PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: 83213 Project Name Philippines Wealth Accounting and Valuation of Ecosystem Services Recipient-Executed Trust Fund (Phil-WAVES RETF) (P146075) Region EAST ASIA AND PACIFIC Country East Asia and Pacific Sector(s) Other Mining and Extractive Industries (50%), Forestry (20%), General public administration sector (20%) Theme(s) Economic statistics, modeling and forecasting (70%), Climate change (10%), Environmental policies and institutions (10%), Land administration and management (10%) Lending Instrument Lending TA Project ID P146075 Borrower(s) National Statistical Coordination Board Implementing Agency National Statistical Coordination Board Environmental Category B-Partial Assessment Date PID Prepared/Updated December 6, 2013 Estimated Date of Board NA Approval Decision Other Decision I. Project Context Country Context Ecosystems are deteriorating worldwide and with them the capacity to support human well-being; a problem that is exacerbated by climate change and threatens to undermine the achievement of the World Bank strategic twin objectives of reducing extreme poverty and increasing shared prosperity. Part of the solution lies in policy making that takes into account the full value of natural capital – i.e. agricultural land, minerals, energy, forests, fisheries, and water – and the associated ecosystem services, including air and water filtration, flood protection, carbon storage, pollination for crops, and habitat for fisheries and wildlife. To achieve this, ecosystem valuation activities are increasingly focused on ‘greening’ national income accounts. National income accounts are crucial because they constitute the primary source of information about the economy and are widely used for assessments of economic performance and policy analysis. The objective of the Global Partnership Program (GPP) on Wealth Accounting and Valuation of Ecosystem Services (WAVES) is to promote sustainable development worldwide through the implementation of wealth accounting that focuses on the value of natural capital and on integrating Natural Capital Accounting (NCA) in development planning and policy analysis. In particular, WAVES will: (i) implement NCA based on the UN’s 2012 System of Environmental-Economic Accounting (SEEA) in 6-10 developing and developed countries; (ii) incorporate natural capital accounts in development planning and policy analysis; (iii) develop internationally accepted, standardized guidelines for ecosystem accounting; and (iv) establish a partnership to promote widespread adoption of NCA beyond the core implementing countries. WAVES is a trust funded partnership, which is managed by the World Bank in partnership with the United Nations Environment Programme (UNEP), interested developing and developed countries, NGOs and other organizations. The Philippines was identified as one of the core implementing countries for WAVES, because: (i) there is a high Government demand for indicators, tools and methodologies that will help determine the sustainable use of natural resources and inform development planning and policy analysis; (ii) a more sustainable use of natural resources could potentially have a large impact on the poor and thus economic growth, as the most vulnerable groups of society – the rural poor, indigenous peoples (IPs) and women – disproportionately depend on natural resources for their livelihood and as an insurance against income shocks; and (iii) the Government of the Philippines (GoP) has a high latent capacity in NCA from previous initiatives, while academic and private organizations have the necessary skills for ecosystems accounting. The implementation of NCA in the Philippines is well-timed. The new political leadership emphasizes governance reforms that include transparent and science-based decision-making, while pursuing sustainable, inclusive, pro-poor and resilient growth. Approaches such as NCA, market-based instruments, environmental valuation and payments for ecosystem services, which are mentioned in the Philippine Development Plan (PDP) and the National Climate Change Action Plan (NCCAP), would be facilitated by the regular production of selected SEEA modules. Indicators derived from NC accounts would also provide a transparent tool to inform decision making and improve governance; a stated goal in the Government’s Social Contract. The Philippine Wealth Accounting and Valuation of Ecosystems (Phil-WAVES) technical assistance (TA) is funded out of a multi-donor trust fund, comprising both recipient and bank-executed activities. The Phil-WAVES recipient-executed trust fund (RETF, P146075, USD$0.7 million), the objective of this Grant Agreement, is being set up at the explicit request of the Government to support the institutionalization of the selected SEEA modules. It will focus on capacity building and on generating data and indicators for key natural resources. The Phil-WAVES Bank-executed Trust Fund (BETF, P133810, USD$ 0.8 million), on the other hand, will focus on the policy analysis at both the national and the local level of the generated data and compile two ecosystem accounts in Southern Palawan and the Laguna Lake basin. The Phil-BETF has already been set up with the concept note approved by management on February 7, 2013. Sectoral and Institutional Context The PDP recognizes the importance of natural capital for reaching the twin objectives of reducing extreme poverty and increasing shared prosperity. Initial estimates suggest that NC accounts for about one third of the Philippines’s total wealth (World Bank, 2006). Agricultural land accounts for the highest proportion followed by forest land and timber, minerals and protected areas. Agriculture, forestry and fisheries also account for 18.4 percent of GDP and a third of employment in the Philippines in 2011, providing an important livelihood for many Filipinos. However, the poverty incidence in these sectors is high, reaching 36.7 percent in 2009 (NSCB, 2012). Sustainable management of these resources is thus critical to ensure that growth is pro-poor and inclusive. In addition, the country’s environment and natural resources are deteriorating, a trend exacerbated by strong demographic and economic pressures. Problems include low agricultural productivity and food insecurity due to conversion of agriculture land to other uses, limited irrigation and extensive land degradation. The country’s forest resources are also increasingly threatened by wood gathering, slash - and-burn practices, upland agricultural cultivation, illegal logging and a growing poor rural population. Despite being one of the most marine biodiversity rich countries, unsustainable management of fisheries is causing severe development challenges. Furthermore, rapid population increase, urbanization, economic growth and high levels of pollution are causing water stress in major urban centers and shortages during the dry season. Another key challenge is the management of the small but contentious mining sector, which has large growth potential. The Philippines is rich in mineral resources with about 30 percent of its land area considered having high mineral potential, yet its contribution to GDP is less than 2 percent. Therefore, questions are frequently being raised about the benefits of the country from the mining industry, including from the collection of taxes and royalties as well as the sharing of benefits with IPs and local communities. In addition to land and resource use conflicts, environmental and social costs to local communities as well as high levels of poverty and health costs in the small scale mining sector are often considered to be much greater than the financial returns. Lastly, the Philippines is among the top global disaster hotspots and is exposed to a wide range of natural hazards, whose intensity will be further exacerbated by changes in global climate with economy wide impacts. The country is prone to earthquakes, volcanic eruptions, along with the tropical storms and floods. Over the last five years, the Philippines have experienced severe weather events that resulted in considerable damages and losses with the poor often disproportionately affected. The intensity of these weather-induced disasters is expected to increase even further with time, while sea level rise of up to 30 cm by 2050 pose a direct risk to a large share of the population living along coastal areas. Substantial warming of more than 4°C that could occur by as early as 2060 by recent projections would exacerbate these risks even further. Particularly vulnerable to a great range of climate change impacts in the Philippines are agriculture, water resources, coastal ecosystems and infrastructure, which will in turn disproportionately affect the poor and vulnerable groups of society. During the feasibility phase, this broad range of policy issues was extensively discussed with key stakeholders led by National Economic and Development Authority (NEDA), Department of Environment and Natural Resources (DENR), Laguna Lake Development Authority (LLDA), Department of Agriculture (DA) and academic and research institutions at various stages of the preparation and finalization of the feasibility studies. The draft results of the feasibility studies were presented to the stakeholders to solicit their comments and further enhance its recommendations for the next phase. Out of this long list of potential policy issues, minerals, mangroves and water resources were prioritized for Phil-WAVES. The main reasons for this selection are (i) urgency for policy inputs; (ii) potential of high impacts on poverty and economic growth; and (iii) complementarity with other World Bank, GoP and development partner initiatives. The capacity and institutional assessment concluded that the necessary legal and policy framework, government ownership and capacity to institutionalize SEEA are in place. Furthermore, past initiatives led by both the National Statistical Coordination Board (NSCB) and DENR have introduced the concepts underlying WAVES and have thus laid the institutional foundation for its implementation. Resource valuation is also a priority in the PDP and NCCAP, which explicitly call for a proper valuation of natural resources as a tool for science-based development planning and policy decisions as well as climate change adaptation. The lead agency – NEDA – will be in a good position to advocate for the adoption and institutionalization of WAVES with support from other government agencies, NGOs and the private sector, because it is primarily responsible for the country’s development blueprint. II. Project Development Objective(s) The objective of the Philippine Wealth Accounting and Valuation of Ecosystems Recipient-executed Trust Fund (Phil-WAVES RETF) is to support institutionalization of selected modules of the System of Environmental-Economic Accounting (SEEA) 2012. III. Project Description Component Name I. Development of macroeconomic indicators based on WB methodology Comments (optional) NSCB (ESO) will lead the development of the macroeconomic indicators, using the WB methodology for computing adjusted net investment (ANI), adjusted net savings (ANS) and comprehensive wealth (World Bank 2006). This activity will build on the existing WB estimates, which will be further refined through the compilation of the selected SEEA modules, in particular the mineral NC account. During this process, NSCB (ESO) will provide feedback and advice to the source agencies on data requirements and quality. NSCB (ESO) will also identify the training needs of the statistical and source agencies. Component Name II. Development of physical and monetary accounts for minerals and mangroves based on the UN’s 2012 SEEA Comments (optional) Given resource and staff constraints at NSCB, a phased approach will be adopted in the implementation of the NC accounts. As minerals are a GoP priority, the minerals accounts will be constructed in the first two years, followed by mangroves accounts in the last two years of project implementation. NSCB (ESO) will lead the development of individual NC accounts based on the SEEA 2012 to construct, update and refine the physical and monetary accounts. Each activity will start out with an initial evaluation of existing data against the SEEA methodology, which will identify data and quality gaps that will be resolved in the subsequent years. The NSCB (ESO) will be advised by the TWGs of IAC-ENRS and IAC-AFS, who will oversee the generation of data and indicators, provide guidance, assure quality and coordinate between GoP agencies. The construction of the NC accounts will also be supported by a TA from a national and international expert to determine the factors affecting the value and stock of the assets as well as the ABS/AusAID. NSCB (ESO) will also be in charge of leading the dialogue with the source agencies on data requirements and quality and will identify the training needs of the statistical and source agencies. Component Name III. Capacity building for the institutionalization of the selected SEEA modules Comments (optional) The objective of the training component is to build capacity for the institutionalization of the selected SEEA modules primarily in the Philippine government agencies. NSCB (ESO) will identify the training needs in the Philippine Statistical System (PSS) and the associated data providers. Training will be provided with the technical support from ABS/AusAID and will focus on the methodologies and components of SEEA; data collection, survey as well as data storage and management skills (to be determined). Component Name IV. Project Oversight and Management Comments (optional) NEDA will lead Phil-WAVES through the PWSC, which will provide the overall guidance and strategic direction, by (i) facilitating implementation and serving as PWSC Secretariat; (ii) reviewing work plans, progress reports and findings for the PWSC approval; and (iii) monitoring the project progress and reporting regularly to the PWSC, WB and WAVES GPP. NEDA will be supported by a country coordinator and his/her assistant to be hired through the Phil-WAVES RETF. IV. Financing (in USD Million) Total Project Cost: 0.7 Total Bank Financing: 0.7 Total Cofinancing: 0.00 Financing Gap: 0.00 Parallel Financing 0.00 Financing Source Amount BORROWER/RECIPIENT 0.00 Others 0.7 Total 0.7 V. Implementation The project will be implemented by the NSCB on the basis of the agree work program and be monitored through Project progress reports prepared every six months. To ensure prompt and smooth implementation and support institutionalization, the following institutional arrangements have been made:  Steering Committee. The Phil-WAVES Steering Committee (PWSC) is composed of the NEDA (chair), DBM (vice-chair), DOF, NSCB, DENR, DA, CCC, Office of the Presidential Adviser for Environmental Protection (OPAEP) and the Union of Local Authorities of the Philippines (ULAP).  Lead Agency. NEDA will lead the Phil-WAVES TA by organizing and chairing the PWSC with the support of the National Planning and Policy Staff (NPPS) to serve as secretariat for the PWSC.  Implementation of SEEA 2012: The Economic Statistics Office (ESO) of NSCB will be responsible for (i) implementing SEEA by constructing both the macroeconomic indicators and NC accounts and (ii) leading the learning among the statistical and source agencies. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X Comments (optional) VII. Contact point World Bank Contact: Stefanie Sieber Title: Environmental Economist Tel: 1-202-473-0399 Email: ssieber@worldbank.org Borrower/Client/Recipient Name: National Statistical Coordination Board Contact: Jose Ramon G. Albert Title: Secretary General Tel: 632-895-2767 Email: jrg.albert@nscb.gov.ph Implementing Agencies Name: National Statistical Coordination Board Contact: Jose Ramon G. Albert Title: Secretary General Tel: 632-895-2767 Email: jrg.albert@nscb.gov.ph VIII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop