o f the takings from tourist visa fees could be earmarked from the fiscus for the management o fProtected Areas and ancillary conservation operations. Opportunities for introducingwater user fees will be explored, where there is demonstrable ability and willingness to pay. Other measures to raise fundingto finance the public service delivery capacity of the State will be pursued, such as the dedication o f a portion o f debt forgiveness under the HIPC scheme to the environment sector. Financial instruments to recover rent from natural resource management will be developed. Recognizing that owing to the leakage o f global benefits some protected areas are unlikely to be viable ifjustified solely interms o f the domestic cost-benefit - 46 - calculus, IDA will support the operationalisation of the Trust Fund, to help provide predictable financing to defray local costs. These interventions are expectedto result in improvedprospects for assuringthe financial sustainability of NEAP following the cessationof EP 111, culminatinginthe reduction of reliance on extemal assistance. Overall, it is expectedthat EP 111'semphasis on participatory implementation mechanisms and community empowerment, on puttinginplace an improvedM&E system, on its intent to address govemance issues in the forestry sector heads-on, andon its support for environmental education and dissemination of environmental information, would generate an enabling environment to achieve its sustainability objective. la. Replicability: NEAP constituted one of the first attempts at establishing an integrated programmatic approach to biodiversity conservation inthe Africa/ IndianOceanregion. The program has generatedvaluable lessons that have played a seminal role ininforming the design of other initiatives inthe region. The key lessons incorporated into the project design include a streamlinedprogram approach, improved coordination with other programs and a strong emphasis on performance-basedimplementation mechanisms. Replicationplan As the program maturesfurther, it is expectedto generate additional lessons with important bearing on conservation strategiesinother areas. At the endof this project, the project design incorporating the lessons learnt could be replicated inother areas with similar socioeconomic fundamentals and supporting policy frameworks or within remainingareas inthe same geographic locationthrough other sources of funding. The proposednew financial mechanismswill provide one means of expanding conservationprograms to cover additional areas, and thus assure better bio-geographic coverage. As a result ofthe capacity buildingandtraining of individuals, and institutions during the duration ofthe project, EPIII's achievements will be expandedinother regions of the country. The replication approach will include facilitating exchange of information andgoodpractices (knowledge transfer) through information dissemination workshops which include the publicationof project result documents, and multi-stakeholder negotiations at both the grass-roots and national levels. The knowledge management systems that will be developed will be accessibleby conservation practitioners working inother areas providing a vehicle for transferringpositive experiencesand lessons. Select lessons and best practice guidance will betranslated into Englishto abet replication. Additionally, a public awareness campaign will be implementedto enableboth increasedawareness andan environmental behavioral change. I t will include mediacampaigns at the national level, design and maintenanceof PA intemet home pages, productionof PA related education materials aimed at school children inthe region and printedand audiovisual materials distributedthrough localmedia. A budget will be earmarkedfor suchknowledgetransfer and institutional strengtheningactivities. A key strategy ofEP I11is to nest environment into development, and to ensure that regular rural development programs (such as Rural Development Support Projects of the World Bank, African Development Bank, USAID, K W , UNAgencies, and NGOs such as CARE amongst other actors) provide a vehicle for replication. The donor coordination system establishedfor rural development, environment and food security provide a framework for assuring such integration, as does the poverty reduction strategy. Specific policy guidance will be developed to promote replicationthrough this driver.At the local level, community exchangesand study tours are expectedto play a sizable role indisseminating information on promising naturalresourcemanagementmodels, cultivating interest amongst local communities for replication, within the context of suchrural development programs. - 47 - 2. Critical Risks (reflecting the failure o f criticalassumptions found inthe fourth columno f Annex 1): Risk Risk Rating Risk Mitiaation Measure From Outputs to Objective Slow economic growth inthe rural sector M Project would support: (i) implementation o f increases external pressure on protected lark entrance revenue sharing programwith areas. :ommunities located inbuffer zones; and (ii) "proving localparticipation inthe management Ifprotectedareas. Confusionabout set o f objectively N Development of comprehensive M&E system as verifiable biodiversity indicators hamper iart of project preparationprocess. measuring o f impacts on the ground Communities do not have the capacity to S :i) Incorporationo f capacity buildingefforts enforce accountability requirements that .nto transfer mechanisms for natural resources come with increased empowerment nanagement. (ii) Establishment o f an easily xcessible conflict resolution mechanism. Park infrastructure i s not adequately M incorporate insurance as integral element into protected against cyclone and flooding :he investment financing package. damage. MinEnvEFis not willing to address M Project would support: (i) expandedForest governance problem inthe forestry sector 3bservatory Office; (ii) autoregulation on a sustained basis. mechanisms with private sector through e.g. :ertification schemes; and (iii)increasing share 3 f communes inwood related product revenues. MinEnvEFis not effective inpromoting S Project would support: (i) strengthening o f environmental stewardship across sector mkonmentalunits insector Ministries; and (ii) boundaries :oordination mechanisms with relevant sector ministries (agriculture/fisheries, tourism, znergy). MinEnvEFis not committedcapable in S [nstitutional assessment would linkbudget streamlining existingenvironmental decentralizationto consolidation process at institutions central level. Required funding for trust fund is not S Develop other sustainable financing mechanism! forthcoming andor trust fund returns are inparallel. less than expected Global andor local security problems M Minimize impact through institutional structure hamper normal operation of the tourist that has a highpercentage o f variable costs. sector NRMtransfers to communes M [ncorporate clear commune land property rights (GELOSE/GCF) are not effective in arrangements into GELOSE/GCF efforts. controlling influx of migrants into environmentally sensitive areas. Lack o f progress innegotiations o f S Project would support analytical work to international treaties provides insufficient quantify foregone opportunities incentives for the development o f new markets for environmental services. MinEnvEfdoes not sustain "tavy" and M Project would actively seek coordination with "feux de brousse" enforcement measures. PADR to ensure alternatives and incentives that - 48 - complement enforcement measures. From Components to Outputs Counterpart funds are not available ina S Revenuesgeneratedthrough sustainable timely manner financing mechanismsmake up for possible shortfalls incounterpart funds from the public budget Selection of project personnelis not based M Use extemal recruitment agency for staff on technical criteria selection and hiringprocess Lack of adequate coordination among M Implementuse ofperformance-basedcontracts environmental institutions hamper project that focus on results on the ground. impact Donors are unable to effectively N Multi-Donor Secretariathas proven to be an coordinate their support to EP-I11 effective coordination mechanism Weak financial managementcapacity of M Financial managementaction plan has been environmental institutions negatively establishedto address capacity issues (see affect operational effectivenessof the Annex 6B for details) project (Implementing entity and Funds flow) Activities entrusted to various executing M Recruitment of intemal auditors agencies may not be executed in conformity with the terms of contract Weak capacity of the accounting S Association of local auditors with intemational profession inMadagascar auditingfirms. Recruitment of auditors basedor QCBS method. Reinforcement of the accounting profession after completionof forthcoming ROSC mission. Overall Risk Rating S Risk Rating- H (High Risk), S (SubstantialRi5 1, M (Modest Risk), N(Negligib1eor Low Risk) 3. PossibleControversialAspects: G. Main IDA and GEF Grant Conditions 1. EffectivenessCondition 0 The Recipient has openeda project account and deposited counterpart fund therein. 0 Adoption of ONE Subsidiary Grant Agreement and ANGAP Subsidiary Grant Agreement acceptable to IDA. 0 Establishment of a financial management system at the PISU, ONE and ANGAP, acceptable to IDA. 2. Other [classify according to covenant types used in the LegalAgreements.] Other Covenants During Negotiations it has been agreedwith the GoM to maintain a banon the export o f non-processed precious wood, covering bois de rose, bois ebdne, andpalissandre and a moratorium on the allocation of new permits for bois de rose, untila transparent, competitive allocationsystem basedon licensing - 49 - agreements has been put inplace. Meanwhile, permits would only be issuedfollowing a competitive and transparent process with reference to an objectively verified inventory. Allocation o f permits on a single-source basis would not take place under any circumstance. Informationregarding the allocation of new permits would be transmitted to OSF for ex-post review. DuringNegotiations it hasbeenagreed with the GoMthat the establishment o fany formalbiodiversity conservation modality for the Mikea forest will be subject to the adoption o f a Mikea Development Plan acceptable to IDA. DuringNegotiations, the procurement planfor works, goods and services to be procured through the PISU duringthe first implementation year ofthe project has beenagreed. FinancialCovenants 0 The PISU shall maintain or cause to be maintained records and accounts to reflect inaccordance with sound accounting practices the operations ,resources and expenditures; 0 Records, accounts, special accounts, SOEs shall be audited by independent auditors acceptable to IDA; 0 Production o f quarterly FMRs Disbursements Disbursements will be subject to the following conditions: 0 Payments for expenditures under Category 6a (US$4 million equivalent) o f the Project (Grant to the Malagasy Foundation for Protected Areas and Biodiversity), unless: (i) the Subsidiary Grant Agreement has been adoptedby the Recipient andFoundation for ProtectedAreas and Biodiversity, acceptable to IDA; (ii) FPAB'sorganizational structure and operational and administrative procedures have been adopted ina manner satisfactory to the Association and agreed at appraisal; and (iii) independent, external auditors have provided a non-qualified opinion about FPAB's financial & technical performance covering a periodof at least one year following the launch o f its operations. 0 Payments for expenditures under Category 6b (US$3.5 million equivalent) o f the Project (Grant to the Malagasy Foundation for ProtectedAreas and Biodiversity), unless: (i) disbursement condition for Category 6a has been met; and (ii) cumulative contributions to FPAB, excluding contributions made out of the the proceeds o f grants or other funds providedby IDA, have reached an aggregate o f US$l5.0 million equivalent. H. Readinessfor Implementation 0 1.a) Theengineeringdesigndocuments forthefirstyear's activities arecompleteandreadyforthestart o fproject implementation. IXI 1.b) Not applicable. [XI 2. The procurement documents for the first year's activities are complete and ready for the start o f project implementation. 3. The Project ImplementationPlanhas been appraised and found to be realistic and o f satisfactory - 50 - quality. 04. Thefollowingitemsarelackingandarediscussedunderloanconditions(SectionG): 1. Compliance with Bank Policies iXi 1. This projectcomplies withall applicable Bank policies. [? 2. Thefollowingexceptionsto Bank policiesare recommendedfor approval. Theprojectcomplieswith all other applicable Bank policies. ,',7- MartienVan Nieuwkoop Team Leader Sector Manager/Directo ChristopheCrepin Co-Team Leader Annex 1: Project Design Summary MADAGASCAR:Third Environment Program Support Project Sector-relatedCAS Goal: Sector Indicators: iectorlcountry reports: from Goal to Bank Mission) Poverty reduction in rural improved livelihood 0 poverty assessment 0 induced changes are areas through broad-based conditions for people in 0 annual environmental sustainable economic growth, sustainable critical eco-regions. quality report of Ministry natural resourcesmanagement 0 increasedeconomic of Environment ("tableau and improved governance. importanceof de bord") environmental services 0 annual statistics and non-wood forest 0 audit reports products. 0 further reduction in degradationo f forest, marine andbiodiversity resources. improved performanceof forestry institutions. t----- GEF Operational Program: htcome I Impact ndicators: Arid and semi-arid zone 'riority habitatsand species 0 spatial mapping from 0 political stability and law ecosystems (OP1); coastal, nMadagascarare brought LANDSAT imagery and order are maintained marine and freshwater mder effective conservation (comparedagainst ecosystems(OP2); forest itatus during EP3: imagery from 2000) ecosystems(OP3). 9. Baseline for the national Monitoring and 0 GOM remains committed 'A system managedby evaluation reports to biodiversity 9NGAP is 1,468,111 ha. conservation rarget for Yr 5 is 2.253.848 ia 0 ANGAP's capacity and cost effectiveness continue to improve 3. Indicator species are naintained at baselinelevels: ncluding: i)59speciesoflemurs ii)105speciesofendemic iirds. Project Development htcome I Impact 'roject reports: :fromObjective to Goal) 0bjective: ndicators: Natural resources are 0 Ecologic: (i) of rate 0 satellite images 0 macro-economic conservedand wisely utilized degradationof forest and 0 protected areas scorecard environment is stable insupport of sustainable wetland resources is less 0 environmental audits 0 growth policies are economic developmentand a than half the 1993-2000 0 tourist statistics and pro-poor with adequate better quality of life. degradationrate of ANGAP records rural dimension 0.9%/year; (ii) protected 0 community feedback 0 environmental agenda - 52 - areas management surveys has broad-based support efficiency index increases 0sample catch data and commitment from the from 41% (baseline) to 0focus group discussion GOM 55% (mid-term) to 70% with decision-makers 0regional/provincial by EOP; (iii) mangrove 0evaluation reports by policies are inline with cover maintained at 2004 external parties orientation o f the area o f 2,209 km2; and (INSTAT,FTM, etc.) Environment Program (iv) maintenance of coral e ANGAP'sPA reef target indicator Management efficiency species (e.g. Ludjanidea index increases from 40 family) in all established % to 60 % no-take zones. 0 cost reduction objective ol 0Economic/Financial: (i) 4%/year reached at sustainable financing ANGAP mechanisms including government contribution cover 70% o f core staff and operational costs o f the PA system (baseline: 8%; mid-term: 30%); (ii) national park visitor numbers increase 5% annually from the 2003 baseline (100,000 visitors); (iii) increase o f park entrance fees by US$ 670,047 (2003 baseline: US$500,000; mid-term: US$579,000); (iv) sustainable NRM investments generate US$ 12million over 5 years (baseline: 0; mid-term: US$ 4 million) 0 Social: (i) improved voice o f communes in protected areas management as reflected inrepresentation on ANGAP's Board o f Directors (by mid-term) and by the % o f CROs complying with their rightsand obligations as definedinPA management plans (baseline: 0; mid-term: 50%; EOP: 80%; (ii) improved community empowerment inNRM through fully performing GELOSEIGCF arrangements as - 53 - measured by the YOo f beneficiary communities who have successfully obtained long-term follow-up contracts after the initial 3 year trial period (baseline: 0%, mid-term:70%; EOP: 80%); 0 Governance: (i) o f 70% public and private investments comply with MECIElegislation; (ii) logging and species collection license fees in line with projected revenues (baseline: 80%; mid-term 87% and EOP: 95%; (iii) record o f track satisfactory OSF govemance audits (mid-term and EOP targets are satisfactory); (iv) 70% o f MinEnvEF's budget executed at field level (province or lower by EOP (baseline: 30%; mid-term 50%); (v) cost reduction strategy and action plan developed and implemented within ANGAP, (vi) increased P A management efficiency index from 41% to 70 % 3utput from each 3utput Indicators: 'roject reports: from Outputsto Objective) Zomponent: I.Forestecosystemsare 0 8 million ha o f natural 0 M&Esystem 0 GOMis committed to :ffectively managed in forests brought under 0 annual reports address govemance issue iccordance with sound forest zonage plans 0 site inspections inthe forestry sector on B mvironmental principles. (baseline: 1,948,000 ha; 0 OSFreports sustained basis. mid-term: 4 million ha). 0 beneficiary assessments 0 forest zoning plan is 0 transparent and accepted as basis for competitive concession sector policies. allocation system 0 GOM is committed to established and continue to apply tuvy - 54 - operational with andfeux de brousse minimumeligibility enforcement measures. criteria for participating e GELOSEiGCFprovides operators covering adequate means to control 400,000 ha (mid-term: influx o fmigrants into 150,000 ha). environmentally sensitive e 500,000 ha of forest areas. ecosystems brought under e adequate alignment o f GELOSE/GCF contracts ( GELOSE/GCF with road mid-term: 200,000 ha). investments under PST. e natural forest e adequate coordination conservation sites cover with the Ministryo f 500,000 ha (mid-term: Energyto effectively 200,000 ha). relate domestic energy community reforestation activities with charcoal schemes cover 500 substitution opportunities. communes (mid-term: 200 communes). e pilot carbon sequestration schemes established on 10,000 ha (mid-term: 4,000 ha). high efficiency charcoal production introduced in 200 communes (baseline: 0; mid-term:80). e sustainable management plans established and implemented, covering ar additional 150,000 ha o f wetlands (baseline: 0 ha; mid-term 60,000 ha). :. Sensitive ecosystems are e 3 new protected areas e M&Esystem e external pressures on :ffectivelyprotectedas part of (PA) created (1 terrestrial e annual reports protected areas do not dadagascar's national and 2 marine (baseline); e site inspections significantly increase due rotected areas system. mid-term:1). e beneficiary to unpredictable social e 4 PASreclassified assessments and political instability. (mid-term: 4). e eco-tourist client e there is sufficient social e 7UG(8PAs) surveys capital incommunities to re-delineated (mid-term: e financial and benefit from increased 6). administrative empowerment. e management and management audits e eco-tourism investments surveillance capacity o f ANGAP inprotected areas are in operational in 22 UG (27 line with National PAS) (baseline: 10; - Tourism Strategy and PA mid-term:22 UG). management business e fire control inplace in 15 plans. UG(18 PAS) (baseline: - cost reduction strategy is 5; midterm 12). implemented and removal o f invasive governance continues to species in5 UG (6 PAS) - improve. (baseline 0 mid-term3) - e Fundraising to contributt - 55 0infrastructure improved to the endowment is in 11UG(5 at mid-term), successful. and maintained in 22 UG 035 targeted research programs implemented (mid-term: 16). 0establishment of 300 km o f new trails (mid-term: 125 km); 25 new camping sites (mid-term: lo); 14 new information posts (mid-term: 7); 254 eco-guides trained (mid-term: 80); and 3 new visitors centers (mid-term: 1) in 6 priority UGfor tourism development. 0CROs operational in22 UG(27 PAS) (baseline: - 0; mid-term: lo). I 06 private sector led concessions (mid-term:3). 0Malagasy Foundation for Protected Areas and Biodiversity established and operational. 3. Mainstreaming o f the harmonization of sector 0M&Esystem 0 MinEnvEFis effective environment is achieved specific legislation, 0annual reports player inpromoting through better integration o f environmental legal 0institutional assessment environmental policies, establishment o f framework and studies stewardship across sector sustainable financing international conventions 0official publication o f boundaries. mechanisms, improved through 15 strategic EAs laws and regulations 0 MinEnvEFis committed governance and availability o f (baseline: 4; mid-term: 0environmental to streamline more reliable environmental 8). complaints records environmental information. 0environmental MIS institutions. operational at national 0 progress innegotiations level, 6 provinces o f intemational treaties (baseline: 3, mid-term6) provides sufficient and 20 regions (baseline: incentives for the 0; mid-term:8). development o fnew I 0application o f MECIE markets for legislation through environmental services. I establishment o f one-stop public sector budget shop coordinatedby ONE includes adequate under DGE oversight and provisions for EIA. with support from environmental sector units (baseline: not - 56- functional; mid-term: functional ONE issues - permits) policy and legislative proposals for sustainable financing mechanisms foi the environment inat least 10 sectors (baseline: 0; mid-term: 5) e commune classification system for public investment eligibility based on tavy control compliance is fully operational (baseline: exists inprinciple; mid-term: objective compliance measurement system inplace). establishment o f environmental institutions inaccordance with agreed alignment plan. Project ComponentsI nputs: (budget for each 'roject reports: from Componentsto Sub-components: :omponent) htputs) 1. Forestecosystems Total EP3: 34.40 million e procurement reports management Total: IDA: US$ 18 financial reports counterpart funds are million disbursement reports available ina timely Total: GEF-Bank: n/a copies o f contracts manner e Forest management, technical reports selection o f project governance and forest firf IDA:US$ 6 million e progress reports personnel is based on control program. technical criteria e Community forest e environmental management transfer IDA: US$4.5 million institutions share overall program (GELOSE). program goals and e Natural forests coordinate their actions conservation sites and IDA:US$4 million effectively wetland protection e donor collaboration is program. strong and active e Reforestation and carbon IDA: US$ 1million sequestration capacity improvement program. Wood fuel improvement IDA: US$ 2.5 million program. 2. Protected areas Total EP3: 45.90 millior 0 procurement reports management IDA:US$ 13.5 million financial reports GEF-Bank: US$9 e disbursement reports - 57- million e copies of contracts e technical reports e Reducingpressure, e progress reports capacity building, IDA:US$ 0.46 million awareness raising, and GEF-Bank: US$ 0.79 civil society involvement million around selected PAS e Enhance complementarity value, alignment, and IDA: US$ 0.90 million ecoregional GEF-Bank: US$ 1.10 representativeness o f the million PA System e Conservation IDA: US$ 3.17million management program to GEF-Bank: US$4.58 consolidate the PA million system e Sustainable use o f the PA IDA: 1.60US$ million system, and improve GEF-Bank: US$2.40 governance capacity million within ANGAP e Endowment of the IDA: US$ 7.50 million Malagasy PA and biodiversity Foundation. 3. Environmental 'otal EP3: US$ 27.50 million mainstreaming DA: US$ 8.5 million 3EF-Bank: nla e Environmental DA:US$ 1.5 million information, education and communication. e Environmental policies, DA:USs2.0 million regulations and sustainable financing mechanisms. e Enforcemento f DA: USS3.0 million environmental legislation (MECIE). e Environmental DA:US$ 2.0 million Management and Coordination I - 58- ANNEX 1A: EP-Ill RESULTS FRAMEWORK Summarv Descrintion EP3 Purpose: Natural resources are conserved and wisely utilized in support o f sustainable economic development and a better quality o f life. Strategic obiectives: 1.Sustainable management systems o frenewable natural resources and ofbiodiversity conservation are adopted and owned by the populations inprogram interventions. 2.Sustainability of natural and environmental resources management at national level is ensured. Specific obiectives: 1.1: Sustainable development programs are implemented. 1.2: Forest ecosystems and water resources are sustainably managed. 1.3: Protected areas are effectively managed and generating economic benefits. 1.4: Marine and coastal ecosystems are sustainably managed. 2.1:Positive change inbehavior vis-his the environment is observed. 2.2: Financial basis for sustainable financing o f rationalmanagement o f natural resources and the environment i s established. 2.3: Environmentalgovernance systems and policies are strengthened. Specific objective 1.1: Sustainable development programs are implemented. output 1.1.1: Community development plans (PCDs) and inter-communal schemes incorporate an environmental dimension o f development. Activities: a -Support communes inpreparing green R ))PCD and inter-communal development schemes b -Promote inter community and regional exchanges, as well as with other development programs output 1.1.2: Sustainable development alternatives are implemented to reduce environmental pressures. Activities: a -Improve management of previously deforested areas b - Support management transfer of livestock grazing areas c -Promote conservation and sustainable use of water and soils d -Implement activities thatprovide alternatives topressures inprotected areasperipheral zones Output 1.1.3: Value o f biodiversity sector production chains i s sustainably enhanced. Activities: a -Implement new management and revenue-sharing schemes b -Reorganize management of traded and tradable species Output 1.1.4: The use o f equipment and fuels that reduce pressure on forest resources i s scaled-up. Activities: a -Identifi available and locally appropriate renewable energy resources for heating) ; b -Promote substitution of biomassfuels - 59 - c -Promote alternative energy uses Output 1.1.5: Urbanenvironment management is improved. Activities: a -Support development and implementation of municipal environmental programs b -Promoteprevention and reduction of pollution in urban areas Specific objective 1.2: Forest ecosystems and water resources are sustainably managed: Output 1.2.1: Forest resources are managed rationally Activities: a -Refineforest zoning b - Intenszjjforest management transfers c - Rationalizeforest exploitation d - Promote and apply standardshorms concerningforests products (eco-certijkation, ...) e - Implement complementary economic and regulatory tools f-Develop effective andsustainableforest managementsystems output 1.2.2: Forest cover and carbon storage capacity i s preserved Activities: a - Continue creating Land Reservesfor Reforestation (WR) b -Promote reforestation c - Manage carbon sequestration pilot sites Outuut 1.2.3: Wood fuel management is improved and contributes to communal development Activities: a -Support improved techniques of carbonization b -Promote energy uses that consume less woodfuel Output 1.2.4: Occurrence of natural forests fires i s diminished Activities: a -Raisepublic awareness and motivate population tofight againstfires b -Better enforce laws against bushfires c -Establish afire satellite monitoring mechanism Outuut 1.2.5: Humidareas andwater reserves are managed ina sustainable manner Activities: a - Promote sustainable management and conservation of fresh water lakes b -Intensz5 protection of water basins I I -60- Specific Objective: 1.3: Protected areas are effectively managed and generate economic benefits Output 1.3.1: Representation of ecosystems i s P A system is improved Activities: a -Reclassijj someprotected areas b - Create new landprotected areas and conservation sites c -Develop marinepark system d -Re-demarcate someprotected areas Output 1.3.2: Biodiversity conservation and proper management o f ecological process inPASis ensured Activities: a -Ensure ecological monitoring of habitat, species,pressures as well as conservation measures b - Ensure surveillance and control c - Establish conservation infrastructures and effectuate zoning d - Develop biodiversity research e- Support the CROs f- EstablishvoluntaryPAS Output 1.3.3: Eco-tourism inprotected areas continues to grow and generate revenues Activities: a -Improve and expand visitor infrastructure in PAS b -Put inplace / improve ecotourism services c -Promoteprotected areas d - Obtain PA visitorfeedback Specific objective 1.4: Marine and coastal ecosystemsare sustainably managed: OUtDUt 1.4.1: Management of coastal area and marine resources is subject to sustainable development planning framework Activities: a -Develop and implement inter community development schemes b -Build capacity of actors in terms of GIZC Output 1.4.2: Value and equitable and sustainable management of coastal and sea resources is enhanced Activities: a -Intensifj the transfer of marine and coastal zone resources to communes b -Promote certijkation of marine and coastal zone resourcesproducts Output 1.4.3: Marine and coastal zone ecosystem biodiversity and functions are maintained 1Activities: - 61 - a -Promote conservation sites outsideprotected areas to enable species stock renewing b -Promoteprotection of marine and coastal endangered species c - Promote marine ecotourism Outuut 1.4.4: Prevention and reductionof coastal and sea pollution and degradationare initiated Activities: a -Develop and support implementation of inter community pollution prevention and reduction plans b -Put inplace inter community pollution and degradation observatories c -Reinforce erosion prevention and reduction upstream sea and coastal zones subject of special management Specific objective 2.1: Positive change inbehavior vis-&vis the environment is observed: Output 2.1.1: Environmentalinformationand decision-making support systems support designand implementation of sustainabledevelopment activities Activities: a -Manage environmental management dash-board at national and decentralized level and facilitate exchange of information b -Ensure the monitoring of terrestrial and marine ecosystems and management of Malagasy biodiversity data c -Develop environment economic accounting systems Outuut 2.1.2: National capacity for effective environmental management is strengthened Activities: a -Improve knowledge about the environment b -Support environmental communication c -Support environmental education and training d - Promote attitudes infavor of conservation of protected areas and conservation sites Specific objective 2.2: Basis for the sustainable financing of the environment is established Output 2.2.1: Specific tools for financial sustainability are developed Activities: a -Put inplace a H trustfund ))for protected areas b -Develop other financing instruments and optimize interface with other sectors Outuut 2.2.2: Financial management and control is set on a more rational and transparent footing Activities: a - Improve existingfinancial managementsystems b - Develop management and administrative capacities c - Strengthen mechanismsfor institutional coordination - 62- d - Optimize cost structure of implementing agencies Output2.2.3 : Local financing systems for the environment are put inplace Activities: a -Develop local taxation mechanisms b -Support establishment of local sustainable investmentfunds Specific objective 2.3: Environmental governance systems and policies are strengthened: Output 2.3.1: Environmental dimension i s incorporated inMadagascar's development policies Activities: a -Develop environmental management tools and ensure consistency of legal texts and procedures b -Ensure compatibility of investmentswith the environment c -Ensure environmental monitoring, control and complaint management mechanism d- Incorporate environmental dimension in land useplanning policies e -Incorporate environmental dimension into energy and water managementpolicies Output 2.3.2 : Environmentalinstitutional framework is better coordinated Activities: a -Reinforce mandate of institutions (CIME, CNE) b -Developpartnership with environmental structures at sector and communal level Output 2.3.3 : Capacity o f environmental administration is strengthened Activities: a -Improve institutional capacity of MEnvEF b -Ensure implementation of international conventions ratijied by Madagascar c -Ensure interface with Ministry of Plan (PIP) and Finance ('I, taxes,..) Output 2.3.4: Improve forest governance Activities: a -Reinforce forest administrative department b -Put in place an autonomous structure to ensureforest operations c -Build stakeholder's capacity inforest management d -Extend control and information mechanisms initiated by OSF e -Supportforest control - 63 - Annex 2: DetailedProject Description MADAGASCAR:Third EnvironmentProgramSupport Project EP-I11ResultsFramework The overall purpose o f the EP 111, which i s the operational translation o fthe thirdphase o f the NEAP, has been defined as follows: "natural resources are conserved and wisely utilizedin support o f sustainable economic development and a better quality o f life". This statement reflects that EP-I11inthe view o f the G o M andparticipating stakeholders goes beyond biodiversity andhabitat protection alone and is expected to also contribute to sustainable economic growth and poverty reduction inMadagascar. Following intensive discussions among the GoM, donors, civil society and other stakeholders, a common Results Framework has been developed that is organized along two axes and seven principalprograms. The first axis relates to expected outcomes o f the EP-I11on the ground in specific intervention zones by stating that "sustainable management systems o f renewable natural resources and o f biodiversity conservation are adopted and owned by the populations inprogram interventions". This axis encompasses four programs, whose principal outcomes are specified as: 1.1: Sustainable development programs are implemented; 1.2: Forest ecosystems and water resources are sustainably managed; 1.3: Protectedareas are effectively managed and generating economic benefits; 1.4: Marine and coastal ecosystems are sustainably managed. The second axis relates to expected outcomes o f EP-I11at the national level that are associated with envisaged environmental mainstreamingefforts under the program andis defined as "sustainability o f natural and environmental resources management at national level i s ensured".This axis incorporates three programs, whose principal outcomes are defined as: 2.1:Positive change inbehavior vis a vis the environment is observed; 2.2: Financialbasis for sustainable financing o f rationalmanagement o f natural resources and the environment i s established; and 2.3: Environmental governance systems and policies are strengthened. Organizingthe EP-I11Results Framework along these two axes would ensure an appropriate focus on concrete results on the ground; something that was not always at the forefront duringthe previous phases o f the NEAP. Each of the seven principal outcomes is further specified into expected impacts and outputs, that are fully integrated into the EP-I11Results Framework as presented indetail inAnnex 1A. EP3 InterventionAreas The GoM, along with participatingstakeholders, has made a deliberate effort to prioritize EP-I11 intervention areas. This i s inview o f the fact that the extreme dispersion o f field-based activities under EP-I1has had a negative effect on the impact o f the program. The launch o f the Rural Development Action Plan (PADR) along with corresponding rural development investment programs insupport o f sustainable agricultural development (such as the Bank supportedPSDR), also has reduced the need for a nation-wide presence o f EP-111. Based on these considerations and following explicit prioritization criteria (location o f protected areas, potential of hydrological benefits, biodiversity presence, threat levels, location o f forest ecosystems, existing and plannedroads network etc.) a total o f 530 communes covering an area o f 321,043 km2, with apopulation of about 4.9 millionpeople havebeenidentifiedthat will be covered by EP-111's field-based interventions. They are distributed among the different provinces inthe following manner: Province Commune Commune(YO) Population Population(%) Antananarivo 32 6% 278,667 5% Antsiranana 81 16% 662,129 14% Fianarantsoa 106 18% 936,214 17% I I I I - 64 - Mahajanga 100 20% 784,065 17% Toamasina 101 19% 1.220.135 26% Toliara 110 21% 995,119 21% TOTAL 530 100% 4,876,329 100% The table shows that program activities are tiltedtowards the provinces of Fianarantsoa, Mahjanga, Toamasina and Toliara. Poverty analysis shows that these provinces are the poorest inthe country. The focus of EP-I11on these provinces thus also reflects the strong poverty-environment linkages that exist in Madagascar. The ProtectedArea network of Madagascarmanagedby ANGAP aims to consist of 36 Management Units (Unitede Gestion - UG),corresponding to 46 ProtectedAreas. The IDA and GEF contributionto ANGAP's protected area system will be selective under EP-111. It will support 22 UG, corresponding to 27 ProtectedAreas. The GEF will lendsupport to 15 UG, while the remaining7 will be supportedby IDA. Refer to Annex 16 and to project files for sites identification, description and selection process. The proposedIDA andGEF fundingsupportsimplementation of selective elements of the EP-111. Doingso reflects the notion that IDA and GEF support under EP-I1was somewhat dispersed, thereby negatively affecting impacts. Also the fact that the Bank operatedas a financier of last resort under EP-I1 complicated establishing a direct linkage between IDA financing and EP-I1outputs. Consequently, IDA and Bank-administered GEF financing is organized inthree components, including: (i) Ecosystems Forest Management; (ii) Protected Areas Management; and (iii) EnvironmentalMainstreaming. All Bank-GEF financing, inan amount totalling US$9 million, i s gearedtowards Component (ii): ProtectedAreas Management. Inorder to clearly demonstrate that IDA and Bank-GEF financing are part o f an agreed sector-wide approach for the environment, the project description i s presented with explicit referencesto the above-mentioned EP-I11Results Framework. By Component: Project Component 1: Forest Ecosystems Management US$18.00 million - This Component consistsinsupporting the Department of Water and Foreststo betterconservenatural forests and streamline the use and management of national forest estate through financing result 1.2 and part of results 1.1, 1.3 and 2.3 of the EP-I11Results Framework. Overall, IDA support will primarily focus upon activities to address issues including: (i) govemance; (ii) conservation sites, economic and managementtools; (iii) managementtransfers; (iv) reforestation and (v) domestic energy. These activities will be developed, implementedand monitored with all entities involvedindevelopment of sector. IDA total amount of financing allocated to the component is US$18 million. 1.1 Governance(IDA: US$6.0 million) IDAfinancingwill support the achievementofresults 121(a), (c), 124(a), (b), (c) and234 (a), (b), (c), (d), (e), of the EP-I11Results Framework. Inparticular, IDA financing will support formulation and implementation o f (i) forest zoning, (ii) exploitationarrangements; (iii) control activities; (iv) forest forest slash-and-bum control practices; (v) OSF watch-dog functions; and (vi) settingup of a forest management structure and information system. Government concemsrelated to good govemance are clearly affirmed with the creation of one Ministryincharge of Environmentand Water and Forests, the Letter of Sector Policy as well as in different National and RegionalForest Management Plans as a frame of reference (PDFN, PDFR) which also ensure linkswith other programs through PRSP document and projects undertaken nation-wide such as FID, PSDR. - 65 - Support to forest zoning (result 1.2.1.a) will involve puttinginplace a regulatory framework defining forest functions and inmaterializingforest borders over the forest territory as a whole. The aim would be to complete the forest zoning exercise that was initiatedin2001 and will cover a total o f 8 million ha o f natural forests by the end of the project. The current draft zoning plan elaborated duringEP-I1classified natural forests following two criteria, including: (i) forest function: ecological, regulated or production forests; and (ii) forest management modes. The next steps o f forest zoning exercise will result inan overall forest inventory and proposed usage map, as well as detailed zoning maps for each o f the existing forest districts. Zoning undertaken duringthe EP-I11will bringabout precisions that will allow transparent decision-making interms o f forest resources management. As far as process is concerned, proposedforest zonage activities will take place at the level o fthe existing 19 CIREFs. Forest inventoryunitswould be contracted to evaluate the state o f the forest resource and to mark the locationo fborders with collaborationfrom communities andother technical services. Inorder to ensure adequate participation and ownership o f local stakeholders, a committee would be set-up at each CIREFthat would consist o frepresentatives from communes, civil society, technical services, communities. The role o f the committee would be to inform the public o f the forest zoning exercise and validate its results. The committee would be assisted by subject matter specialists to collect, compile and analyze physical, biological, economic, social and cultural informationthat is generated by the forest zoning process. Regionalzoning results obtained inthis manner will then be consolidatedand validated at national level. National zoning will be legally confirmed through a corresponding Law after its finalization. Subsequently, enforcement and regulatory texts will be defined for forest zoning implementation. Management techniques, intervention modalities and access rules will be defined for each category o f forest resource inorder to establish appropriate management plans and/or use o f these resources. All along this process, communities will be kept informed. Tools will subsequently be developed to manage sustainably each resource category. Zoning, its related texts and instruments will also be published inMalagasy. There will be a mid-term zoning process evaluation with a view to adjust approaches ifnecessary and learn lessons so that by the end o f the project, forest zoning will be inline with national as well as regional benchmarks ( communal and inter-communal development plans). Expected outputs: A national zoning map at 1/200,000 covering 8 million ha and six regionalmaps at scale o f 1/50,000. Forest exploitation (Result 1.2.1.c). The object o f this activity is to set the allocation o f forest exploitation permits on a more objective and transparent footing andprovide incentives for sustainable forest management as a continuation of govemance activities undertaken since two years. As far as the allocation o f access rightsi s concerned, it will involve establishing proper reform on standards for forest management and exploitation through: (i) the adoption of a competitive and transparent forest exploitationlicensing system; (ii) the establishment of forest exploitationblocks o f appropriate size that permit adequate economies o f scale inboth the operational aspects as well as the control and monitoring aspects o f each license; and (iii) professionalization o f forest operators interms o f quality management. For this purpose, training sessions will be organized and a manual for forest operator's use will be made available. As for eucalyptus and pine plantations, partnerships will be established with the aim to ensure adequate observation o f regenerationcycles and rotationof plantations so and increase yields inan environmentally sustainable manner. It has been agreed duringappraisal that the launch o f a competitive andtransparent forest exploitation licensing system would be subject to completion o f the forest zoning exercise inthe area concemed. - 66 - Support to forest control (Result 2.3.4.a. b. c, d, e.). Forest controlwill allow monitoring of the regulatory framework adopted, the physicalborders of forests, the evolutionof fires and forest exploitation. It represents a "stick" element ofthe 'karrots-and-sticks" approachthat is adoptedto improve governance in the forest sector. Support to forest controlunder the project would enablethe GoMto set up appropriate devices at various forest resource managementlevels that ensure adequate presenceof the State to ensure compliance with establishedrules and regulations for the sector. As far as control mechanismsare concerned, the GoM aims to ensure underthe project that adequate check points and barriers are put inplace to monitor circulationof collected and exploited forest resources along national and provincial roads. This will be done inclose collaboration with local authorities. In addition, forest control teams will be set up to supervise: (i) exploitation concessions; (ii) forest community managementtransfer contracts; (iii) flora and fauna collectionpermits and reproduction centers; and (iv) flora and fauna export permits. As for the export of forest products, adequate control measures will be set up inports andairports as well. Itis envisagedthat forest control measureswill be accompaniedby an effective communication campaign that informs the public about the increasedprobability ofbeing caught incase ofnoncompliance with existingforest rules and regulations.Moreover, the MinEnvEFaims to establish a system of incentives for law enforcement staff so as to maximize the chance of achieving compliance targets. The National Forests Fundsthat will be suppliedthrough fees and taxes will serve to sustain forest control activities An integrated information andcommunication systemwill be set up to helpDGEF to better plan and monitor its activities and improve the quality of its decision-making by improving the organization and managementof forest related data and records. It will also enable the collectiono f reliable and real time data. The information system will also help to make DGEF's resourcemanagementmore transparent, including to thirdparties. The information systemwill serve both internal as well as external purposes. As for internalpurposes, it will be supported by appropriate equipment that would facilitate communication in space and time between CIREFs and its implementingunits as well as link Forest departments at all levels. It is the responsibility ofthe CIREFs to ensure the reliability of information, while the department in charge of information at the central office level will consolidate all data and submit information to decision makers. As for external purposes, the systemwill enable the DGEF to effectively maintain contact with other stakeholders, includingmayors and commune representatives, and provide them ina transparent manner with information concerning the exploitationand conservation of forest resources as agreed in corresponding concessionsand agreementsestablishedby the DGEF. To increasethe effectiveness of envisaged forest control measures, the MEnvEF aims to strengthen partnerships with other Ministries, including: (i) Justice for imposing sanctions; (ii) and Budget Finance for levying fees and tariffs; and (iii) for mobilizing law-and-order forces. The above-mentioned Interior information systemwill play akey role to improve transparencyconcerning potential and actual collected forest exploitation revenues on the basis o f agreedpermits and licensesbetween MinEnvEFand forest operators, while at the same time providing a reference for the distribution of envisagedrevenues among the different stakeholders.MinEnvEFwill also actively seeks partnerships with civil society organizations so as to widen the information base that guide forest law enforcement efforts. Last, but not least, it i s thought that community-based approaches towards forest managementwill go a long way to mobilize local interest and control as important elements o f more effective governanceinthe forest sector. Inorder to establish effective partnerships, the MEnvEF will redeploy humanresourcesand other means at the level of Forest Districts and will conduct corresponding training programs for its employees and envisagedpartners. Another institutional element of the forest governancepicture will be the prolongationof the watchdog functions of the Observatory of the Forest Sector (OSF), under EP-111. The OSF was created through -67- executive orders n012703/00 and 6682101, and has as its mandate to see that rules o f good governance are appropriately adhered to inthe forest sector. Under the project, the management, information and communication capacity of OSF will be strengthened so as to enable it to reach out to relevant stakeholders and establish effective partnerships for the monitoring o f governance issues inthe sector. Inorder to put governance inthe forest sector on a more solidfooting ina structuralmanner, the GoM intends to spin-off actual operational forest management functions within the DGEF into a separate entity called the National Agency for Forest Management (ANGEF). Policy-making and regulatory functions would stay within the DGEF. Doing so would contribute to a better distribution o f checks-and-balances in the sector which will have a positive effect on governance inthe sector. For this purpose, the project would support selected elements of the roadmap that has been prepared to guide the transformation o f the sector following the institutionalassessmentwhich is presented inmore detail inAnnex 15. The latter would include financing of a small team of experts inthe DGEFthat will coordinate operational aspects o f all planned EP-I11activities inthe sector as well as set the stage for the envisaged institutional transformation o f the DGEF. Expected outputs (to be confirmed at appraisal): 48 training sessions effectuated concerning new forest management techniques, 10 OSF reports published, autonomous structure for forest management is operational. Support to tavv and bushfire control (Result 1.2.4. a, b. c). Given that slash-and-bum practices (tavy) are the main driver o f deforestation, the G o M intends to continue to pay particular attention towards efforts aimed at reducing or preferably eliminating this practice. The recent large awareness raising and repression campaign conducted by the G o M in2002, confirms that a general mobilization approach at the level o f regions communes can make a difference. Buildingon this experience, it is envisaged that permanent forest fire control committees will become operational inat least 500 communes. These committees will conduct awareness raising efforts, monitor the local tavy and bushfire situation, as well as establish andenforce corresponding "Dina" rules. Inthis context, it i s envisaged that tavy and bushfire control measures would be included into Commune Development Plans (PCDs) andthat their effective compliance determines eligibility o f all public investments inthe commune concerned. Alternative solutions to tavy andbushfires will also be agreed with communes and providedincoordination with other rural development projects. Forest agents will be equipped with such tools as GPS inorder to better detect fires, assess damage and helpindecision making. Inaddition, funds for transport by helicopter will be made available to facilitate access to remote areas. Monitoring o f fires through satellite photography will be pursued inpartnership with a specialized organization. Inaddition, support would be available to enable the DGEF to manage a retribution system that would reflect compliance o f communes to feux-de-brousse and tavy control measures that are required as a condition for public investments. The retribution system would be fueled by the TBEs elaborated by ONE andwould recognize communes verts and communes rouges with corresponding rewards and penalties. Expected outputs: 500 communal fire control committees established. 1.2 ConservationSites and Economic Instruments (IDA: US$4million) Support will be providedwithin this sub-component to results 1.3.1.(b), 1.3.2.(a), (b), (c), 1.2.5(a) and 1.2.1(d), (e). and (0.of the EP-I11Results Framework. Activities will particularly focus on ways and means to increase the area of natural forests under effective conservation arrangements outside the protectedareas system through the creation of conservation sites as well as the development o f economic incentives and regulatory instruments for forest conservation. Conservation Sites (Results 1.3.1.b, 1.3.2.a. b, c). Conservation sites will contribute towards achieving the 2015 goal o f maintaining forest cover by focusing specifically on areas outside the PA network to ensure better geographic coverage and a holistic approach to ecosystem conservation. They will be classified and inventoriedaccording to IUCNnorms. A contractual text between administration and manager will rule its management mode. The sites will be managed to allow multiple resource uses by local communities, while protecting biodiversity and hydrologicalfunctions. Resource management arrangements will be more permissive than those practiced incore protected areas and buffer zones, which are designed to protect core refuges for biodiversity. Creating conservation sites would allow both, the preservation o f biodiversity outside the network o f protected areas and the maintenance o f watersheds. Potential sites for conservation have been identifiedbased upon a different set o f criteria with a major focus on the endemic species existing outside the P A network, need for biological corridors and the hydrological services. At the end o f EP-111, it is expected to have established 500,000 ha o f conservation sites, distributed across about 15 locations. The project would support the promotion and creation o f conservation sites, the modalities for ecological monitoring o f habitats and species, as well as the arrangements for surveillance and control o f such sites. Conservation site management plans will be elaboratedwith effective participation o f all relevant stakeholders, including locai communes. A Process Framework has been developed for the creation o f conservation sites inorder to guide and minimize any impacts from restrictions o f access to natural resources to communities. Conservation site management contracts will be established inan objective andtransparent manner and inline with the agreed vocation o f the site. Management o f conservation sites will involve reporting requirements and will be subject to extemal controls. Sites will remain open for scientific andtechnical missions. Training o f forest agents, local population, authorities and potential operators regarding the concept and procedures for the creation and management o f conservation sites will first be undertaken. Efforts will be made to ensure that creation procedures will be simple. Management o f sites will follow a development andmanagement plan according to manuals o f procedure to that end. Expected Outputs: 500,000 ha conservation sites created and managed . Concerningparticularly wetlands (Result 1.2.5 .a)%the project would support the creation of Ramsar committees, consisting o f (i) one committee per region ledby the RegionalDirector o f the Environment, Water and Forests; (ii) one per District involved; (iii) local committee for each site; (iv) and one one national committee supported by a small coordination unit based at General Directorate o f Water and Forests. Expected Outputs: 150,000 ha o f wetlands are subject management plans that are operational. Economic Instruments (1.2.1 .d., e.. f.). Parallel to the establishment o f transparent access rights, setting up standards and other economic and regulatory tools is meant to provide the basis for sustainable management o f forest resources by economic operators. As far as feasibility tests o f nationalnorms and standards are concerned, the DGEF supportedby the alliance World Bank-WWF initiated the promotion of forest managementand forest resource certificationin2000-200 1. To that effect, a team comprising representatives o f operators intimber business has been put inplace with a view to develop national norms for sustainable forest management. Norms have been based on international practice set by the Forest Stewardship Council (FSC). Currently, their application is not mandatory although the ones that are operational have led to the establishment o f sustainable management forest management practices and the generation o f highquality forest products. Under the project, this activity aims at promoting these norms and standards with forest operators inorder to encourage them to reorient their activities within the framework o f eco-certification. Inthis context, the DGEFintends to launch a seal o f quality for forest - 69 - products in collaboration with specialized certification entities. For this purpose, a manual for national norms /standards will be elaborated along with a trainingprogram for forest agents. Inaddition, efforts will be launched to develop norms and technical guides for forest management. The project would support the preparation o f adequate reference material for this purpose. Expected output (to be confirmed at appraisal): 400,000 ha o f forest under competitive and transparent licensing system. 1.3 Forest managementtransfers (IDA: US$4.5million) IDA financing will support the achievement ofresults 121(b), 113 (a) and (b). The key focus o fthis activity will be the transfer o f forestry management rightsto local communities under GELOSE and GCF contracts. Along with this activity, it will also launch efforts aimed at improving economic benefit capture by communes from the different biodiversityproduct market chains that are associated with forest management transfer program. Scale up Forest Management Transfers (Result 1.2.1.b). Based on the positive experience o f forest management transfer activities camed out under EP-11, this activity will be scaled-up under EP-I11by aiming to transfer the management o f 1million ha o f forest to local communes. Priority intervention areas for forest management transfers to communes will be identifiedeco-corridors as well as those areas where there exist opportunities to generate synergy with the on-going rural roads rehabilitation program. To speed-up forest management transfers, existing guidelines will be simplifiedby buildingon the strengths o f both existing transfer modalities: GELOSE and GCF. Updatedguidelines will be widely distributed and form the basis for training o f service providers and participating communes. Technical assistance to communes will be extended beyondthe signature o f forest management transfer contract so as to further improve implementation quality and ensure effective compliance with agreed contract rights and obligations. Expected Outputs: 500,000 ha o f forest areas transferred to communities. Capacity o f local communities in forest management increased. Sustainable enhancement o fthe economic value o f biodiversitvproduct supply chains (Results 1.1.3.a and 1.1.3. b). This activity will complement the forest management transfer programby supporting the development o f niche markets for biodiversity products. Doing so, would enable communes to improve revenue generating potential o f forest management transfer contracts, thereby providing better incentives for biodiversity conservation. For this purpose, the project would support studies aimed at quantifying revenue generating potential of a range o f biodiversity products along with the development o f sustainable management models. Parallel to this, the project would support the development o f adequate rules o f the game that would govern access to these resources ina manner that would fully recognize the intellectual property rights of local communes. Once clearly established, the project would also support awareness raising activities aimed at informing local populations about the value o f biodiversity products and species that are present inforests that have been subject to management transfer contracts. Inaddition, to promote bioprospecting opportunities, an inventory o f knowledge and traditional know-how will be carriedunder the project incollaboration with specialized institutions with the aim to set the stage for equitable bioprospecting arrangements between communes and researchers. Expected Outputs: 15 industries equipped with mechanisms for equitable sharing o f benefits, and certified. 1.4 Reforestation (IDA, US$1.0 million) Reforestation activities would help increase forest cover, thereby reducing pressure on natural forests caused by the needto satisfy domestic energy needs. Available IDA financing will support the achievement - 70 - o f results 122 (a), (b) and (c) o f the EP-I11Results Framework for this purpose by making available funding for the creation o f LandReserves for Reforestation (Rbewes Foncieres pour le Reboisement or RFRs) at the level o f communes. This support mightbe channeled through the Support Fundfor Commune Environmental Management (Fonds d 'Appui d la Gestion Environnementale des Communes (FAGEC) in case the G o M decides to establish this mechanism. DuringEP-111, it is envisaged that at least 500 communes will have land reserves for reforestation for a total surface area o f 100,000 hectares. Given that domestic energy requirements are particularlymet from natural forest resources inAntsiranana, Mahajanga, Toliara, and Fianarantsoa C8te- Est. Reforestation activities may be prioritized infavor o f these provinces. However, other areas where a leveraging effect (such as additional carbon finance) and effective complementarity with other EP-I11component can be developed will also be given attention. Reforestation activities funded by FAGECwould be closely coordinated with "food-for-work" initiatives that are typically supported by WFP, SEECALINE etc. so as to generate appropriate synergy. Reforestation activities will be conducted based on Decree no 2000-383 o f June 17, 2000. Accordingly, reforestation landreserves (RFR) will be created and implemented at commune level. Such RFR will be created following the pre-established procedure. Furthermore, reforestation will be promoted among private investors. Specific reforestation objectives would be the protection o f road or hydro agriculture infrastructure, as well as satisfaction o f timber needs. The major incentive i s to secure land titles at the Land Office after issuance o f mise en valeur certificates by the MinEnvEf. Reforestation operators may receive small materials and tooling to conduct works on productiono fplans. The gender approachwill be an element of the strategy o f implementation o f reforestation. Along with the establishment o f RFRs, emphasis will be placed indeveloping carbon sequestration opportunities. While new opportunities incarbon finance are emerging, the capacity to develop and implement carbon finance contracts inMadagascar is still limited, especially when considering community level projects. Inparticular, carbon finance agreements involving groups o f smallholders require innovative mechanisms for contracting carbon, monitoring responsibilities and disbursing earnings. Inorder to facilitate the participation o f targeted communities inthe global carbon market, the project will buildthe capacity o f the government, local institutions, and communities, and help develop appropriate partnerships with the private sector. Inparticular, the project will enhance the ability o f target communities to develop carbon finance proposals, evaluate project feasibility, measure baselines, and establish the financial and administrative processes requiredto enter into carbon sequestration contracts. The project will also develop partnerships between community organizations andthe private sector for the provision o f technical assistance and the establishment o fjoint strategies. Specific activities supported under the project would include: (i) Workshops: local and regionalworkshops will be supportedby the project inorder to a) create awareness o f carbon finance opportunities, b) develop the technical capacity requiredto assess project viability and conduct technical reviews, andc) provide training on carbon finance methodologies (baseline analysis, monitoring mechanisms, etc) and on possible contractual arrangements; (ii) Partnership building: This activity will facilitate andstrengthen interactions betweenprivatebusinesseshnvestors and local communities. Roles for the private sector will be explored particularlywith regards to providing technical assistance, independent verification services, and access to investors; and (iii)Piloting sustainable financing: This will include the development of pre-feasibility studies, andthe identification of hnding sources. Expected Outputs: RFR delineated and divided into lots covering 500 communes; 10,000 ha under pilot carbon sequestration sites. 1.5 Household energy (IDA US$2.5million) Proposed householdenergy activities under the project component will work towards realizing a sustainable - 71 - woodfuel supply inMadagascar, particularly inregions with deforestation from woodfuels, and with a particular interest incharcoal. Proposed activities support results 114(a), 114(b), and 123(a) o f the EP-111 Results Framework. The focus will be on a holistic approach whereby supply-side and demand-side intervention are carried out simultaneously and inconjunction. The three subcomponents are: (i) increase the supply of charcoal through the promotion o f more sustainable forest management practices and more efficient carbonization techniques (Carbonization); (ii) reduce the demand for woodfuels through the dissemination of more efficient end-use cooking stoves (Consumption); and, (iii) scale-up the use o f substitution fuels to replace the use o f charcoal (Substitution Fuels). Carbonization, ($1.6m). The carbonization program is integrated inthe GELOSE/GCF program; each contract will review the potential benefits to the commune from sustainable charcoal production. The regulatory conditions to promote sustainable wood production by villages (and charcoal as one o f the main outputs) will be improved for villages that are part of the Gestion des Resources or the GELOSE program. An awarenesscampaign among villages will be launchedto professionalize the woodfuel production sector. Capacity buildingat the village level will involve creation o f a management committee or village association, development o f simplified management plans for the wood resources on all o f the village lands, and teaching improved cutting and carbonization techniques. Such villages will benefit from an increased and sustainable woodfuel business, plusfrom the proceeds o f a differentialtax on wood and charcoal. These activities buildup on the experience gained under the PPIWPSED program that was carried out under Energy I1inMahajanga. Consumrdon, ($0.5m). Considerable experience exists with production o f improved cooking stoves. This subcomponent will capitalize on this experience by further professionalizing the sector and promoting a regulatory environment that favors efficient equipment through a labelling system Energy efficiency labels; environmental beneficiallabels.. An awareness campaign will be launched to promote both the production o f efficient equipment among suppliers andthe use o f such equipment among potential users. A financial support mechanismwill be created to assist producers or suppliers to make available such equipment. The types o f equipment that will be promotedare improved firewood and charcoal stoves, efficient and acceptable kerosene stoves, and small LPG stoves. Substitution Fuels, $0.4m. This subcomponent will promote the production o f substitution fuels that will replace the use o f charcoal. Potential fuels are gelfuel from alcohol or agricultural residues or briquettes from agro-industrial residues, and LPG insmaller containers. The minimum size i s 9 kg at the moment; the potential market for 1kg or 3 kgbottles appears to be large. An awareness campaign will be launched among potential candidates to scale-up the production o f such altemative fuels and a financial support mechanismwill be created to assist such producers. Benefits as a result o f implementingthe three subcomponents are multiple; inessence, the benefits are interlinked, as each o f the subcomponents impacts the others: the total woodfuel consumption will be reduced; the part o f the woodfuel consumption that is sustainably produced will be increased, yielding lower deforestation rates; participatingvillages will substantially increase their financial benefits; more households will use substitution fuels and see increased health benefits; and finally, C 0 2 emissions will also be reduced. Expected Outputs: some 400 COBAs trained and operational through improved charcoal production techniques introduced in200 communes andprivate forests/plantation. Stoves with an eco- or environment label are sold by stove producers andwill be used by at 250,000 households and 3-5 productionfacilities for substitution fuels exist. -72 - Project Component2: ProtectedAreas Management: (i) Bank-GEF: US$9 million; (ii) IDA - US$13.50 million The Protected Area network o f Madagascar managedby ANGAP aims to consist o f 36 Management Units (Unite de Gestion - UG), corresponding to 46 Protected Areas. The IDA and GEF contributionto ANGAP's protected area system will be selective under EP-111. It will support 22 UG, corresponding to 27 Protected Areas. The GEF will lend support to 15 UG, while the remaining 7 will be supportedby IDA (refer to Annex 16 andproject files for sites description, and selection process). This component contributes to the implementation o f EP I11by focusing on results 1.1., 1.3. ,2.1., and 2.2 o f the EP-I11Results Framework. The component addresses issues relating to P A management, eco-development, eco-regional planning, ecotourism and endowment o f a trust fund. Specifically, the activities planned under this component are organized as follow: 2.1 Reducingpressures, Capacity building, Awareness and CivilSociety involvement around selected Protected Areas (IDA: US$0.46million; Bank-GEF: US$O.79 million) This activity contributes to EPIIIresults 1.1.2(d), 1.3.2(e) and2.1.2(d). IDA/GEFwill aim to increase participation o f local communities inthe management o f selected protected areas by strengthening and expanding the mandate o f the Regional Steering Committees (CROs), settingup o f COGES/CODEAP (village based associations) and their capacity buildingand, partnerships with NGOs.It would also provide management, technical and planning assistance, and on the ground support to the program o f activities aiming to promote altemative actions for reducingpressures around selected protected areas through (i) actions having direct links with pressures and with conservation targets; (ii)operationalization o f decentralizedmanagement principles recommended inthe manual for management o f PRDEAP funds (park entrance fees). The RegionalSteering Committee commonly called CRO, is a consultation forum set up by ANGAP. The advantages o f such a system is not only sharing information, but also ownership o f decisions made as regards management o f a protected area at the level o f a region; it allows participants and actors to express their observations and proposals as regards actions relative to management o f the site. This activity will involve setting up and strengthening of CROs at selected management unit o f the national Network. Establishing the CROs will involve selection o f representatives from all stakeholders present inthe area including representatives of: members o f grassroots communities such as CODEAP and/or similar communities; village-based associations or COGES; regional development committees; civil society/development operators and private and public institutions. The responsibility o f the CRO's includes supervision o f work o f outside contractors responsible for the preparation o f master, public use and management plans, assisting local communities inthe preparation o f fundingproposals, supervision o f the execution o f activities by beneficiary communities etc. Financingwill also be provided to conduct information/ training campaigns for capacity buildingamong people incharge o f management units and CRO members. Trainingwill include study tours, scholarships, seminars, courses on conservation management, P A controlmechanisms andmanagement procedures. Field visits to other region communities where participatory approaches are being implementedwill also be organized to further raise the level o f awareness among the local communities. All training and technical assistance will be implemented from a gender perspective and promote the participation o f women inmanagement o f PAS. ExDectedOutuuts: CROs operational in 22 Management Units (27 PAS); Increasedparticipationand capacity o f local communities inP A management and increased revenues shared from DEAP. 2.2 Enhance complementarityvalue, alignment and eco-regional representativenessof theProtected Area System (IDA: US$0.9million; Bank-GEF: US$l.l million) This activity contributes to EPIIIresults 1.3.1. IDA/GEFresources will finance the implementationo fthe - 73 - COAP and the Plan "GRAP" (five-year action plan for management and expansion o f existing P A system), aimed at ensuring the representativeness o f ecosystems under the national protected area system. Support will be providedto integrate conservationmanagement planning inPASand support zones at an eco-regional level, such as reclassification o f certain PAS,identification o f new PAS,and reconfiguration o f the boundaries o f certain PAS,where warranted to reflect current landuses andensure ecological integrity. Specifically the activities will be aimed at: (i)status change o f some protected areas or re-delineating boundaries o f a number o f existing protected areas; (ii) creating a few key terrestrial and marine protected areas; and(iii) redefining some protected areas. Redefiningprotected areas and creating new protected areas will result inreadjusting the surface area o f medium altitude moist forest, dry closed forest ecosystems and o f thicket inDidierea and many others not yet defined now. The redefined andnew protected areas including the conservation sites to be created under the forestry component will support each other. The status modification for a protected area will include the following steps: (i) developing a document justifying status change; (ii) developing minutes indicating the borders and border points o f the PA, as well as its adoption by the population involved; (iii) preparing the draft decree for status modification; (iv) meeting of the Superior Council for Protection o f Nature; and (v) formalization. Any creation, status modificationor redefinitionprocess i s carried out according to MECIEregulation. It includes, on the one hand, the requirement o fconducting an environmental impact study; and, on the other hand, o fconsulting the public. Status modification o f four protected areas will be included: the Special Reserve o f Anjozorobe; Lokobe; Nosy Mangabe; and the IntegralNatural Reserve o f Zahamena. They will be respectively integrated inthe National Parks o f Mantadia, Masoala, and Zahamena. The project will support the creation o f one new proposed terrestrial protected area (Foret de Mikea) following the completiono f an IPDP acceptable to the Bank and two new marine parks (Nosy Hara, and Nosy Radama-Sahamalaza). The newly created PASwill be equipped with operational management structures for the first two years o f EP 111.Related activities especially involve refining feasibility studies, developing their management plananddevelopment o f a minutes document on survey ofborders andborder points, signedby all entities involved, including the population. The administrative PA classification process will be camed out from the head office. Management structures will be created for the three new PAS,including bureaus and their equipment, materials and humanresources. The various consultations processes and technical analyses duringproject preparation, identified the merits o f assigning a definite category (re-delineating boundaries) to already established PA systems. A re-categorization, boundary demarcation, abandonment and finalization o f P A legal status process will be put inplace to rationalize the National System o f ProtectedAreas. While re-delineating, a permanent category will be assigned to the areas identified inthe process o f project preparation. Re-categorization will be based on current intervention conditions andnatural resource utilizationpatterns since these may have changed since the areas were created. This i s an important step because the category (e.g.National Reserve, Communal Reserve, National Park or a Protected Forest) determines how resource utilizationand occupation levels are regulated. Boundary demarcation will consider the administrative viability of the area as well as the space needed to meet conservation objectives. This process will determine the expansion o f the area or its partial or total abandonment. Representativeness o f ecosystems will be enhanced through change inborders of some protected areas. The project will target the following eight protected areas : the National Parks o f Kirindy MitedAndranomena, the borders o f which will be extended by inclusionof the marine and coastal area o f Belo sur Mer the National Parks o f Tsimanampetsotsa, Kalambatrita, Ambatovaky, Cap Sainte Maire, Montagne d'Ambre and the Special Reserves o f Manongarivo and Tsaratanha, inwhich good condition ecosystems neighboring some PASwill be integrated inthe Network, whereas the degraded parts at the - 74- peripheryofthe PA will be put outside new borders Creation and re-delineating of PASwill also requirepreparation of planning documents as requiredby the GoM legislationand drafting of administrative resolutions and legislative decrees. Drafting administrative resolutions and legislative decrees. Creation of new areas and their categorization impliesdrafting numerous administrative resolutions and resolving legal questions. Furthermore, GoM legislationrequires that proposals for new areas and categorization must be consulted with relevant sector ministries including agriculture, energy, tourism and others. Final legaldeclaration of protected areas will be achievedby documenting the revisedprotected area boundariesand category. Protectedarea categories will be based on international categories(such as the Biosphere Reserve) which enables the utilization of the national categorization system inthe final legaldeclaration of the protected areas. Emected Outuuts: Establishment of new terrestrial protected areas (1) and marine parks (2). Status modification of4 protectedareas; 8 protected areas delineated.Legislative decrees for creating the new PAS inplace. Operational management structures for the new PASareas created inplace. 2.3 Conservation Managementprogramsto consolidatethe national PA system (IDA: US$3.17 million; Bank-GEF: US$4.58 million) This activity contributes to EPIII-Results 1.3.2. IDMGEFwill finance (i) Ecological monitoring and applicationof measures for conservation of terrestrial and marine ecosystems; (ii) surveillance and control ; (iii)construction of conservation infrastructures and materialization of zoning; and (iv) research programs aimed at developing a better understandingof practices for biodiversity conservation and management. Inorder to improve conservationmanagementoftheprotected area system, focus will beplacedon prioritizing actions and developing referential documents. Giventhe sometime limitedresourcesin implementingidentified strategiesandactions, initiatives will beprioritizedbaseduponthe importance of their impact on threats reduction andmaintainingthe biodiversity inPAS. Basedon the conservation Management Plans (PGC, PGEE, PGD, PGCOM, Service Plan) at each site, thematic managementplans will be developed. These will include, master plans, and resourcesuse zoningplans. Master Plans include zoning arrangements and informationon coordination and participationmechanisms for the area. They provide informationon area potential for use of existing resourcesand possible economic activities, with details on the manner inwhich the area will be organized and managed.Four complimentary studies will be conducted for the elaboration of Master Plans, which will contain informationon issues such as eradicating invasive exotic species, and restocking and or reintroductionof species as well as habitat restoration measures. ResourcesUse Zoning Plansprovide the technical support for use authorizations to be givento indigenous peoplesto pursue sustainablepractices currently under implementation. These referential documents will clarify the activities to be conducted with detailed implementation modalities against the problems to be dealt with regarding scale, expected impacts, methodology to be followed, location and responsibility charter. This projectwill support the consolidation of monitoringand surveillance activities as well as conservation practices. It includes ecological monitoring, managementof fires (including opening of firebreaks and maintenance of access roads for fire fighting), invasive plant control and restoration of degraded sites in some protected areas. Inorder to insure basic protection against illegal use of naturalresources within the protected areas, the project will provide funding to the area administrations for the establishment and implementation of a community-based and Protected Areas Management Surveillance System, in consultation with and participationof the local communities. The contracts issuedwill cover provision o f equipment and subsistence costs. - 75- Ecological monitoring will involve identificationof conservationtargets, definition of conservation objectives, design of adequate ecological monitoring protocolper conservationtarget and, settingup and implementation of monitoringprotocols. In 12protected areas (Fori3 d'Ambre, Ankarana, Manombo, Ranomafana, Cap Sainte Marie,Andohahela, Andranomena, Zahamena, Betampona, Masoala, Baie de Baly and Ambohitantely), degradedsites will be restored. A specific researchaction programwill be implementedinthe conservationmanagementplanof each ofthese protectedareas. Activities to support and strengthenthe management of fires within the PA system will include infrastructure development (opening or maintenanceof firebreaks, settingup of guardrooms or watch towers), a vigilance committee and fire prevention campaigns; creation of a few trained, suitably quipped mobile fire suppressionteams to ensure rapid intervention incase of fire; strengtheningpatrol and surveillance system inorder to control movement inside the Park; and settingup of various materials and equipmentfor fire fighting. The following 18 PAShavebeenidentifiedfor fire management: Ambohitantely, Isalo, Manombo, Baie de Baly, Marotandrano, Zahamena, Zombitse- Vohibasia, Tsimanampetsotsa,Andranomena, Cap Sainte Marie, Andohahela, Ranomafana, Namoroka, Betampona, Anjozorobe, Midongy du Sudand Kirindy Mitea. Invasive species at Montagne d'Ambre (Lantana camara); Analamazaotra and Ranomafana (Psidium cattleyanum); Cap Sainte Marie (Opuntia); Andranomena (Ziziphus mauritiana); andBeza-Mahafaly, pose major problems inthe PAS. A feasibility study for each protected area highlighting a specific control plan will be carried out. Conservation infrastructure development will include boundary marking of PA managementunits (zones) inprotectedareas(materialization ofborders offully protected"core" ofcontrolledoccupationareas and use areas, of the outer boundaries of the P A proper). Infrastructure needs to be established in 12 PAS(Baie de Baly, Midongy dusud, Namoroka, Ambatovaky, Kalambatritra, Mangerivola, Marotandrano, Anjozorobe, Marolambo, Foret de Mikea, Kirindy Mitea and Tsimanampetsotsa) including surveillance and control infrastructures such as controlbarriers, materializationof borders, fire control and protection infrastructures such as fire breaks, watch towers; and information infrastructures such as signalling, information, and prohibitionnotices. The investments inthe PASwill be guidedby a participatory managementplanand a business plan (details inProject Files). Appliedresearchwill beusedas a biodiversity managementtool. Limitedsupport will beprovided to some of the researchprograms (20 plannedper year under EP 111)inpartnership with national and intemational institutions. These programs will include: (a) promotionof partnership development; (b) coordination and monitoringof researchimplementation; (c) improvement and updating of database on research; (d) assessmendimprovement of collaboration inresearch; (e) settingup and maintenance of research infrastructures and (0analysis of results and their applicationinPA management. IDA andGEF will provide support to activities to remove barriers to conservation andmanagement activities such as capacity buildingsupport, planning, targeted researchprograms, zoning and, a contributionto surveillance and control, but also on investments to infrastructure, and equipment. Expected Outputs: Establishment of PA Management and Surveillance system in22 Management Units (27 terrestrial and marine PAS- selection at basedon agreedprioritizationprocess included inAnnex 16), 15 Management Units (18 terrestrial PAS)usingfire management; 11 Management Units (643 Ha) under habitat restoration, Conservation infrastructure developed in 11Management Units(12 PAS), and well maintained in22 UG (27 PAS), 35 targeted researchprograms carried out, removal of invasive species - 76 - undertaken in 5 UG (6 PAS). 2.4 Sustainable use of PASSystem and improvegovernance within ANGAP (IDA: US$1.60million; Bank-GEF: US$2.40million) This activity contributes to EPIII-Results 1.3.3, but alsoprovide support for the financing of technical assistance and capacity buildingto further improve ANGAP's govemance by focussing on the development and implementation of a cost reduction action plan, improvingfinancial and administrative management, providing strategic and technical support to prioritize the investments (inparticular related to ecotourism) inalignment with the PA managementplans andthe new business plans, andsupporting quality reviews of the implementation of the M&E systemdesignedduringpreparation. Support will also be providedto develop and implement the replicationplan. IDNGEFwill provide support to improve recreational facilities including critical visitor infrastructure and services, revise tourism fees to capture the consumer surplus and increaserevenues from park entrance fees to stimulate the local (eco)-tourist industryand strengthenguidingservices. To improve guide services and harmonize guide status under a standard partnership contract, the following activities will be carried out: (i) upthemarketforguideservicestoregionalandnationalserviceprovidersandbyinciting open competitioninorder to raise the quality of local service provision; and (ii) involve the private sector in guide basedtraining andservice provision through the creationofpartnership and collaboration with the MinistryofCulture andTourism inthe licensingofprofessional guides. Partnershipswillbe developed with private enterprisesfor the promotion and development of eco-tourism. Market development of ecotourism products (the parks and visitor services) will be managedinpartnership with the private sector to improve supply of tourism products. ANGAP will establish its partnership policy, and a blueprint document or partnership charter will be designedfollowing anational workshop involving the private sector. Systems for evaluating and mitigating the impacts of tourism on PASwill be made operational. The activities will focus uponthe six priority parks most visitednamely, Montagne d'hbre, Ankarana, Andasibe-Mantadia, Isalo, Ranomafana and Andohahela. Increaseinnumber o f visitors requires defining conditions for effective managementand maintenance. The processof Acceptable Change Limit (LAC) will be the meansto determine the conditions and status ofresourcesandto resolve possible conflicts inmeeting these objectives. Evaluationwill start with settingup of an adequate database on existing conditions in order to detect changes as limit or capacity is not static. Establishing limits will be part and parcel of the planningpolicy process. Support will be providedto develop tools for promotingecotourism management.These will include development of park information KITSfor ecotourism promotion about the Parks; creation of websites; marketingcampaigns; educational tours; and promotional materials for the Parks ininternational magazines. Improvingcritical visitor infrastructure will include installationof control barriers, installation of information/ instructions boards, maintenance of panels, purchaseo fpaint for boundary markings etc. Focus will be placed uponthe 6 priority Management Unitscritical to ecotourism development in Madagascar whichrequire improvement incritical visitor infrastructure. These include Montagne d'Ambre, Ankarana, Tsingy de Bemaraha, Andasibe-Mantadia, Isalo, Ranomafana, Andringitra, Ankarafantsika, and Andohahela. The establishment, categorization and management o f areas will require the construction of new facilities and or improvement of already existing structures as well as the provision of the requiredequipmentfor area managementand communications. Fundingwill also be provided for the maintenanceof existing trails inthe selected areas. Criteria for selection of service providers will be drawn - 77 - up for management and services contract. IDNGEFwill focus upon efforts to overcome barriersto the advancement o feco-tourism inexisting and new PA sites selected for GEF/ WB support. These barriers include: absence o f suitable tourism products, including trails and interpretation facilities; lack of articulation o f PASintourism markets; and development o f protocols and infrastructure to engender responsible tourism. Bank's support is expected to increase visitation and gate fee returns, contributing to an improvement infinancial sustainability. Expected outputs: 254 guides trained; 3 interpretationcenters inMontagne d'Ambre, Ranomafana, and Masoala created; 14 new information posts established in6 UG; 6 UG with improved ecotourism infrastructure and services; establishment o f 300 kmo f new trails and 25 new camping sites; 10 functional evacuation plans prepared; 3 ecotourism assessment studies completed; increased partnershipwith private sector; 6 private service zones for PASestablished, cost reduction action implemented, quality M&E system operational and under extemal review, administrative and financial management transparent and cost effective, confirmed by independent extemal reviews. 2.5 Endowment of the Malagasy ProtectedAreas and BiodiversityFoundationfor long termfunding (IDA: US$ 7.50 million) This activity contributes to EPIII results 2.2.1 (a). It aims to strengthen the nationalfinancial capacity to support the PA system andbiodiversityconservation over the long term. The key mechanism will be support for the establishment o f a dedicated endowment fund to finance a portion o f the long-term costs o f the management o f the PA network andbiodiversity conservation inMadagascar. A Trust FundSteering Committee (TFSC) appointed by the Minister o f Environment in2001is currently working on the establishment o f such fund through the Malagasy Foundation for ProtectedAreas and Biodiversity (FBAP) which i s scheduled to be created by July 2004 under a new Malagasy Foundation Law. The FPAB will be founded by the Government, WWF and CI. The project will support the Foundation for Protected Areas and Biodiversity (FPAB) by providing a one-time capital contributin to the endowment. Other donors (Germany, France) have also expressed strong interest. The objective o f the project is to generate US$50 millionby the end o f EP 111. The underlying rationale to pursue and support the establishment o f an endowment fund inMadagascar reflects the following considerations. Insuficient Public Funding. Financing o f Madagascar's NEAP has relied almost exclusively on the international donor community. As the NEAP nears completion, it is unclear to what extent the donor community will remain committed to continue to support biodiversity conservation inMadagascar or to what extent the completionpoint would be usedby the traditional multilateral, bilateral, andNGO partners to re-evaluate existing priorities. The current and foreseeable public expenditure programs are unlikely to provide sufficient resources to make up possible financing gaps, given competing claims on public resources (including for social services) inMadagascar and inview o f the trend o f low-income countries to prioritize expenditures that cover immediate needs over expenditures that generate benefits only inthe long run. Inview o f this, an explicit government objective i s to put inplace sustainable frnancing mechanisms for the country's protected areas system after completion o f the NEAP in2009. Absence of Eficient Market-based or Alternative Financing Options. The conservation value o f Madagascar's natural forests, unique biodiversity assets (for example, containing 3 percent o f global plants and vertebrates species), and its other hugely diverse natural resources is large, as reflected by an estimated economic rate o f retum for the proposedproject o f 25 percent. The economic benefits include those associated with eco-tourism, watershed protectionand global environmental services markets (for carbon and biodiversity). Most mechanismsto capturethese benefits are likely to materialize only inthe mediumto long rundue to: (i) highincidence of poverty inMadagascar; (ii) a relatively low, albeit growing, tourist base; and (iii)slow progress inthe international arenaconcerning the development of markets for carbon sequestrationservicesthat would particularlybenefit Madagascar. Furthermore, eventhough these mediumand long term benefits will grow over time, no market mechanism exists that would allow Madagascartoday to tap the option value of maintainingits biodiversity assets as an altemative to forest exploitationand conversion. 0 Inaction leads to Irreversible Losses of Global Public Goods and National Economic Potential. Failure to take comprehensiveaction (including creating FBAP) as proposed inthe project could result inan immediate andpotentiallyirreversible decline inthe value ofthe Madagascar's ecological assets, inpartbecausethe habitats are interconnectedand interdependent. For instance, deforestation can cause habitats to shrink and can result inthe loss of some key species populations such as lemurs. The proposed endowment fund provides a mechanism to weather the negative shocks associatedwith inadequatefunding, thereby preservingthe globally important biodiversity resourceand Madagascar's ability to effectively capture the long-term economic value of conservation. Usingit to maintainthe current protected area system is crucial, as data analysis shows that conservation protection in Madagascar is effective and efficient. 0 Positive Implementation Experience GEF's experience suggeststhat endowment funds are an . attractive and efficient vehicle to capture this international willingnessto pay, because they (i) reduce transaction costs between multiple donors and the recipient; (ii) empower national institutions to take a lead inconservation efforts; (iii) dampen the volatility of the available stream of biodiversity conservation resources; and (iv) capture resources that reflect the actual willingness to pay of the international donor community for biodiversity conservation (especially giventhe possibility of donor fatigue that mighterode international willingness to pay inthe future). However, it is neither possible nor appropriate to fully fund the FBAP from GEF, inview o f the limitedGEF resources for Madagascar and the fact that FBAP would generatenationalandwell as global benefits. 0 Significant Leveraging. Representativesfrom the donor community and international and local NGOs have expressedwidespread and enthusiastic support for makingIDA financing available for biodiversity conservation through an endowment fund. IDA'Sproposedcontributionwould complement commitments and pledges from other NEAP donors, including France, Germany, Conservation International and World Wildlife Fund, which currently amount to approximately $15 million. Inaddition, the adoption of Bank-endorsed fmancial managementproceduresand governance structure as a condition for the use of IDA resourceswould enhance the credibility of the fundand thereby its capacity tp mobilize funds from other donors and foundations. For instance, Conservation International and World Wildlife Fundhave committedto raise at least a total o f $50 million by the end o f the project. Basedon a recent estimate by an independentaccounting firm the total minimum operational cost per year for the protected areas managedby ANGAP, plus the six areas currently managedby WWF, C I and the Wildlife Conservation Society (WCS), is approximately US$ 3.1 million. This estimate covers all wages and recurringcosts, but does not include infrastructure and equipment needs. The fundingscheme for the capitalization of the Foundation is basedon a few key elements including: (i) Initialcontributionwill be provided by CI and WWF through pledgeddonation of US$1millioneach on target-specific investments (i.e., to cover recurringcosts of selectedpriority protected areas, capacity building, activities insupport zones andestablishmentof ecological corridors). This funding will allow the Foundation to be legally registered inMadagascarby meetinga legal requirementfor minimumcapital for a Foundation; (ii) a - 79 - one-time contributionfrom IDA would be effectuated once a number o f disbursement conditions are met; (iii)fundraisingcampaignwouldbelaucnhedtopromotetheFoundationsandraiseadditionalresources a from a wide range o f interested parties; (iii) contributions from the GoMwillbe committed as a result o f the pre-HIPC debt relief agreement between Madagascar and Germany, over 19 years; and (iv) it i s also expected that an additional GEF contributionto match IDA, WWF, C I and other contributions (around US$ 10million) to an endowment fund will be requested at mid-term review once specific benchmarks and a track record o f the Foundation has been demonstrated. For this purpose, the key benchmark indicators will include effectiveness of the Board; quality of the Executive Secretariat o f the Fund; effectiveness of Asset manager; disbursement conditions of the investments; commencement o f grant making activities and; effectiveness o f the institutional structure to carry out defined activities under the TF. Details have been agreed upon at appraisal. The creation and capitalization o f an endowment fund will lead to decreased dependence on external donor fundingandwill be a key milestone towards the establishment o f a sustainable fundingmechanism beyond the timeframe o f the project. The target will be the generation of US$ 50 million by the end o fEP 111. The envisaged IDA contribution to the endowment inan amount of US$7.5 million is subject to a disbursement condition that makes the release o f a first tranche inan amount o f US$4.0 million conditioned upon: (i) the manner inwhich the Foundation is set-up andoperates; and(ii) establishment the o f an operational track-record prior to the transfer o f IDA Grant resources into the endowment fund. In this context it is stipulated that the statues, by-laws andoperational manual ofthe Malagasy Foundation for Protected Areas and Biodiversity will be adoptedto the satisfaction o f IDA. Stipulated terms and conditions include: (i) clear and transparent criteria for the review and approval o fbiodiversity conservation proposals; (ii) clear and transparent rules governing the management and oversight of Foundation, and the role o f local stakeholders; (iii) establishment o f a separate account to receive and manage contributions to an endowment fund to be usedto contribute to the financing o f the cost o f management o f the protected areas network and biodiversity conservation; (iv) clear andtransparent rules to ensure that funds are applied for the purposes for which they are intended and inaccordance with its operational manual; (vi) provision for independent technical, financial and organizational audits to monitor and report on the operations o f the Foundation; and (viii) clear and transparent rules governing the disposal o f assets o fthe Foundation inthe event o f a merger or dissolution. To reflect expected leveraging effects o f IDA'Ssupport to the FPAB, the disbursement o f a second tranche inan amount o f US$3.5 million to the endowment is subject to a condition that stipulates that cumulative contributions to the FPAB, other than from IDA, should have reached a total o f US$15 million. Expected outputs: Operationalization o f the Madagascar Foundation for Protected Areas and Biodiversity; US$ 50 million mobilizedfor trust fund for biodiversity conservation; Increasedfinancial sustainability of the P A system and ANGAP through establishment o f FPAB. Project Component 3: Environmental Mainstreaming US$8.50 million - IDA financing would support selected elements o fthe environmental mainstreamingagenda covered under results 2.1,2.2 and 2.3 of the agreed results framework for EP-111, including efforts aimed at: (i) strengthening in-house institutional capacity o f ONE to generate environmental information for policy decision-making, education and communication purposes; (ii) improving knowledge about the environment through selected environmental educational and communication activities, includingthose aimed at the Comitks Communales de Dkveloppement covered by EP-I11(totaling 530 communes); (iii) increasing DGE's institutional capacity as far as its environmental regulatory andpolicy-making functions are concerned, with a special emphasis on the development o f sustainable financing mechanisms for the environment; (iv) ensuring adequate applicationo f Madagascar's MECIE legislation; and (v) puttingin place the necessary conditions for the effective management o fthe MEEF as well as the functioning of - 80 - environmental units inall sector ministries. 3.1 EnvironmentalInformation, Education and Communication (IDA: US$L5 million) IDA financing would support achievementof Result 211(a), 212(a), 212(b), and212(c) of the agreed EP-I11results framework. As far as Environmental Informationis concerned, it would support ONE in expanding the preparation of TBEs to the regional level, thereby establishing a system of environmental informationthat would consist of: (i) one national TBE; (ii) provincial TBEs; and (iii) regional six 20 TBEs. Regional TBEs would coincide with the 20 agro-ecological regions that are distinguishedin Madagascar, among other by the PADR. An important objective of IDA support would be to improve ONE'S in-house institutional capacity to analyze and processthe spatial dimensions of environmental data that are collected inthe context of the TBEs. It is expectedthat improvedenvironmental information would enable better targeting o f public sector interventions, thereby improving the efficiency of public expenditures. As far as EnvironmentalEducation andCommunication are Concerned, IDA will finance a selective number ofactivities that reflect the comparative advantageofthe institutions that are associatedwith the EP-111. First, as far as environmental education i s concerned, IDA financing would support the preparation of educational materials by ONE basedon information from the TBE. These materials would be made available to the Ministryo f the Education as an inputto achieve the objectives of its PEREprogram. In addition, IDA financing would be available to support ONE inproviding technical assistance and expertise to the Ministry of Educationconcerning the training of teachers inenvironmental affairs. A protocol between MinEnvEFand the Ministryof Education would be signedfor this purpose. Second, as far as communication is concerned, IDA financing would support ONE in: (i) providing relevant environmental information on-line; and (ii) developing environmental information packagesandtraining materials for opinion-makers, EP-I11target communes as well as the mass-media. Inaddition, IDA financing would provide support for carrying-out environmental training and dissemination activities that are geared towards opinion-makers (e.g. church, legislators etc.) and EP-I11target communes. To improve the effectiveness of environmental surveillance and control activities in classified forests andprotected areas, parallel communication initiatives, especially those targeting the mass media, would be also be launched. 3.2 EnvironmentalLegislation, Policy-Making and Regulations (IDA: US$2million) IDA financing would support achievement of Results 221(b), 231(a), 231(c), 233(a) and 233(b) under the agreedresults framework. Inorder to do so, IDA financing would be available to enable the DGEto carry out a total of 15 strategic environmental assessment (SEAs). This would permit the DGE to ensure an adequate coherenceof sector legislation with the environmental legal framework as reflected inboth national legislationas well as Madagascar's participationininternationalconventions and treaties. Based on the SEAs, the DGE would also be ina position to adequatelyprepare the terrain for the ratificationof new international conventions andtreaties inwhich Madagascarwishto participate. The SEIAswould also present the analytical framework and build capacity to establish new sustainablefinancing mechanismsfor the environment such as carbon finance transactions and payment for ecological services. (inadditionandincoordination with activities carriedout underthe ProtectedAreas Managementand Forest EcosystemsManagement components). Inthis context, it is worth mentioningthat the GoM has expressedits interest: (i) to make contributions to the Malagasy Foundationfor Protected Areas and Biodiversity from HIPC or other resources; and (ii) to earmark tourist visa revenues to ANGAP for the O&M of the protected areas system. The SEAs would also to develop sector guides for EIA application, thereby providing a reference tool to the private sector that would speed-up the EIA processas well as a strategic framework for ONE to carry out the EIA approval process. Besides support for SEAs, IDA financing would also seek to strengthenthe capacity of the DGEto carry out upstream Environmental Analysis of proposedlegislationandpolicy measures that would enable the MEnvEFto play a more - 81 - pro-active role inmaximizing positive andminimizing negative environmental externalities that are associated with changes inthe economic incentive structure. IDA financing would also support the DGE in assuming its regulatory functions as far as environmental compliance is concerned, including: (i) strengthening o f institutionalcapacity to audit ONE'Sperformance inoperating the one-stop-shop for MECIE application; and (ii) puttinginplace and effective mechanismto respondto environmental complaints from the general public. 3.3 Environmental Compliance (US3.0 million) IDA financingwould support achieving Results 23l(b) and 23l(c) ofthe agreed EP-I11results framework. Inthis context, IDA financing wouldparticularly aimto improvethe applicationofMECIElegislationby supporting efforts that would increase the speed o f the EIA process, reduce costs, while ensuring minimally acceptable quality. Inorder to achieve this, it has been agreed indiscussions with the DGE and ONE to establish a one-stop-shop inONE for the evaluation o f EIAs and the issuance o f environmental permits. In this context, ONE would coordinate the CTEs, leadthe evaluation of EIAsand issue environmental permits that reflect the results o f the evaluations. ONE would also coordinate compliance monitoring o f environmental management plans. The role of the DGEwould be control whether ONE applies the MECIE legislation correctly, both inthe environmental permit issuance stage as well as the compliance monitoring stage. IDA financing would be available to position ONE to effectively assume its role to operate the EIA quichet unique and put inplace an approche performance et service. This would entail support for: (i) institutionalcapacity buildingaimed at ensuring compliance with I S 0 9001quality standards; (ii) decentralization o f the MECIEprocess by strengtheningthe CRMs as provincial platforms o f information and expertise; and (iii) promotion of environmental auto-regulatory mechanisms such as I S 0 14000, MSC, FSC and GAA. For the sake o f good governance and to provide a strong signal to the private sector, MEEFshould ensure that allpublic investments effectively comply withthe existing MECIE legislation. 3.4 EnvironmentalManagement and Coordination (IDA: US$2million). IDA financingwould support achieving Results 222(a), 222(b), 222(c), 222(d), 232(b) and233(c) o fthe EP-I11results framework. Inthis context, it would support the MEnvEF: (i) to put inplace a financial management system that would enable the Ministryto position itself for budget support programs after EP-111; (ii) following recommendations from SOATEG, to establish a M&Eevaluation system that would enable tracking o f EP-I11results and impacts; and (iii) based on the results of institutionalassessment carried out by BIODEV, implement agreed institutionalreforms that would strengthen its presence on the ground as well as reinforce its coordination mechanism with other public sector programs andthe donor community. Inaddition, IDA financing would be available to support the start-up and institutional strengthening costs o f environmental units inexisting sector ministries. Inaddition, it would assist the DGEinsetting-up a platform for the coordination ofthe environmental units. - 82 - Annex 3: EstimatedProjectCosts MADAGASCAR: Third EnvironmentProgramSupport Project I Local Foreign US $million US $million 1.1 Sustainable Development 27.71 7.95 35.66 1.2. Forest EcosystemsManagement 23.11 6.12 29.23 1.3. ProtectedAreas Management 33.30 8.95 42.25 1.4. MarineandCoastal Zones EcosystemsManagement 1.82 0.41 2.23 2.1.Environmental Informationand Education 6.5 1 2.08 8.59 2.2. SustainableFinancing Mechanism 0.72 0.16 0.88 2.3. EnvironmentalGovernance 10.57 5.28 15.85 Total Baseline Cost 103.74 30.95 134.69 Physical Contingencies 4.14 2.21 6.35 Price Contingencies 5.82 2.04 7.86 Total Project Costs1 113.70 1 35.20 148.90 Total Financing Required 113.70 35.20 148.90 1 Identifiable taxes anddutiesare 22.5 (US$m)and the total projectcost, netoftaxes, is 117.4 (US$m). Therefore,the projectcost sharingratio is 34.07%of total projectcost neto ftaxes. - 83 - Annex 4: Cost BenefitAnalysis Summary MADAGASCAR: Third EnvironmentProgram Support Project Summaryof Benefitsand Costs: 1. This annex presents the results o fthe economic and financial analysis for the proposedactivities to be financed by the IDNGEF supportedEnvironment Program I11project inMadagascar. The main objective o f the project consists, over 5 years, infinancing: (i)the increase from 1.5 million to 6 million hectares inthe surface area o f natural forests under conservation, so as to reach the objective o f 10 % o f the national territory set by International Unionfor the Conservation of Nature (IUCN); and (ii) the development o f economically viable alternatives to deforestation caused by farmers practicingslash and bumagriculture and unsustainable charcoal production. 2. The costhenefit analysis o f the three management modalities for natural forests conservation (protected areas, conservation sites, management transfers) indicates that maintainingand extending the natural forests areas under conservation from 1.5 to 6 millions hectares inMadagascar is apriori economically beneficial for the country as indicated inthe table below. 3. Inview ofthe quality o fthe available data, these costhenefit estimates are necessarily imprecise and should be treated only as orders o f magnitude, especially for conservation sites and forest management transfers that are not yet precisely located. However, it should be borne inmindthat these are very conservative estimates, especially because o fthe conservative assumptions made incalculating them and also because some important benefits, like carbon sequestration o f standing forests, remainedunquantified. Consequently, even a the lower end o f the estimate range, it i s clear that the national economic benefits generated by the project are likely to be sufficient to justify the investments involved. Presentvalue (lo%, 15 years) Protected areas Conservation Sites Management transfers Total Management costs ($79.39) ($3 1.48) ($10.38: ($121.25) tavy foregone revenues ($37.26) ($42.86) ($14.29; ($94.41; fuelwood foregone revenues ($11.07) ($13.38) ($4.46) ($28.91) Eco-tourism 60.28 $60.28 Watersheds Protection 5 8 . 9 ~ 6 8 . 6 ~ ~ $127.58 Sustainable fuelwood collection 13.62 $13.62 NPV 13.66 2.56 ' ' 0.48 $16.70 ERR 32% 20% 12% 25% 4. It should be notedthat o f the three management modalities pursuedunder the project, the results o f the costhenefitanalysis are muchmore sensitive for conservation sites andcommunitybased forest management than for protected areas. This reflects various factors. First, given the already globally - 84 - recognizedbiodiversity assets of the protected areas system, the probability that biodiversity conservation payments will be reduced or decreasedfaster than anticipated i s lower for protected areas than for conservation sites, especially inview of the envisagedendowment fund for protectedareas. Second, the probability of successfulcommunity based sustainableforest management (by collecting fuelwood and NTFP's) might be lower than the probability of eco-tourists continuing to visit the protected areas. Consequently, investments inconservation sites and community managementtransfers are more risky than for protected areas. 5. From abiological point of view, putting4.5 million additional hectaresof natural forests under more effective conservation managementmodalities will enhance the representativenessof species and habitats already includedinthe protected areas systemand will improve the connectivity of conserved forests through biological corridors. At the same time, the proposed natural forests conservation investments would have significant positive impacts on local populations. Off-site effects of natural forests conservation would have important beneficialeffects on populations downstream of natural forest areas, including rice farmers in irrigatedareas and potable water consumersinurban centers. Natural forests managementtransfers to grassrootscommunities would generate important benefits for local populations through sustainable wood fuel productionandNonTimber Forest Products -NTFP- collection. The analysis confirms that the overall impact of the project on localpopulations is positive as the monetary gains o f beneficiaries surpass the opporhmity costs o f lost economic opportunities incurredby upstream farmers who, due to the project, cannot continue unsustainableslash-and-burn activities and wood-fuel production. 6. For equity reasons, establishing a systemof income transfers under which gaininghouseholds would financially compensatelosingones is conceivable intheory, but impractical due to the highincidence of poverty inrural areas. Therefore, the solutions pursuedunder the project would be to finance the development of altemative income generating activities for communes inthe periphery of natural forests conservation areas inorder to compensate for revenuesthat could potentially have beengeneratedthrough slash-and-bum agriculture and unsustainablewood-fuel and NTFP collection. These alternatives consist of: (i) stabilizing agriculture around natural forests through soil conservation techniques; (ii)promoting sustainable fuel-wood harvesting and nontimber forest products (NTFP) collection inthe context of forest managementtransfer programs; (iii) introducingmore efficient carbonization techniques and diffusingmore efficient wood stoves; and (iv) supporting reforestationprograms. 7. The economic cost benefitanalysis show apositive NPV for eachof three conservation managementmodalities pursuedunder the project. Consequently, the financing of recurring costs associatedwith these modalities is economically feasible and becomes a problem of benefits transfer amongst the beneficiaries of the renewable managementof Madagascar'sforests. When considering the specific situation of Madagascar, specifically the extreme poverty o f both the urban and the rural population, the identifiedsources of financing for these recurring costs are: (i) the net benefits of eco-tourism and the willingness to pay of developed countries for the preservation of Madagascar'sendemic biodiversity inthe protected area network, (ii) the willingness to pay of developed countries for the preservation of biodiversity inconservation sites and ((iii) on charcoal incommunity managedforests. a tax MainAssumptions: 8. The main assumptionssection is dividedinto five parts, covering: (i) deforestation (rate, areas, yields, revenues losses), (ii) forests managementcosts, (iii) natural natural forests managementbenefits (iv) natural forests managementbenefits distribution and (v) alternatives to deforestation. - 85- 2.1. Deforestation 9. InMadagascar, the origin ofdeforestation is mainly slash-and-bumagriculture (tavy)and, inthe Western and Southem regions ofthe country unsustainable fuel wood collectionpractices. These two destructive practices are, inaddition, accompaniedby extensive exotic flora and fauna (and marginally pharmaceutical plants) collectionon the periphery of cleared areas. Deforestation rate and area 10. Without project, the deforestation rate of the 6 million hectares of natural forests that will be conservedby the project, would hypotheticallybe 1 %per year (including inexisting protected areas), which is approximately the deforestation rate observedthrough comparison of satellite imageslandsat 5 and 7 over the last 10years innatural forests (0.86 % per year). 11, With the project, halfa millionhectaresof additional protectedareas will be createdinthe first year of the project, 0.6 million hectare of conservation site per year, as from the secondyear of the project and 0.2 millionof forest managementtransfer per year, as from the first year of the project. Inall cases, 60 % of the surface area createdis located inthe three provinces of North andEast (Antsiranana, Antananarivo and Toamasina), and 40 % inthe two provinces of South and West (Mahajanga and TulCar). 12. Underthis hypothesis, maintainingthe existing protected area network andputtingnew areas of natural forests under protection insuch a pace, will avoid deforestation of 175,000 hectares over the five year implementation period, and of 775,000 hectaresover a 10year period aRer project implementation. Following this calculation, 15 years of avoided deforestation insix million hectaresof naturalforests under more effective conservation arrangementswould representan area of approximately 10 % of the remaining natural forests of Madagascar(8.8 millionhectares). 13. Assumingthat 1.5 hectareof deforestation involvesone farming householdpracticingslashand bumagriculture and charcoalproduction, 88,000 farming householdswill be affected over the five year life of the project and an additional 186,000 farming households over a 10 year periodafter project implementation. Areas fmtHonha)flears 1 2 3 4 5 6 7 8 9 1 0 0 1 1 1 2 1 3 1 4 1 5 Area underconservation 1.5 2.8 3.6 4.4 5.2 6 6 6 6 6 6 6 6 6 6 Annual avoideddeforestation 0.015 0,028 0,036 0.044 0.052 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 Cumulatedavoideddeforestation 0.015 0,043 0.079 0.123 0.175 0.235 0.295 0.355 0.415 0,475 0.535 0.595 0.655 0.715 0.775 Yields (rainfed rice, woodfuel, soils losses) 14. The use of clearedforest landdiffers according to province. InAntsiranana, Antananarivo and Toamasina, cleared land is usedto grow rainfed rice for three years, thenput in fallow for five years, before another roundof slash-and-burn agriculture for three years. InMahajanga and TulCar cleared land is usedto grow fuel wood inthe first year ;thenit is usedto grow rain fedrice for three years. 15. The yieldof rice grown under slashandburnconditions is approximately 1.5 ton ofpaddy per - 86 - hectare and per year over three years (infact the yield slightly decrease duringthe three years). As for wood fuel collection, from an average estimation made for the westem part o f the country, it i s considered that wood fuel collected on one hectare o f forest inan unsustainable way amounts to a total o f25 ton. 16. With the project, andunder the above hypotheses, cumulative foregone paddy productionunder slash-and-burn conditions equal 0.6 million tons over the five year project cycle, and 3.7 million tons over the following 10 year period. Cumulative foregone unsustainable fuel wood collectionamounts to 1.75 million tons over the five year project period and 7.75 milliontons 10years thereafter. Lossesfmillliontonsl/eats 1 2 3 4 5 6 7 8 9 l O l f l 2 1 3 1 4 1 5 Area underconselvation (million ha) 1.5 2.8 3.6 4.4 5.2 6 6 6 6 6 6 6 6 . 6 6 Annual wood-fuel collection losses 0.15 0.28 0.36 0.44 0.52 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Cumulatedwood-fuel collection losses 0.15 0.43 0.79 1.23 1.75 2.35 2.95 3.55 4.15 4.75 5.35 5.95 6.55 7.15 7.75 Annual paddy productionlosses 0.02 0.06 0.14 0.16 0.20 0.23 0.26 0.27 0.28 0.31 0.33 0.34 0.36 0.37 0.38 Cumulated paddy productionlosses 3.02 0.09 0.23 0.39 0.59 0.82 1.08 1.35 1.63 1.94 2.27 2.61 2.97 3.34 3.72 17. Without project, farmer households who clear the forest for agriculture and wood fuel production collect Non TimberForest Products (NTFP), mainly fruits and animals, inaddition to medicinal plants for artisan use. It is assumed that for one cleared hectare, ten hectares o f forest are degraded through extensive NTFP collection. With the project, farmer households would lose the opportunity for unsustainable NTFP collection in 1.75 million hectares o f natural forest at the end o f implementation o f the project and near 7.75 million hectares ten years after the end o f the project. - 87 - Figure I:Production and soil avoided losses during a I5 years conservationperiod Tons (million) 14 1 Households (thousand) ,200 12 - --180 Cumulatedtavy production ,#'* / ,' 160 -- losses , / * --- 10 Cumulatedwoodfuel collection / I( --140 losses 18. InMadagascar, the major effects ofdeforestationare mainly visible through sedimentationof: (i) irrigation systems for rice cultivation; and (ii)urban water supply systems. Cases o f partially uncultivated irrigated perimeters or o f excessive canal maintenance costs caused by run-off erosion are numerous. Other infrastructures such as hydroelectric dams, ports or drinkable water supply o f villages are also affected by deforestation. As a matter o f fact, forest cover regulates water flow and provides a buffer function, which partly prevents risks of flood inthe rainy season and risk o f water shortage indry season. 19. Annual soil losses due to erosion caused by deforestation are estimated at about 15 tons per hectare. Consequently, with the project, cumulative avoided soil losses are approximately 2.60 million tons over the five year project lifecycle and 11.60 million tons over the ten years period thereafter. Foregone revenues (opportunity costs of conservation) 20. Net revenue from converted forest landfor rice productionunder slash-and-burn conditions (defined a farm gate price less labor cost) is estimated the equivalent o f 0.5 todha o f paddy per year. Assuminga farm gate price o f $ 160 per ton, income eamed from converted forest land is $ 80 per hectare per year. 21, As for fuelwood collection, it is assumed that net revenue is halfthe producer price. With the producer price estimated at $ 15 per ton andfuel collected on one hectare o f forest inan unsustainable way i s 25 tons a year, income eamed from forests for fuel wood purposes i s $ 187.5 per hectare. 22. Inarecent survey concerningNTFP's conductedinthe regiono fAmbohitantely, inthe North Eastemregion o f Madagascar, it i s estimatedthat revenue from the collection o f fruits, animals and more - 88 - marginally medicinalplants for artisan use is $ 4 per hectare for 150 households who cover 1,500 hectares of forests, which amounts to $40 per household on average. 23. Consequently, without the project, one cleared hectareproducesan agriculture retum of $ 80 per year when it i s cultivated for rain fed rice, an energy retumof $ 187,5 per year when fuel wood is harvested and a return of $40 when h i t s and animals are harvestedinthe neighboring 10hectares. 24. With the project (over aperiodof 15 years andby taking an discount rate of 10% equal to the opportunity cost of capital inMadagascar), the presentvalue of foregone revenues due to the conservation of 6 million hectare of natural forest, is about $ 85 million for paddy production, $ 27 million for fuel-wood collection and $28 millionfor NTFP collection as indicated inTable 3 below. Table 3: Stream of foregone revenuesfrom avoided deforestation Foregonep~~uclionl$mf~o~yea~2 If 3 4 5 6 7 8 9 10 f1 f2 f3 14 15 PV ~~ ~ Paddy -1.2 -3.4 -7.5 -8.6 -10.6 -12.5 -13.8 -14.4 -15.1-16.5 -18.2 -19.6 -20.7-21.9 -22.7 -85.4 Fuel-wood -1.1 -2.1 -2.7 -3.3 -3.9 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -26.6 NTFP -0.4-1.1 -2.5 -2.9 -3.5 -4.2 -4.6 -4.8 -5.0 -5.5 -6.1 -6.5 -6.9 -7.3 -7.6 -28.5 25. Inconclusion, the presentvalue of the streamofopportunitycost ofthe natural forest Conservation component of the project is therefore approximately $ 140million. 2.2. Natural forests conservation management costs 26. Costs of protected areas network managementinclude operation cost (head office, regionaloffice, site operation and daily activities) and investment cost (managing biodiversity, developing eco-tourism, environmental education). Ina recent audit report, the operation costs of the protected area network national agency (ANGAP) is estimated at $2.5 per hectareper year, which amounts to $ 3.75 million a year for a network covering one and a halfmillionhectares. For the five coming years, investments for surveillance and control of protected areas, researchon biodiversity, visitor infrastructure and environmental education have beenestimatedat $19 million, that is approximately $ 2.5 perhectare and per year. Consequently, over the 15year period adoptedfor the economic analysis, the managementcost of the protected areas network i s estimated to be $ 5 per hectare per year. Under these assumptions,the present value of this stream of costs for the managementof 2 millionhectare of protected area is $ 81.5 million for a period of 15 years and a discount rate of 10%. 27. The cost for the creation and the managementof one hectare of conservation site is not yet known as this conservation management modality is new. It is assumedunder the present analysis that an initial investmentof $ 5 per hectare and a runningcost of $ 1per hectarewill be required. Underthese assumptions, the present value of this stream o f cost for the managementof 3 million hectareo f conservation sites would be $ 27 million. 28. The cost for the forest managementtransfer to communes of one hectare of forest is, basedon experienceof on-going schemes, estimated at $ 10hato cover investments inthe first three years and $ 1 for runninginthe following years. Under these assumptions, the present value of this stream of cost for the managementtransfer grassrootscommunity of 1 millionhectares o f forest i s $ 10million. - 89 - Managemenicosif$mil/ionl I 2 3 4 5 6 7 8 9 10 If I2 13 I4 15 PV Area under conservation 1.5 2.8 3.6 4.4 5.2 6 6 6 6 6 6 6 6 6 6 Protected areas -22.5 -11.3 -5.0 -5.0 -5.0 -23.8 -11.3 -5.0 -5.0 -5.0 -23.8 -11.3 -5.0 -5.0 -5.0 -81.5 Conservation sites -3.0 -3.6 -4.2 4.8 -5.4 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -26.9 Management transfers -0.8 -1.4 -2.0 -2.0 -2.0 -1.6 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -10.1 29. Inconclusion, the present value ofthe management flows ofcost o f6 millionhectares ofnatural forest conservation i s therefore $ 120 million. 2.3. NaturalForests Conservation National Benefits 30. The benefits o f strict conservation o f natural forests differ slightly betweenprotected areas and conservation sites. From a biological point o f view, the creation o f 3 million additional hectares o f conservation sites will enhance the representativeness o f species and habitats includedinprotected areas and the connectiveness o f conserved forest spaces through buildingbiological corridors. Conservation sites are primarily aimed to receive eco-tourists, which sets them apart from the protected areas network under which 10protected areas are currently visited on an annual basis by 100, 000 people. Finally, conservation o f natural forests will preserve the hydrological function of forests, thereby contributingto maintainingthe productivity o f irrigatedperimeters andthe quality o f drinkingwater inurban centers that are located downstream the watersheds involved. The benefits of forest management transfers to communes are those associated with the sustainable harvesting o f fuelwood and NTFP. For simplification reasons, watershed hydrologicalprotection benefits are not considered as a benefit o f forests management transfer to grassroots communities. Benejts of biodiversity conservation 31. As bio-prospecting permits for pharmaceutical purposes are not awarded inthe protectedareas network, national benefits derived from biodiversity conservation are direct payments (net o f management expenses) from the international donor community to ANGAP, as well as the financing o f investment and operating costs o f protected areas that are under direct management by international NGOs financing. Direct payments to ANGAP have averaged an estimatedan annual $ 3 million over the last four years, while international NGOs management expenses for the eight protected areas under their direct management are estimated at $ 1.5 million a year. Thus, the total national benefits o f biodiversity conservation inMadagascarPA network are approximately $ 3 per hectare o fprotected area per year. In one first approximation, the nationalbenefits related to conservation o f biodiversity inconservation sites are considered as lower than inprotected area case because direct payments for Malagasy biodiversity conservation are already high,and because conservation site will be much larger inarea thanprotected area. Therefore, total national benefits o f biodiversity conservation inthe envisaged conservation sites are estimated at $ 2.5 per hectare per year. 32. Given that direct payments for Malagasy biodiversity conservation are already relatively high,a significant increase o f these benefits is unlikely inthe years to come. Reduction o f these benefits mightbe even more probable, especially because it seems easier for an international NGO to obtain financing for the creation o f a new conservation area than for the management o f an existing network managed by a national agency. Inorder to reflect this, it i s assumed that global willingness to pay for biodiversity conservation will be decreasing by 5% a year which will reduce net benefits to $1.5/ha/year after 15 years for protected - 90 - areas and $1.25 for conservation sites. Under the above assumptions, the present value o fbiodiversity conservation benefit flows during 15 years at a discount rate o f 10 % i s $ 34.5 million for protected areas network and $ 36 million for conservation sites. Bio~vers~yConse~afion , ,*,, Benefis f$mi//ion) ,2 ,3 ,4 ,5 Protectedareas 4.5 5.7 5.4 5.2 4.9 4.7 4.5 4.3 4.1 3.9 3.7 3.5 3.3 3.2 3.0 34.6 Conservationsites 1.5 2.9 4.3 5.6 6.8 6.5 6.2 5.9 5.6 5.3 5.1 4.8 4.6 4.4 4.2 35.9 Benejts of eco-tourism 33, With an average annual 10% growth rate since the early 1990s, tourism is an increasingly important economic sector that has become the third foreign exchange earner after fisheries and vanilla production. In2000, 160,000 tourists visited Madagascar and more than half o f them (55%) considered themselves eco-tourists. Madagascar's protected areas have established themselves among the main tourist attractions o f the island. Ten protected areas (see Table 5 below) actively contribute to the development of tourism inMadagascar as they attract a growing number o f tourists : about 100,000 visitors in2001, the latest year o f reference. Besides, six other protected areas, (Masoala, Marojejy, Tsimanampesotse, Kirindy Mitea, Baie de Baly and Zombitse) are endowed with undeniable attractions and should reinforce the network's contributionto the development o f tourism inMadagascar inthe years to come. Tahle 6 :nrotected areas for eco-tourism Nameofpmtectedareaffmmnorfhto south) Surtaceinha NumberofvMorsin 2001f% oftofa// Montagned'Ambre 18200 8 170 (8 %) Ankarana 18825 6 898 (7 %) Ankarafantsika 60 520 4 617 (5 %) Tsingy de Bemaraha 66 630 3 351 (3 %) MantadialAnalamazaotra 10000 26 478 (27 %) Ranomafana 41 601 15 668 (16 %) Andringitra 31 160 1 750 (2 %) lsalo 81 540 27 678 (28 %) Andohahela 76 020 1 636 (2 %) Total I 404496 96 246 (98'%) Source :ANGAP, 2003. 34. What makes up national benefits o f eco-tourism are on the one hand entrance fees collected by ANGAP inthe 10 protected areas that are currently visited and on the other direct (transport, hotels, catering services, local crafts, guides) and indirect national added value (activities induced from the first ones) o f eco-tourism inthese ten protected areas. With 100,000 visitors in2001, the latest year o f reference, an average $ 5 entrance fee per visitor and a $55 direct and indirect national added value per visitor (recently measured for five o f the ten visited protected areas -Andasibe, Ranomafana, Isalo, Andringitra, Ankarantiska), the protected areas generate $ 6 million net revenues per year to the country. Thus, the total o fnational benefits o f eco-tourism inprotected areas is approximately $ 4 per hectare o f protected area per year. 35. The World Tourism Organization (WTO) foresees a 6-8 % tourist visit annual growth rate inthe Indian Ocean for the coming 15 years. A conservative assumption o f a 5 % visit increase per year for 15 years forecasts an annual $ 4 h a to 8 h a revenue stream from eco-tourism. Under these assumptions, the present value o f eco-tourism benefit flows associated with the protected areas network during 15 years at a - 91 - discount rate of 10 % is 60 million. Table 7: Flows of Eco-Tourism Benefits co-fourismBenefifs/$mi~oriJ) 11 2 3 4 5 6 7 8 9 10 11 12 13 14 15 PV Number of eco-tourists . I O 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.15 0.16 0.16 0.17 0.18 0.19 0.20 Eco-tourismnet benefits .O 6.3 6.6 6.9 7.3 7.7 8.0 8.4 8.9 9.3 9.8 10.3 10.8 11.3 11.960.3 Benefits of hydrologicalprotection of watersheds 36. Hydrological benefits representavoided losses inproductivity or quality ofproductionby the economic infrastructures that are situateddownstream from the natural forests watershedswhere the river springs supplyingthem with water are typically located. Unlikethe case for biodiversityconservation and eco-tourism, quantification andmonetary evaluation of hydrologicalbenefits resultingfrom avoided deforestation inupstreamforests are more difficult to understandbecause of the complex biophysical relationbetween deforestation, change of water flow, worsening erosion on the one hand and change of productivity inirrigatedperimetersor change o f drinkable water production on the other. 37. Analysis, for each watershed, of: (i) 1996National Ecologicaland Forest Inventory ( the Znventaire Ecologique et Forestier National -1EFN-); (ii) data as provided by LANDSAT satellite spatial image processing; and (iii) statistics from the water and power supply company JIRAMA, demonstrates obvious hydrological linkages between on the one hand 20 out of 41 protected areas located upstream and at least 430,000 hectaresof irrigatedperimetersand 17 towns with an annual 8.4 million m3 drinkable water consumption situateddownstream on the other hand (see Table 8 for details). Nameofprotectedarea Sun'aceofpmfecfed areafha) Sun'aceofimgafedpenmefetsfha) Volumeofdrinkable wafer(h?) Manongarivo 39491 59239 309983 Anjanaharibe Sud 70288 220077 Ankarafantsika 100848 36486 48140 Marojejy 70288 17448 250842 Ambatovaky 24158 2616 Marotandrano 33795 2616 19529 Betampona 2342 681 Mangerivola 8919 19142 Midollgy du sud 153522 14907 6226 Pic dlvohibe 3302 16479 1228 Manombo 2013 20754 Ranomafana 36412 14557 42705 Andringitra 15884 16479 Tsaratanana 43733 45037 309983 Zahamena 62491 18232 71303 Andohahela 62384 8713 68952 Anjozorobe 259695 47115 Bemaraha 80484 22615 1.699 Mantadia 14736 22703 MontagnedAmbre 18164 66093 7.0142.40 Total 1.102.949 431.158 8.385.661 38. As for irrigatedperimeters, two approachesmay be applied for the quantificationof the effects of - 92 - preserving forest cover and the corresponding monetary evaluation o ftheir benefits : (i) evaluation o f avoided losses o f production, which provides the most reliable figures when they can be calculated; and (ii) evaluation o f farmers' Willingness to Pay (WTP) to avoid deforestation, which i s easier to calculate but less reliable because o f its subjectiveness. Because o f their poverty and their small contributioncapacity, rice farmers indeedpay only a tiny portion o f investment and maintenance cost o f irrigated perimeters which are largely government subsidized. It i s therefore reasonable to assume that WTP for irrigated perimeters protection is lower than the earning expected. 39. A recently conducted survey inthe regiono f Maraoantsetra inthe north east o f Madagascar with the objective to calculate the WTP o frice farmers situated inthe lowlands to avoid silting and flooding o f their tiny irrigated perimeters shows a monetary value o f $5 per hectare o f irrigatedperimeter, i.e the monetary equivalent o f 30 kg o f paddy at farm gate price, although productivity inthe region is 2.5 tons per hectare. This i s an interestingresult since the forest cover o f the watershed under study exceeds 70% o f the watershed surface, while the this figure for the typical watershed inMadagascar i s 30%. Consequently, this result reflect a monetary value of hydrological benefits resulting from preserving forest cover inprotected areas, which is certainly a conservative assumption. 40. Two recent evaluations o flosses inproductiondue to severe irrigation and canal sand silting in Madagascar's irrigatedperimeters are available. However, they do not permit to establish a cause-effect relationbetween a certain degree o f sedimentation and a certain deforestation process upstream. Following these evaluations the cost o f production losses are estimated between $ 4 0 (Maroantsetra region) and $ 80 (Alaotra region) per hectare. With an average productivity o f 2.5 tons o f paddy per hectare inirrigated perimeters and a farm gate price o f $ 160/t ,$ 4 0 loss o f revenue per hectare o f irrigated perimeter is the equivalent o f 10% loss o f production (250 kg o fpaddy); such loss may be either or simultaneously due to silted irrigation canals because o f worsening erosion and resulting sediment deposits, to bad irrigation in dry season andflooding inrainy season, as both occurrences result from degradation o fwater flow regulation ensured by forest cover. The estimate obtained following this method is eight times higher than Maroantsetra watershed rice farmers' WTP, which confirms that the latter approach provides a conservative appraisal o f hydrological benefits o f forests and can be transferred to all the irrigated perimeters that are under the influence o f forests. 41, As for drinkable water inurbanareas, there are two approaches to estimate hydrological benefits: (i) users'willingnesstopay,(ii) water evaluation o f the cost o f replacingnatural filtration andwater storing system with an artificial one. The only available figure i s from a recent survey o f households willingness to pay more in order to benefit from clean and o f regular flow water that was conducted in Fianarantsoa. This evaluation provides an additional WTP o f $ O.l5/m3 against the present price which i s $ 0.30 per m3. Failing to have other supplementary data, this evaluation is the one retained for the analysis concerning all the towns supplied with drinkable water by the rivers having their springs within the protected area network. 42. Inretaining as a conservative assumption that WTP accumulated amount represents willingnessto prevent siltingand flooding inirrigatedperimeters and to have a steady supply o f clean drinkable water, in applying it to all the infrastructures affected by the protected areas network (400,000 hectares o f irrigated perimeters and 8.4 million m3 o f drinkable water), the sum o fthe two WTPs i s $3 per hectare o f protected area per year, o f which $ 1.3 relates to irrigated areas and $ 1.7 to drinkable water. Inone first approximation, the national benefits o f hydrological protectiono f watersheds through conservation sites are considered as equal o f those inprotected areas. 43. Moreover, hydrologicalbenefits increase over time. Indeed, productivity and quality o fproduction - 93 - are lower when forest cover inprotected areas and conservation sites progressively disappears as a result o f forest clearing. Under a conservative assumption o f a 5% increase o f water users' WTP per year for 15 years, benefits increase to $ 6 per hectare. Under these assumptions, the present value o f watershed protection benefit flows during 15 years at a discount rate o f 10 % is $ 59 million for protected areas and $ 69 million for conservation sites. WatersheedproteciionBenefits , ,, ($ miI!on)j I ,o ,2 ,3 ,4 ,5 py Protected areas 4.5 6.3 6.6 6.9 7.3 7.7 8.0 8.4 8.9 9.3 9.8 10.3 10.8 11.3 11.9 58.9 Conservation sites 1.8 3.7 5.7 7.8 9.9 10.4 11.0 11.5 12.1 12.7 13.3 14.0 14.7 15.4 16.2 68.7 Benefits of sustainable harvest of fuelwood and NTFP 44. According to experiments conducted inthe regiono f Mahajanga, the management o f one hectare o f forest by local populations allows a sustainable harvest o f 0.35 ton (cubic metre equivalent) per year o f fuelwood. It is considered that net revenues from wood fuel collection are half the producer price, which implies that with the actual producer price at $ 15 per ton, net benefit per hectare and per year amounts to $ 2.6. Benefits o f sustainable harvest o f NTFP per ha remain unchanged at $4 per year as there i s only a concentration o f collection in the forest that is transferred. 45. Inview ofthese benefits andbyconsidering aprogressive management transfer to localcommunes (0,2 million hectare a year during5 years), the present value o f sustainable collectionbenefit flows during 15 years at a discount rate o f 10 % is $ 14 million for wood-fuel collection and $ 21 million for NTFP collection. SustainableHan/esfBenefis , ,o ,, ,z ,3 ,4 ,5 py Fuelwood volume 0.0 0.1 0.14 0.21 0.28 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.4 0.35 4.2 Fuelwood benefits 0.0 0.5 1.1 1.6 2.1 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 13.6 NTFP benefits 0.0 0.8 1.6 2.4 3.2 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 20.8 Natural Forests Management Benefits distribution (protected areas network example) 46. The distribution o f benefits associated with each natural forests management modality i s closely tied with the type o f benefits provided by each modality. For example, preserving the protected area network is beneficial to four social groups ,including: (i) rice farmers in irrigatedplains; (ii) water consumers inurban centers where water is supplied by rivers having their springs inprotected areas, (iii) tourism operators; and (iv) the National Association for the management o f protected areas (ANGAP). 47. As far as the distributiono feconomic benefits is concemed, rice farmers and drinkable water consumers (about 300,000 households, mainly rice farmers) obtain the highest flow o f net benefits amounting to a present value o f $ 59 million (see table inpart 1: Summary o f benefits and costs). Flows of net benefits o f tourism operators are $ 55 million and those o f ANGAP are approximately $ 4 0 million. - 94 - Benefits come mainly from direct payments for biodiversityconservationas eco-tourism benefits are marginal with present entrance fees at $ 5 and have to be shared by half with protected area neighboring communities. 48. Innumber, the mainbeneficiariesofprotected areapreservationinclude 265,000 rice growing rural households and 25,000 households suppliedwith drinkable water inurban areas, situated downstream the protected areas. Therefore, it can be said that biodiversity conservation has a positive economic effect on poor populations inMadagascar. 49. Onthe other hand, preservingthe protected areas, to the extent that it prevents deforestation through slash and bumpractices, may be detrimental to a fifth social group that includes slash andbum farmers (about 50,000 households after 10 years). This social group experiences lost economic opportunities that amount to a present value o f $ 61 million (see table inpart 1: Summary o f benefits and costs). 50. Following the identification o f potential winners and losers along with the corresponding monetary evaluation o f eamings/losses, three remarks can be made: (i) ANGAP is worst-off among the three categories o f beneficiaries; its main source o f revenues (direct payment for biodiversity conservation) i s uncertain and is likely to decrease; (ii) ANGAP nearly receives nothing from eco-tourism benefits, as the quasi totality o f earnings go to tourism operators, although the protected area network i s a natural asset that is essential for the development o f tourism inMadagascar; and (iii) the earnings o f the 300,000 households o f rice farmers and drinkable water consumers compensate the losses o f the 50,000 slash and burnfarmers practicing tavy ;such earnings increase withtime whereas the losses o fthe farmers practicing tavy stabilize after 10years because o f fallow periods necessary for the soil to recover its fertility. 51. The establishment, for equity sake, o f a transfer system inwhich the gaining households (water users) would financially compensate the losing households (slash-and-bum farmers) is intheory envisageable and economically possible, but present three sorts o f difficulties ,including: (i) it is not easy to identify which households would practice tavy without the project ;(ii) the setting up o f a mechanism for transfer o f part o f the benefits o f the gainers towards the losers would certainly present hightransaction costs because o f the highnumber o f contributors andrecipients and o f the difficulty o f organizing mandatory levies on the contributors ;and (iii) Madagascar is one o f the poorest countries o f the world. Consequently, gaining households, whether inrural areas or inurban areas, are by majority households who live below the absolute poverty line ($ 1 per day). 52. Nevertheless, the global impact of the project on local populations is beneficial because the monetary gains o f the beneficiaries surpass or equal the losses incurredby the upstream farmers who, due to the project, cannot continue practicing slash-and-bum practices. 53. Another solution consists inpromoting activities that provide altemative to pressures incommunes peripheral to protected areas and conservation sites, to compensate for the foregone revenues associated with slash-and-bum paddy production and unsustainable fuelwood andNTFP harvestingpractices. 2.4.Alternatives to deforestation 54. As calculated inthe first part o fthe assumptions section, putting6 millions hectares o fnatural forests under more effective conservation modalities will result inlosses for upstream farmers practicing slash and burnagriculture andnon sustainable wood fuel collection. Theses losses are mainly - 95 - slash-and-bum paddy productionand unsustainable wood fuel and NTFP collection. With the hypothesis on yields retained inthe calculation o f the avoided deforestation opportunity cost, the cumulated losses over 15 years would be 3.9 million tons o f paddy production from tavy, 7.75 million tons for fuelwood non sustainable collection and a present value o f $ 28.5 million for NTFP extensive collection. 55. The progressive management transfers o f 1millionhectare duringthe five years o f project implementation would provide the upstream farmers a cumulated sustainable collection over 15 years o f 4.2 million ton o f fuelwood at a present value o f $ 13.6 million o fNTFP sustainable collection. 56. Inadditionto management transfers, improvedmeasuresfor carbonization andhousehold stoves would be set up inorder to reduce wood-fuel consumption. Improvements incarbonization and wood stoves will reduce the cumulative consumption over 15 years o fwood for energy by 7.5 million tons, maintaining consumption at the current level o f 10million tons per year. Infact these improvement neutralize only the effects o fpopulationgrowth on wood for energy consumption. Then reforestation is needed, especially in the three provinces where wood-fuel come from natural forests, i.e. TulBar, Mahajanga and Antsiranana. With a meanvolume from plantations taken as 100tons per hectare after ten years, the surface that is needed to supply the wood-fuel losses not covered duringthe ten first years by management transfers is around 55 000 hectares o f reforestation. 57. Paddy yields inthe hillsides around conservation areas are around 0.8 ton per hectare and without soil Conservation techniques slightly decreasing over 5 years to around 0.7 ton per hectare. According to the experiences o f EP Iand11, conservation techniques o f agriculture lands allows for an increase o f around 14 tons over 15 years inpaddy production. With such yields, 280,000 hectares must be put under conservation agriculture activities to compensate the productionlosses compared with the situation without project (3.9 million tons over 15 years). 58. Insummary, inorder to compensate losses for upstream farmers practicingslash andburn agriculture andnon sustainable wood fuel collection, there i s a need for deforestation altematives to be financed through ODA within the project or with other projects. Deforestationaltematives comprise activities to reduce wood fuel consumption, around 55 000 hectares o freforestation infast growing species like Eucalyptus and conservation agriculture for around 280 000 hectares. All theses activities show, according to the experience of EP I1andEnergy Project 11,positive retums for the country, even by taking into account only direct or on-site benefits. Sensitivity analysis/ Switchingvalues of critical items: 59. The sensitivity analysis for the 3 types o f natural forests managementlook at the switching values for variables used inthe calculation o fthe different element o f the costs and benefits. The results o f the sensitivity analysis are summarized inthe table below. Because o f the weakness o f the available data, these switching values are necessarily imprecise and should be considered only as comparison tools between management types. 60. The results suggest that the outcomes are more sensitive to even small changes inestimated flows o f costs and benefits for conservation sites and natural forests management transfers. This finding reinforces the fact that it is important to design conservation sites and management transfers insuch a way so as to maximize inthe first case watershed protectionbenefits and inthe second case the development o f biodiversity-related revenue generating opportunities. - 96 - Table 11: Switching valuesfor the three types of naturalforest conservation modalities Percentageofvahi?on PtvfecfedAreas Consewai?onSifes Management Transfers Management costs +70 % +30 % +20 % Tavy (rain fed rice) foregone revenues + 100% +16% + 5 % Fuelwood foregone revenues +114%) +10% +12% NTFPforegone revenues + 100%) +25% +15% Biodiversity conservation - 33% - 0 % Eco-tourism - 25% Watersheds Protection - 23 % -3 % Sustainable fuelwood collection - 6 % Sustainable NTFP collection - 5 % 61. For natural forest conservation activities, the elements o f costs and benefits for which there exist a non negligibleprobability o f important variation over the 15 coming years are the amount o f direct payments for conservation o f biodiversity for protected areas and conservation sites. Indeed, contrary to benefits relatedto eco-tourism and to protection o f watersheds, the national benefits o f conservation o f biodiversity are not sustainable as they are related to the capacity of intemationalNGO's and funds for the environment to capture the rich country households' willingness to pay for conservation o fbiodiversity, in general, and to the capacity o f Madagascar o f attracting part o f such funds to preserve the Malagasy biodiversity. 62. Besides, it i s little probable, taking account o f the already relatively highlevel o f direct payments for conservation o f Malagasy biodiversity, that such benefits will increase significantly inthe coming years. Itis even more likely that suchbenefits will decreaseas it seems to be mucheasier for an intemational NGO to secure financing for the creation o f a newly protected area thanto finance the management o f an existing protected area network managed by a national organization. 63. For protected areas, biodiversity Conservation direct payments switching value i s $ 2 per hectare and per year at the beginningo f the project and 1 $ after 15 years, amounting to an annual total amount o f direct payments for conservation o f biodiversity inprotected area network o f $ 2 million. Such an event is not very probable if an Endowment Fund o f $ 50 million beingconstituted. Indeed, by taking as a hypothesis an interest rate o f 6 % per year and runningcosts o f 10 %, such an endowment funds would allow to ensure a sustainable financing o f $ 2.5 million per year. 64. Conversely, the situation o f conservation sites is much more fragile. The amount per hectare and per year o f direct payments for conservation o f biodiversity that cancels the NPV i s $2.3 instead o f $2.5 per hectare at the beginning o f the project, that i s a decrease o f 8 % compared with assessments. Inother words, ifwithin 15 years, direct payments for conservation o f biodiversity are less than $ 4 millions per year for conservation sites, the conservation modality is not economically viable. Therefore, the creation o f effective mechanisms to continue to capture direct payments for conservation o fbiodiversity in conservation sites is indispensable. 4. Fiscalimpact and cost recovery 65. From a financial analysis standpoint the project is comparable to education and public health projects. Indeed, the project finance neither institutions that will generate revenues (even ifthe organization - 97 - managing protected areas collects entry fees) or fiscal intermediaries. Consequently the financial analysis consists o f evaluating the incremental recurring costs inducedby the project and identifyingdurable financing sources to cover these costs. 66. ANGAP financial resources at present are providedon the one handby direct payments for biodiversity conservation and on the other by entrance fees paidby eco-tourists visiting the protected areas, that is $250,000 for 100,000 visitors. Entrance fees should normally increase with the number o f visitors butmaintainingdirect payments at such exceptional level for a longtime is uncertain though it is to be notedthat the latter makes up the major part o f ANGAP financial resources. Consequently, ANGAP financial resources are not sufficient to cover their current and investment expenses and above all they are not sustainable. For the time being, ANGAP is survivingthanks to international community support. 67. Three proposals are put forward to meet this structural financing deficit for the management o f protected areas : (i) inplace an Endowment Fund ;(ii) putting increasing entrance fees at protected areas, (iii) establishment o f a green tax. (i)$50millionEndowmentFundisbeingraised. Assuminga6%interestrateand10% A operating costs a year ,this endowment find would ensure sustainable financing up to $2.5 million a year. (ii)Doubling park entrance fees ($ 10per visitor because willingness to pay for visitingparks is higher than $ 5 and closer to $ 15) would increase ANGAP tourism revenues to $ 0.5 million a year (half the park entrance fee o f 10 $ because the other half i s given to neighboring communes) (iii)Protected areas and their accommodation infrastructures are essential assets for the development o f tourism ingeneral in Madagascar. Therefore, a green tax could be established for tourism operators and tourists themselves. It could be withdrawn from tourism visa revenues. Madagascar hosts 200,000 foreign visitors a year and they pay $50 each for a tourism visa. To achieve $ 5 million financing a year, about 50 % o f these tourism visa revenues should be transferred to ANGAP (this proportionwould decrease with the expected increase o f visitors). 68. Inthe mediumterm, conservationsite financial needs are estimated at $ 3 millionper year. Contrarily to protected area case, the only source o f sustainable financing is the direct payments for biodiversity conservation which are not yet secured inan endowment fund. That should be done rather quickly after the implementation o f the project inorder to sustainable finance the conservation site recurrent management costs. 69. Inthe mediumterm, management transfers financialneedsare estimatedat $ 1millionper year. Financialbenefits o f management transfers are not sufficient to absorb recurrent cost. A tax on carbonization could cover recurrent costs. 70. Besides, the various solutions imaginedto compensate and stabilize slash-and-burn farmers require fmancing through ODA for development, which is, by nature, not sustainable, even if these alternatives are economically viable on their own. - 9%- Annex 5: FinancialSummary MADAGASCAR:Third Environment Program Support Project Years Ending December31 IYear1 I Year2 I Year3 IYear4 I Year5 IYear6 IYear 7 Total Financing Required Project Costs Investment Costs 32.2 21.1 25.7 19.5 19.4 0.0 0.0 Recurrent Costs 6.8 6.6 5.9 5.8 5.9 0.0 0.0 Total Project Costs 39.0 27.7 31.6 25.3 25.3 0.0 0.0 Total Financing 39.0 27.7 31.6 25.3 25.3 0.0 0.0 Financing IBRDllDA 8.0 8.0 8.0 8.0 8.O 0.0 0.0 Government 6.2 6.0 6.0 6.0 5.0 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 22.8 11.7 15.6 9.3 11.3 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 GEFlBank 2.0 2.0 2.0 2.0 1.o 0.0 0.0 Total Project Financing 39.0 27.7 31.6 25.3 25.3 0.0 0.0 Mainassumptions: - 99- Annex 6(A): Procurement Arrangements MADAGASCAR:Third EnvironmentProgramSupport Project Procurement General 1. The thirdCountry ProcurementAssessment Review(CPAR) hasbeenconductedinNovember 2002 for Madagascaranda workshop took place onMay 2003 for the validationof ajoint CPMCFAA actionplanto ensure rapidimplementationofprocurement reforms. The Procurement Code issuedin 1998will continue to governuntila new code will be set up andadopted.No special exceptions,permitsor licenses needto be specifiedinthe Grant documentsfor international competitivebiddingsince MadagascarprocurementpracticesallowIDA proceduresto take precedence over any contrary provisions of localregulations. Use of BankGuidelines 2. Goodsandworks financedby IDAwillbeprocuredinaccordancewith IDA Guidelines for Procurement under IBRD Loans and IDA Credits dated January I995 and revised in January 1996, August 1996, September 1997,and January 1999.Bank StandardBiddingDocuments (SBD), and StandardEvaluationReport (SER) willbeusedfor bothInternationalCompetitiveBidding(ICB) and National Competitive Bidding(NCB) procedures.NCB advertisedlocally willbecarriedout in accordance with the Madagascar'sprocurementlaws andregulations,acceptableto IDA providedthat they assure economy, efficiency,transparency, andbroadconsistencywith key objectives ofthe Bank Guidelines. ForNCBprocedures,the followingprocedureswill be adheredto: (i) all bids wouldbe submittedinone envelope to be openedpublicly; (ii) point systemswouldnotbeusedfor bid evaluationfor works; (iii)the awardof contracts wouldbe announcedto all bidders; (iv) any bidder wouldbe givenadequate responsetime (at leastfour weeks) for preparationandsubmissionofbids; (v) bidevaluationandbidder qualificationcriteria wouldbe clearlyspecifiedinbiddinglpre-qualification documentsandwill not be appliedarbitrarily;(vi) eligiblef m s wouldnotbeprecludedfrom participation;(vii) nopreferencemarginis grantedto domestic contractors andsuppliers; (viii) contracts wouldbeawardedto the lowest evaluatedbidder inaccordancewith predeterminedand transparentmethods; (ix) bidevaluationreports wouldclearlystate the reasonsto reject any non-responsivebid; and (x) priorto issuingthe first call for bids, draft standardbidding documentsshall havebeenpreparedandsubmittedto the Association, and found acceptable. To mitigaterisks of delays for the proposedproject, proper prerequisites for the use of Bank standard biddingdocuments, includingevaluationreports for National Competitive Biddingprocedures(NCB) havebeenagreedonwith the Governmentduringnegotiations andthe ProceduresManualwouldbe submittedto andfound acceptableby IDA. 3. Consultancyservicesfmancedby IDAwill beprocuredinaccordancewith IDA Guidelines for the Selection of Consultantsby World BankBorrowersdatedJanuary 1997,revisedinSeptember 1997,January 1999andMay2002 .The StandardRequestfor Proposals( RFP) as developedby the Bankwill be usedfor the selectionof consulting f m s . Simplifiedcontracts, acceptable to the Bank, will beusedfor short term assignments, i.e. those not exceedingsix months, or for those costingless thanUSD200,OOO. The Governmenthasbeenbriefed duringappraisalas well as negotiationsaboutthe features of the most recent consultantsGuidelines, inparticularwith respect to advertisement, proposalsopeningandthe various steps ofIDA review. 4. ProcurementofWorks. The projectwill finance works contracts for an estimatedtotal amount of -100- US$16.60 million equivalent, o f which IDA will finance US$12.27 million, and GEF will finance US$ 2.30 million including inter alia: (i) civil works for the construction o f facilities for fire management, and (ii) works relatedto the construction o f offices ,rehabilitation and improvement o f existing facilities. Since there will not be large contracts exceeding US$500,000 equivalent per contract, civil works procurement shall be carried out trough National Competitive Bidding (NCB) procedures and contracts for small works, estimated to cost less than USD50,000, will be procured through quotations procedures. For scattered, remote located works and/or for which activities quantities o f work involved cannot be defined in advance and where criteria set out inpara. 3.8 o f the Guidelines are met, ANGAP, DGEF, DGE and ONE may adopt force account procedures. Doing so would also reflect the available implementation capacity inthese institutions that has been established following significant institutional strengthening efforts supported under EP-I and EP-11. Works to be implemented following the force account method would be specified inthe annual operational plans to be agreed between these institutions and the PISU. 5. Procurement o f Goods. The project will finance the purchase o f goods for an estimated total amount of US$7.88 million equivalent, o f which IDA will finance US$5.72 million and GEF will finance US$0.80 million, including (i) furniture and IT equipment, (ii) vehicles, boats andmotorcycles and (v) communication equipment. Most o f the goods will be procured through (a) ICB procedures when costing more than USD250,OOO per package, (b) N C B when costing between USD250,OOO and 50,000 ,(c) Shopping International and Nationalprocedures acceptable to the Bank, based on the evaluation o f at least three price quotations and inaccordance with provisions o f paragraph 3.5 and 3.6 of the Guidelines, for items costing less than USD50,000, including office equipment, furniture, training materials, office supplies and documentation, and (d) also, to facilitate speedy procurement, vehicles and motorcycles may be procured from the UnitedNations Agencies such as IAPSO and UNICEF. To the extent practicable, contracts shall be grouped into bidpackages estimated to cost the equivalent o f US$250,000 or more. 6. Consultancv Services and Training. The project will finance the contracting o f consultancy services for studies, technical assistance, service contracts, training and study tours up to an estimated total amount o f US$12.85 million, o f which US$6.94 million will be financed by IDA and GEF will finance US$4.35 million. Firms, Firmswill be recruited on the basis o f the Quality and Costs Based selection (QCBS) method, usingthe Bank's Standard Request for Proposals, to provide services including (i) studies and researches; (ii) the technical assistance for organizational design, institutionaldevelopment, training and capacity building; (iii) project management and supervision support, independent audits and review, and (iv) the project's auditors. Selection based on consultants qualifications (CQ) can be used for the recruitment o f training institutions and for assignments that meet criteria set out inpara. 3.7 o f the Guidelines and for contracts which amount do not exceed US$lOO,OOO or equivalent. Single Source selection can be used to contract o f firms for assignments that meet criteria set out inpara. 3.8 to 3.11 o f the Guidelines and for contracts which amount do not exceed US$lOO,OOO or equivalent. For contracts based on a short list o f consultants estimated to cost USD100,OOO or less per contract, the short list may consist entirely o f national consultants if a minimumo f three qualified ones are available. Individuals. Individuals will be recruited incases where a firm i s not needed. Such individuals will be selected and recruited on the basis o f qualification and experience inaccordance with Section V o f Bank Guidelines. 7. Incremental Recurrent Costs. The project would finance incremental recurrent costs up to an amount o f US$7.82 million equivalent. Incremental recurrent cost would include (i)expenditures for - 101 - the contracting o f auxiliary personnelrequired for the implementation of the project; (ii) expenditures and supplies for the operation andmaintenance o f facilities required for the implementation o f the project (such as expenditures for office supplies, rental fees, services, operation and maintenance o f equipment financed out o f the proceeds o fthe grant, as well as for domestic and intemational travel and per diems related to project implementation activities. All procurement within this category shall be done according to the Project Implementation Plan approved by IDA andadopted by MinEnvEF, while any amendment to the Plan will also have to be acceptable to IDA. Advertising 8. A general procurement notice (GPN) will be prepared andissued upon BoardApproval inthe United Nations Development Business listingall major contracts for works and for goods. It would be updated annually for any outstanding major procurement. Specific ProcurementNotices for works and goods to be procured -willbe advertised inthe national press o fwide distribution .Requests for expression of interest will be published inlocal newspapers and inthe UNDB for consultancy contracts estimatedto cost more than US$ 200,000. Responses will be recorded ina register established at the PISU. The relatedbiddingdocuments, as applicable, will not be released-or the short list for consultant services will not be prepared -before eight weeks after the GPN has beenpublished. Specific procurement notices will be advertised inthe national press o f wide circulation and intemationally for large contracts. Sufficient time will be allowed to obtain bid documents and to prepare bids. IDA Review 9. All contracts for construction of civil works and goods above US$lOO,OOO equivalent will be subject to IDA'sprior review procedures. The use o f IDA's standard biddingdocuments will considerably expedite the prior review process as IDA review will primarily focus on invitations to bid, biddata sheets, contract data, technical specifications, bill o f quantitieshchedule o f requirement and other contract specific items. The review process would cover about 80 percent o f the total value of the amount contracted for works. Procurement post review o f contracts awarded below the threshold levels will apply and should cover 20% o f contract interm o f number, inthe event samples o f post reviews indicate major problems, additional reviews, financed by the Borrower, should cover the remaining portion o f contracts. Draft standard biddingdocuments for N C B will be reviewed and agreed upon with IDA as part o f the Project ImplementationPlan. 10. For consultant services, prior review will include the review o fbudgets, short-lists, selections procedures, terms o f reference, letters o f invitation, proposals, evaluation reports and draft contracts. Prior IDA review will not apply to contracts for the recruitment o f consulting f m s and individuals estimated to cost less than US$ 100,000 and US$ 50,000 equivalent respectively. However, IDA prior review will apply to the Terms o f Reference o f such contracts, regardless o fvalue, to single-source hiring,to assignments of a criticalnature as determinedby IDA, to contracting o f PISUkey staff or to amendments o f contracts raisingthe contract value above the prior review threshold. For contracts estimated to cost less than US$ 100,000 and more than US$ 50,000 the borrower will notify IDA of the results o fthe technical evaluation prior to opening the financial proposals. Documents related to procurement below the prior review thresholds will be maintained by the borrower for ex-post review by auditors and by IDA supervision missions. The PISUwill be required to maintainall relevant procurement documentation for subsequent review by IDA. The PISU will submit to IDA periodic procurement schedules detailing each procurement package inprogress and completed as part o f the normal project reporting exercise. ProcurementImplementationArrangements - 102- 11. Procurement responsibility for the project rests with the respective services within PISU. The PISU will be responsible for the quality o fthese procurements and adherence to Bank procedures. The tasks o f PISUwill comprise: (a) maintaininga register o f all interested bidders; (b) maintaining a detailed list o f technical specifications o f goods and services to be financed by the project; (c) preparation of the procurement plan and calendar; (d) preparation and/or finalization o fpre-qualification bidding documents and requests for proposals; (e) bid evaluation and preparation o f evaluation reports; (f) contract approval process; (g) receipt o f goods and services and dispatching; and (h) processing international and local price quotations. ProcurementCapacity Assessment 12. A procurement capacity assessment was conducted duringproject's appraisal, andthe findings are highlighted in the table below. Duringpre-appraisal, assurancewas given that PISU will (a) maintain a procurement specialist; (b) submit a draft procurement plan for the first year acceptable to IDA; and (c) give assurance that it will (i) apply the agreed procurement procedures and arrangements; (ii) use standard biddingdocuments acceptable to the Bank (annexed to the Manual o f Procedures of the PIP); and (iii) annually review the procurement plan with IDA. Action Plan to Strengthen PISU'sProcurementManagement Capacity Tasks Responsibility Due Date Finalizationo f project Manual o f Procedures PISU Prior to project effectiveness with establishment o f financial management system Establishment of filing system PISU Completed ProcurementPlan 14. The Procurement Plan for works, goods and services to be procuredthrough the PISU duringthe first implementation year o f the project has been agreed between the Government and the Bank during negotiations. It will be part o f the Project Implementation Planapproved by Government and acceptable to the Association. For each subsequent year, the procurement plan related to the agreed Annual Work Program will be updated and submitted to the Bank for review and approval. These plans show and will show the step-by-step procedures for procurement, contract packages for goods, works and consultants services and training, estimated cost and the procurementhelection method, the activities which follow procurement, such as manufacture, shipment, delivery and installation of goods; mobilization, construction and completionof works. It is mandatory that all procurement be carried out inaccordance with the formally agreed procurement plan (original and formally up-dated). Therefore, for the purpose o f this project, agreed Procurement Plans will determine procurement methods and it is not necessary to set up aggregate total amounts. Procurementmethods (Table A) ExpenditureCategory ICB NCB Other N.B.F. Total 1.Works 1.17 12.78 13.95 (1.OO) (11.27) (12.27) 2. Goods 3.35 1.43 2.10 6.88 (2.70) (1.14) (1.88) (5.72) - 103 - I 6.08 6.08 3*Services (4.67) (4.67) 4. Training 2.27 2.27 (2.27) (2.27) 6.22 6.22 (5.59) (5.59) I6. Grant to Trust Fundfor 7.50 7.50 BiodiversitvProtection (7.50) (7.50) 7. P.P.F. 1.98 1.98 (1.98) (1.98) TOTAL 2.60 39.93 44.88 (2.70) (2.14) (35.16) (40.00) Table AB: ProjectCostsby ProcurementArrangements(GEF) (US$millioneauivalent) ExpenditureCategory ICB NCB , Other N.B.F. Total 1.Works 2.05 0.60 2.65 (1.70) (0.60) (2.30) 2. Goods 0.90 0.10 1.00 (0.72) (0.08) (0.8) 3. Services 4.00 4.00 (3.85) (3.85) 4. Training 0.50 0.50 (0.50) (0.50) 5. RecurrentCosts 1.60 1.60 (1.55) (1.55) TOTAL 2.95 6.80 9.75 (2.42) (6.58) (9.00) I 1Consultant Selection Method Services - 104- Consultant Selection Method Services - 105- Prior review thresholds (Table B) Contracts of goods costing more than US$lOO,OOO and works costing more thanUS$lOO,OOO per contract will be subject to prior review by IDA.All other contracts will be subjectedto post review. All procurement documents for consulting contracts with f m s for amounts exceedingUS$100,000 per contract selected on the basis of a short list and any contract involving individual consultantsexceeding US$50,000 per contract will be subject to prior review by IDA.Inaddition, for consultant contracts with f m s exceedingUS$lOO,OOO per contract, the technical evaluation report will alsobe requiredby IDA for prior review.All other contracts will be subjectedto post-review. Table B: Thresholds for Procurement Methods and Prior Review' Higheror equal to 500 ICB All 50-500 NCB All above US$lOO,OOO Less than 50 Price Ouotations None 2. Goods Higher or equalto 250 ICB All 50-250 NCB All above US$lOO,OOO Less than 50 National shopping None 3. ServicesConsultants, training, audits, other services a) Firms Higheror equal to 100 QCBS All Less than 100 QCBS, CO, Other None b) Individuals Higher or equal to 50 IC All Less than 50 IC None Total value of contracts subject to prior review: 50% Overall Procurement Risk Assessment: Average Frequency of procurement supervisionmissionsproposed: One every 6 months (includes special procurement supervision for post-review/audits) 1\Thresholds generally differ by country andproject. Consult "AssessmentofAgency's Capacity to Implement Procurement" and contact the RegionalProcurementAdviser for guidance. - 106 - Annex 6(B): FinancialManagementand DisbursementArrangements MADAGASCAR:Third EnvironmentProgramSupport Project FinancialManagement 1. Summary ofthe FinancialManagementAssessment Country issues The CFAA diagnostic completed inJune 2003 identifiedserious weaknesses inpublic sector budgeting, accounting system, reporting and auditing. To mitigate this highfiduciary risk, it was agreed that the EP-I11 will be implemented with the support o f a Project Implementation Support Unit, the PISU-to be set up -- within the MinEnvEF.Operational responsibility for project activities rest with the following executing agencies: DGE, DGEF, ONE and ANGAP. DGEF, ONE and ANGAP have extensive experience from previous IDA projects inimplementingactivities o f this nature. An agreed action plan with the Borrower has been developed duringthe pre-appraisal mission to ensure that the ingredients for sound financial management are inplace at or shortly after Board approval. The CPFA (Country Profile of FinancialAccountability) carried out in September 1998 confirmed also the weak capacity o f the accounting profession inMadagascar. A number o f accounting firms were operating below the international standards due to the lack o f regulatory framework, proper auditing standards, clearly defined guidelines and procedures for systematic peer reviews, continuing education requirements, quality control mechanisms to harmonize methodology. To improve the capacity and the competitiveness o f the local auditing f m s , the following measures have been taken: (i) obligation for local auditors to enter into partnership with international accounting firms while auditing BankADA financed projects inorder to improve the quality o f audit reports and ensure practical training and real transfer o f methodology inthe areas o f organization and execution o f audit assignments; (ii) the use of QCBS method rather than Least Cost for the recruitment o f auditors. To improve the capacity and the competitiveness o f the local auditing firms, the following measures have been taken: (i) obligationfor local auditors to enter into partnership with international accounting firms while auditing B a M D A financed projects inorder to improve the quality o f audit reports and ensure practical training and real transfer o f methodology inthe areas o f organization and execution o f audit assignments; (ii) effective participationo f the international accounting firm while canying out audit works inthe field. FMRiskAnalysis Risks Riskrating RiskMitigationMeasures Implementing Support Enti9 Moderate Technical assistance has been provided through (PISU): the PPF to ensure that the FM capacity is in place The PISUis a new entity and before Grant effectiveness. The PPF finances: i) has no experience with the preparation and implementation o f the project implementing an IDA- accounting manual o f procedures to provide clear financed project. guidance to staff; ii)the harmonization o f the accounting systems to be usedby the CCP and the other executing agencies in order to facilitate the consolidation o f the EP-111 financial statements and the preparation o f FMRs ; iii)the review o f the accounting software in place to satisfy the project needs and IDA requirements; iii) the training session for the project staff to encourage consistent application o f control procedures and - 107- ensure proper application o f Bank procedures as well as efficient use o f the new computerized system. Fundsjlow: Moderate Before grant effectiveness, a training session will Lack o f experience o f the PISU be organized to familiarize the PISU and and the Foundation (Trust Foundation staff with the Bank procedures ie: Funds) in the management of' (financial management, disbursements and disbursements from the World procurementprocedures) Bank. Staffing: Moderate Recruitment prior to Board presentation o f an The PISU finance and adequate number o f qualified accounting staff, in accounting function i s not conformity with the Bank procedures. Use o f staffed yet. Selection may not be external recruitment agency for selection and based on technical criteria. hiringprocess. Accounting Policies Low NIA and Procedures Internal Audit Moderate Recruitment o f internal auditors to ensure that Activities entrusted to various project activities have been executed in executing agencies may not be compliance with the terms o f contract. executed in conformity with the terms o f contract. External Audit Substantial ,oca1auditors who intend to audit the financial statements o f Bank financed projects were invitedto enter into partnership with international auditing firm to strengthen their capacity. Effective participation o f the international auditing firm in the fieldwork. Reinforcement o f the accounting profession after the completion o f the ROSC mission. Recruitment o f technical auditors to ensure the effectiveness and quality o f workslactivities carried out by the executing agencies. Monitorinp and Reuortine: Low N/A Information Systems Low N/A Strengths and weaknesses The ONE and ANGAP have strong experience inmanaging World Bank funds for being responsible for the implementation o f the EP-I1which closed inJuly 2003: their accounting system follows generally accounting standards acceptable to the Bank. The main deficiencies noted inthe PISU and other executing agencies systems are summarized inthe following table which also provides relevant measures to address them: SignificantWeaknesses Resolution PISU: The PISUresponsible for the coordination and the Recruitment o f qualified and skilled accounting financial management o f the EP-111is a new staff inconformity with the Bank procedures; created entity. The PISU responsible for the coordination and the Recruitment o f the project key staff - 108 - financial management o f the EP-111 has been (a manager, a financial expert, created only recently. The ingredients for sound two accountants, a procurement project financial management including specialist and a responsible for monitoring and accounting, budgeting, reporting, auditing, staffing evaluation) inconformity with the Bank and intemal controls are not inplace yet; procedures; Preparation and implementation by a consultant acceptable to IDA o f an accounting and financial manual o fprocedures in order to facilitate adequaterecord keeping, satisfy reporting requirements and ensure consistent application o f control procedures; Recruitment o f an accounting firm acceptable to IDA to audit the EP-I11accounts; Incapacity o f the computerized system actually in Invitation o f the manufacturer to review the place (used by the MEnvEFIDGEFwithin the accounting software used by the Ministryo f context o f EP-11) to produce financial reports Environment during EP-I1 in order to facilitate required for managing and monitoring project the production of all financial reports including activities. FMRs; Users training provided by the manufacturer to ensure efficient use o f the comtwterized svstem. Significant Weaknesses Resolution ANGAP: Absence o f appropriate segregation of duties. Clear definition o f the entity's organizational structure and responsibility assignments with respect to the following functions: budgeting, accounting, administration o f cash/bank accounts and procurement; Vacancy o f the Director o f finance position. Recruitment o f a Director o f finance Accounting manual o f procedures not reflecting the Update and implementation o f the accounting outline o f the accounting system, the format and manual o f procedures to facilitate adequate record content o f the financial reports to be produced, the keeping and the maintenance o f proper control over integrality o f control procedures required for assets; ensuring timely preparation o f reliable information and safeguarding assets. Incapacity o f the computerized system actually in Invitation o f the manufacturer to review the place to produce financial reports required for accounting software in place and to implement a managing and monitoring ANGAP's activities. new one capable o f producing all financial reports required for managing and monitoring ANGAP's activities; Inadequacy o f the number of intemal auditors in Recruitment o f internal auditors in sufficient place commensurate with the ANGAP's structures number to ensure a better control o f the and the volume o f the work program to be handled decentralized structures. by the internal audit department. ONE: Accounting manual o f procedures not being Update o f the accounting manual o f procedures to updated to reflect the entity organizational provide clear guidance to staff. structure, the new Chart o f accounts, the budgetary process and the format and content o f FMRs Incapacity of the computerized system actually in Invitation o f the consultant having implemented the place to produce financial reports required for current accounting software to bring necessary managing and monitoring ONE'Sactivities. adjustments and to provide users training in order to allow timely production o f all financial reports for managing and monitoring ONE'Sactivities. ImplementingEntities Underthe supervision of the MinEnvEF, the PISUhas beenestablished withinthis Ministry to support project implementation. The implementation of project activities will be entrustedto the ONE, ANGAP, DGEFand DGEwhich will receive timelypaymentsfrom the PISUonthe basis ofphysicalprogress (output-based) following results agreements between the MinEnvEFand the executing agencies. The PISU will beheadedby a manager nominatedby the MEnvEF andwill be responsible for program management including:i)coordination of the implementation ofthe program; ii)consolidation of the work programs and budgets; iii)maintenanceo frecords and separate accounts for all transactionsrelatedto the PISU, the DGEFandDGE; iv) preparation, consolidation andproductionof project annual financial statements and quarterly FMRs; v) contracting and supervision; vi) managementof disbursementsfor all components, and replenishment applications for the special accounts; andvii) monitoring and evaluation ofthe various activities supportedunder the project. Apart from the Coordinator, the PISU staff will include specialistsin financial management,procurement and monitoring and evaluation. ONE and ANGAP will keep an accounting system satisfactory to IDA and prepare their own financial statements as well as basic information on project managemendmonitoring as requiredby the PISU. Staffing The finance and accounting function inthe PISU is not entirely staffed yet. The Director offinance is already inplace but the three accountants respectively incharge of the maintenance of PISU accounts, and the recordsofDGEand DGEFfinancial transactionsneedto be recruited. The recruitment of the accounting staff will be conducted inconformity with the Bank proceduresandthe PISUis inthe final stage of the contracting process following a no-objection to the short-list of candidatesby the Bank on February 10,2004. Accountingpolicies andprocedures The PISUwill be responsible for the project financial managementaspect as well as the maintenanceof DGEand DGEFaccounts. However to facilitate the flow of funds andensure timelypayments ofprivate firms, consultants and other agencies they have contracted, DGEF and DGE will be staffed with treasurers responsiblefor: i)assuring individual payment of works completed and services rendered; ii)maintaininga simple cash book showing clearly cashreceived, paymentsmade andcashbalances. ONE and ANGAP will maintainseparate accounts for all transactions to each component for which they have implementation - 110- responsibility and will produce their individual annual financial statements. The PISU, ONE andANGAP will use an accounting system incompliance with generally accounting standards and IDA requirements. Since the PISU i s a new created entity with no experience inthe design and implementation o f such system it was agreed that a consultant will be recruited to provide support regarding this aspect. The consultant will be responsible for the preparationand implementation o f the project procedures manual which will describe inter alia the outline o f the project accounting system, the accounting policies to be followed, the formats o f books and records, the Chart o f accounts, the financial reporting, and relevant informationto facilitate recordkeeping and maintenance o f proper control over assets. The consultant will also review ONE andANGAP accounting systems inorder to assess their adequacy andensure their harmonization with PISU system. The project accounting system will use standard book accounts Cjoumals, ledgers and trial balances) to enter and summarize transactions and will operate on a double entry accrual principles. The financial statements will be prepared under the historical cost convention. Project accounts will be maintained in Malagasy currency (FMG).As a result, the opening and closingbalances o f the Special Accounts (SA) held in $ U S should be translated at the rate rulingrespectively on the opening and closing dates. Expenditures made out o f the SA should be stated at the rate ruling on the transaction dates. The actual exchange rates used should be disclosed. To ensure timely production o f financial information required for managing and monitoringproject activities, the PISUwill be equipped with an accounting software similar to this one already usedby the ONE and ANGAP within the context o f EP-11. However necessary adjustments must be envisaged to meet the Bank reporting requirements. 2. Audit Arrangements InternalAudit To ensure that project activities have been implemented correctly by executing agencies inconformity with the terms o f contracts/convention, a qualified internal auditor will be appointed to carry out internal audit activities for the project. All issues identified duringinternal audit should be addressed quickly to improve the performance o f the executing agencies. Internalaudit aims also at ensuring efficient use o f funds by executing agencies and adequate protection o f assets acquired under the grant. - 111 - ExternalAudit The project consolidated financial statements as well as ANGAP, ONE, ANGEF andMFPAB accounts will be audited annually by independent and qualifiedauditors acceptable to IDA, inaccordance with International Standards o f Auditingand the new Guidelines describing Audit Policy and Practices for World Bank-financed Activities. The audited financial statements should reflect the activities supported by the grant. The auditors may provide a single opinion on the annual financial statements insteado f expressing separate audit opinions on special accounts and statements o f expenditures (SOEs), provided such statements reflect the balances and transactions associated with any special accounts and SOEs. This opinion will state whether the financial statements fairly present the financial transactions and balances associated with the implementation of the project, and ifthe expenditures financed by the grant were appropriate. The auditors will be also required to carry out a comprehensive review o f the internal controlprocedures andprovide a management report outlining any recommendations for their improvement. The audit report will be submittedto IDA not later than six months after the end o f each fiscal year. The auditors will be recruited prior to grant effectiveness. Since the project i s expected to be effective in2004 a separate audit is not required for the PPF: amounts disbursed for this purpose will be accounted for inthe first reporting period o f the new project. The terms o f reference o f the audit will be reviewed by the financial management specialist o f the BankADA to ensure the adequacy o f the audit scope, drawing special attention to particular risk areas identifiedduringproject preparation or implementation, that may not be emphasized under a normal audit. A technical auditor will be also recruited to verify the quality and effectiveness of workdactivities carried out by the executing agencies/contractors in conformity with the terms o f contract between the PSU and these entities. Reportingand Monitoring To monitor project implementation, the PISUwill produce the following reports : AnnualJinancial statements comprising: a) Summary o f sources and uses o f hnds (by components/subcomponents/project activitiedgrant category and showing all sources o f funds: IDA, government and other donors); b) Project Balance Sheet; c) Special Accounts statements; d) Statement ofExpenditures; 0 Quarterly FMRs The FMRs comprises a financial reports, physical progress reports and procurement reports to facilitate project monitoring. The FMRs should be submitted to IDA within 45 days o f the end o f the reporting period (quarter). Models o f these reports were agreed during project appraisal and negotiations. Their content and format will be presentedinthe project accounting manual o f procedures. ONE and ANGAP will produce their own annual financial statements andall financialreports required by - 112- the PISU for the preparation o f the project consolidated financial statements and quarterly FMRs. Among financial reports to be prepared on a quarterly basis are the following: a statement showing for the period and cumulatively cash receipts by sources and expenditures by main classifications (components/activities/category), balance sheet, and physical progress report. Detailedreporting as well as accountability arrangements will be documented inthe procedures accounting manuals o f these entities. InformationSystems The PISU, ONE andANGAP will use a computerized and integrated financial management system capable o f recording andproducing ina timely manner all financial reports required for managing andmonitoring project activities. This computerized system would inparticular facilitate: annual programming o f activities andproject resources, record-keeping (general accounting andcost accounting), financial and budgetary management, fixed assets management, procurement management, follow-up o f project implementation progress, monitoring o f key indicators to assess the results and impact o f the project, preparation o f quarterly FinancialMonitoring Reports as required by the B a M D A . To achieve these objectives the accounting software actually inplace and usedby the executing agencies within the context o f EP-I1will be reviewedby the manufacturer to meet the PISU, ONE and ANGAP requirements. The TORSfor this consultant have been reviewed and approved by the Bank Financial Management Specialist. The new computerized system will be fully functional before project implementation begins. Impact of procurementarrangements Procurement arrangements do not present substantial risk. 3. DisbursementArrangements FundsFlow The flow o f funds from IDA, GEF, the government and other donors i s presented as follows : - 113- I -- Special PISU Special Account IDA Grant Account GEF -- Other c Project Account accounts T Foundation for Protected FAGEC: Areas andBiodiversity Community Env. - Accounts/Interest - EP3 from Capital Mgmt Support funds account Fund v v v v Funds deposited inthese accounts will be usedto ensure timely payments o f all executing agencies (ONE, ANGAP, DGEF, DGE, and possibly FAGEConce legally established), contractors and suppliers o f goods and services The initial advance to executing agencies would be made inconformity with the terms o f contractkonvention between the PISU andthese entities. The initial amount to be advanced will be determined on the basis of an annual work program and fundingrequirement for a periodnot exceeding three months. Subsequent payments will be based on physical progress (output based) after appropriate authorization and approval by the PISU. The documents to be submittedby executing agencies to the PISU will consist o f a progress report showingphysical achievements, a summary o f expenditures by category in SOE format and a copy o f the bank statement for the account inwhich the grant are held. All documents supporting executing agencies expenditures will be retained by these entities andmade available for review by the PISUstaff, the internalauditor, BanWdonors supervision missions and the independent auditors as necessary - 114 - The special account would be replenished on the basis o f documentary evidence provided to IDA by the PISU, justifying the payments made from the account for works, goods and services that are eligible for financing under the grant. All supporting documents will be retained by the PISU and made available for review by Bank/donors supervision missions and external auditors. The project implementation and accounting manuals will describe indetails all procedural aspects regarding financial management (payments, replenishment, reporting, internal control). Disbursements from IDA grant For the implementation o f EP-I11the following bank accounts to be managedby the PISUwill be opened in a local commercialbank under conditions satisfactory to IDA: e Special Account A: Denominated inU S $, disbursements from the IDA grant will be deposited on this account to finance activities under components 1, 2 and 3 inaccordance with the disbursement percentages indicated inthe IDA Grant Agreement e Special Account B : Denominated inU S $, disbursements from the GEF grant will be deposited in this account to finance activities under components 2 inconformity withthe disbursement percentages indicated inthe GEF Trust FundAgreement; e Project account: Denominated in local currency, counterpart funds from the government will be deposited on this account to finance project activities inaccordance with the disbursement percentages indicated inthe IDA Grant Agreement and GEF Trust FundAgreement. The amount o f the initial advance has been agreed upon duringnegotiations andwill be deposited prior to grant effectiveness. Fundsdepositedinthese accounts will beusedto ensure timely payments o fall executing agencies (ONE, ANGAP, DGEF, DGE), contractors and suppliers o f goods and services The initial advance to executing agencies would be made inconformity with the terms o f contract'convention between the PISU andthese entities. Subsequent payments will be basedon physical progress after appropriate authorization and approval by the PISU. The special account would be replenished on the basis o f documentary evidence provided to IDA by the PISU, justifying the payments made from the account for works, goods and services that are eligible for financingunder the grant. All supporting documents will be retained by the PISU and made available for review by periodic Bank supervision missions and external auditors. The project implementation andaccounting manuals will describe indetails all procedural aspects regarding financial management (payments, replenishment, reporting, internal control). Disbursements fiom the Malagasy Foundationfor Protected Areas and Biodiversity An endowment fund will be managedby the Madagascar ProtectedAreas and Biodiversity Foundation. It will be usedto finance exclusively EP-I11activities to be executed by ANGAP. This financing will come from: i)interests generated by the start-up capital donated by various donors ;ii)IDA and GEF grants; and iii)governmentcontributionsfromdebtsremoval. Oncethe Foundationissetup, itscapacityandsystem would be reviewedby a B a M D A FinancialManagement Specialist. Providedthe outcome is satisfactory and a subsidiary grant agreement has been adoptedbetween the Recipient and the Foundation, acceptable to IDA as well as conditions agreed at the time o f appraisal, IDA resources would be transferred to the endowment fund for the intended purpose as outlined and specified inthe corresponding operational manual o f the Foundation. This manual will describe procedures to be followed regarding disbursements effectuated by the Foundation. - 115 - Disbursementsfrom the FAGEC (Fonds d 'Appui ci la Gestion Environnementale des Communes) Various funding partners have agreedto pool their resources to support activities to be carried out at the communes level for environmental managementonce FAGEC has beenlegally established.Fundsdeposited inthis accountwill bemanagedbyanew independententitywhose capacity will be assessedbefore expendituresrelated to this specific program begin. Methodof Disbursement The PISUwould follow the transaction-baseddisbursementsprocedures (traditional mode) outlined in the Bank's DisbursementHandbook. The use of 'report-baseddisbursementscouldbepossible thereafter if requestedbytheborrowerandifthe following criteria are met: i)the FMratinghasbeenmaintainedat satisfactory level; ii)the timely submission of quarterly FMRs consistent with the form and content agreed duringnegotiations, andreliable for purposesof disbursement; iii)the submission ofproject audit report by due date. Detaileddisbursementprocedureswill be describedinthe project accounting manual of procedures. Minimumof Application Size The minimumapplication size for direct payments, to be withdrawn directly from the Grant Account, and specialcommitments is a minimumof 20% of the amount advancedto each special account. RetroactiveFinancing Retroactive financing of up to US$4 million from the IDA Grant is recommended for expendituresincurred after February 29,2004. Allocation of grant proceeds (Table C) ExpenditureCategory Amount inUS$ FinancingPercentage 1. Works 11,660,000 100% of foreign and 80% of local expenditures 2. Goods 5,000,000 100%of foreign and 80% of local expenditures 3. Services and Audits 4,440,000 85% of foreign and 75% of local expenditures 4. Training 2,160,000 100% of expenditures 5. Recurrent Costs 5,310,000 80% of expenditures 6. Grant to Malagasy 100% of amount disbursed Foundation for ProtectedAreas and Biodiversity a. first tranche 4,000,000 b. second tranche 3.500.000 7. PPF Refinancing 1,980,000 8. Unallocated 1,950,000 TOTAL 40,000,000 - 116- ExpenditureCategory Amount inUS$ million FinancingPercentage 1. Works 2,190,000 100% of foreign and 80% of local expenditures 2. Goods 760,000 100%of foreign and 80% of local expenditures 3. Services and Audits 3,660,000 85% of foreign and 75% of local expenditures 4. Training 470,000 100%of expenditures 5. Recurrent Costs 1,470,000 80% of expenditures 6. Unallocated 450,000 TOTAL 9.000.000 Disbursementsof IDA proceedsare subject to the following conditions: 0 Payments for expenditures under Category 6a (US$4 million equivalent) of the Project (Grant to the Malagasy Foundationfor ProtectedAreas and Biodiversity), unless: (i) the Subsidiary Grant Agreement has been adoptedbythe Recipient andFoundation for ProtectedAreas and Biodiversity, acceptable to IDA; (ii) FPAB's organizational structure and operational and administrative procedures have been adopted ina manner satisfactory to the Association and agreedat appraisal; and (iii) independent, extemal auditors haveprovideda non-qualifiedopinion about FPAB's financial & technical performance covering aperiod of at least one year following the launch of its operations. 0 Paymentsfor expenditures under Category 6b (US$3.5 million equivalent) of the Project (Grant to the Malagasy Foundation for ProtectedAreas andBiodiversity), unless: (i) disbursementconditionfor Category 6a has beenmet; and (ii) cumulative contributions to FPAB, excluding contributions made out of the the proceeds of grants or other funds provided by IDA,have reachedan aggregateof US$l5.0 millionequivalent. Use of statements of expenditures (SOEs): Disbursementswould be made against Statement of Expenses(SOEs) for contracts and goods not requiring the Bank's prior review. Therefore disbursementsfor all contracts for: (i)goods andcivil works oflessthan US$lOO,OOO; (ii) consulting services, training by firms and individuals o f less than US$lOO,OOO and US$50,000 respectively; and (iii) all incremental operating expenses; would be made on the basis of SOEs and certified by the PISU. SOE statements would be audited annually by independentauditors acceptable to the Bank. All SOEs supporting documentation would be kept therefore by the PISUand made available for reviewby Bank supervision missions and extemal auditors. Special account: Paymentsfrom the IDA grant and GEF grant would be administered by the PISUfrom two separate Special Accounts. The two Special Accounts would be maintainedinU S dollars in a commercial bank selectedby the Borrower and acceptable to the World Bank. The authorized allocation, sufficient for about four months of eligible expenditures, would be US$2,100,000 and US$600,000 for the IDA and GEF funds respectively; however, the initial allocationwill be limitedto US$1,050,000 and US300,OOO for the IDA - 117 - and GEF funds respectively untilthe aggregate amount o f withdrawals from the Grant Account plus the total amount of all outstanding special commitments entered into the Bank shall be equal to or exceed SDR2,120,000. The corresponding figure for GEF funds would be US$900,000. The Special Accounts would be managed by the PISUwhich would be responsible for preparing disbursement requests. These requests would be submitted at least on a monthly basis. Replenishment o f the Special Accounts would follow Bank procedures. Disbursements would be made under the authorized signature from a designated representative o fthe Borrower. The Special Accounts would be audited annually by independent auditors acceptable to the Bank. ActionPlan The present action planagreed with the borrower describes main actions to be taken to strengthen the PISU, ONE and ANGAP financial management systems and to buildtheir capacity to produce quarterly FinancialMonitoring Reports: - 118 - Actions Datedue be Resuonsible Agreement on Terms o f reference for: i)PISU and ANGAP Completed MinEnvEFI key staff; ii)consultant incharge o f the preparation and ANGAP/IDA implementation o f the accounting manual o f procedures; iii) external auditors. Appointment o fPISUand ANGAP accounting staff: Completed MinEnvEFJANGA Financial officer, accountants). Appointment of Consultant incharge of: i)the preparation Completed MinEnvEF and implementation o f the project accounting manual o f procedures; ii)the update o f the ONE and ANGAP accounting manual o f procedures. Consultant starts the preparation/update o f the accounting Consultant manual o f procedures: First draft o f the manual for comments Completed Final draft incorporating comments; Completed Implementation o f the manual o f procedures and 0513112004 users training. Agreement on Terms o freference for consultant Completed MinEnvEFIPISU, responsible for: i)the review o f the accounting software ONE, ANGAP, IDA implemented at ONE, ANGAP and MEWF; and ii)the implementation of the new computerized system; Invitationo f the manufacturer to review the computerized systemimplemented at ONE, ANGAP and MEWF inorder to satisfy project and executing agencies requirements: 0 Submission o f the financial proposal to the CCP; Completed Consultant Negotiations and award of the contract to the Completed MinEnvEF/PISU, ONE, consultant ANGAP Consultant starts the design and implementation o f the new Consultant computerized system: Installationo f the computerized system Completed System testing to ensure compliance with project's expectations and IDA specifications: 04/30/2004 Corrective actions and retesting; 05/08/2004 0 Complete users training and start operating the 05/15/2004 system; Obtain user acceptance and approval 0513112004 Recruitment process o f external auditors: Finalization and issuance o f the Request for Completed MinEnvEFIPISU Proposal (RFP); Reception o fproposals, evaluation, selection; Completed Appointment o f external auditors Completed Production o f the first FMRs (April, May, June 2004) and submit them to the Bank. 08/15/2004 PISU - 119- SupervisionPlan 0 Periodic review of implementation progress. - 120- Annex 7: Project ProcessingSchedule MADAGASCAR:Third EnvironmentProgramSupport Project Time taken to prepare the project (months) 15 First Bank mission (identification) 0910112002 09/15/2002 1 Appraisal mission departure I 10/10/2003 I 01/20/2004 I Negotiations 12110/2003 02/12/2004 Planned Date of Effectiveness 03/01/2004 07/01/2004 Prepared by: Project preparation was coordinated by the Ministry of the Environment, Water and Forestswith assistance from specialized environmental institutions, including:ONE, ANGAP, ANAE, and SAGE. Preparation of the project was embeddedinthe designprocessof EP-I11under the guidance of ajoint GoM-donor taskforce. Preparation assistance: A Japan PHDR Grant (TF051121) for US$698,700was received andusedfor project preparation bythe Ministryofthe Environment, Water andForests.Inline with the LetterAgreement, proceedsofthe Grant were usedto contract consulting services for: (i) development of sustainable financing mechanismsfor the environment; (ii) carrying-out of an institutional assessment; (iii) preparation of a the M&E framework for EP-111; and (iv) carrying of a gender assessment. The activities carried out under the Grant have contributed substantially to the design of the project. Sustainable financing mechanismsrelated activities have been instrumental indefiningthe legal and operational aspects of the Malagasy Foundationfor Protected Areas and Biodiversity and the preparation of a new Foundation Law. The institutional assessment has beenthe basis for the adoption of an institutional vision for the sector by the MinEnvEF. M&Erelatedwork has facilitated the specification of the agreedEP-I11Results Framework and corresponding M&E system. The Gender Assessmenthas playedan important role indefiningsocial aspects related to the project. Bank staff who worked on the Droiect included: Name Speciality Martienvan Nieuwkoop Task Team Leader Christophe Crepin RegionalProgram Manager and Co-TTL (Protected Areas and Environmental Sustainable Financing) BienvenuRajaonson EnvironmentlForest Ziva Razafintsalama Social Analysis Jean-ChristopheCarret Environmental Economics Boris U!xia Domestic Energy Sylvain Rambelon Procurement Slaheddine Ben-Halima Procurement Gervais Rakotoarimanana FinancialManagement Raj Soopramanien Counsel Charles di Leva Counsel - 121- Michael Fowler Disbursements Kristine Ivarsdotter Social Safeguards Michel Simeon Environmental Safeguards Serigne Omar Fye Safeguards Compliance Amadou Konare Environmental Safeguards ,Gayati Kanungo Processing Rondro Rajaobelison Processing Claudia Sobrevilla Peer Review Stefan0 Pagiola Peer Review Andrew Tilling External Peer Review IRobert van der Plas Domestic Energy - 122- Annex 8: Documentsin the Project File* MADAGASCAR:Third EnvironmentProgramSupport Project A. Project Implementation Plan 0 A1: EP-I11Results Framework 0 A2: Project ImplementationManual (draft) 0 A3: Procurement Plan (draft) A4: CostTab Tables A5: Resettlement Process Framework A6: Mikea Indigenous PeoplesDevelopment Strategy 0 A7: EnvironmentalManagement Plan B. Bank Staff Assessments 0 B1: Pre-Appraisal Aide-Memoire, July 2003, 0 B2: Strategy and Policy Context for the Management of the Protected Areas System of Madagascar 0 B3: Profile o f the ProtectedAreas System inMadagascar 0 B4: Institutional Analysis of ANGAP 0 B5: Domestic EnergyAssessment 0 B6: Economic Analysis 0 B7: ANGAP SustainableFinancingand Gaps Analysis 0 B8: Impact Assessment and Evaluationof EP-I1 0 B9: Stakeholder ParticipationPlan 0 B10: Monitoring and Evaluationof the ProtectedAreas Systemand Support Zones 0 B11:Appraisal Aide Memoire, January 2004 andrelated documents (Financing plan; PA Prioritization table-Estimation des Ressourcespar Bailleurs de fonds; EPIII Result basedbutputs and target sites) C. Other 0 C1: EnvironmentalAnalysis, Vol. 1, Vol. 2 0 C2: Institutional Analysis Vol. 1: Vol. 2, Vol. 3, Vol. 4, Vol. 5 and Vol. 6 0 C3: Gender Assessment 0 C4: M&EPlan and System 0 C5: MECIE Performance Evaluation 0 C6: OSF Reports (Forest Sector Governance) 0 C7: EP3 InterventionAreas *Including electronic files - 123- Annex 9: Statement of Loans and Credits MADAGASCAR: Third Environment Program Support Project 03-Feb-2004 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd P082806 2004 MG TRANSPORT INFRASTRUCTUREINVESTME 0.00 150.00 0.00 156.36 4.46 0.00 PO74448 2004 Governanceand InstitutionalDevelopment 0.00 30.00 0.00 32.80 0.00 0.00 P073689 2003 MADAGASCARRuralTransport Proj APL 2 0.00 80.00 0.00 86.28 9.65 0.00 ~ P076245 2003 MINERALRESOURCES GOVERNANCE PROJECT 0.00 32.00 0.00 32.53 -0.21 0.00 PO72160 2002 Second PrivateSector DevelopmentProjec 0.00 23.80 0.00 23.13 8.25 0.00 PO72987 2002 Multisect. STI/HIV/AIDS Prev. 0.00 20.00 0.00 16.54 -3.54 0.00 PO51922 2001 MG -Rural DevelopmentSupport Project 0.00 89.05 0.00 84.14 -17.64 0.00 PO55166 2001 Communit. Dev. Fund 0.00 110.00 0.00 54.03 -26.12 0.00 P052208 2000 MADAGASCAR-Tramp Sector Reform8 Rehab 0.00 65.00 0.00 22.53 6.42 0.00 PO51741 2000 2nd Health Sect. Sup. 0.00 40.00 0.00 15.19 2.93 0.00 PO52186 1999 MICRO FiNANCE 0.00 16.40 0.00 7.02 5.37 0.00 PO01559 1998 Educ. Sector Dev. 0.00 65.00 0.00 16.65 15.46 -4.76 PO01564 1998 RURALWATER SEC,PILO 0.00 17.30 0.00 8.43 7.90 0.00 PO01568 1998 2nd Community Nutrition 0.00 27.60 0.00 10.77 0.21 0.00 P046697 1997 URBAN INFRASTRUCTURE 0.00 35.00 0.00 11.13 11.68 10.62 PO01533 1996 MG ENERGY SECTOR DEVELOPMENTPROJECT 0.00 46.00 0.00 7.26 10.08 6.71 Total: 0.00 647.15 0.00 564.78 36.94 12.57 - 124 - MADAGASCAR STATEMENTOF IFC's Heldand DisbursedPortfolio June 30 - 2003 InMillionsUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990191 AEF FIARO 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 1997 AEF GHM 0.75 0.00 0.00 0.00 0.75 0.00 0.00 0.00 1995 AEF Karibotel 0.22 0.00 0.00 0.00 0.22 0.00 0.00 0.00 1992193195 AQUALMA 0.43 0.00 0.00 0.00 0.43 0.00 0.00 0.00 1991 BNI 0.00 2.61 0.00 0.00 0.00 2.61 0.00 0.00 2000 BOA-M 0.00 0.82 0.65 0.00 0.00 0.82 0.65 0.00 1983189 Nossi-Be 0.00 0.14 0.00 0.00 0.00 0.14 0.00 0.00 Total Portfolio: 1.40 3.76 0.65 0.00 1.40 3.76 0.65 0.00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2001 Besalampy 0.02 0.00 0.00 0.00 2001 COTONA III 0.0 1 0.00 0.00 0.00 2004 Cottonline 0.01 0.00 0.00 0.00 Total PendingCommitment: 0.03 0.00 0.00 0.00 -125 - Annex 10: Countryat a Glance MADAGASCAR:Third EnvironmentProgram Support Project Sub- POVERTYand SOCIAL Saharan Low- Madagascar Africa Income Developmentdiamond* 2002 Population, mid-year (millions) 16.4 688 2,495 Lifeexpectancy GNI percapita (Atlas method, US$) 240 450 430 T GNI (Atlas method, US$ billions) 3.9 306 1,072 Average annual growth, 1996-02 Population1%) 3.0 2.4 1.9 GNI Gross Labor force (%) 3.2 2.5 2.3 per primary Most recent estimate (latest year available, 1996-02) capita nrollment Poverty (% ofpopulationbelow nationalpovedyline) 71 UrbanpopulationI%of totalpopulation) 31 33 30 Life expectancy at birth (years) 55 46 59 I Infant mortality (per 1,000 Cve bifths) 84 105 81 Child malnutrition(% of childrenunder5) 40 Access to imoroved water source - Access to an improvedwater source (% ofpopulation) 47 58 76 Illiteracy (% ofpopulation age 15+1 32 37 37 Gross primaryenrollment (% of school-agepopulation) 103 86 95 Madagascar Male ,- 105 92 103 Low-incomegroup ~ Female 101 80 87 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 GDP (US$ billions) 3.5 3.0 4.6 4.5 Gross domestic investmenffGDP 8.5 11.2 15.5 11.8 Trade Exports of goods and serviceslGDP 11.2 16.4 28.6 16.9 Grossdomestic savingslGDP -1.o 2.9 12.3 5.9 Gross national savingslGDP -3.2 3.9 13.2 5.8 Current account balancelGDP -11.5 -7.3 -2.3 -5.9 InterestpaymentslGDP 1.3 1.I 0.7 I.2 Total debffGDP 54.8 129.3 90.4 Total debt servicelexports 28.4 15.8 6.8 Presentvalue of debffGDP 44.4 Presentvalue of debffexports 152.6 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) GDP 1.5 2.6 6.0 -11.9 I -Low-incomearouo I GDP oer caoita -1.2 -0.5 3.0 -14.4 " . I STRUCTUREof the ECONOMY 1982 1992 2001 2002 Growth of investmentand GDP (%) I%of GDPJ Agriculture 34.2 29.1 29.8 27.4 Industry 13.4 12.5 14.5 12.8 Manufacturing .. 10.4 12.4 10.9 Services 52.4 58.4 55.7 59.8 Privateconsumption 90.3 88.9 79.6 86.2 Generalgovernment consumption 10.6 8.2 8.0 7.8 I -GDI I Imports of goods and services 20.7 24.7 31.8 22.8 -GDP I 1982-92 1992-02 2001 2002 Growthof exports and imports (%) (averageannualgrowth) Agriculture 2.5 2.0 4.0 -1.4 Industry 2.7 2.3 7.6 -25.1 20 Manufacturing 0.8 2.5 10.7 -25.1 0 Services 1.o 3.3 6.1 -11.1 -20 Privateconsumption 0.1 2.9 3.9 -5.9 -40 Generalgovernment consumption 0.1 1.4 15.7 -13.5 Gross domestic investment 5.5 5.6 22.6 -31.4 I EXDO~~Sh l m o o r t s Imports of goods and services -2.4 5.4 11.8 -31.0 "The diamonds showfour keyindicatorsinthe country(inbold)comparedwith its income-groupaverage.if data are missing,the diamondwill be incomplete, - 126 - PRICESand GOVERNMENTFINANCE 1982 1992 2001 2002 Inflation (%) Domestic prices (% change) 125 Consumer prices 15.3 7.4 14.8 Implicit GDP deflator 28.6 14.4 9.0 15.4 Governmentfinance (% of GDP, includes current grants) Current revenue 11.9 11.2 8.6 97 98 99 w 01 Current budget balance -1.2 1.1 -1.o -GDP deflator -CPI Overall surpiusldeficit -9.3 -6.5 -5.8 TRADE I 1982 1992 2001 2002 (US$ millions) Export and Import levels (US$ mill.) Total exports (fob) 284 324 953 525 Coffee 94 32 3 3 T Vanilla 3 51 164 140 /)'500 Manufactures 158 557 219 Total imports (cif) 552 547 1,118 756 Food 128 58 84 75 Fuel and energy 134 72 168 128 Capital goods 117 129 144 130 96 97 98 99 00 01 Export price index (1995=100) 104 91 132 136 Import price index (1995=100) 92 94 95 Exports Imports Terms of trade (1995=100) 98 140 142 BALANCEof PAYMENTS 1982 1992 2001 2002 1 Current (US$ millions) account balanceto GDP (Oh) c Exportsof goods and services 377 496 1,317 759 0 Importsof goods and services 656 733 1,462 1,021 Resourcebalance -280 -237 -146 -262 2 Net income -113 -148 -59 -77 4 Net current transfers -13 163 99 72 6 Current account balance -405 -222 -106 -267 Financingitems (net) 384 239 204 228 I Changes in net reserves 21 -17 -98 39 -10 Memo: Reservesincludinggoid (US$ millions) 85 396 348 Conversionrate (DEC,local/US$) 349.7 1,864.0 6,588.5 6,832.0 EXTERNALDEBT and RESOURCEFLOWS 1982 1992 2001 2002 (US$ miilions) :omposition of 2001 debt (US$ mill.) Total debt outstandingand disbursed 1,933 3,911 4,160 IBRD 31 20 0 G.239 IDA 187 887 1,409 E. 71 Total debt service 110 96 92 IBRD 3 4 0 IDA 2 10 34 Compositionof net resourceflows Official grants 58 203 155 Official creditors 199 85 86 Privatecreditors 48 -8 -2 Foreigndirect investment 0 21 11 Portfolioequity 0 0 0 D:442 World Bank program Commitments 32 24 243 \ IBRD - E Bilateral ~ Disbursements 34 37 97 1 IDA D -Other multilateral F Private - ~ Principalrepayments 1 7 24 ;-IMF G Short-ten ~ Net flows 33 30 73 Interestpayments 3 8 11 Net transfers 29 22 63 mote: Inis tame was proaucea trom tne uevelopment tconomics central aataoase. 6IZUIUY - 127- Additional Annex 11: Letterof EnvironmentalPolicy MADAGASCAR: Third EnvironmentProgram Support Project LETTER OF ENVIRONMENTALPOLICY FinalVersion Ministry of Environment, Water and Forests January 2004 CONTENTS Introduction 4 1 Environmental Threats 5 2 Lessonsleamt 2.1 Resultsandlessonsleamt 2.2 Baseline scenario without environment program 3 Commitments by the GoM 3.1 Main axes of environment managementinMadagascar 10 3.2 Recommendations for environment management 11 4 Vision for 2015 12 5 Overview of the EnvironmentProgram 3 (EP-111) 13 5.1 Goal 13 5.2 Objectives 13 5.3 Results of EP-I11 14 5.4 Definitionof interventionzones 17 5.5 Benefits 17 6 Strategic Choices for implementationof EP I11 18 6.1 MeetingNationalpriorities 18 6.2 Ensuringsustainability of environment management 19 - 128 - 6.3 Strengthening synergy between various components o f the EP 19 6.4 Development of partnership with other sectoral programs 19 6.5 Strengthening collaboration with decentralized territory communities 20 6.6 Promoting participatory management and natural resource management transfer 20 6.7 Intervention based on program-contracts and result-based contracts 20 6.8 Importance o f involvement o f private sector and civil society 20 6.9 Institutionalframework 20 7 Monitoring & Evaluation 20 7.1 Effective Planning 21 7.2 Strong coordination 21 7.3 Efficient, transparent and clear procedures 22 8 Risks 22 8.1 Uncertainty of financing 22 8.2 Long-term sustainability o f national institutions 22 8.3 Interdependenceo f policies, strategies, programs, andprojects 22 Conclusion 23 - 129 - PREFACE The present document provides the 'Letter o f Policy' o f the GoM for the management o f Madagascar's environment. It does not substitute the sectoral policy, but complements it. It is founded on the Malagasy Environment Charter and i s inline with the national development policy. The aims o f the letter o f policy are: Reaffirm the priority grantedby the GOM to environment and its commitment to ensure its protection; Provide a clear vision o f objectives pursued, priorities defined by government, as well as intervention strategies / modalities to come up with efficiency expected inprotection and management o f the environment. The document elaborates upon the following eight issues (8 chapters) : EnvironmentalThreats Lessons learnt from ten years o f implementation o fthe Environment Action Plan (EAP) Commitments by the Government to the environment sector Vision for 2015 Overview o f the Environment ProgramPhase I11(EP 111) Strategic Choices for implementation o f EP I11 Environment Management Risks Insummary, the letter ofpolicy attempts to respondto boththe politicaland operational concerns o fthe overall program. Inthat respect, it will serve as a referential document inthe management o f environment in Madagascar. Italso provides an opportunity to showcase EP 3 to the technical and financial partners involved inthe environment sector inMadagascar. It outlines how the EnvironmentAction Plan inits thirdphase expects to come up with strategies for sustainable management of natural resources; how best to integrate the economic and social recovery programengaged by the government and; to what extent EP 3 would significantly contribute to the success o f the overall environment program. Itpresents a global visionby the year 2015, for the Malagasy Charter o fEnvironment, andtries to put into perspective the baseline status o f environment inthe absence o f environmental actions. The letter of policy also documents the new measures inthe management o f the environment, inthe context of the status o f environment after ten years o f environmental actions through the first two phases o f EAP. This letter o fpolicy is a dynamic document andwill be updated periodically. It is coupled with other documents, namely: the "Manuel o f implementation o f EP 3" andthe "Financing PlanI' for EP-3. - 130- Introduction The implementation o fMadagascar's Environment Action Planhas, since 1990, evolved through strong support o f large international financial institutions - the World Bank and the International Monetary Fund.For about twenty years the action planhas been a part o fthe Structural Adjustment Program (SAP). Results obtained duringunintenuptedimplementation periods o f SAP indicate growth rates higher than population growth rates. Annual growth is 3.5% for 1988-1990 period and4.3% for 1997-2000 period. However, the results seen to date overshadow the true poverty situation being faced inthe country including the rural population and the unfavored social layers. Based on the recent trend inthe Per capita Growth Domestic Product (GDP), Madagascar is ranked among the fifteen (15) poorest countries worldwide. GDP fell from US$ 383 in 1960, to US$220 in 1999, and to US$200 in2000. The sociopolitical crisis that recently shook the country in2002 tends to reinforce such an economic precariousness and acute poverty situation. This increase inpoverty has been a major factor contributing to the acceleratingdegradation o f the environment.The rapid disappearance o f forest cover by 25% of area in 1950 to 16% in 1995 i s an illustrationo f the same. Such a situation clearly highlightsthe close interconnectedness of environment andpoverty. With such a statement, the GoM means to implement a coherent poverty reductionagenda, observing and following the "Economy - Social - Environment" trilogy. To this end, the revised Poverty Reduction Strategy Paper (PRSP), inthe sense of integrating environmental concerns inthe macro-economic framework, sectoral strategies and action plans aimed to reduce poverty, has had an impact. The strategy strongly revolves around three axes: Restore a rule o f law and a good governance society, Stimulate and promote a broad-based economic growth, and Stimulate and promote broad-based human and material securing and social protection schemes. At the 2013 horizon, it is envisagedto halve the povertyrate. In 1990Madagascar adoptedthe MalagasyEnvironmentCharter, which sets the overall framework for executing the environment policy. It defines the general principles and provisions that translate in operational terms the national environment policy, keeping inline with Madagascar overall development. The Environment action plan (EAP) seeks to "Curb the degradation spiral by reconciling populationwith their environment ". Taking into account the fact that reversal o f environmental trends accumulated over centuries could not be done within a five year plan, EAP is a long term plan that would be implemented over at least fifteen (15) years. It i s financed mostly by international donors and, more marginally, through credits contracted by the Malagasy State. The first phase of EAP (EP-I) implemented from 1990 to 1995 has been completed and focused upon implementing institutional schemes, and was driven to dealing with urgent issues. The second phase of EAP (EP-11) sought, on the one hand, the scaling up of actions conducted or - 131- initiatedat field level and, on the other hand, integrating the Environment program into the national development. The third phase o f EAP (EP-111), plannedto commence as o f July first 2003, means to consolidate the assets gained from the first two phases. Itwill essentially aim to conserve and value the importance and quality o f the naturalresources to allow sustainable economic growth andbetter quality o f life. Achieving the EP goals includes the following objectives : a) Models for sustainable management o f renewable natural resources and for biodiversity conservation are adopted and owned by populations inthe intervention areas. b) The biodiversity andrenewable naturalresources ofrepresentative eco-regions is conserved and managedon a sustainable footing with active multi-stakeholder participation; 1EnvironmentalThreats Threats on biodiversity Madagascar i s known to be a biodiversity rich country. A large part o f its biodiversity can be found in areas other than the existing Protected Area network. However, Madagascar has also been identified as a "hotspot" due to the magnitude and extent o f pressures on its natural resources as exemplifiedby the disappearing forest cover. Infact, while deforestation fell from 200 000 ha inprevious years to 100 000 ha per year, according to Conservation International recent estimates in2001, risk for destruction or loss o f natural habitats and biodiversity remains actual. At the planet scale, it i s recognizedthat loss o f one hectare forest inMadagascar has a more serious effect on the world biodiversity than that o f one hectare forest elsewhere. Deforestation and irrational exploitation of forests Deforestation, mainly due to human action, fires and natural disasters stands as one o f the main threats to the environment inMadagascar. It i s further relatedto rapid demographic growth, generalized impoverishment o f populations, the need to accede to land, necessity to increase food crops failing high agriculture productivity and increase o f needs for fuelwood, timber and services. Accelerated reductiono f forest cover is mainly attributable to slash and burnpractice ("tavy") to meet food needs for an significant part o f the m a lpopulation. But tavy is not only an economic problem. It is also the expression o f socio-anthropological and cultural aspects on the close, deep and, sometimes, antinomic, relationship between man and forest. This secular ancestral space-consuming practice transmitted from generation to generationhas become both a thinking and living mode for the people in Madagascar. Deforestation i s also relatedto activities o f harvesting woody products to cover energy needs. Such a stock, aggravated by deficiency inmanaging forest exploitation due to weak control and forest regulation schemes, conjuncted by predominance o f some socio-anthropologiqcal aspects anddue to land tenure problems, leads irremediablyto decreased forest surface areas, destruction o f habitats, loss o f biodiversity. All o f which results inecological and economic imbalance. -132- Soil Degradation Deforestation and uncontrolled practice of pasture fires incombination with heavy soil erosion leads to considerable losses of surface layer of soils (in some cases, higher than 150- 200 tons per hectareper year on bare soil) and to degradationof watersheds. Erosionas a phenomenoni s characterizedby strong manifestations such as lavaka and turbidity of rivers. Such soil losses engender decrease of fertility inducing low agriculture productivity, considerable damage on hydroagricultural and port infrastructures, sedimentation of marine and coastal areas and increase inrisks of damage related to natural disasters. Soil degradation would cost the country about U S $ 150to 300 millionper year (World Bank review in 1988) which is between quarter and halfthe average annual income per inhabitant. It stands as a handicap and actual danger for country economic growth as soil is one of most important production factors. Waterproblems Riversand streams feed the water perimetersfor agriculture production, and ensure water supply to urban and rural towns and villages. Such water drains sediment to low points. Such a situation translates into decrease of level of water table, dryingup of sources, siltation of lowlands and destruction of infrastructures (hydro-agriculture, port, road etc). Degradation of marine and coastal areas The coastal area, particularly reef areas and mangroves, experiencenumerous impacts due to high concentration of economic activities (fishing, aquaculture, agriculture, livestock, tourism, town planning). Degradation of watersheds affects almost all coastal areas of the country: siltation of coastal plains and ricefields, salinization of soils, degradation of reefs and mangroves. Some portions of coastline experiencecoastalerosion. Household and industry waste, as well as hydrocarbon spillage entail marine pollution and loss inmarine biodiversity. Diagnoses conducted at level of marine and coastal areas indicate poor living conditions of coastline communities, over-exploitation of marine and coastalresources,and existence of conflicts inthe use of coastline andmarine resources and space. Pollution in urban areas Inurbanareas, water andair pollutionresults from expansion of industrialactivities that are little concerned about negative environmental harm and impact, inadequate sanitation and increase intraffic. Such pollution inurban areas harms the healtho f the populationthereby compromisingits productive capacity. Natural disasters Dueto its geographic location, bothits naturalandphysical location, Madagascarfaces considerable natural disaster risks. Periodical passages of cyclones, seasonal locusts or draughts prevailing inthe South, among others, engender important damage, the economic costs of which are considerable. At the environment level, ecological changes tend to be irreversible. - 133- 2 Lessons Learnt 2.1 Results. lessons learnt, and perspectives 2.1.1 Results Environment programobjectives have been overall satisfactorily achieved, though slightly below the initial expectations. Main results obtained are as follows : At the institutional and legal level Establishing a trust and cooperation climate with multilateral donors (World Bank, UnitedNations Development Program, Global Environment Facility, EuropeanUnion) and bilateral donors (United States, Germany, Japan, France, Netherlands, Switzerland, Norway) allowed the country to implement its environmental policy. The program also benefited from considerable technical and financial support from internationalNon Government Organizations (NGOs) involved inthe environment sector (World Wildlife Fund, Conservation International, Wildlife Conservation Society) inimplementing actions. A multi-donor secretariat was created for more effective coordinationbetween the donors. Setting up o f the following national institutions helped to achieve thematic actions inthe area o f environment : - The National Office for Environment (ONE) charge of coordinating Environment Program ; in - The National Association for Environmental Actions (ANAE)incharge managingof mini-projects for soil conservation and improvement o f rural living framework ; - TheNationalAssociation for ProtectedAreas Management (ANGAP) incharge o fmanaging the national protected area network ; - The Center for Training inGeographical information Sciences (CFSIGE) incharge o f environment related training and education; - The Support Department to EnvironmentManagement (SAGE) incharge o fimplementation of renewable natural resources management . Environment Program has providedan opportunity for strengthening existing national institutions : the Directorate for Land Office incharge o f land tenure securing - the Foibe Taosarintanin'i Madagasikara (FTM) (Madagascar Cartography Center) incharge o f cartography, remote sensing and geographical information-the Directorate o f Water and Forests, incharge o f forest management. Withininstitutions established duringthe first two phases o f EAP, the following have been set up : the National Board for Environnement (CNE) -the Interministerial Board for Environment (CIME) -the environment units insectoral Ministries - the Observatory o f Forest Sector - the environmental mediators - the consultation structures and committees. For more efficiency inthe field o f environment management, numerous tools relative to various themeshave been developed over the period. A selectedfew among various others are: - 134 - - Developinglegalandregulatory tools Malagasy Environment Charter and its modifying clauses, : law on local community managementof renewablenatural resources(GELOSE) and its application texts, Sectoral Policies compatible with environment inthe sectors of industry, tourism, energy, mine, roads, fisheries and aquaculture, textile, Decree on EnvironmentalImpact Assessment Legislation (MECIE) and its application texts, Code of Protected Areas (COAP), Environment RelatedEducationPolicy (PEE), New forest legislation, Forest policy (POLFOR), New legislative and regulatory texts for improvingrecovery of forest revenues, ratification of intemational conventions relative to environment. - Designingreferential documents :Document steering the policy of IntegratedManagementof Coastal Areas (G1SC)- National Strategyo f sustainable managementof biodiversity (SNGDB) -A bill on intellectualproperty rights andgenetic property rights-Forest Master Plans - Fisheryand Aquaculture Master Plan- Policy of MILK industry(under way) -Watershed Management Plans, landuse maps and forest evolution maps, Management Plan of ProtectedArea Network. At technical level, assetsrelate to : - Definingmethods or methodologies (developing spatial approach, regionalization of implementation of program, initiationto and strengtheningof eco-regional approach, developing tools for decision making and referentials -NationalForest Ecological Inventory, forest managementplans, forest zoning, reports on status of environment, National and provincial Environment Management Charts, Environment InformationSystem ) - Implementingdirect field actionsby various implementing agencies andthe other national and intemationalpartners invarious areas such as protectionand managementof natural biodiversity heritage, implementation of mini-projects for soil conservation, agroforestry and other community projects, transfer of managementof natural resources(Secured LocalManagement, Contract-based forest management), environmental impact assessments, environmental education, creation of a study branch"environment" at level ofhigher education, ... The main results and impacts of the activities conductedunder the framework of the environment program are as follows : - Reduction of deforestation rate is 0.7% per year inprotected areas, 1.O% peryear inclassified forests, 1.5 % per year in state owned forests ; - Degradation of crucial habitats regressed significantly from 1.66% per year to 0.62% per year ; - Quality ofbiodiversity inprotected areas interms of endemism has improvedfrom 0.61 to 0.74; - Over 370,000 families benefitedfrom mini-projects of water and soil conservation, entailing increase inproductionwith positive results (10% per year duringthe period compared to a core group) ; - Gross revenues from tourism associatedto protected areas have increasedrapidly (estimates at about US$ 50 million in2000 and 40% of foreign tourists) with benefits to local communities; - The `polluter -pays' principle is applied in investment decisions through implementation o f Environmental Impact AssessmentLegislation (MECIE). 2.1.2 Lessons leamt Among various lessons leamt, important selectedlessons include: i)need for replicationof the impacts; ii)scatteredactivities over the region; iii)complexity of the overall program; iv) needfor strengtheningsynergy with other projects / programs; v) need for competent human resourcesin organizational structures for environmental managementcreatedat the level of eachMinistry -135- (decree N"349-2003 o f 27.03.2003)(yet, unemployment among postgraduate students who conducted EIS) . 2.2 Baseline Scenario without environment urogram Inthe absence o fthe Environment Program, the country would runthe risko f greater catastrophies. The negative impacts on the environment (loss o f both terrestrial andmarine biodiversity, water, air, sea pollution, erosion etc) inthemselves prove to be a heavy price to pay. Accelerating deforestation and soil degradationdo not provide an enabling basis for sustainable development o f the country. There would be very limited development actions being taken to address the downward spiral o f environment degradation. Economic growth that i s much sought after would only be a dream without the environmental viability aspects. Population would remain indifferent to any destructive action andto any degradation phenomenon. Inthe area o ffishery andaquaculture, sea pollution due to hydrocarbondisposals, degradationof lake based ecosystems due to landings inwater plans (agriculture crop phenomena on slopes that are not planned for such an end) provide constraints difficult to manage ina well defined and analyzed programming without the baseline scenario. Accelerated Deforestation Acceleration o f deforestation is inrelation with rapid demographic growth, generalized impoverishment o fpopulations, need to accede to land, need to increase food crop resources and increase inneeds for fuelwood, timber and services. It is estimatedthat the forest cover will disappear within 25 years ifcurrent trends go on. Accentuation o f such a phenomenon will ultimately entail transformation o f continental water plans into marshes, which will decrease its importance interms o f fishing. Rapid soil degradation This phenomenon always entails considerable decrease o f agriculture productivity. Such losses in soils accentuate decrease o f fertility, inducing low agriculture productivity andprovoke considerable damage on hydroagriculture, port, and transport infrastructures. Furthermore, they engender sedimentation of marine and coastal areas and aggravate damage risks relatedto natural disasters. Non environmentfriendly development activities Practicing unsustainable agriculture techniques, non observance o f environmental standards in terms o f investment (industrial projects, infrastructures) would inevitably lead to degradation o f the environment and the living conditions. These would further contribute towards increasing poverty inbothurban andrural environment. Nomadic agriculture and 'tavy' would remainthe most practiced production alternatives. Degradation of marine and coastal areas Degradation o f coastline, marine erosion, and irrational exploitationo f fishingresources would induce poor livingconditions among coastline-based communities and would ditch them further into poverty situation.. Besides, such a situation would be prejudicial to national economy, the fishing - 136- sector beingone of foreign currency sources for the country. Loss in biodiversity Material destitution andnecessityto meet vital needs (food, energy) would encourageharmful humanbehavior andthis intumwould leadto lackofrespectfor conservation ofbiodiversityand natural resources, ingeneral. Lack of opportunity for economic and social incentives of preserving environment would aggravate the situation of poverty. Hence, inthe baseline situation the vicious pattern of - degradedenvironment - poorer population -more rapid degradation of environment, would continue. Continuous Deterioration of living conditions in Rural areas The population strongly depends on agriculture to ensure their survival. Impact on soil degradation combined with effects of price fluctuations would induce decrease inagriculture productivity entailing constant decrease of incomes and further accentuatingimpoverishment of agriculture population. Such apoverty status would encourageclearing of new forest areas provoking destruction of natural resources; These situations would make rural economy vulnerable and lead to a slowdown inthe overall economy. Continuous Deterioration of living conditions in Urban areas The most destitute layers of the society would always remain the most exposedto diseases related to air and water pollutions, such as respiratory and intestinal diseases, and the flu. This would result inpoor human health anddecrease ofproductivity thereby limitingthe economic growth. A sickly andpoor populationwould contribute indirectly to the rapid degradation of environment. Insummary,the existing trendsfor naturalresourcedegradationwould no doubt compromise the country's economic development by degrading productionfactors and capacity of natural ecosystems to regenerate.This would further destabilize the weaker sections of the society who do not benefit equitably from benefits of economic growth. The social broadbasedprotectioninthe context of both humanand materialistic amenities would not be possible without the program. Degradation of natural pastures The pasturesare mainly degraded due to irrationaluse of fires (doro-tanety) for renewingnatural pastures. 3 Commitments by GoM The fact that Madagascaris among one the first countries of the African Continent to be committed to meeting its environmental challenges andto equip itself with an Environment Action Plan. This exemplifies the willingness of the GoM, which has beenseveral times reaffirmed inits commitment to sustainable development for the benefit of the Malagasy population. This is the vision for Madagascarto commit infront ofthe international community to increase the size of areas under conservation inorder to achieve the 10%of the national total area inaccordance with -137 - I U C N standards Preserving the environment i s a top priority for achieving this large national objective. Inaddition, to conveying a strong signal to financial and technical partners inthe environment sector inMadagascar, the GOM 's political commitment to the environment is strengthened by its financial support to the Environmental Program. The government has also signed andratified several international environmental conventions (for status o f international conventions, see Annex). 3.1 Main axes o f management o f the environment inMadagascar The G o M policy in environment is an integral part o f the Poverty Reduction Strategy Paper and participates inthe process for rapid and sustainable development. The EnvironmentalProgram, therefore, i s aligned with other national programs and activities. Interms o fchallenges for reducingpoverty, contribution of the environment consists, more particularly, inimprovinglivingconditions amongpoor peoplethrough sustainable use ofnatural resources and intemalization o f environmental dimensions inthe overall development policy and sectoral policies. The following will be considered: a) Cleaning some texts governing the environment such as the Malagasy EnvironmentCharter; b) Drafting Code o f Environment; c) Drafting legislative texts on processing and recycling waste (packaging products, household, hospital, and bio-medical ,toxic garbage, chemical products); d) Reformattingandredefiningroles o fdiverse national institutions involved ininstitutional structure of environment management; e) Setting up an environmental control, monitoring, and surveillance body (independent body having decision making power), forming competent legal branch about environmental issues, as well as related tools, setting up o f arbitration structure incase o f environmental dispute; f ) Defining roles and missions o f structures o f autonomous provinces and those o f departments linked to Ministryo fEnvironment, Water and Forests as well as i)settingupo fdecentralization and, namely anchoring environmental actions at commune level, ii)promoting partnership with private sector and opening to multiplayers o f environment, iii)wider field presence than at central administration level, g) Strengtheningrole andcompetences o f structures incharge o fenvironment within sectoral ministries involved; h) Strengtheninggood governance inforest and environment areasthat is characterizedby separating State core functions from exploitationor field implementation functions; i)DesigninganewenvironmentalactioncyclebasedonlessonslearntatendofEAP. Coordinating anti-pollution actions inorder to preserve environmental integrity at country level remains one o fpriorities o f Ministryo f Environment, Water and Forests. Preserving essential functions inenvironment i s also as important an aspect. Infact, environmental functions such as ecological function, hydric regulation function, climatic function, water and soil conservation function, and production function (leverage for sustainable development) are central to Madagascar, an essentially agricultural country. These important environmental aspects need to be addressed ina sustainable manner at the national level (including technical, institutional, and financial levels). It i s obvious that environment alone cannot bringdevelopment at the country level. Conversely, ensuring sustainability i s not possible - 138 - without the environment. To be sustainable, development actions mustdraw abalancebetween the two to maintaina soundand enabling environment. Consequently, any development action must linkclosely to preserving the environment inparticular, the environmental core (NODE). The form of such contribution is still to be defined. For the environmental core to ensure the minimal threshold, the following themes have beenidentified starting from priority axes definedinthe Malagasy EnvironmentCharter: - Soil conservation, protection ofwatersheds; - Biodiversity conservation at level of terrestrial and marine protected areas, conservation forests and sites; - Water preservation and source protection inprotected areas, forests, conservation sites and RAMSAR sites ; - Wide environmental educationaction from primary schools; - Environmentalsurveillance actions; - Integrationof environmental dimension at level of population, ingeneral, at level of groups or groupings, at level of private sector and sectoralpolicies; - Coordination of anti-pollutions (solid, liquid, gas), waste managementand processing; - Environmental watch out, developing environment managementtools andenactment of legislation: MECIE, intemationalagreements, coordination, monitoringevaluation, policies, legislation, sustainable financing, strengtheninginstitutions incharge of environment management,namely inthe core; - Vigorous agricultural extension with altemative environment friendlyactivities (apiculture, agroforestry, enhancedpastures, agro-ecological crops, associatedcrops, ...) and distribution of substitution practices to charcoal use. The Ministryof Environment, Water and Forests(Ministryincharge of environment) will ensure that all environmental actions conductedare inline with the national priorities. I t is the implementingagency that ensures overall coordination of the environmental activities. Nationalinstitutions will be appointed bythe MinistryinchargeofEnvironment to fulfill the role of deputy implementingagency according to their national mission. Other national institutions, establishedand strengthenedinthe first two phases of implementation of EAP will be involvedinthe program under the supervision of the Ministry, and will be responsible for conducting and coordinating of delegatedtasks. Such institutions will have to define operational aspects of implementation inconsultation with various partners and players, among others, implementation modalities, costs of activities. To such an end, they will have ti report to the Ministry. Recommendations Basedon the socioeconomic situation and the environmental challengesthat the country faces on one hand and, the global themes that are central worldwide - sustainable development and poverty reduction - ontheotherhand,theGOMhasbuiltitscurrenteconomicandsocialrecoveryprogrambyadopting Rapid and sustainable Development -Poverty Reduction" as its motto. GOM i s committedto meetingits obligations to both sustainable development andpoverty reduction(EarthSummit inRio 1992, Social development Summit Copenhagen, 1995, MillenniumSummit 2000, JohannesburgSummit 2002). Fromthat perspective, sustainable development i s definedas a process that integrates the following three fields: (i)economy, (ii)social, and (iii) environment. Sustainability of development aimed towards future generation seeks for synergy among these three areas and aims at: (i) sustainable economic growth, (ii) - 139- social equity and (iii) ecological viability. Inorder to ensure sustainable developmentandpoverty reduction inthe long-term, GoMdecided to define sustainable development goals andto undertake relatedplans and programs. These are, among others, the Support Program to Rural Development (PSDR), The Program for Reform o f Public Sector (PRSP), the Multisectoral Project for Prevention o fHIV/AIDS (PMPS), the Sectoral Program o f Transports (PST), the Program o f Land Tenure Securing. As provided inthe PRSP, the role o fthe Ministryo fEnvironment, Water and Forests to "safeguard the unique environment o f Madagascar" would be fulfilled through the following operational objectives : -1.Develop institutional andregulatory frameworks required for protection o f environment and nature; Conserve the importance and quality o f natural resources - Promote sustainable management o f natural resources; - Ensure financial sustainability of various schemes for environment management, among others, o f system o f national parks, o f Environmentalimpact assessments, o f forest management through National Forest Funds FFN 2. Cater for economic, ecological, and social needs o f population inforest, soil, and water resources 3. Curb deforestation and bushfires Inrecognition of the globalsignificance o fthe country's biodiversity, the GoMwill continue the EAP through implementing the thirdphase o f the Environmental Program 111.Infact, EPIII will significantly make a wise use o f ecosystems and o f their sustainable potential impact infavor o f poverty-reduction. It is again reiteratedthat foundations o f sustainability rely on notions o f "balance I'and "renewal" o f ecosystems andnatural resources, as well as on acquiringthe environmental reflex. Therefore, the following would be given particular attention: Partnership with civil society and private sector; Inter institutional synergy; Synergy with other national programs; coordination; sustainable financing; good governance; poverty reduction; continuity o f activities that have been undertaken ina sustainable manner; making the legal and regulatory framework adequate and puttingit under application; environmental education and communication; effective participation o f local communities, especially the most vulnerable layers, inenvironment protection (planning, integrated programming o f agricultural policies. Inthat respect, all environmental actions will develop within the spatial framework o f communes or commune groups ( OPCI) and within the operational framework o f Commune Development Plans or Intercommune Development Schemas. need for a national policy and for a national action planinbushfires. 4 Vision for 2015 Inline withthe trilogy theory -'Economy- Social-Goodgovernance' - as the foundation for - 140 - sustainable development and poverty reduction, one can propose a progressive altemative motto for Madagascar namely, 'Economy - Social - Environment'. Overall, better environmental conditions would improve with quality o f life among the whole population. Additionally the success o f environmental actions depends on the results and impacts o f economic and social programs conducted at the country level. Significantly, the millennium objectives defined at the global level find a solid basis when taking into account the environmental aspects that guarantee both the quality o f development and sustainability. The progress inenvironment management may be illustrated through the following: - Quality o f life is defined by the access to natural resources (water, soil, forests) to meet the basic survival needs o f a population. Placing these vital elements at disposal at lesser costs would generate well being o f the populationand enable them to fulfill their productionfunctions; - Ownership o f environment conservation all areas and at all levels: acquiring the environmental in reflex, givingup cultural and sociocultural practices that do not grant values to production factors and natural resources, sectoral policies integrating the environmental dimension; - Effective sustainable management o f naturalresources is acquired at national level; - Natural forest Cover is maintained at its current level (situation in2002) ; - Biodiversity threat index, soil loss inintervention areas are regressing; - Effective Representativeness o fvarious ecosystems o f the country inthe protected areas system; - Significant increase incontributionof environmental sector to GDP compared to its current level; - Improvedprotectiono f sources and quality o fwater; - Valorisation of waste (industrial, household garbage, packaging products) initiated ; is - Reduction inuse o f fires renewingpastures. in Poor existing status o f environmental degradation inMadagascar will be replaced by a scenario reflecting economic and social development inperfect harmony with environment preservation (rivers that are less loaded in solid particles and suspended chemical products). Madagascar is progressively becoming a 'green island' again. Insummary, the essential functions o fthe Environment core are preservedand made sustainable, with a guarantee on the quality o f the environment, andbetter quality o f life for both the current population and the future generations. 5 Overview of the EnvironmentProgramI11(EP-III) In1991, Madagascar started implementingthe EnvironmentCharter with support from a group of bilateral donors (Germany, United States, Switzerland, France, Japan, Netherlands, Norway), intemational institutions (Global Environment Facility, IntemationalDevelopmentAssociation, United Nations Development Program) andworldwide NGOsrenowned inenvironment sector (World Wildlife Fund, Conservation Intemational, Wildlife Conservation Society). The Environment Action Plan, after 10 year of existence, is entering its thirdandfinal phase. The overall program has focused upon - 141 - prioritizingthe environment and has significantly and actively involvedthe technical and financial partners o f environment sector inMadagascar inits implementation. The goal o f Environment program is set out as follows: "Importance and quality o f natural resources are conserved andwisely utilized insupport o f sustainable economic development and a better quality o f life". 5.2 Obiectives Encouraged by the results and impacts o f the earlier phases, the GOM for the implementation o f the EPIII has specified two main objectives: a) Models for sustainable management o f renewable natural resources and for biodiversity conservation are adopted and owned by populations inthe intervention areas. b) The biodiversity and renewablenatural resources of representative eco-regions is conserved and managed on a sustainable footing with active multi-stakeholder participation; 5.3 Results o f EP I11 5.3.1 Sustainable development actions are implemented i. Community developmentplans and inter commune schemes take into account the environmental dimension : support to communes for developing and establishing Community Development Plans and development o f intercommunal development schemes, promoting intercommunalregional exchanges and with the other development programs; ii. Alternative sustainable development are implemented in keeping with Commune DevelopmentPlans and intercommunal schemes: improvement o f management of cleared areas, support to transfer o f management or rangelands, promoting conservation and sustainable water and soil use and implementation o f pressure alternative activities inline with orientations o f LPDR such as increase inagricultural productionwith optimal use and sustainable management o f natural resources, preservingthe environment andrationalmanagement of rural space, development of private initiatives and know-how inenvironment and sustainable management o f natural resources iii. Thesectors of biodiversity are wisely utilized in a sustainable way : implementation o f approaches for fair sharing o f benefits and reorganization of management o fmarketed andmarketable species, rational exploitation o f natural resources in diversificationo f productions (silkworm farming, apiculture, ...) iv. Alternative energy ispromoted : identification of renewable energy resources that are available and locally owned (for electrification and fuel ), promotion of substitution biomass fuels and promotion o f alternative energy use, inparticular biomass, hydroelectricity and solar energy; v. Management of urban environment is improved : support to development and implementation o f municipalprograms for environmental actions and promoting prevention and reduction o f pollution. - 142 - 5.3.2 Forest ecosystems (natural and artijkial), wetlands and water reserves are managed in a sustainable manner - Forests are managed in a rational way : refining forest zoning, up-scaling o f forest management transfer, streamlining forest exploitation, promotion and application o f norms and standards on forests and its products (eco-certification etc), setting up o f complementary regulatory and economic tools and developing effective and sustainable forest management systems; - ArtiJicialforest cover is increasing: pursuing creation o f Landreserves for reforestation and management o f carbon sequestration pilot sites; - Management of woodyfuels is improved support to using improved carbonization use techniques and promotion o fmodels that are less woody fuel consuming ; - Wildfires are decreasing: anti- bushfires awareness raising and motivationamong population, strengthening law enforcement against bushfires and satellite monitoring o f fires ; - Wetlandsand water reserves arepreserved in a sustainable way :promotiono fpreservation and sustainable management o f lakes and upscaling o f protection o f hydric basins. 5.3.3 Sensitive ecosystems of Madagascar are conserved and wisely utilized at the levels of Protected Areas and conservation sites. i. Representativenessof ecosystems ispromoted :reclassifying some protectedareas, creating new terrestrial protected areas andconservation sites, development o f marine park systems re-demarking some protected areas ; ii. Maintaining biodiversity and ecologicalprocesses is ensured in protected areas: ecological monitoring o f habitats, species, pressures and conservation, surveillance, and control measures, setting up conservation infrastructures and materializingzoning, developing targeted research ; iii. Ecotourism at level of protected areas is developed and madeprofitable withprivate sector : improvement o f service to visitors, setting up and improvement o f ecotourism and service infrastructures, promotion o f protected areas and conservation sites andassessment o f ecotourism management. 5.3.4 Marine and coastal ecosystemsare managed in a sustainable manner i. Sustainable management of activities on coastal and marine area ispromoted in the 2 0 intervention coastline areas :development and implementation o f intercommunal management schemas, capacity buildingamong players inIntegrated Management of CoastalAreas; ii. Coastal and marine resources are wisely utilized and managed in a sustainable and equitable manner in the 20 intervention coastline areas: upscaling o f management transfer o f renewable natural resources, promotiono f labeling o f catches; iii. Biodiversity and ecologicalfunction of marine and coastal ecosystems are maintained in the 20 -143- intervention coastline areas: promotion of non protectedarea site conservation allowing renewal o f stocks and species, promotion o f protection o f endangered coastal and marine species, promotion o f marine ecotourism; iv. Prevention and reduction ofpollutions and degradation in coastal and marine areas are limited : development and support to implementation o f intercommunal plans for pollutionprevention andreduction, setting up of intercommunal pollution and degradation observatories, strengthening prevention and reduction o f erosion upstream special management marine and coastal areas. 5.3.5Positive behavior change towards environment is observed i. Decision making and information tools allow implementation of sustainable environment management : management o f environmental working chart at central and decentralizedlevels ,and facilitationo f information exchanges, monitoringmarine and terrestrial ecosystems andmanagement o f data on Malagasy biodiversity, development o f economic accounting of environment; ii. National capacities are strengthenedfor effective and eficient management of environment : enhancement of knowledge on environment, support to environmental communication, support to education and environmental training, promotion of attitudes enabling conservation of protected areas and conservation sites. 5.3.6 SustainableJinancing bases of actionsfor management of natural and environment resources and environment are established i. SpeciJicJinancial sustainability tools are developed :setting up o f a 'Trust fund' for protected areas, development of other financing tools and optimization o f interface with other sectors for environmental action financing ; ii. Reliability and transparency of systemfor managingfunds andfor monitoring isfunctional : improvement o f existing management systems, development o f management and administration capacities, strengthening coordination o f activities and optimization o f cost structure among implementing agencies ; iii. Localjnancing systems are in place : development o f local taxation mechanisms and support to sustainable local investment funds. The aim is to ensure long term sustainable financing o f environmental activities, and therefore i s also to reduce dependence on extemal donor funding. i.Settingupofafoundation:prioritywassetoncreationandoperationalizationofaFoundationforthe benefit o f the national protected area system managedby ANGAP based on a pre-established sustainability planwith a well defined govemance mode ; ii.Ecotourism:becauseofthefactthatProtectedAreasprovideoneoftwoimportantdestinationsof tourism at country level with about 90, 000 to 100, 000 visitors, a cost recovery system will have to allow ANGAP to ensure sustainability o f actions for protectionof nationalheritage ; - 144- iii.Paymentforenvironmentalservices:theeconomicanalysisconductedintheframeworkofpreparing EPIII demonstrates that forests ingeneral andthe protected areas o f the national P A network make the 'environmental services' o f vital importance to the country. According to the 'beneficiary-pays' principle, payment for environmental services providedby forests o f the National Forest Estate and protected areas o f the national network should be envisaged interms o f financial participation by beneficiaries inmanagement actions o f sites involved ; iv. Making development actions contribute to longterm sustainability o f essential functions o f the EnvironmentalCore (NODE). 5.3.7Better environmental governance is in place i. Developmentpolicies of country internalize environmental dimension: development o f management tools and ensuring coherence between texts and procedures, making investments compatible with environment ,monitoring, environmental control and setting up o f complaint management mechanisms, integration o f environmental dimension into territory planningpolicies, development o f energy policy for sustainable water management, effective application o f texts inforce for environmental impact assessment legislation for any public investment progradproject, setting up o f a legal andregulatory environment favorable to rural development coupled with sustainable management o f natural resources, accountability and capacity buildingamong all rural development players inthe environment sector. ii. Institutional mechanism is strengthened strengthening mission o f (CNE, CIME) and development o f partnership with environmental structures at level o f sectors and decentralizedcommunities ; iii. Environment administration is strengthened :capacity buildingo f Ministry incharge o f environment, ensuring implementation o f obligations under the international environmental conventions ratifiedby Madagascar and ensuring interface roles with Ministries incharge o f planningand in charge o f finance; iv. Forest department is strengthened strengthening o f forest administration, setting up o f an autonomous structure to ensure forest operations, capacity buildingo f players in forest management, broadening o f watchdog and information devices initiatedby the forest sector observatory ,and strengthening control o f forest sector 5.3.8Ensure good governance in management of Program Complementing good governance at the sectoral level, governance issues will also be dealt through upgradingmanagement o f the Program. All service provisions will be conducted on a contract basis either through program-contracts, or through result-based contracts. Strategies to ensure good governance will include : - transparent management and use o f funds allocated according to agreements reachedwith donors and partners; - implementation o f activities accordingto provisions recordedinrelated referential documents with regard to procedure, standards, and regulations inforce; -145 - - setting up and effectiveness o fa monitoring evaluation system. 5.4 Definition o f intervention areas The national environmental policy covers the whole country. However, with the overall aim to generate significant impacts among population (income increase) as well as innatural resource management (better conservation and wise utilizationo f naturalresource), InterventionZones will be defined according to the following criteria : - importance o fbiodiversity (terrestrial and marine protected areas, conservation sites); - magnitude o fpressures (zones peripheral to protected areas, zones around conservation sites, classified forests, coastline and coastal zones, erosion zones, water points and sources); - results and impacts from the first two phases o f EAP ; - local and/or regional dynamism. 5.5 Benefits The implementation o f the EAP will result inbenefits at environmental, economic, and social levels on the one hand and also at local, national, global levels on the other hand. The economic analysis conducted shows undeniably not only environmental benefits, but also economic benefits generated by preservation o f ecosystems and sustainable management o f natural resources at level o f all intervention zones o f Program (arid zones, peri-urban zones ,rainy zones, mountain zones). 5.5.1 Benefits at local level The Environment program contributes to poverty reduction. The vulnerable layers o f society and the rural poor who are entirely dependent on natural resources for survival will be the priority targets, especially incase o f access restrictionor limitation to such resources. Alternative actions plannedwill improve quality and standard o ftheir living. At economic level, equitable sharing o fdividends from goodmanagement o fbiodiversity would be one o f the main benefits derived by EP, inaddition to promotion, commercial exploitation o f non woody forest products and wise use o f sectors, inparticular, medicinal plants As a result o fthe altemative projects to reduce pressures and development o fmini-project, the promotion o f sustainable cultivation techniques and practices (agroforestry, improved pasture, agro-kcological crops, composting, wise use o f agriculture products) would allow an increase in production and, therefore, the economy o f a household. This will make the populationmore sedentary and will significantly reduce the threat to surrounding natural resources. If trendsinecotourismdevelopmentintheProtectedAreasandothernaturalsitesin current intervention zones o f Programare enhanced, economic impacts for neighboring populations and private sector will also experience appreciable increase (transport and services, lodging, catering etc. This is an indication that the Project participates inpoverty reduction. 5.5.2 Benefits at national level - 146 - The fact that the population ingeneral, communities, public institutions, civil society and private sector acquire an environmental agenda andbecome responsible for good management o f environment inthe long term constitutes an important national benefit for the country. Through capacity buildingand increasingaccountability among entities involved inenvironment management the country will benefit through recovery at both social (health) and economic (productivity o f soils andpeople, sustainability o f infrastructures) levels. Through sensitization of the population and operators intechniques o f processing and wise use o f waste (packaging products, household garbage) the environment will contribute to economic development at the national level. Overall, the program will contribute towards increasing the GDP and in improving quality o f life and, therefore, poverty reduction inMadagascar. 5.5.3 Benefits at global level Inaddition to benefits inimprovement ofglobalenvironment through benefits from a well managed environment (carbon sequestration / trapping, halting decertification), one o f invaluable benefits from the Environmentprogram i s the conservation o f a unique biodiversity heritage. Preserving such wealth allows one to acquire and develop knowledge and is a first step towards promoting global ecotourism. 6 StrategicChoicesfor Implementationof EP I11 6.1 Meeting National Driorities The results o f the program would be realized through a programmatic approach funded by multiple financiers, including the Government o f Madagascar, bilateral and multilateral donors, and nongovernmental organizations, and coordinated through the institutionalcooperation framework established under EP 11. Inorder to secure concrete andtangible results inthe management o f environmental actions and, inparticular, inresolvingcrucial problems (protection o f ecosystems, management o f fires, 'Tavy', management and wise-use o f terrestrial, coastal, and marine resources), coordination, collaboration and effective organization are crucial. Inthat respect, recognitionand understanding o f the national priorities by all stakeholders i s utmost important. 6.2 Ensuringsustainabilitv o f environment management Several axes for setting up a sustainable financing mechanism have been identified :payment for environmental services, Bio prospecting, MECIE, Eco -certification / eco-labeling, National Forest Funds, Protectedarea Entrance fees ,royalties, taxes on hydrocarbon, Intellectualpropertyrights, carbon sequestration, cost recovery, green taxes, filming duties ,research duties. The sustainable financing mechanism o f the Environmentprogram relies on implementation o f three large axes: i)setting up o f a foundation ;ii)puttingginplace a mechanism for equitable redistributiono f tourism benefits; iii)payment for environmental services. 6.3 Strengthening Synergy between various components o f Environmentprogram -147 - Withthe aim o f generatingsignificant impacts at the levelo fbothpopulation (income increase) and natural resource management (better conservation and resource valorization), Intervention Zones will be defined, inwhich program components will focus their interventions. Internal synergy among various components of the Environment program will be given importance to ensure better complementarity. 6.4 Development of partnershipwith other sectoral programs Given that environment issues lie across the board, integration o f environment dimension in sectoral development policies and actions is required. Inaddition, synergy with other national Programs such as PSDR, PST, FID, VOHIJORO MESRES will have to be strengthened. Such partnerships with other sectoral programs has to be found at several levels, among others, at the level o f intervention zones. Implementing this principlerequires strong coordination and a highdecision making ability. The overall approach therefore aims at strengthening synergies with various sectors, integrating environmental dimension inall development activities and valorizing complementarity among actions. Need for specific collaboration is vital for implementation o f environmental actions. For example, Forest management with sectors o f trade, energy, industry, medicine, and research, development activities in rural areas with agriculture sector that are framed inAction Planfor Rural Development (PADR), management o f ProtectedAreas and conservation sites with sector o f tourism, management o f coastal and marine areas with sector o f fishery and fishingresources, management o f urbanpollution with sector o f transport, taking account o f gender approach with social and education sector Significantly, the importance of partnership with the Support Project to Rural Development (PSDR) and other projects o f rural sector is highlighted. Such are, among others, cases o f implementation o f activities o f Commune Development Plans, o f biodiversityvalorization according to sector-based approach, effectiveness o f a viable agriculture with participationo f most unfavoredlayers, soil conservation, and regenerationo f lands, optimal water use inagriculture development. Inline with strengthening such a synergy, specific agreements will be established for financing by PSDR of targeted rural development actions at level o f intervention zones o f Environmental Program. The Environment program will involve other stakeholders inthe implementation o f its activities (associations, NGOs). Wise use of community-based competences i s an crucial aspect o f the stakeholder participation approach. Partnership with the outside needs to be strengthened, especially inkeeping with NEPAD inwhich there are eight priority intervention axes inthe environmental sector (fight against decertification, protectiono f wetlands, invading exotic species, global warming, environment protection trans-border zones, economic governance, financing). 6.5 Partnership with decentralizedterritorv communities The environment program will contribute to maintain strong collaboration with decentralizedterritory communities indeveloping, programmingand executing interventions, as well as monitoring and evaluation of environmental actions at the decentralized level. It will facilitate effective taking inhands of environmental management by communities. Practically all environmental actions will be anchored to communes andintegrate the fkamework of commune or intercommune development plans. - 148- 6.6 Promotingparticipatorv management and natural resource management transfer Management o f areas outside the protected areas, o f some forest formations, marine and coastal zones, wetlands will be done ina participatory manner, involving neighboring communities who are main users o f resources and capable o f implementing community-based sustainable approaches. Such a conventional approach is reinforced through a legislative framework o f management transfer for renewable natural resources, developed inthe framework o f EAP. This provides the foundations o f support to sustainable management o f natural resources at level o f intervention zones. 6.7 Interventions based on program-contracts and result-based contracts All service provisions inkeepingwith environmental programs will be delivered as contracts either through program contracts (case o f services that cannot be divided into parts), or through result-based contracts (easily measurable and quantifiable impacts among bothpopulation and managed natural resources). 6.8 Importance o f involvement o f private sector andcivil society Participation o f private sector and civil society (grassroots local communities, farmer organization, village-, commune-, region-, and nation-based consultation structures, economic operators, and other socio-professional private categories) will be sought out as it provides one o f the bases for making environment management sustainable inMadagascar. Ownership o f environmental actions will have to be translated into more emerging actions generated by grassroots communities, as well as non government groups through and for themselves (e.g., creation o f Center for Biodiversity and Mahamalagasy "GASYBIO'). 6.9 InstitutionalFramework The proposed strategy andprogram will be executed based on transparent procedures and an institutional framework that has been developed to ensure greater institutionaleffectiveness and efficiency. Annex 1provides details o f the proposed institutional framework for the sector that will be pursuedunder the environment program. 7 Program Management and Monitoring & Evaluationof Results at Field level As an implementing agency o fenvironmental actions inMadagascar, the Ministryo fEnvironmentwill be responsible for implementingthe 'letter o f policy'. The institutional arrangements for EPIII will be defined inthe framework o f the Manual for Execution. Management o f the Programwill be based on some basic principles, including: 7.1 Effectiveplanning Achieving environmental objectives defined inthe Environment Charter requires a flexible but rigorous action plan in its implementation and its monitoring. The Ministry o f Environment, Water and Forests will requirethe following : - Any project, any action inline with the competence o f Ministrybe recorded inPublic Investment - 149 - Program (PIP) of Ministry,such a project or action requires a national counterpart or not ; - All such projects or activities provide sound informationallowing the Ministryto follow evolutiono f their implementation ; - All such projects work inall transparency (technical, financial, andnamely when they are research activities) with the Ministry. Technical assistance and reviews have been an important aspect inthe implementation o f the EAP. Since the beginning o f EP 11, the Environment program has opted for a decentralizationpolicy. The Ministry will see to it that the major part of the financing goes directly to concrete field actions. The approach based on decentralization will be strengthened inthe course of EPIII with supporting measure o f decentralization o f means, especially financial ones, with a ratio o f at least, 70% at provincial, regional, and local levels. Given that the Environmental Core (NODE) provides the essential element o f environment management at country level, financing plan for the NODEwill be developedby the Coordination Unit which will ensure coordination (direct management of funds or management of information for specific funds earmarked) including the Trust Fund. 7.2 Strong coordination Limitedcoordination andleadership, to a large extent, were found to be impeding factors inthe implementation o f EP 11.Inthat context the development and design o f EPIII provided an opportunity for various partners to express the need for stronger and more effective coordination and leadership from the Ministry.Inthat respect, the MinistryofEnvironment, water andforests will: - Coordinate its policy with those o f other sectors; - Coordinate programs and projects under its authority; - Coordinate intervention o f environment donors. EPIII involves the 'multi-player' approach. However, it requires all the partners and stakeholders to meet the requisite conditions for participation inthe Program including: - Establishment o f a formal contract between the Coordination Unit, the implementing agency involved, the partner; - Observance of the logframe for the Program (specific objective / results / activities / location) ; - Observing roles andresponsibilities for national institutions incharge o f coordination for achievement of strategic objectives and specific objectives; - Obligationo fpartner to give to the personresponsible for specific objective technical andfinancial informationregarding the activities conducted inkeeping with Program. 7.3 Efficient, Transparent and Clear procedures Efficient planning andcoordinationrequires setting up clear and transparent, applicable procedures uniformly. Good governance is not possible without clear rules. Such rules, inthe form o f manuals o f procedures for fund management ,implementation and monitoring evaluation o f activities, o fprojects and the program, mitigating measures for environmental impacts will be developed. - 150 - Itis o fprimary importanceto set up, with the participationofall stakeholders players, a pragmatic and user friendly monitoring & evaluation system that gives timely and useful management information, in particular, lessons, or possible recommendations for streamlining and modifying the program. The monitoring & evaluation scheme, with measurable and clear indictors taking into account o f setting up the 'National Monitoring and Evaluation Policy' by the Ministry o f Economy, Finance and Budget, will be developed inthe EP I11Manual o f Execution. Particularly for the forest sector, implementation o f monitoring and information devices initiated by the Forest Sector Observatory to ensure good governance at sector level will be pursued. 8 R i S k S Inview o fthe expanseand diversity ofthe Environment Program, which, byessence, involves multiple sectors, a wide range o f stakeholders, as well as various requirements by donors inrules and procedures, the following risks have been identified: 8.1 Uncertaintv of financing As it stands, the financing planfor EP I11includes pledged funds by various donors. Donor fundingfor various activities that will lead to program results is based upon each donors' priorities and choice o f intervention areas. These needto be formally committed. Financing o f a program needs to be confirmed prior to start-upto ensure a coherent and definite financing plan. As a result an uncertainty inpledged amounts will affect the programmatic implementation of EPIII. The activities to be financed by donors also need to be aligned with the country's national priorities. 8.2 Long-term sustainabilitv o f national institutions A multistakeholder approach invitingparticipation o fvarious players inthe implementation o fEP I11 may pose a problem interms o f sustainability and viability o f implementingagencies created to fill the institutionalgap stated duringdevelopment o f Malagasy Environment Action Plan. 8.3 Interdependence o f policies, strategies. programs and proiects Lack o f ability to achieve development goals and possible failure o f other project and programs may compromise the efforts focused upon by the Environment Program. As a result the populations will revert back to unsustainable practices ehich remain as the last resort for fall back. Conclusion The G o M reiterated its willingness to encourage andpromote effective management o f Madagascar's environment and decided to continue the implementation o f the EnvironmentProgram inits thirdphase, as o f July 1,2003. Recognizing its wealth o f biological diversity and o f human actions which leadto negative impacts on the environment including its unique biodiversity, the G o M aims to implement environmental actions in line with the international agreements and conventions on 'sustainable development andpovertyreduction' that have been adopted globally. - 151 - To that end, GoM founded its developmentpolicy based on the on trilogy theory `Economy - Social - Good governance'. Recognizing that the basic foundations of sustainability rely on notions of balance and renewal of ecosystems and natural resources, as well as on adoption of an environmental agenda, EP I11will focus uponecosystems andtheir sustainablepotential for use inthe context ofpoverty reduction. The letter of policy is founded baseduponthe Malagasy Environment Charter andreaffirms commitments by the GoM to implement environmental actions for sustainabledevelopment leading to benefits for the Malagasy population. It also provides an opportunity for implementinga programmatic approachfunded by multiplefinanciers. ACRONYMS ANAE Association Nationale d'Actions Environnementales ANGAP Association Nationale pour la Gestion des Aires ProtCgCes CFSIGE Centre de Formationaux Sciences de 1'Information GCographiqueet de 1'Environnement CIME Conseil Inter-MinistCriel pour 1'Environnement CNE Conseil National pour 1'Environnement COAP Code des Aires ProtCgCes FTM Foibe Taosarintanin'i Madagasikara (Institut GCographiqueNational) GELOSE Gestion Locale SCcurisCe IMECIE /Miseen ComDatibilitC des Investissementsavec 1'Environnement I Ministbre Ministbre chargC de I'Environnement, Eaux et For& chargC de 1'Environnement NODE Novau Dur Environnemental IONE /OfficeNational Dour 1'Environnement I IONG lornanisme Non Gouvernemental I PADR Plan d'Actions pour le DCveloppementRural PAE Plan d'Action Environnemental PAS Programme d'Ajustement Structure1 PE-1 Programme Environnemental phase 1 PE-2 Programme Environnemental phase 2 PE-3 Proaamme Environnemental Dhase 3 IPIB IProduit IntCrieurBrut I IPIP PIP IPromammed'Investissements Programme d'Investissements Publics~- 1 1 ~~ Y PMPS Projet Multisectorielpour la PrCventiondu VIWSIDA PRSP Programme de RCfonne du Secteur Public PSDR Programme de Soutien au DCveloppementRural PST IProgramme Sectoriel des Transports Programme SAGE I Service d'AuDui A laGestion de 1'Environnement - 152- AdditionalAnnex 12 SOCIAL AND ENVIRONMENTALANALYSIS MADAGASCAR:Third EnvironmentProgram Support Project Background: With its surface area of 586,760 sqkm, Madagascar is the fourth biggest islandworldwide. It extendsinto the oceanthrough a continental plateauthat is large onthe westerncoast (45 100km)but narrow on the - easterncoast (<20km). Its relief is characterized by asymmetry inthe axis of its length.Such asymmetry, combined with the effects of two winds, trade wind and monsoon, is at the origin of its deep regional climatic subdivisions. At the geological level, two hndamentaltypes of substratacanbe observed. (i) thirdofthe island is two made up of crystalline basements, very ancient rocks that have experienced several metamorphic phenomena, and (ii) one thirdis madeby more recent sedimentaryrocks. Soils, which are the response of evolving geological substrata, are of two maintypes:ferruginous soilsfor sedimentary rocks, andferralitical soilsfor crystalline basement. Thanks to its physical, morphologicaland lithologicalcontext, Madagascarhas considerablebutpoorly distributedwater resources over the territory. Marine and coastal ecosystems include natural rich and diversifiedenvironments: Coral reef, over a lengthof 3,000 km, which develop inwarm and clear water; 0 Mangrove forest stands on warm marine shores, to brackishwaters that are not reachedby waves; the most important ones are located inthe Western part of the country; 0 Wetlands,distributedalong the coastline inwhich the biodiversity is still little known; 0 Coastlineforests, inthe background of mangroves, sheltering a richbiodiversity. The Malagasy vegetation is highly diversified; its distributionmatches physicalunits. It is characterizedby extremely fragile biodiversity. Developingalmost ina closed pattern, species are insular"; the biodiversity " does not stand deep disruptions of ecosystems. Unfortunately, over 200,000 ha of natural forests are cut or burnt every year for differentnamely anthropogenic reasons. The natural forest has a very richfauna with a very highrate of endemicity. But suchfauna wealth runs risks of decreasingor disappearing with continual destruction of ecosystemsof the big island. Such exceptional physicaland natural Malagasy environment presents a threatening deterioration because of pressures caused by various factors. At the social and economic level, the Malagasy population, namelyruralpopulationandthe most deprived layers, lives under acute poverty conditions in spite of the results obtained duringperiods of unintermpted application of Structural Adjustment Program, initiated for over twenty years, which have indicated growth rates higher than the population growth rates- annual growth i s 3.5% for the period of 1988- 1990 and 4.3% for the periodbetween 1997-2000. Infact, per capita Gross Domestic Product (GDP) rose from US$383 in 1960 to US$220 in 1999, and to US$200 in2000. Recent estimates indicate than 75% of Malagasy live below the poverty threshold and that 59% are destitute. This statement ranks Madagascar among the fifteen (15) poorest countries worldwide. The increase of population's poverty andthe environment, which has been acceleratedduringthe same period, go hand inhand. - 153 - To deal with such issues, Madagascar adopted in 1990 the Malagasy Environment Charter, which sets the overall framework for the implementation the Environment policy. The Environmental Action Plan (EAP), which i s scheduled to be implemented over a period o f at least 15 years, was started. It seeks the(( reconciliationo f man with his environment D. The first phase o f EAP (EP 1) started in 1990 for a period o f five (5) years focused on setting up institutional devices and was driven to tacklingurgent issues. The second phase, EP 2 (1997 - 2002) sought, on one hand, to pursue actions conducted or initiated since EP 1, on the other hand, to integrate the Environment Program into the national development policies and strategies framework. EnvironmentalProgramPhaseI11(EP3) The thirdphase (EP-111) was formulated based on the results obtained during the first two phases o f the EnvironmentalAction Plan. It intends to consolidate the lessons learned from the previous phases aiming essentially at "Conserving and valuing the importance and quality o f natural resources" inorder to secure a sustainable economic growth and a better life quality D. For this purpose, two major objectives will be pursued: 0 Methods o f sustainable management o f renewable natural resources and o f biodiversity conservation are adopted and owned by population, 0 The nationwide sustainability o f environmental and natural resources management i s ensured. To such an end, the Government has developed a logical framework and the main areas involved inEP-I11 are as follows: 0 Development actions inpriority intervention areas; 0 Forests management; 0 Management o f ProtectedAreas and Conservation Sites; 0 Management o f marine and coastal ecosystems; 0 Development o f tools, policies and information for management o f environment; 0 Development o f Sustainable financing systems; 0 Involvingpopulation ingeneral inthe daily management o f environment EP-I11 actions and activities will affect and interest, among others, rural populations, and the most deprived layers, indigenous populations located inthe program's interventionand influence areas. The program also reaches forest operators, small handicraft operators and economic operators. A significant presence o f women and children ingroups andpopulations involved i s noticed. The program's intervention areas will cover the whole national territory inits normative aspects and inthe aspects o f environmental impact assessment legislation, as well as inthe application o f international conventions to which Madagascar has adhered. However, efforts will be focused inareas which llfill the following four (04) criteria: (i)importance o fbiodiversity, (ii) o f pressures, (iii) learnt from extent lessons the fust two phases o f EAP, and(iv) the existence o f local and/or regional dynamic, which are all found in agro-ecosystems, nonprotected forest areas, Protected LandAreas, marine and coastal ecosystems, and wetlands. Inother words, 527 out o fthe existing 1390 communes will be involved. Furthermore, the implementation o f EP-I11will rely on the strategies set forth inthe National Letter o f Environmental Policy, inwhich the mainpoints are: 0 Compliance with national political and economical priorities; - 154 - 0 Sustainability of environment management; 0 Synergyamong the differentcomponents ofthe Environment Progrk; 0 Partnership with the other sectoral programs; 0 Partnership with decentralized territory authorities; 0 Participatory managementand transfer of natural resourcemanagement; 0 Interventionbasedon contract-program and result-basedcontract; 0 The importance of the Involvementofprivate sector andthe civil society. EP-I11will be implemented under technical supervision of the Ministryincharge of the Environment, Water and Forests, with the participationof several actors at all levels, namely of national institutions involved, communes and grassrootscommunities. A strong work and synergy interrelationship with nationaland sectoral programs / projects will, among others, focus on poverty reduction, rural development, tourism, transport, energy and mine, fisheries andaquaculture. EP-I11also provides for active participationof civil society and private sector The Program's institutionalarrangement The institutionalarrangement ofthe programis basedon project managementprinciples summedup as follows: Borrower: The Government, who is a signatory of Grant and Credit Agreements, is the work manager for the program. Financial supervision will be ensuredby the Ministryof the Environment, Water and Forests; Executing;entities: Inorder to better manage the program and the partner institutions, an EP-I11 Coordination Unit located within the General Coordination of Projects (CGP) of the Ministrywill be set up. Its role will essentially consist intechnical and financial managementof the programlog frame and EP-I11monitoring evaluation; Proiect Management: Entrustedto organizations that have a national mission, such as Direction GCnCraledes Eaux et For& (DGEF), Direction GCnCralede 1'Environnement (DGE), Office National pour I'Environnement (ONE), Association Nationale pour la Gestion des Aires ProtkgCes (ANGAP); Other partners for the Project managementandor Service Providers: Communes, NGOs, Associations, service providers. Programfunding The total cost ofprogram is estimated at USD 155 million. This amount will be supportedby the contributions of the following entities: Government of Madagascar, and multilateralbilateral donors, and private entities, intemational NGOs, and private institutions. Implementationand monitoring and evaluation costs of the mitigationmeasures of the potentialnegative impacts of the EP-I11activities are estimated and consolidated inthe execution costs of each activity. TheProgram's scope, effects and impacts The effects and impacts of the EP3 are considerable and this is why efforts will be focused on targeted communes inorder to maximize the use of available funds and the implementation of actions and activities of natural resourcesdegradation risks mitigation. will further seek to: 0 Reduceincidence of "tavy" on sensitive habitats; 0 Decrease pressures inintervention areas; -155- 0 Maintain forest and lake areas at their 2001 level; 0 Attain overall efficiency index o fprotected areas that is equal to 70% and to 45% for conservation sites; 0 Reduce destruction rate among mangroves and coral reefs; 0 Enhance ownership degree among target groups; 0 Cover at least 20% of financing needs at the end o f EP-I11through new mechanisms; 0 Bringto more than 80% the satisfactionrate among actors about forest management and environment management. EP-I11i s expected to bringout benefits at local, national, and global levels. Their impacts spread over time and respond to sustainability concerns. They are, among others: a) At the economic level: (i) equitable sharing of proceeds from commercial exploitation o f non woody forest products and valorisation o f industries, inparticular medicinalplants; (ii) increase o f agricultural production fairly substantial increase o fproductionand, therefore, improvement o f household economic life; (iii) positive economic impacts providedby eco tourism development on populations neighbouring Protected Areas, and for the private sector; (iv) environmental services, namely hydrological services, which allow to maintainthe productivity o f 600,000 hectares o f irrigatedperimeters; (v) economic benefits amounting to USD 293 million, o f which 44% i s assciated with hydrologicalbenefits associated with decreasedsedimentation inirrigatedperimeters (Annex 4) Generally, EP-I11through its different activities, seeks to contribute inthe increase o f GDP and the improvement o f life conditions. b) general -Interms o f Behavior Changing: acquisition o fthe environmental reflex among the population in communities, public institutions, civil society and private sector - i s essential to ensure an environmental management with the contribution o f everyone and to allow actions and activities o f least costs, which have very probably sustainable. c) Interms o fbiodiversity. A quality management ofthe biodiversitywill ensure the contribution to the conservation and valorisation o f a unique assets Environmental ManagementPlan (EMP) A priori, the phase 3 Environment Program aims at conservation actions. Inthat respect, EP3 seeks to minimize its negative impacts on biophysical, economic, and social environments while implementing its activities. Inaddition, it seeks to ensure that the other sectors integrate the environmental dimension and apply mitigation measures intheir activities incase o f environmental bias. The environmental analysis conducted identifiedpotentially negative effectdimpacts that might occur while implementingEP-111. Such potentially negative effectdimpacts are distributed into three categories resulting from superimposition of categorization by the World Bank and o fnational categorization o f MECIE Decree n 99-954 o f December 15, 1999. (Mise en Compatibilitk des Investissements avec 1'Environnement ). The Government o f Madagascar committed to make ALL efforts to ensure that the populations will not have to move away after the creation o f ProtectedAreas, Conservation sites and Landreserves. Such efforts consist inkeepingthe populations intheir residence area without having to go somewhere else to findthe natural resources that they needto survive, andto be able to exploit said natural resources while protecting the environment. Despite such measures taken, the Process Framework has been developed to prevent and minimize potential negative impacts translated into involuntary economic and social move o f the population for all activities related to the creation o f ProtectedAreas, conservation sites, land reserve and limitation o f Protected areas. These activities are classified inthe category 2, but provide for integrated -156 - impact study (See table 1 below) inorder to collect and be aware of preoccupationsof directly affected population and to be able to intervene at. Thus ,EP-111activities are classified in the moderated and minor impact categories 2 and 3. Category 2 impactsanalysis On the contrary, moderated negative category 2 effectdimpacts are raised inthe creation and classification of Protected Areas, conservation sites and landreserves, as well as inthe development of ecotourism. For the creation of Protected Areas, a Process Framework (see annex of the Environment Management Plan) was establishedas tools according to the World Bank's guidelines, inorder to ensure full participationof the populations living inand around the AP inthe areas delimitation, as well as the development, implementation, monitoringand evaluation of proposed activities. There exist technical, institutional, and legalmitigation tools and measures andthey have beenapplied duringthe previous phases ofthe environment program. They have allowed mitigatingor minimizing some negative effectdimpacts related to the category 2. These are namely: the code of Protected Areas (COAP) ( Law no. 2001-005 of February 21, 2001) and its applicationtext, the Decree MECIE, the Manual for Creation of Protected Areas, the Management Plan of the ProtectedArea Network (Plan GRAP). The Development, and Management Plans of each ProtectedArea include zoning of the area. The Process framework will be addedto the above existing tools inorder to prevent impacts on the local and indigenous populations' interests with regard all activities the category 2 activities. Inaddition, implementingthis category will consist of what follows: 0 Conducting an integrated environmental impact assessment with an option between EIE and PREE according to the target of the activity (see table 1 below), which includes a phase of consultation / information of the public. 0 Conducting impact study according to participatory approach inorder to identifythe major occupations of the populationthat is directly affected; 0 Realizingthe preconditions to conducting activities that would minimize the major negative potential effectlimpact identifiedduringthe screeningcarried out duringthe environmental analysis of EP-111. Table No 1 presents the steps, as well as the entities involved inthe implementation of an integrated impact study: Table 1:IntegratedImpactStudy Process environmentaldimensionin Selection o f environmental Association Nationale pour study type la Gestion des Aires ProtCgCes (ANGAP) Office National pour I'Environnement (ONE) Ministkre de I'Environnement, des Eaux et ForEts (MINENVEEF) TOR ( terms ofreference) ANGAP - ONE - ANGAP - MINENVEF ANGAP MINENVEF Conduct of environmental INGAP - Service providers 4NGAP studv I I -157- Assessmento fenvironmental TechnicalAssessment MINENVEF -Ministry in study Committee (CTE) charge ofTourism Implementationof EMP ANGAP - Serviceproviders ANGAP - Service providers Service providers Monitoring MINENVEF-ONE- ANGAP MMENVEF - Ministry in ANGAP \chargeof Tourism Control and assessment IMINENVEF I MINENVEF IANGAP The use of tools is fundamental for the program to minimize or eliminate category 2 effectdimpacts providedthat related procedures and measures are scrupulously applied. Cases of the Mikea forests Populationliving inand around the Mikea Forests inthe south west o f Madagascar is an ,,indigenous population" according to the World Bank's Operational Guidelines 4.20. Infact, Mikea as known as socially, economically and culturally different from other tribes inthe Malagasy society, vulnerable and neglectedby the successive administrative authorities, and have no means to defend their own lands. Mikea used to practice, and incertain areas continue to practice subsistence farming, and live mainly on forest natural resources through fishing, huntingand gathering. The objective o f this Strategic framework for (( the Development o f the Mikea Populations ))(CSPDM) is to define required basis for the elaboration o f a Development Plan o f the Mikea Populations (PDPM), corresponding to Indigenous Populations Development Planrequired by the Operational Guidelines 4.20. Such PDPM should be developed by and for the Mikea and will define the program and activities that Mikea consider as profitable for them interms of social, economic and cultural development. PDPM could eventually result inthe creation o f Protected Areas (PA) and be implemented under the EP-I11inMadagascar. A Development Strategic Framework is a precondition to a Development Plan While a Plan i s usually prepared incompliance with the World Bank's D.0 4.20, it i s necessary for the case of the Mikeapopulations to start with a strategic framework which will serve as bases anddefine the required steps for the development o f harmonious, realistic and feasible "Plan. Such choice has been dictated by the following constraints: The research team has not had enough time to assimilate the notion o f "indigenous population", which i s new to them, particularly when it comes to the "development o f the indigenous population" inthe sense o f preservation o f a cultural unity and pursuinga development strategy for a unique ethnic group, which i s slightly different from the usual notion o f development. . The total amount o f time assigned to the elaboration o f the Development Planwas 8 weeks, divided intwo phases o f 4 weeks, and spaced out a month apart. Compared to the content recommendedby the Operational Guidelines, such duration was too short. Livinginthe forest, the Mikearespondto the definition o f(( indigenous population)) have hada certain distrusttowards foreigners and State representatives, andtherefore, would not confide themselves to them easily. The research team would therefore need more time to establish mutual trust and to better apprehend the living method and aspirations. The CSDPM will therefore include: (i) an ethnographic, socioeconomic, organizational andcultural presentationo f the Mikea society and populations; (ii) the legal context on land rights inMadagascar as well as their relevance to the Mikea populations; (iii)a strategy for the consultation and participationo f the -158 - Mikea to the development o f the PDPM; (iv) an institutional evaluation o f the different partners associated to support Mikea populations inthe development o f PDPM; and (v) an implementation calendar as well as estimative budget for the development o f the PDPM. The PPDMis a preconditionto determine the vocationto assignto the Mikea The Government has committednot to determine the vocation o f the Mikea forest without the development o f the PDPM. Under the development o f PDPM, discussions on the negative or positive impacts o fthe different options, will be conducted, and that the PDPM is to guarantee that the choice that has been made does not have harmfuleffects on the Mikeapopulations and that the latter draw economic and social benefits compatible with their culture. Whatever the vocation that would be chosen to be reflecting the Mikea populations' aspirations, the Government has committed to ensure that PDPM implementation through the development o f EP-I11fundingguarantees the preservation anddevelopment o f the unique but vulnerable human capital that is the indigenous Mikea population. A budget o f US$ 730.000 has been allocated to fund the preparation and execution o f PDPM Category 3 minor impactsanalysis The other potential negative effectdimpacts identifiedduringthe screening o f activities o f the logical framework that are not listed among the category 2 have been classified inthe category 3 qualified as minor effects. Under category 3, it is necessary to take into account the integration o f gender aspects inall the Program's implementation activities. Furthermore, the effective execution o fthe mainstreaming activities at the level o f specific objectives 21,22,23 o f the logical framework o f the EP-111, particularly, the development o f aid tools to decision-making, the diffusion o f information, education / training of the people, institutional capacity building,will enforce the application o f mitigation measures. To this regard, a social mobilizationand an adoption o f attitudes favorable to the environment are expected to ensure sustainability o f the actions. Charter of responsibilityandImpactsMonitoringandEvaluation At the institutional level, result-based contract modalities andprinciplesare adopted for EP-111. The measures and responsibilities that fall to each entity will be specified insaid contracts. For that purpose, it i s important to have environmental specialists within entities working inEP-111, to buildtheir technical capacities inorder to identify intime the potential negative effectdimpacts and to find appropriate solutions. Responsibilities inimplementation o fmitigationmeasures are summarized inhereafter Table 2: Table 2: Charter of responsibilities Institution Responsibilityfor Responsibilityfor Responsibilityfor Responsibility for implementation of implementationof implementation of implementationof EP-I11 mitigationmeasures: mitigationmeasures: mitigationmeasures: Formulationand Monitoring Assessment and execution -- Control Borrower - Government: Signatory Monitoring with the Monitoring with the - Assessment and of Grant and Credit state departments state departments Control of measures Agreements taken for execution o f - Financial supervision: activities Ministry in charge of Finance - Technical supervision: MINENVEF I I - 159- Executing entities - CoordinationUnit: - Impact Assessment Monitoring with the technical and financial Studies (EIE) unitexecutives andthe management o f the state departments logical framework o f the program - Monitoring-Evaluation o f EP-III Project Management - Daily management in Formulation o f - Monitoring o f - Assessment and specific objectives o f the measures: implementation o f Control o f logical framework: - Screeningo f each activity and o f achievement o f the DGEF(l), (2),DGE activities integration o f activity and o f ONE, ANGAP - Promoter o f environmental measures taken for its environmental impact dimension and execution -studies (EIE) measures in each Participation in control Formulation and activity and surveillance integration o f mitigation and/or environmental measures in bidding documents - Assessment o f PREE studies Service Providers Communes, NGOs, Associations, private sector. Service Providers - Achievement o f Achievement: - Set upthe system o f Set up the system o f activities / actions - Implementationo f participation by participation in control measures advocated beneficiaries andsurveillance duringexecution Recipients - Achievement of Achievement: - Participation in hveillances and activities I actions which - - Implementationo f monitoring the setting )articipationin control: fall on them measures which fall on up o f measures them DGEF(1) :Direction GtnCrale des Eaux et For& DGE(2) :Direction GCnCralede 1'Environnement Mitigation measures are part of EP-I11activities and are listedinthe Program's ImplementationManual In that respect, they integrate the environmental, economic, and social parametersinthe monitoring and evaluation system of EP-111. The specifications document provides the respectivemeasures, roles, and responsibilities of stakeholders involved, namely the grassrootscommunities on the monitoring of the application of indicated measures andparameters. Finally, recommended measures both consolidate and capitalize the positive effectdimpacts securedduring the first two phases of the environmental program, as well as those provided for inEP-111. They contribute to maintaining the vital naturalresourcesfor sustainabledevelopment and poverty reduction of Madagascar. ANNEX 12B: Analysis of Gender andthe EnvironmentinMadagascar While the gender balance inMadagascari s better than insome other African countries, there are still some significant disparities, primarily at the economic and political levels. The UNDP's HDIgives almost parity between women andmeninsocial issues such as education and health, but women are far fewer thanmen insenior positions inthe economy andare lessinvolved inincome generatingactivities, as well as havinga lower income than men. As elsewhere women have longer working days thanmenand bear a far greater - 160 - share o fthe burden o f childcare and domestic responsibilities. Differentials at the regional level exist, with some provinces having worse conditions than others. Poverty inMadagascar is extremely highbut there is little gender disparity within this poverty, though women are marginallypoorer than men. The disparity between male and female participation insenior levels o f the political system i s very notable. Government development policies are focused on poverty reduction and the country has been included in the HIPCI. Its PRSP is very ambitious and aims to reduce poverty by halfwithin 10years. Gender policies are intended to be coordinated by the Gender Directorate o f the Ministry o f Population, and a Gender and Development Action Planhas beenprepared in 2001 and is currently being revised. It is primarily focused on the essential sectors o f health and education. Rural Development policies are directed by the RuralDevelopment Action Plan, prepared in2000 which has no significant gender approach. Environmental policies have beenconsiderably developed and are directed by a number o f laws and regulations prepared inthe past decade. None o f them has any explicit gender analysis or objectives, though efforts have beenmade inpractice to introduce some gender considerations inthe implementation o f the different projects, mainly those supportedby donors with a strong gender mandate. Inparticular there has been some training and sensitising o f senior andmiddle level staff ingender issues, but the training was neither sufficiently intensive nor had significant follow-up, and has left only a general awareness o f the importance o f the issue. The main gender practices inenvironmentally related projects have been a) the training of institutional staff and community members, b) the use o f different methodologies inintegrating gender into projects, usually adopting the methods proposed by the donor concemed, c) the use o f gender sensitivity as a criterion for financing o f projects, and d) affirmative action through the use o f female participationquotas. The practice o frecent years has provided a few examples o f good integration o f gender, particularly with respect to income generation and social investments reducing women's domestic workloads. It i s widely accepted that literacy and health are essential elements for a sustainable environmental programme. National networks have been established to enable people working ingender to keep incontact andcoordinate, however most o f their activities remain at the level o f the capital. The main constraints to an effective integration o f gender into environmental and development work are similar to those inother sectors. They are institutional [lack o f awareness o f the importance o f the subject leadingto a lack of commitment o f staff at all levels, insufficient budgets and staff], cultural [traditional assumptions about male and female roles insociety, the role o f men as `household heads', the idea that public positions are primarily a male domain, a widespread belief that `there i s no problem'], and economic [lack o f access o f women to landtitles inthe traditional system, lack o f education and access to credit]. Rationale The first two phases of the Madagascar environment programme are characterised by a very limited concern for the social and gender aspects o f their implementation. They focused on the institutionallevel, on the creation o f national level environmental agencies, which have largely replaced the previously decentralisedand varied approaches. The integration o f gender and other social issues have been recognisedworld-wide as preconditions for sustainable development, and their neglect as the frequent cause o f failure inpoverty reduction. The analysis and proposals o f this mission are based on the strong belief that gender must be integrated fully throughout the development process ifequity i s to be achieved between men and women. This means that at all levels o f government, donors, implementers and community, constant attention must be given to gender and it must be followed up, monitored and evaluated systematically at all stages o fproject -161- implementation. Ifthis is not done, the success o f projects will bejeopardised as the active participation o f women [who are usually the disadvantaged group] has been demonstrated to have a considerable impact on improvements inhousehold living standards. Proposals Proposals for the integration o f activities aimed at improving the gender balance inPE-I11focus on three main sectors: training, institutionalisationo f the gender dimension, and environmentally-friendly improvement o f social and economic conditions for women and meninthe priority intervention areas. While a systematic and fully comprehensive approach including all the proposed activities would be more effective, it will also be possible for different donors to pick up elements o f the proposals and implement them separately. This could be done ina sectoral way [eg credit, training inuse o f environmentally friendly income generating techniques, health and sanitation, etc], on a regional basis, eg through the selection o f one or more `communes', or ina thematic way [training, revisiono f legislation and procedures]. The bulk o f proposed expenditures is at the community level. Costs are based on the assumption that all 527 `communes' are included and that a commune is composed o f approximately 10villages or hamlets. Details o f the presentationare to be found inthe table inthe text o f the feasibility study where they are presented according to the logframe results. Here they will be summarised according to their purpose and the main participants beneficiaries. The total proposed cost o f the gender related activities is USD 8 958 500, ie barely 6% o f the proposed total cost o f PEIII. Training. Two main groups are expected to benefit from training ingender approaches and issues, with the aim o f integrating gender into their daily practices. They are the community level field workers [social organisers, environmental mediators] and the staff o f the main environmental agencies. Inorder to ensure excellent quality service at the field level, the proposal i s that a team o f 1intemationally recruited and 1 nationally recruited top level gender trainers should train senior cadres as trainers inan intensive manner. These trainers would bothwork themselves and gender sensitisers intheir institutions and inthe field, and train a second group o f field workers [other social organisers, community workers, environmental mediators, field staff o f the agencies, etc.]. These would also be given very highlevel training andwould all work directly with the participatingcommunities. Total expected cost o f this training USD 486 000. Mainstreaming o f Gender inthe environment. Inaddition to the training which should contribute fundamentally to integrating gender sensitive approaches inthe daily practices of all the institutions concerned, it will be important to ensure that gender aspects are taken into consideration inthe processes o f revising legislation, as well as into the manuals o f procedures o f all the concerned institutions. Some short-term national consultancies are proposed to achieve this objective amounting to USD 55 000. Community level investments. To reach and address the fhdamental objective o f an environmentally friendly sustainable development, the bulk o f investment under EP-111or incoordination with other programs proposed here i s to support communities both inhavingmore gender sensitive priorities andby providing funds to finance economic and social activities. The total amounts to USD 6 324 000, distributed as follows: 0 Training of community leaders involving all the `committee' members o f the priority area villages, and visits by community leaders to projects/institutions which could demonstrate successful integration of gender indevelopment (USD 1036 000) a Technical andmanagerial training for environmentally-friendly micro and small enterprises, giving priority to women's proposals (USD 3 689 000) 0 Credit for investment inmicro and small enterprises, again giving priority to women's proposals and focusing on activities which make sustainable use o f environmental resources (USD 2 635 000) - 162 - 0 Inaddition, funds from the FAGEC are to beusedto improve social conditions at the community level, thus liberatingwomen for more financially rewarding activities [these are not budgetedhere] Support to improvements o f the urban environment, through training, equipping and prizes to mixed sex groups working incommunity improvements (USD 257 000) Impactmonitoringand evaluation The following monitoring mechanisms are proposed to ensure that regular data are available allowing for any necessary changes inimplementation procedures anddirectives to take place ifperformance is below expectation: 0 data from the baseline study should provide basic sex disaggregated socio-economic information on a number o f households. These data will permit following up the respective roles o f men and women in changing use o f the environment and intheir contribution to family income, whether environmentally friendly or otherwise; 0 the community profiles established as part ofthe preparationprocess for the Community andVillage Development Plans should include a few indicators useful to assess poverty reduction. Each community has its own `priority' expenditure beyondbasic survival. The main indicator o f increased wealth at the community level should be counted at the time o f the initial diagnosis and followed annually; the most likely indicators are ownership o f radios, bicycles, tin roofs etc.. 0 all activities involving people should be systematically monitored ina sex-disaggregated manner. Percentage objectives o f female participation in committees o f local institutions are an excellent and simple indicator o f improvements ingender balance. The main text presents proposals for the different levels o f achievement inthe different types o f institutions. - 163- Additional Annex 13: GEF INCREMENTAL COST ANALYSIS - MADAGASCAR: Third Environment Program Support Project 1. NationalDevelopmentObjectives: The over-riding National Development Objectives for Madagascar are: poverty alleviation, stimulation o f sustainable economic growth, and creation o f sustainable livelihoods. A Poverty Reduction Strategy Paper (PRSP) has been drafted, providing a blueprint for achieving these Objectives. The Government o f Madagascar (GoM) has recognized the importance o f environmental protection activities inpursuingits development agenda, both because the fragile nature o f Madagascar's ecosystems circumscribes development options, but also because the country's rich natural resources could, ifwisely managed, provide a means for achieving sustainable development objectives. The Government o f Madagascar (GoM) adopted the Madagascar Environment Action Plan (NEAP) in 1989, to give greater coherence to efforts to manage the natural environment. The Program Goal was defined as: `natural resources are conserved andwisely utilized insupport of sustainable economic development and a better quality o f life". The Program was designed to be implemented over fifteen years inthree phases.Now entering its thirdandfinal phase, NEAPis the keyvehicle for advancing the GoM's nationalconservation objectives. 2. GlobalEnvironmentalObjectives: Madagascar's rich eco-regions constitute some o fthe World's highest conservation priorities. The Islandi s characterizedas a conservation `hotspot' on account o f its exceptional species richness and habitat diversity and the scale o f anthropogenic pressures facing its biota. A unique, insular flora and fauna has evolved on the Island, following millions o f years o f isolation from continental landmasses The country's ecosystems are however characterized by highfragility, meaning that they are particularly susceptible to degradation even where humanpopulationdensities are low. There is an urgent need to contain human-induced threats to ecological integrity. But as an LDC, Madagascar lacks the wherewithal to fund the full array o f actions needed to meet this challenge; absent intemational assistance there i s a highrisk that key global environmental benefits derived from the Island's biodiversity will eventually be extinguished. The Global Environmental Objectives o f the project are to protect key global environment benefits attached to the Island's biodiversity, and create conditions for sustaining conservation actions. The project will secure GEF incremental fundingto complement other financing sourced from the G o M and donor community to implement phase I11o f NEAP (EP 111).Fundingwill be dedicated insupport o f the two Development Objectives specified by the G o M for EP 111:D01:The biodiversity and renewable natural resources o f representative eco-regions is conserved and managed on a sustainable footing with active multi-stakeholder participation; and D02:The systemic framework for sustainable environmental management is further strengthened through the incorporation o f management objectives into public policy-making and investments. 3. Systems Boundary: The principal threats to biodiversity inMadagascar stem from habitat conversion, human-induced fires and unsustainable offtakes o f certain commercially important wild resources. A comprehensive range o f interventions will be spearheaded under EP 111to mitigate these pressures. Baseline and incremental costs - 164- for the Program have been estimated within the scope o f these interventions over the period 2004-2009 (5 years) for 530 o f Madagascar's 1563 provinces, which are the target o f NEAP interventions It shouldbe noted that while EP 111will focus on 530 Provinces, GEF support to the Program will focus on a more limited number o f areas, targeting key elements o f the P A system..Five activity bundles havebeen set for the purposeo f assessingthe incremental costs andbaseline-corresponding withthe agreed EPI11Results Frameworkpreparedby the Government of Madagascar. The baseline includes a range o f activities that, while an integral part o f EP 111,arejustified interms ofthe country's sustainable development objectives. A number ofdevelopment programs that will contribute to environmental objectives, but which are not formally integrated into EP I11 are identified and costed, but are not specifically included inthe baseline assessment. These initiatives are listedas Associated FinancingAssociated projects would be carefully coordinated with EP 111through the Institutional and Programmatic Coordination device provided by the MultiDonor Secretariat for Rural Development and Environment. . Incremental activities are classed as initiatives, within EP 111, that will generate mainly global benefits and that will not be pursuedas part o f the national development agenda ifthe decision were to be based solely on the domestic cost-benefit calculus. 4. Baseline: Sustainable Development: The total cost o f the baseline for sustainable development activities under EP I11 i s US$ 23.5 million. USAID will appropriate US$ 8.2 million for sustainable agricultural intensification; development o f community associations, and education at three sites inthe humidforest (Ranomafana-Andringitra Corridor, Andasibe- Zahamena Corridor and Anosy). A further US$3 million will be allocated to improve marketingarrangements for agricultural produce. International NGOswill allocate US$ 1.5 million for environmentally compatible development schemes in conservation corridors, to reduce pressures on natural resources. The FrenchGovernment will appropriate US$2.8 million in support o f environmentally compatible economic development inthe Mahafaly Plateau and Lac Alaotra. Finally the EuropeanUnion will contribute US$8 million to intensify agriculture inthe buffer zones surrounding two key PAS:Bemaraha and Mananara Nord. Associated Financing(us$ 63 mThese estimates count development assistance within the EP I11focus areas (forest/ coastal ecosystems)/ Provinces. ) includes an allocation (US$ 5 m) from USAID to improve farming systems on the Eastern Escarpment o f Madagascar; an estimated US$30 mfrom the World Bank for agriculture support to EP I11target areas under the Madagascar Rural Development Support Project; US$ 15 from IFADfor micro credit/ agricultural support activities intwo EP I11target zones, US$ 8 million from the FrenchGovernment for farming systems research and strengthening farming extension services, and US$ 5 million from UNDP for complementary poverty alleviation initiatives. Sustainable Forest Management: The total cost o f the baseline for this component i s US$46 m. The total expected Government budgetary outlay on forest and water sector management is estimated at US$ 7.5 m. WB-IDA will provide fundingsupport amounting to US$ 14.5 mto improve forest sector management; activities will strengthen regulatory enforcement and permitting systems at the local level, support the formulation and implementation o f forest zoning and management plans, contribute to the development o f new multiple use conservation sites to expand the range o f forest management systems, develop market based instruments to uncover and capture financial benefits from forest management, and spearhead the transfer o f management rights for forest resources to local communities. IDA will appropriate a further US$ 3.5 m for reforestation activities and to improve the efficiency o f charcoal production, thus reducing pressures on natural forests, and particularly the Western Dry Forest imposedby household energy demands. USAID will provide a total outlay o f US$ 11.3 mto finance capacity buildingactivities to strengthen the operational accountability o f the Forest Service (US$4.3 m); to establish two ecological Corridors inthe Moist Forest Biome (US$4 million) strengthen management o fprivate sector forest - 165 - plantations (US$2 m) and for a site-based reforestation demonstration (US$ 1m). Tany Meva will invest U S $ 2 million inreforestation initiatives, and efforts to improve the sustainability o f charcoal productionat the commune level. CIwill provide US$ 1.8 m for policy services to the forestry sector, and for the conservation o f vital forest corridors. GTZ will appropriate U S $ 2 m for local schemes insupport o f sustainable forest management. The Government of France will allocate funding o f approximately US$ 3.4 million for forestry research, forest management at Alaotra Lac and the transfer o f forest management rightsto communities. This substantial investment instrengthening forest sector management at the national, regional and local levels is expected to make a substantive contributionto reducing anthropogenic pressures on the forest resource, and improving management accountability and transparency. Management o f Protected Areas and Support Zones: The total baseline is US$ 11.5 m, broken down as follows: (a) Protected Area Manavement: The plannedgovernment budget appropriationto cover the core costs o f P A administration i s estimated at US$ 7 million. This will cover the costs o f staff salaries and core operations at 37 existing sites and new PASestablished expressly to protect biodiversity, inadditionto system-wide planning, monitoring, enforcement, and ancillary P A management functions. (b) Natural Resource Management inPA Sup~ortZones: Tany Mevawill supply US$ 1million infunding to assist with the further transfer o f management rightsover natural resources to communities inbuffer areas and PA support zones. USAID will provide hnding o f U S $ 2 million to improve market linkages for natural resources, improve market access and strengthen micro-enterprises. This fundingis intended to uncover business opportunities for sustainable natural resource management within P A buffer areas and support zones, and should contribute to the definition o f incentives for P A management. The Government o f Madagascar will provide US$ 1.5 million to cover the costs o f supporting community based natural resource management. Coastal and Marine Resources Management: FAC would provide fundingamounting to US$ 1.7 million to strengthen traditional coastal fishery management activities. WWF and WCS would appropriate US$ 3.25 million for integrated coastal zone management inecologically sensitive areas outside PAS.The Government o f Madagascar will contribute US$1million for artisanal fisheries support. The total cost o f the baseline for this component is US$ 5.95 million. Associated financing is estimated at US$20 million, o f which, US$lO million i s for G o M funded fisheries management services. Additionally, US$ 10 million from the African Development Bank (ADB) will meet the costs towards improved fishing equipment and associated development activities for fishing communities inthe coastal villages. Environmental Mainstreaming The total baseline allocation for this component amounts to US$ 15.9 million. The G o M would invest US$ 1.5 million towards improving environmental impact assessment and policy making. USAID would appropriate US$ 1.2 million to strengthen the environmental impact assessment capacities o f ONE, US$ 1.25 million to improve governance systems, for environmental regulation and for associated civil society advocacy activities, and US$ 0.8 to assist the G o M to coordinate donor-sponsored interventions under EP 111.WB-IDA would make an appropriation o f US$ 8.5 millionto strengthen environmental legislation, environmental management coordination, and improve information systems to record and address malfeasance at the local level. CI would provide funds for awareness raising, and policy advocacy (US$ 0.5 million). USAID would invest US$ 1.25 million inestablishing a multi-sectoral information service for Madagascar, - 166- providing a locus for coordinating information exchange. The fundingwould establishthe hardware and support systems for knowledge management.UNDP would provide funding amounting to US$0.9 mfor knowledge managementservices aimed at policy makers, to assure better integration of natural resource managementobjectives into poverty alleviation, livelihood improvement and efforts to strengthen governance. 5. IncrementalActivities to GenerateGlobal Benefits The GEF, WB-IDA, UNDP and various Bilateral donors andNGOs would provide financing to cover the incremental costs o f select EP I11interventions under the ProtectedAreas Management; and Mainstreaming components. ProtectedArea Management: (a) Core Protected Areas The GEF would provide funding through the WB to assist the GoM to realise priority objectives of the Madagascar Protected Area Plan (Plan de Gestion du RCseaudes Aires ProtCgCesor Plan GRAP). Funding would be allocated to targeted PAS,to deliver sustainable and replicable on-the-ground impacts. GEF funding would be allocatedto the following interventions: [i]US$1.5milliontostrengthenthePASystemby:(a) Statusmodificationofthreeprotectedareas;(b) delineation of 8 protected areas, (c) creating 1new terrestrial PA and 2 marine Parks, (d) change inborders of nineprotected areas. [ii]US$6.5milliontostrengthenPAmanagementfunctionsin27PAStobefundedundertheproject, including enforcement, monitoring, development of ComitCs RCgionaux d'orientation to serve as a device for coordinating PA managementand bio-regional scale activities, and the development of infrastructure. This sub-componentwould receive US$3.0 million inIDA funding; [iii]US$1milliontofinancetheincrementalcostsofovercomingbarrierstotheadvancementof eco-tourism inexisting and new PA sites selectedfor GEF/ WB support (to be co-financed by IDA: US$3 million). These barriers include: absence of suitable tourism products, including trails and interpretation facilities; lack of articulationof PASintourism markets; and development of protocols and infrastructure to engender responsible tourism. Barrier removal is expectedto increase visitation andgate fee returns, contributing to an improvement infinancial sustainability. Severalbilateral donors and NGOs have committedincremental fundingto complement the GEFIIDA investmentinPA's. USAIDwould provide US$ 2 millionto fund capacity buildingat activities in ANGAP's headquartersand Regional Offices to improve operational planning systems, and strengthen managementcapabilities. FAC would provide US$0.25 millioninfunding for managementof the Mahafaly PlateauPA. KW: would commit US$ 5 million for PA managementat three sites (Ankarafantsika;Andringitra;Marojejy). WCS wouldprovide fundingof US$ 1.25 million towards management of the Masoala PA. Other NGOs will contribute a further US$ 1mfor PA management activities. The EUwould provide funding for operations intwo PAS:Bemaraha andMananara Nord (US$ 2 million) The WB would further allocate US$ 7.5 milliontowards the development and operationalisation of a PA Trust Fund.WE3 fundingwould be allocated to wards set upandendowment costs. Co-funding has been committed by WWF and CI (US$ 1million each inendowment funding) and from Kfw (US$4.2 millioninsinkingfunds Kfwwould provide further fbndingofUS$460,000 per year for 15 years - 167- througha debt swap following the cessation of EP 111.This funding lies outside the systems boundary and i s not counted inthe baseline). (b)NRMinPA Support Zones The GEF would provide funding o fUS$4.5 millionthrough UNDP to finance the incrementalcosts o f barrier removal to effect sustainable natural wild resource harvests inbuffer areas andprotected areas in priority protected areas (also supportedby the WB-GEF). Activities would address the threats posedto biodiversity from the over harvest o f certain commercially important species (particularly wildlife and plants for internationaltrade); as well as create an incentive for local communities to better manage ecosystems and protect biodiversity. GEF funded Project activities would focus specifically on the Westem dry forest/ spiny forest Ecotone, Mangrove Ecosystems and Coral Reefs: selected specifically owing to the gaps inmanagement knowhow inthese eco-regions, andbecauseNRMdemonstrations are being funded by other financiers inthe moist forest biome inEasternMadagascar. The following barriers will be addressed: a) need to establish proven techniques for ensuring regeneration o f what i s harvestedand define thresholds for sustainable off-take; b) definition o f what are the most appropriate community-based institutions for SNRM; c) need to improve proportion o fresource value received at the farm gate, and; d) improve capacities o f community institutions for SNRM. USAID would appropriate US$ 3 million for NRMdemonstration activities at two sites inP A support zones/ corridors inthe moist forest A further US$ 0.6 million would be allocated to strengthen controls over the trade inCITES listed species. WWF would appropriate an additional US$ 0.8 million for NRM activities inthe eco-region, plus an additional US$ 1million for activities targeted at the Spiny Forest Eco-region: complementing core P A management interventions. These initiatives are wholly complementary to planned GEF investments inNRM. Knowledne Management: UNDP would provide incremental financing amounting to US$0.9 million to establish a networked community o fpractice to acquire and disseminate knowledge on sustainable natural resource management. The focus will be on integrating sustainable use activities into baseline development programs. Incremental funding would be allocated to disseminate informationpertainingto the ecological, social and economic sustainability for Natural Resource Management insupport of biodiversity conservation. 6. IncrementalCosts and Benefits: The baseline for Madagascar EP I11has been costed at US$102.35 million The baseline cost estimate omits baseline costs attached to complementary GEF interventions including the Critical Ecosystem Partnership Fundand Anjozorobe Forest Management Medium-Sized Project.. The Program has beencosted at US$ 153.35 million. The GEF would fund incremental costs, amounting to US$13.5 million. Co-financing o f US$ 139.85 million has been committed, constituting funding appropriated by the GoM, IAs, bilateral agencies andNGOs towards implementing EP 111. GEF fundinghas been committed for activities generating clear global benefits, and would not bejustified solely on account o f domestic benefits. GEF funding for ecotourism and community based wild natural resource management i s being committed to offset the positive incremental costs o f barrier removal activities, to uncover long-term domestic benefit flows from natural resource conservation andutilization, to compensate for domestic management costs, andbuildcapacities and know how to assure a paradigm shift to sustainable natural resource use from unsustainable exploitation practices Incrementalcosts for barrier removal are -168 - positive owing 1: inability to compensate the highone time costs o f effecting the paradigm shift from unsustainable to sustainable utilization from domestic benefits, ii.inability to recover costs from diffuse beneficiaries, andiii.a mismatchinthe temporal incidence o f costs andbenefits. GEF funding isjustified to defray the highone time costs associatedwith the acquisitionofknow how and development o f local capacities to assure sustainable utilization o fwild biological resources. Associated financing for sustainable development activities inareas o f conservation interest has been conservatively valued at US$ 83 million (this figure i s not counted as direct co-financing). Table 1: Incremental Cost Matrix Zomponent cost Cost(in US$) 3omesticBenefit Global Benefit Sustainable aseline USAID: 11.2 mproved farming systems Targeted eco-development in levelopment FAC: 2.8 mhance food security and rural critical ecosystems helps offset No Direct EU: 8 ivelihoods; pressures for forest conversion 'roject CI: 0.8 to satisfy basic welfare needs; hlpport] WWF:0.3 WCS: 0.4 Total= 23.5 :orest Baseline GoM: 7.5 [mprovedgovemance inthe Transfer o f management rights !cosystem WB-IDA: 18 forest sector increases rent to local communities addresses danagement USAID: 11..3 :ecovery and enhances barriers to sustainable forest WB-IDA GTZ: 2 xonomic growth and utilisation tied to common FAC: 3.4 sustainability; energy source access; greater accountability Tany Meva: 2 substitution provides new abets rational allocation o f CI: 1.8 Dptions for meeting long-term forest rights, accounting for Total = 46 household energy needs; public goods; reduced pressure on critical eco-regions for wood fuel; carbon sequestration benefits maintained; otected Area (a) Core Protected Area liffuse long-term hydrological lartial conservation o f globally {stem Laseline GoM: 7 enefits and option values; ignificant biodiversity. Limited Ianagement hb Total: 7 iasic level ecosystem services 'B-IDA b) NRMinSUDUO~~ naintained. 'B-GEF :ones NDP-GEF JSAID: 2 m 'any Meva: 1 >OM:1.5 m ;ub Total= 4.5 m :otal: 11.5 ncrement (a) Core Protected Area Improvedwatershed integrity 'A management capacities are GEF-WB:9 inkey areas; enhanced urther enhanced, improving the WB-IDA: 13.5 economic potential from lelivery and sustainability o f USAID: 2 tourism; hreat mitigation interventions; Kfw:9.2 wotection o f existence values, EU:2 :arbon sequestration benefits FAC: 0.25 indfuture use values; WCS: 1.25 CI: 1.5 WWF: 1.5 Sub Total: 40.2 (b) NRMinP A The removal o f barriers to the S u ~ ~ oZones r t Ecologicalsustainability o f insustainable use o f natural GEF-UNDP: 4.5 natural wild resource use is wild resources help mitigate - 169 - USAID: 3.6 assured and option values for threats to PASand articulate WWF: 1.8 development in PA buffers are tangible conservation incentives Sub Total: 9.9 maintained; for local communities; Total: 50.1 rota1 9ltemative Total= 64.6 Coastal Zone FAC: US$ 1.7 Protection 3aseline GoM: 1 coastal communities. [No Direct WWF: 1 Project wcs:2.25 SUPPOrtI Total= 5.95 Environmental USAID: 4.5 Negative externalities arising Improvedinstitutional Mainstreaming 3aseline WB-IDA: 8.5 from unregulated economic sustainability for WB-IDA NDP:0.9 development are avoided; environmental management UNDP 1:o.s and mechanisms for sustaining [OM:1.5 Hardware and systems global benefits through otal= 15.9 established for improved integration o f environment and knowledge management and development; leaming; ncrement UNDP: 0.9 Policy decisions founded on Networkedknowledge Total: 0.9 better information management systems promote replication of good rota1 iltemative Total 3aseline ncrement 3EF \TonGEF rota1costs issociated :inancing - 170 - Sustainable soil and water management France, Germany, IFAD, Japan, Norway, Switzerland Multiple-use Forest Ecosystem Management France, Germany, Switzerland, USAID, WWF National Parks and Tourism IEU, Germany, France, Netherlands, USAID, WWF, C I Marine and coastal environment I UNDP. WWF. CI Regional and local management I France, UNDP, USAID I I Strategic activities UNDP,USAID support activities IIFAD,France, USAID,WWF 2. Specific donor-supported projects relatedto biodiversity conservation and /or protected a and compatible economic -171 - USAID MWF IMEF 06/90 06/02 I 5.5 USD DGIS MWF IMEF 06/97 II06/04 I1.5 USD - 172 - AdditionalAnnex 14GEF STAP RosterTechnical Review by Ghillean T. Prance MADAGASCAR: Third EnvironmentProgram Support Project Key Issues 1. Madagascar as a centre of biodiversity Madagascar is rightly classified as a hotspot of biodiversity because of its unique flora and fauna with an extraordinary amount of endemism.At the same time, as outlined inthe proposal, this biodiversity is severely threatenedby destruction of the natural habitats of the plants and animals. This islandcountry also harbors a most important marine community including many coral reefs. With about 85 percent of the plant species beingendemic including five endemic families andalso five endemic families ofprimates, the biodiversity of Madagascar is one of the most important inthe world to conserve. Madagascarhas been isolated from Africa for a very long time and so has evolved its own biodiversity. It i s a textbook of evolution and so is of utmost importance to conservation of the world's genetic splendor as well as to theoretical science. There are also a great variety of ecosystems inthe islandfrom humidtropical rainforest and mangroves to semi-arid dry forest and aunique type of spiny thicket inthe southwest. Not all of these ecosystemsare well represented inthe current, far too small, protected area network of the country. It is therefore highlyimportant that there be active involvement of GEF and other conservation and development agencies inMadagascar.Unless viable programs of conservation and sustainableuse of the ecosystemsare developed we are likely to loose many unusual species of animals and plants and the people of Madagascar are likely to continue to live inpoverty. 2. ScientiJic and technical soundness of theproposal Inspite ofits extremepoverty andpoliticaldifficulties Madagascarwas the first country inthe African region to draw up a National Environmental Action Plan in 1989, prior to the creation of the Convention on Biological Diversity.This actionplan has three phases and the third one (EPIII) i s about to begin. This proposal is for GEF involvement inEPIII. GEF hadminor involvement with the latter part EPI andmore with EPII. The technical strengthofthis proposal is that it draws heavily on the lessons learnedfrom and addresses the needs that developed out of the first two phases of the EP. The other strength is the impressivegroup of participants inthe overall program where GEF will contribute only 8 percent of the total budget. The contribution of NGOs to the project even exceeds the amount requested inthis proposal. The fact that so many government (both national and foreign) andnongovernmental organizations are willing to participate shows the importance they place on the biodiversity and the poverty issues of Madagascar. The National Office of the Environment(ONE) was created at the beginningof EPI. ONE has had its ups and downs, but has had a major structural reorganization that will prepare it better to carry out EPIII. It i s good to see how the framework for this phase has been so strongly drivenby key Malagasy institutions rather than externally by the donor sector. Annex 2 to the proposal, which givesthe details of EPIII, is an impressive document that touches on the needs of all the critical ecosystemso f the country. It presents an excellent balance betweenconservation, sustainableuse o fbiodiversity and capacity buildingat local and governmental levels. The main goal of GEF participationis inthe area of Protected Area (PA) management. Ithas the right focus, i.e. strengtheningPA conservation through demonstrations of sustainableuse management inPA support andbuffer zones and on capacity buildingand technical assistance. The combinationof ecological monitoring, surveillance, setting up of Conservationinfrastructure and researchon practices for biodiversity conservation is likely to greatly assist the consolidation of the PA system that i s emergingfrom EPs Iand - 173 - 11.The GEFpart ofthisphasehas also selectedtwo of the crucial ecosystems of Madagascarforests and marine ecosystems includingmangrove and seagrass communities. The latter are comparatively neglected and in great need o f attention to develop sustainableresourcemanagementsystems.Various important environmental problems suchas overuse of fuel wood andalien invasive species and fires are also addressed inthis proposal. The key performance indicators outlined inthe proposal are sound. However, it would be good to define more precisely the numberof square kilometers to be maintained intact rather than xxx Sq. K m s as inAnnex 1of the proposal. The goal of increasing the area of landthat is inPASis obviously a vital one inMadagascar. It is obvious that there hasbeena close collaboration betweenagencies of the Government of Madagascar with the World Bank and UNDP inthe preparation of this well-integrated project. The various elements pf EPIII are well proportioned between the diverse elements involved. 3. Environmental benejh and drawbacks of theproject. There are excellent environmental benefits from the proposal especially because it aims to make the protected areas of forest economically viable. This is a project that will ensure the direct involvement of local peoples inthe processof both demarcation of reserves and inthe managementof natural resources. The mainbenefits will be the greater protectionof the important terrestrial and marine fauna and flora of Madagascarand the improvement of the livelihoodof localpeoples. It i s good to see that both forest and mangrove and coastal communities are targeted inthis proposal. Coastal communities and fisheries have been rather neglected inMadagascarbecause of the obvious interest in all the unusual terrestrial mammals and plants. The dry forests and spiny forests targeted inthe proposal are also particularly critical and fragile ecosystems. The proposedproject will also contribute to carbon sequestrationandto the improvement of tourist experience inthe country. There are no obvious drawbacks to the GEF proposal. Iam glad to see that the proposersare fully aware of some of the difficulties that the project will face such as the disconnectbetween statedpolicies and regulations of thegovernment of Madagascar and their capacity to monitor and ensure enforcement on the ground. They are fully aware of the lack of transparency and efficiency inthe Ministry of Water and Forests. It seems that appropriate action i s inplace to address this problem. The critical assumptions given inAnnex 1seem to berealistic andacceptablegiventhe current political situation inMadagascar.Itis to behoped that the new government of the country will collaborate to improvethis area. The implementation of the GELOSE law that transfers the managementrightsof renewable natural resourcesto local communities i s also likely to cause difficulties for the project. However, the proposal is fully addresses these obstacles and they are not true drawbacks to what is a most important project for the people and the biodiversity of Madagascar. 4. Context within the goals of GEF This project is well tailored to the overall goals o f GEF. It is a project to protect biodiversity and to build the capacity of government officials and local peoples to conserve and manage sustainably the biological resourcesof the country. It addresses several goals of the Convention on Biological Diversity:conservation, sustainable use of the ecosystemsand equitable benefit for the local population. It also has a major element of capacity building.The GEF participationfocuses on forest and marine ecosystemswhich are keys ones to the goals of GEF. This proposal buildswell on GEF participation inthe secondphase of the Environmentalactionplan for Madagascar (EPII). It also supports other GEF financing of projects to the NGO Fanamby for the Anjorozobe montane forests, to Birdlife International for work on critical wetland habitats and to Madagascarthrough UNDP to prepare a National Capacity Self Assessment. Interactions -174- between these initiatives and the proposed work will be beneficial and catalytic to each other. The project is well integratedinto the national plans for conservation and sustainable development. The goals o f the Madagascar Environment Action Planto see that "natural resources are conserved and wisely utilized in support o f sustainable economic development and a better quality o f life" fit well into the goals o f GEF. This project is muchmore appropriate to GEF's goals than the alternative projects outlined on page 24 o f the proposal because, as stated, it indeed takes a more integrated approach to conservation and development. The integration with other development agencies and with several NGOs is also exactly withinthe working procedures o fGEF. The various elements to be fundedby GEF are well placed and appropriate within the broader context o f the National Environmental Action Plan. This i s a project that seems to fit all key GEF eligibility criteria. B. Regional Context For the African region the two greatest centers of biodiversity, both regarded as hotspots, are the Cape Peninsular and Madagascar. Inworldwide terms o f biodiversityMadagascar i s a region o f the highest priority. It is also a country o f extreme poverty so any project that aims to increase sustainable income for local peoples i s o f vital importance to the region. The fact that Madagascar, after a time o f governmental turmoil, is settling down with a new government is also o f relevance. The project i s likely to have the opportunity to enhance the political stability. 1. Replicability The development o f a National Environmental Action Plan inMadagascar i s well ahead o f many other countries inthe Afiicadndian Ocean region and so this programwill certainly have lessons to give andhas already contributed to the design o f other initiatives inthe region as a whole. It i s important that the project has earmarked a budget for the transfer o f knowledge and for institutional strengthening activities to other places, Data from this project will be o f particular value to other oceanic islandnations with a highlevel o f biological endemism such as the Mascarenes and Seychelles. Within Madagascarthe lesson learned inthe specific areas to benefit from this project can be easily transferred to other areas inthe country. To achieve this the capacity buildingelement is ofparticular importance. 2. Sustainability of theproject This phase o fthe environmental action Planis aimed at producing sustainability. Its viability depends upon the political stability and the maintenance o f law and order inMadagascar and the continued commitment to biodiversityo f the government. The emphasis on regional capacity buildingwithin the country and on sustainable sources o f income for local people add to the likelihood o f sustainability o f the results o f this project. A key element to add to the sustainability o fthis project is the proposedestablishment o fa Trust Fundfor long term funding. Although this proposal is not requesting funds for that element o f EPIII, it is to be hoped that the GEF involvement will encourage the creation o f this fund. Some o f the aspects o f EPIII such as enhanced tourism will generate funds to increase sustainability, but these are unlikely to be enough to make the protection o f ProtectedAreas self-sufficient inthe immediate future. Therefore the Trust Fundi s o f considerable importance for the sustainability aspect o fthe overall project. It i s also important to hold the government o f Madagascar to its commitment to distribute a proportion o f visa and gate fees and debt-forgiveness funds directly to protected area management. C. Other issues - 175- This project has good stakeholder participation o fboth the Madagascan government and the localpeoples. Itis designed to help at the local levelandwill further involvelocalcommunities inthe management o f protected areas and inreaping economic benefit from the income generating aspects. It is positive to see that women are mentioned as participants and stakeholders inthe project. There is also a strong capacity buildingelement inthe GEFpart o fthe plans for EPIIIwhich is likely to be one o fthe most important aspects for buildingsustainability into conservation inMadagascar. D. Conclusions This is a logicaland well-prepared case for the continued involvement o f GEF inMadagascar, a key environment. Itbuildswell on previous programs, i s well integratedwith other governmental and nongovernmental organs and has a strong element o f capacity building.It i s also a good balance between conservation and sustainable use o f biodiversity. It clearly falls well within the focal areas o f GEF and so merit their support. The proposal has provided logical key performance indicators and is aware o f the likely obstacles to success. An important aspect is that this project i s well integrated into the national environmental program o f the country. Itwill do a lot to enhance the conservation o f biodiversity in Madagascar through improving the system o f Protected Areas. - 176- Additional Annex 15A: InstitutionalFramework MADAGASCAR: Third Environment Program Support Project EnvironmentalInstitutions Following the integration o f the Ministryo f Water andForest and the Ministry o f the Environmentinto a single MinistryinJanuary 2003, an institutional assessment has been carried out with the objective to develop a coherent vision concerning the institutional set-up o f the sector and the organizational structure o f the Ministry. Recognizing the need to improve the effectiveness o f environmental institutions in Madagascar, the vision specifically seeks to improve: (i) institutional sustainability; (ii) financial sustainability; (iii) transparency and good governance; (iv) participation; and (v) institutionalpresence at the local level. Points o f departure for the development o f the vision have been: (i) maintenance o f a close linkage with the PRSP and GoM's overall emphasis on good governance; (ii) recognition o f the communes as the principal actors at the local level; (iii) continuation o f the process o f disengagement o f the State with increasedseparation o f policy-makinghegulatory functions and operational functions; (iv) explicit recognition o f the need for improved capacity and decision-making authority at the de-concentrated levels; (v) establishment o f a result-based culture under which budgets are allocated and executedbasedon results agreements between the Minister andcorresponding services and specialized institutions; and (vi) recognitiono fthe need for more active coordination with other sector programs. Following these considerations, the institutional assessment has resulted in a broadvision for the sector that has been adopted by the GoM. This vision, along with a transition strategy, i s described indetail ina series of detailed reports included inthe Project Files (Annex 8). Itproposes a redeployment o f the institutional set-up o f the environment sector under which: (i) the Ministry is streamlined by concentrating on essential policy-making, regulatory and coordination functions; (ii) core operational functions are transferred to specialized institutions and entities under control o f the State; and (iii) non-core operational functions are left to service providers from the private sector under competitively defined contractual arrangements. MinistryofEnvironment, Water and Forest. At the central level, the role ofthe DGEis to ensure integration o f the environment and sustainable development into public policy-making and public sector investment programs. The role o f the DGEF i s to ensure sustainable management o f natural resources that fall under the jurisdiction o f the MinEnvEF. The role o f the CGP i s to coordinate investments inthe sector as well as to ensure adequate synergy o f environment sector investments with other sector programs. Under the new institutional vision the de-concentrated structure o f the Ministryconsists o f 6 inter-regional offices, 22 regional offices and 107 local offices. The de-concentrated structures ensure application o f policies, regulations and norms as well as provision o f support to communes (e.g. forest management transfers). By focusing inessence on policy-making, regulatory and coordination functions, required staff at the Ministrytotals 547 o f which 33% at the central level (against an actual total o f 835 o f which 49% at the central level). Inline with these functions, financing o f the Ministrydepends on the public budget to cover recurrent costs inan amount o f about FMG 19 billiodyear. Specialized Institutions. Under the new institutional set-up, three specialized institutions ensure various aspects o f core public environmental functions, including: (i) Association Nationalepour la Gestion des Aires Protkgies, ANGAP; (ii) Association Nationalepour la Gestion des Eaux et Forets, ANGEF; and (iii) Nationalede1'Environnement,ONE. I'Ofice -177 - ANGAP maintains its delegationto protect Madagascar's biodiversity patrimonyfor which purpose it manages the country's national system o fterrestrial, wetland andmarine protected areas. Inline with the envisaged expansion o fthe national protected areas system, the number o f personnel is expected to increase from 708 to 813. However, inline with its stated function, it is proposedto increasingly deploy staff at the frontline by reducing numbers at the central level (37 instead o f 63) and reducing the number o f staff inthe inter-regional offices. Recurrent costs o f ANGAP inthe new institutional set-up are estimated at about FMG23 billiodyear. Financing o fthese costs are expected to be increasingly covered by park entrance fees, returns from the Trust Fundfor Biodiversity Conservation and earmarked tax revenues generated in the tourism sector. As far as the Forestry Service is concerned, the challenge is to establish a clear vision, redefine the institutionalframework, and restructure and reinvigorate the institutionas a viable actor. This challenge is expected to be met under EP-I11through a comprehensive multi-donor assistance approach to the Forest Service, to reorganize it at the central, regional and local levels. This will involve downsizing staffing, defining more carefully prescribed functions for all actors, getting inplace better andmore appropriately trained staff, efficient allocation and management o f available budgetary and other revenue sources, partnerships with communities and the private sector, and other innovations. Following the institutional assessment that was carried as part o f the preparation process, there i s agreement on a new institutional set-up under which a specialized agency, ANGEF, would be responsible for all operational aspects concerning the conservation and sustainable management o f forest resources inMadagascar. Inessence, ANGEF would be a spin-off ofthe operational functions ofthe DGEF, Doing so would establish a better division o f operational and control functions that are currently concentrated inthe DGEF, which i s thought to be essential to improve forest sector governance. ANGEF would also integrate existing semi-autonomous sector institutions incharge o f forest plantations that are formally owned by the State. It i s estimated that ANGEF would employ 322 staff o f which 42 or 13% at the central level. Total recurrent costs are estimated at about FMG 19 billiordyear. Financing o f recurrent costs is expected to come from forest concession fees covering about 2.5 million ha as well as from carbon sequestration opportunities. In view o f the fact that forest concession fees actually amount only to FMG3 billion, there i s a need for an in-depth analysis o f the potential revenue-generating capacity o f the sector as part o f the institutional transition plan. Following uncertainties about its exact mandate resulting induplicationo f functions with the Ministry,the institutionalassessmenthas clarified the role o f ONE by stating its missionas the preventionand mitigation o f environmental risks and pollution. Inthis context, ONE would be responsible to carry-out all operational functions associated with the application o f Madagascar's MECIE legislation, as well as to maintain an environment information management system. ONE would employ a total o f 30 staff with an annual recurrent cost budget o f about FMG4 billion. These costs could easily be covered by MECIE associated environmental permit fees, particularly ifpublic investments are effectively made to comply with MECIErequirements. Non-Core Functions. To promote environmental management and sustainable development initiatives initiatedat the commune level, the new institutional set-up foresees the creation o f the Fonds de Appui au Gestion Environnementale Communautaire (FAGEC). This i s inessence a sinkingfund financed from the public budget as well interesteddonors that would support, through a matching grant mechanism, environmental investments such as reforestation, non-traditional forest products etc. Service providers from civil society or the private sector would assist communes inthe implementation o f these investments. Rather than financing specialized agencies (e.g. ANAE, SAGE) for these activities as was the case under EP2, the creation o f FAGECreflects a concentration o f the role o f the State infinancing or facilitating the financing o f activities inthis domain. Doing so is inline with the "privatization" o f ANAE and SAGE that - 178- was formalized at the endof EP2. It is estimatedthat FAGEC would employ 27 staff and requires a recurrent budget of about FMG5 billiom'year. Financing comes from the public budgetand the donor community. Key factors for the successful establishmentand operation of FAGEC appear to be its capacity to keep administrative costs as apercentageof investments at the bare minimumas well as its ability to generatepositive results on the ground. ProjectImplementationArrangements Project implementation arrangementshavebeendefined inthe context of the new institutional framework. The elaboratedtransition plan defines for eachspecified output inthe EP-I11results framework the specific responsibility for eachinstitutionor entity that is involvedinthe program. Specific responsibility include: (i)coordinating role; (ii) regulating role; (iii) monitoring and control role; (iv) operationalhplementation role; (v) financing role; or (vi) contracting role. Implementationarrangements for the IDA/GEF project insupport of EP-111have been incorporatedinan Operational Manual that follows the format of BP 10.00 as included inthe World Bank Operational Manual. Inline with this Manual, the Ministry of the Environment, Water and Forest takes a lead regardingthe overall coordination ofthe Project, including the relationship with IDA.As far as specific project components are Concerned, ANGAP takes the lead regarding the implementation of protected areas managementactivities, DGEFtakes the lead regardingthe implementation of forest ecosystems managementactivities, while DGEand ONE are both responsible for selectedelements of environmental mainstreaming activities under the Project. Since ANGAP and ONE (and FAGEC once created) as specialized institutions are not formally part of the MinEnvEF,it i s foreseenthat subsidiary grant agreements will be signedbetween these two institutions andthe Ministry of Economy, Finance, and Budget. Institutionsor entities that have been assigneda lead role under EP-111(ANGAP, DGE, DGEF, ONE, and possibly FAGEC once established) prepareannual implementation plans that define the activities, procurement actions and budget requiredto generate indicated outputs of the EP-I11results framework. The annual implementation plan forms the basis for a results agreementbetween the Minister of the Environment, Water and Forest and the coordinating institution. The results agreement is subsequently the basis for the execution of the agreedbudget. Inorder to establish a closer linkage between budget execution and outputs, result-based modalities are beingpilotedunder the PPF that was put inplace to support preparation of the Project. Annual implementation plans would be ready for reviewby IDA by September 30 of eachyear during the Project implementation period. A Project ImplementationSupport Unit(PISU) establishedinthe MinEnvEFunder the PPF, would provide operational support to ANGAP, ONE, DGEF and DGE as far as procurement, financial management, M&E, safeguards compliance andreportingfunctions are concerned. The compositionofthe PISUwould reflect these responsibilities. PISUstaff would hold competenciesand qualifications acceptable to IDA. The PISUcoordinator would report directly to the Ministero f the Environment, Water and Forest. The PISUwould play an importantrole inensuringthe agreedresult-based execution of the Project through verification of agreeddeliverables prior to the authorization of subsequentresource transfersby the MinEnvEFfrom the Special Account to the Project Accounts heldby ANGAP, ONE, DGEF and DGE. Overall guidance and strategic orientation of the Project would be provided by the EP-111Joint Committee. The Joint Committee would bepresidedby the Ministerof the Environment, Water and Forest or his delegate and co-presidedby a representative from the donors that provide financial support to EP-111. Participating membersfrom the government side would be the heads of ANGAP, ONE, DGEF, DGE, the - 179 - coordinator o f the PISU and representatives o f any other relevant stakeholders inEP-111. Fromthe donor side, the Joint Committee would be open to representatives from institutions and agencies that provide financial support to EP-111, includingbilateral donors (France, Germany, Japan, Switzerland, USA), multilateral institutions (EU, IDA, UNDP) and international and national NGOs (CI, Tany Meva, WCS and WWF). The a predecessor to the Joint Committee, the EP-I11Task Force was set-up duringthe preparatory stage o f the EP-I11and has proven to be a useful partnership and participatory platform for all EP-I11 stakeholders with the G o M clearly inthe driver's seat. M&E A dedicatedM&E design study has beenconducted as part o fthe preparation process of EP-111. This effort has resulted ina series o f reports that describe indetail: (i) program impact and output indicators; (ii) operationalprocedures;(iii) systemrequirements;(iv)requiredM&Etrainingefforts; and M&E M&E (v) M&Eperformance assessment arrangements. Results o fthe M&Edesign study form the basis for up-grading the existing M&E system that was used under EP2. A diagnostic that was carried out as part o f the M&Estudy revealedthe following areas o f improvement: (i) need to move to some form o f standardization inview o f the heterogeneity o f systems being used by the various institutions; (ii) need to install capacity for spatial analysis; (iii)need to integrate different data types; (iv) need for a more result-based institutionalculture; (v) need for better data quality through better andmore diversified collectionmethods; and (vi) need to make M&Ereports more accessible to decision-makers and other relevant stakeholders. As far as indicators are concerned, the Task Force, with the assistance o fa specialized consulting firm, has elaborated and agreed a comprehensive Results Framework for EP-I11that specifies expected impacts and outputs at the program level (see Annex 1A). A total o f 12 impact indicators have been defined that cover ecological, economic, social and governance aspects of the program. Impact o f IDNGEF support to EP-I11will be measured against achievement o f a sub-set o f these indicators as specified inAnnex I. Consequently, success or failure o f the IDNGEFfinanced project i s determined by success or failure of EP-I11as a whole, meaning the collective effort o fthe GoM and donors at the programlevel. One o fthe characteristics o f EP-I11as a sector-wide approach i s that all donors have agreed to measure the impact o f their support based on the agreed EP-I11impact indicators. Doing so would allow the G o M to concentrate M&Eefforts on a relativelylimitednumber o fimpact indicators. At the same time, it implies that all relevant stakeholders either succeed or fail collectively as far the impact o f their efforts insupport o f EP-I11 is concerned. Similarly, all donor have agreed to specify their contributionto EP-I11based on a selection o f the agreed set o f output indicators for EP-I11ina manner that reflects both focus and level o f individual donor support. Doing so reflects the adopted approachunder which each EP-I11donor is committed to deliver certain outputs, while using agency-specific procedures to achieve these outputs. To adequately measure the contribution o f IDNGEF support to EP-I11use will be made o f a sub-set o f defined output indicators whose levels have been adjusted inrelationto the available IDNGEFfinancing envelope for particular EP-I11program elements. For instance, while it i s envisaged that under EP-I11a total o f 1.O million ha will be reforested, the specific contribution o f the IDNGEF project to this output will be 100,000 ha as indicated inAnnex I.Also, basedon the methodology proposed by IUCN, ANGAP has developed an overall evaluation scheme for efficiency inmanagement o f the PA network, which allows, on the one hand, to annually evaluate management efficiency, both for individual sites and sites as a whole, which are under the parenthood o f an interregional Directorate, as well as efficiency among the national Network as a whole; and, on the other hand, to draw international comparisons. Baseline levels o f all impact indicators are available. Inessence, they are based on the end-of-EP2 -180- situation, as reported among other inthe corresponding ICR. ParticularlyONE's Tableau de Bord Environnementale (TBE) as well as the forest cover map 1990-2000preparedby C I basedon satellite imagery from NASA are useful referencesinthis respect. Inorder to better positionONE to capture impacts on the ground, the project would support the progressivemove towards the establishment of regional TBEs. As far as institutionalresponsibilities for M&E of EP-I11are concemed, ONE through its Tableau de Bord Environnementale will continue to play an important data collection and analytical role conceming program impacts. Complementary efforts at the program impact level will be provided by: (i) OSF for forest governancerelated indicators; (ii) CI for forest cover related indicators; and (iii) INSTAT for economic and social indicators. Primary responsibility conceming the monitoring o f programresults based on agreedoutput indicators lays with ANGAP, ONE, DGEandDGEF (and FAGEC once created) for those aspects of the EP-I11results framework for which they have been assigned lead responsibility. To the extent possible, these institutions would deploy participatory mechanismsthat would allow beneficiaries and other stakeholders to express their voice and opinion about EP-111. The PISUwill consolidate the informationthat i s generatedby the output monitoring efforts o f these entities ina manner that i s consistent with the agreedEP-I11results framework. The envisagedresult-based budget execution modality, under which the PISUsigns off on resourcetransfers from the Special Account into ANGAP's, ONE's, DGE's and DGEF's project accounts basedon output progress reports, is expectedto provide a strong incentive to keep output monitoring on track and up-to-date. Inaddition, the close link betweenbudget execution and resultswillprovide an effective handle regarding cost-efficiency aspects of EP-111. Inaddition, the PISUwould collect M&E evaluation from other donor projects in support of EP-I11so as to be able to provide assessments of implementation progress inrelation to the agreed EP-I11Results Framework. Reportingformats have been defined to facilitate monitoring of differentprogram aspects, including outputs, procurement, expenditures, training, recruitment, etc. Following these formats, the PISUwould prepare quarterly progress reports which would be presentedto the Ministerfor the Environment, Water and Forest and subsequentlydiscussedinthe Task Force. Progressreports would be made available to relevant stakeholders ina manner consistent with an agreeddissemination and disclosure protocol. Interms of systemrequirements, detailed specifications havebeenpreparedcoveringdatabase, communication, computing hardware and software architecture. Specifications have been differentiated for the numerous institutions and entities that have lead responsibility for the various elements of EP-I11as described inthe agreedresults framework. Without going into details, it worth mentioning that interms of computing architecture emphasis is placedon: (i) compatibility with existing databases; (ii)capability of integratingtechnical, cartographic and financial information; (iii) data-entry quality controlprotocols; (iv) capacity for electronic archiving; and (v) user-friendlyback-up functions. Interms o f communication architecture emphasisis placed on web-based applications differentiated infour domains according to identifieduser profiles. To facilitate implementation of the recommended system, the M&E design study provides specific guidance interms o f requiredequipment, software, training, and quality standards. It also specifies the requiredorganizational aspects of how best to move from the existingto the recommended system. To ensure that the recommendations are cost-effective, an effort is made to utilize existing hardware and software to the extent possible. Following this roadmap, and inview of ONE's central role inthe M&Eprocess, detailedtechnical specifications ofthe environmental informationmanagementsystem to be installed inONE under the Project have already been preparedso as to be able to move forward quickly once IDNGEF financing becomes available. -181 - ANNEX 15(B): SUMMARY OF THE INSTITUTIONAL ANALYSIS OF ANGAP An Institutional Audit was carried out in July- August 2002. The information provided within has been collated from the FTHM Study-July 2002, ANGAP's Strategic Management Plan and associated resources. InstitutionalAnalysis: An overview of itsstructureandresponsibilities Organizational level Decentralization o f structure and responsibilities. Maintain separation at 3 levels. Refocus the qualities o f each level inrelation to its central function and purpose Strengthening functions that are crucial to achieve objectives Organize sites according to the new thematic filing system as defined inthe GRAP Plan Linkoperational agentsdirectlyto theparkManagement Steering level Reinforce monitoring and internal control Set up management monitoring (including follow up o f implementation o f recommendations) and analytical accounting Operational level Set up a strategic management o fhumanresources Separate monitoring and resource allocation functions Emphasize partnership principles and actions Strengthen support functions Put inplace an ecological policy directly at the site level for ANGAP staff. Capacity BuildingAction Planfor ANGAP ANGAP has developed a detailed planfor capacity buildinginorder to strengthen the management systems within. An important activity inefforts towards capacity building is training. Several categories have been identified which would cover all aspects o f training. These training categories include: 1. Functionalgeneric training: It targets all network staff andi s based on ANGAP's main field o f activities. 2. Update training: It is meant to assist in catching up with the gap between current knowledge and the most recent innovations. This training helps inskills and knowledgeupdating. 3.Retrofit-Recap training: It is relatedto the employee's needs to self-adjust their individual competences. 4. Improvement: It focuses on the organization rather than on individuals and concerns 3 different issues. A detailed institutional analysis matrix for ANGAP has been prepared which highlightsthe strengths and weaknesses at the various institutional levels. This i s available in the Project File No: B4 and in the GEF Brief: Addendum 1to Annex 10: InstitutionalAnalysis o f ANGAP and WayFonvard). - 182- AdditionalAnnex 16: Summary of the Profile of the ProtectedAreas System in Madagascar MADAGASCAR:Third Environment Program Support Project PA Profile The network o f Madagascar's protected area system, with a total surface area of about 1,685,100 Ha, is composed o f 18 National Parks, 5 "Integral" Nature Reserves and 23 Special Reserves (46 terrestrial PAS). These 46 PASare managedthrough 36 managementunits (Unite de Gestion or UG's) which fall under 5 regional directorates and the headquarter. This is because inten cases, two small adjacent PASfall under a single management unit (namely MDA-Foret d'Ambre; Bemaraha; Mantadid Analamazao; MSL-NMG; Manongarivo-Tsaratana; Marojejy-Anj anahibe Sud; Andringitra-Ivohibe; Zahamena; BBaly/Namoroka; KirindyMitea-Andranomena). Therefore referenceto the protected areas is generally madethrough the managementunits (UG's). The National Association for the Management of Protected Areas (ANGAP), is responsible for the preservation of this richheritage. The ProtectedArea System Management Plan (Plan GRAP) is a key tool for the future ofthis PA network as it sets out the criteria usedto define how the PA network's structure and composition will assure a comprehensive representation of Madagascar's exceptional biodiversity. A map of the geographic coverage of the PA network inMadagascar is available inthe Project Files. Prioritization Process The methodology employed for the prioritization process inthe protected area network hasbeenre-iterative andadaptive, and has beendeveloped inaconsultative manner duringthe preparationphaseof the EP 111. Inthe initial stage, selection criteria were establishedfor guidingthe consolidation ofthe protectedareas system and a detailed priority settingexercise was undertaken inwhich criteriaratings assignedfor each criteria for prioritization were described. These criteria included(i)richness indiversity, (ii) uniqueness, (iii)vulnerability, (iv) irrigatedarea downstream of PASsusceptible to sand erosion, (v) potential for drinkingwater supply, (vi) contributionto protectionof awatershed, (vii) frequency of visitors, (viii) tourism Potential, (ix) impact on local development, (x) needs ininfrastructure and equipments and in management/planning tools (xi) financing needs and self-financing capacity. Eachof the protected areas were rated on a scale of one to five basedon which met these criteria. Inthe final stage, inaddition to the ratings of the PASby the above methodology, the incremental cost of fundingPASthat were not covered by other donors was also taken into account. Of the net 36 UG's inthe network, the project has prioritized 22 for conservation and management activities through IDNGEF support. Specifically, GEF will lend support to 15, of which it would be a primary donor for 12 (Foret d'Ambre, Andohahela, Manongarivo/Tsaratana, Zahamena, Ankarana, Foret de Mikea, Zombitse, Analamerana, Sahamalaza, Nosy Ve, Cap Ste Marie,Ambohitantely, Lokobe) anda secondary donor for 3 (Tsimanampetsotsa, Mangerivola, B-Baly/Namoroka), While the remaining 7 (Ranomafana, Isalo, Mantadid Analamazao, Ambatovaky, Midongy and Nosihara) will be supported by IDA.Notably, although a few of the selectedPAS(eg. Lokobe, Ambohitantely, Cap SainteMarie, Nosy ve, Sahamalazaetc) showed an overall lower score, they were still considered for support basedon the linkages between the IDA and GEF fundingoutside the PASand complimentarity to the donor funding inthe PA system insupport ofthe ecosystemapproach. Besides these, factors such as uniqueness inhabitat (aquatic habitats, mangroves, low altitude moist forest etc), endemic and indicator faunal species (lemurs, birds)or a significantly hightourist frequency, were also taken into account duringthe final selection. Detailed information on the prioritizationprocess including the biological characteristics of eachPA, the threats and root causes analysis and, the selection criteria matrix for prioritization of the protected areas in the network is available inthe Project Files Nos: B3 (and inGEF Brief, Annex 7:Profile of the Protected - 183- Area System inMadagascar. The prioritizationtable was finalized duringthe appraisal mission inJanuary 2004 (see Project FileNo. B.11). - 184 -