Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB748 Project Name RURAL ENVIRONMENT AZ Region EUROPE AND CENTRAL ASIA Sector General agriculture, fishing and forestry sector (50%); Forestry (20%); Animal production (10%); Crops (10%); Renewable energy (10%) Project ID P066199 GEF Focal Area B-Biodiversity Global Supplemental ID P077031 Borrower(s) AZERBAIJAN REPUBLIC Implementing Agency Ministry of Ecology and Natural Resources Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [X] S 2 [ ] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared February 3, 2005 Date of Appraisal Authorization TBD Date of Board Approval TBD 1. Country and Sector Background Azerbaijan is a mountainous country of 86,600 km 2 and a population of about 8 million people. It lies on the western coast of the Caspian Sea among the mountain ranges of the Greater and Lesser Caucasus and the Talish mountains. Mountains cover about 44% of the territory, and forests cover about 11%. Azerbaijan is facing many of the same challenges as other CIS transition economies, including a daunting agenda of policy and institutional reforms needed to redefine the role of the state and create essential underpinnings of a market economy. One of the six strategic pillars of the State Program on Poverty Reduction and Economic Development (SPPRED) is an enabling environment for income-generating opportunities. While the overall economy is improving as a result of oil development, this is not reflected in the mountain areas, where most people fall under the poverty line of US$ 24 per month (average income is $16 per month in villages above 2000 meters). With the end of reliable, highly subsidized gas and electricity following independence, many rural households have turned to wood from State forests for their energy needs. This is resulting in rapid deforestation as demand for wood fuel exceeds sustainable annual fuel wood yields by up to a factor of ten in some areas. ENVIRONMENTAL MANAGEMENT AND NATURE PROTECTION Environmental management is recognized as an important right and obligation in the Constitution of the Azerbaijan Republic (1995). The National Environmental Action Plan (NEAP), completed in 1998, identifies priorities relating to reducing pollution damage from oil Page 2 extraction and industry; halting the decline of sturgeon populations and water quality in the Caspian Sea; protecting biodiversity and improving the management of forests, pastures and agricultural lands; preserving cultural heritage; addressing ecological problems with regional or global impacts; and improving the institutional and policy framework for environmental management. The Ministry of Ecology and Natural Resources (MENR) was created in 2001 to integrate all aspects of environmental protection and management, including environmental assessment and monitoring (including reporting on the state of the environment), management of forests and wildlife resources, and of specially protected natural areas 1 . A National Strategy and Action Plan on Biodiversity Conservation (NSAPBS), currently under preparation, stresses the preservation of key ecosystems and natural habitats through a well managed system of Protected Areas (PA), by enhancing and efficient management of protected areas, and sustainable usage of biodiversity to contribute to economic and social objectives. Currently PAs cover about 7% of the country 2 , but is small, fragmented and incomplete. T he Government of Azerbaijan (GOA) signed the Convention on Biological Diversity in 2001, and has made a major commitment to protecting biodiversity, including maintaining and substantially expanding the nation’s PA system to include under-represented ecosystems. Creation of the Shah Dag National Park (SDNP) and expansion of the Ordubad National Park (ONP) are among the highest strategic priorities. At the same time, management of existing PAs remains inadequate, due to factors such as institutional weakness and inadequate human and financial resources, and poverty and pressure for economic development in rural areas. The Law on Specially Protected Natural Areas and Objects (2000) includes provisions for taking into consideration social and economic factors and interests of local people, and for participation of the population and social organizations in preserving Protected Areas (PAs). However, the prevailing model for PAs in Azerbaijan, as in much of the CIS, is based on centrally controlled Strict Nature Reserves (Zapovedniks). The GOA has begun to diversify the national PA system, by creating the country’s first four National Parks (NP) in 2003-2004. These NPs are similar in status to Zapovedniks, except that they include zones for limited economic activity (primarily tourism), and make no special provisions for benefits to local communities. The multi-purpose, multi-stakeholder approach proposed for the SDNP and ONP represents an important further step in moving towards a more inclusive approach. NATURAL RESOURCE MANAGEMENT Forests: Almost all natural forest in Azerbaijan is designated as Forest Fund land. After many years during which forest inventory and management were controlled from Moscow and Tbilisi, a Forestry Development Department and Forest Protection and Rehabilitation Units (MENR) were established in Azerbaijan 2002. Its capacity is very weak due to lack of staff training and experience and resources. Since 2003, all forest cutting, for either commercial or sanitary purposes have been suspended by the MENR, and officially only forest residues are collected and sold. However, it is generally recognized that large quantities of standing trees continue to be cut illegally. Over the past ten years, forest coverage in Azerbaijan has been reduced from about 14% to 11% of the land area. A National Programme on the Rehabilitation and Extension 1 There is an independent Ministry of Environment and Natural Resources in the Nakhchivan Autonomous Republic, with similar responsibilities 2 Comprised of 38 PAs: 14 Strict Nature Reserves, 20 sanctuaries, 4 national parks Page 3 of Forests (established by Presidential Decree in December, 2001) aims to restore 20,000 ha of existing forest and plant some 43,000 ha of new forest, mainly in lowland areas. Due to insufficient funding, only about 3,000 ha of planting were completed in 2003. Meadows/Grasslands/Pastures: All high elevation summer pastures and a large proportion of mid-elevation winter pastures belong to the State. Some small pasture areas and hayfields belong to, or are under the management of, local municipalities. Municipal pastures are free for use, while grazing rights on State pastures are leased by the State Land Committee, together with Rayon Executive Authorities, to individuals or companies on the basis of grazing permits, usually with a duration of 10-15 years. While grazing rights are in principle allotted on the basis of numbers of animals, there are no specific legal provisions in the grazing contracts, and no monitoring on the part of authorities, to ensure that the official stocking rates are followed. In the SDNP area, it is estimated that the actual stocking rates are as much as five times higher than the official norm (totaling 2.5 million animals, as opposed to 500,000). BIODIVERSITY SIGNIFICANCE AND THREATS Azerbaijan’s high biodiversity results from its location at the convergence of three biogeographic regions (Europe, Central Asia and Asia Minor). The Caucasus mountains area 3 , has been identified by the World Wide Fund for Nature (WWF) as a Global 200 Ecoregion, and by Conservation International as one of the world’s 25 biodiversity “hotspots” (the only one in the ECA region). It is believed to contain more than twice the animal diversity found in adjacent regions of Europe and Asia, and a flora which is notable for its large number of endemic and relict species and as one of the world’s richest gene banks of wild relatives of important agricultural and medicinal plants. 4500 of the more than 7,000 plant species of the Caucasus can be found in Azerbaijan, and sever percent of these are endemic to the country. A recently completed ecosystem profile and five year investment strategy for the Caucasus eco-region 4 identified 10 key corridors, five of which were selected as top priority for conservation action. The five include the Greater Caucasus (which encompasses the proposed SDNP) and the East Lesser Caucasus (encompassing the ONP). Both the SDNP and ONP include elements of important transboundary migratory corridors. In addition to their significance as global, regional and national biodiversity assets, both the SDNP and ONP represent important economic assets, due to their rich natural resources and tourism potential. Shah Dag is Azerbaijan’s second highest mountain and serves as a watershed which provides much of the water for Baku and the Absheron Peninsula, which is home to nearly 30% of the country’s population . The proposed expanded ONP contains a large proportion of all high elevation pasture in the Nakchchivan Autonomous Republic. The Caucasus ecosystem profile identified deforestation, overgrazing and hunting as the three greatest direct threats to biodiversity. Underlying causes include poverty in rural areas, the end of importation of wood from other countries, the collapse of natural gas supply systems, political 3 Total area of 500,000 km 2 , between the Black Sea and Caspian Sea, including parts of Georgia, Armenia, Azerbaijan, and small parts of Russia, Iran and Turkey. 4 By the Critical Ecosystem Partnership Fund -- a joint initiative of Conservation International (CI), the Global Environment Facility (GEF), the Government of Japan, the MacArthur Foundation and the World Bank. Page 4 insecurity and the presence of large numbers of internally displaced people. Overgrazing of pastures has become a serious threat in the project areas since the late 1980’s, as more people took up shepherding or increased their herds in response to growing unemployment and declining economic opportunities in other sectors, and there is clear evidence of overgrazing at all altitudinal levels (montane, sub-alpine and alpine). Traditionally, sheep were grazed in alpine meadows in the summer, with subalpine meadows reserved for fodder production and used during the winter months. However with traditional grazing areas in the north Caucasus (Dagestan, Georgia) no longer accessible, livestock is kept nearer to villages all year round, resulting in overgrazing and degradation of fragile subalpine woodland ecosystems. RELATION TO GEF OPERATIONAL PROGRAMS Biodiversity conservation is the key focal area for the project. The project addresses GEF strategic priorities for biodiversity conservation through: (i) catalyzing sustainability of protected areas, (ii) mainstreaming biodiversity in production landscapes and sectors, and (iii) generating and disseminating best practices for addressing current and emerging biodiversity issues. Project activities will directly support innovative practical approaches called for by the 7th Conference of the Parties (COP-7) of the Convention on Biological Diversity (CBD) in its Decisions VII/1 “Forest Biological Diversity”, VII/11 “Ecosystem Approach”, and VII/28 “Protected Areas”. The project follows the GEF Strategic Guidelines and incorporates elements of several GEF Operational Programs: No. 3 (Forest Ecosystems): by supporting in-situ protection of ecologically mature temperate forest ecosystems under threat, and combining strict protection and multiple use to achieve sustainable forest management. Among other things, it will support the first comprehensive forest inventory and status assessment since 1984, making it possible to make sound management decisions. No. 4 (Mountain Ecosystems): by supporting in-situ conservation and sustainable use of biological resources, expanding and improving connectivity of the protected area system in the Greater and Lesser Caucasus mountains, and combining productive, socioeconomic and conservation goals. No. 12 ( Integrated Ecosystem Management): by emphasizing the creation of an enabling environment for biodiversity conservation, forest and rangeland management, the strengthening of institutional capacities at local, regional and national levels as well as investments in sustainable natural resource management. The GEF grant would finance costs of activities required to achieve global conservation benefits, which would be incremental to the baseline national program undertaken by the Government with support from the World Bank IDA credit and the PHRD grant. Page 5 2. Objectives Project Development Objective (PDO): The PDO is to introduce improved natural resource management and related economic activities in two mountainous areas of Azerbaijan, in order to enhance the ecological quality and the sustainable productivity of high elevation forests and pastures. Global Objective (GO): The GO is to protect biodiversity in two globally significant biodiversity areas within the Caucasus and Zangezur mountains, and introduce and pilot an inclusive model of Protected Area management in Azerbaijan. 3. Rationale for Bank Involvement The Azerbaijan SPPRED highlights the importance of environmental management: in a recent Bank review of integration of environment in Poverty Reduction Strategy Papers, Azerbaijan was ranked 5 th out of 53 countries worldwide 5 . The Country Assistance Strategy (CAS) for Azerbaijan 6 stresses the need to generate jobs and non-oil-based economic growth by improving the business environment, particularly in smaller urban and rural areas, and includes an IDA/GEF operation to support participatory approaches to sustainable forest, pasture and protected area (PA) management, and for promoting sub-regional cooperation in the globally significant ecosystems of the Caucasus mountains. The AREP will support CAS goals by enabling rural communities in the project areas to benefit from improved environmental management, adopt more profitable and environmentally sustainable livestock production systems, and initiate income-earning activities relating to natural resource use. The Bank’s support for rural development in Azerbaijan has largely focused on irrigated, arable land in low elevation areas, rather than the mountains. The AREP targets rural mountain areas, which are among the poorest in the country. In keeping with the NEAP, the Bank’s strategy for assistance to Azerbaijan in the environment sector has two main pillars: (i) managing environmental challenges connected with development of the oil industry and broader economic development especially in coastal areas; and (ii) addressing sustainable natural resource management within the context of rural development and conservation of Azerbaijan’s key ecosystems. The Azerbaijan Urgent Environmental Investment Project (AUEIP) and the regional Caspian Environment Program have focused on the first aspect, and also supported institutional strengthening for environmental management, including the creation of the Ministry of Ecology and Natural Resources (MENR). The AREP will continue this institutional support by helping MENR develop capacity for forest and pasture management and for PA management, including adoption of a participatory, multi-sectoral approach. This will help the GOA meet national objectives and international commitments. The AREP would be the first Bank-financed operation to support the NEAP objectives of improved pasture and forest management and biodiversity conservation. It offers the opportunity to bring to Azerbaijan a considerable body of knowledge and experience from numerous 5 Bojo et al., 2004. Environment in Poverty Reduction Strategies and Poverty Reduction Support Credits. Environment Department Papers No. 102, The World Bank. 6 FY03-05 CAS, April, 2003 Page 6 initiatives relating to protection and management of mountain forest and pasture ecosystems across the ECA region and elsewhere. While there is considerable interest on the part of Government and within the donor community to develop rural tourism in the Caucasus region, existing programs involving Azerbaijan are small (less than $1 million) and focus mainly on national policy and strategy, awareness raising, training, information and capacity building. For successful tourism development, this must be complimented by on-the-ground investment in park management and key infrastructure, which represents a substantial part of the proposed AREP. 4. Description The main instruments for achieving the project objectives will be the establishment of Shah Dag National Park (SDNP) and enlargement of Ordubad National Park (ONP), together with associated assistance for community economic development. The multiple-use PA model will allow existing residents of the park areas to remain in place, retain ownership of their land, and to engage in environmentally sustainable agriculture and other activities, based on jointly developed zoning and management plans. The community development aspects of the project aim to promote more sustainable livelihoods and economic activities in the project areas. In the short term the focus is on reducing pressure on natural resources and ecosystems and mitigating potential negative socio-economic impacts of increased restrictions on forest and pasture use, by helping local communities to develop alternatives and to improve the productivity and sustainability of their traditional economic activities, particularly livestock husbandry. The longer term objective is to promote a diversification of local economies, making them less dependent on mass consumption of natural resources. COMPONENT 1. National Parks Establishment and Management (US$ 8.72 million): This component will support the legal establishment (Shah Dag) and expansion (Ordubad) of the two national parks (NP). The total area of the SDNP will be about 343,000 ha, and the ONP will be enlarged from 12,200 to 137,000 ha 7 . The project will support measures to modernize and improve park management capacity, restore degraded areas, and increase participation of stakeholders in both parks. The multiple-use model will be implemented by establishing different management zones within the parks, including: core conservation zones, restoration zones, sustainable natural resource management zones, tourism development zones, and residential and economic development zones. Local communities and other stakeholders will participate in the preparation of zoning and management plans. This represents a significant departure from traditional approaches to biodiversity conservation in Azerbaijan, which has emphasized exclusive Strict Nature Reserves with no utilization or stakeholder participation. The project will pioneer this more inclusive approach in Azerbaijan, with considerable potential for replication as the PA system continues to grow in keeping with Government policy. The project will also support the development of environmentally sustainable tourism, as one economic sector in which these biodiversity-rich mountain areas have a comparative advantage. It will help address constraints to tourism development, such as rehabilitation of key 7 In addition to the existing ONP, this will encompass the existing Ordubad Natural Reserve ((27,869 ha) and Shakhbuz Strict Nature Reserve (3,300 ha) Page 7 infrastructure (e.g. access roads), and capacity for planning, regulation, marketing and monitoring of impacts. The majority of land in both of the NPs is grassland and meadow habitat, currently heavily used for grazing (low and mid-elevation pastures in winter, high elevation pastures in summer). Livestock density is far in excess of the sustainable carrying capacity. However, their numbers cannot be drastically reduced in the short term, because of weak management and enforcement capacity and also because it would have unacceptable impacts on local livelihoods. The project will focus on initiating a transition towards sustainable use by introducing grazing management in about 15-20% of the total pasture area, identified as highest priority on the basis of biodiversity value and ecological functions such as erosion control. All of the 90,000 has. of State forest land in SDNP and 1500 has. of forest in ONP will probably be demarcated initially as core conservation, ecological protection or restoration zones. Following detailed inventories and development of forest management plans, up to half of the SDNP forest may become designated for sustainable use in the longer term. Specific activities to be financed under this component include: delineation and demarcation of park boundaries; technical assistance and training for institutional capacity building; forest and pasture inventories, preparation of park zoning and management plans and annual operating plans; implementation of management plans, including reforestation in high priority areas, rehabilitation and limited construction of critical infrastructure for park management and tourism, and provision of essential equipment; implementation of an ecological monitoring system; and incremental operating costs. The component will be financed by GEF ($2.11 million), IDA ($3.65 m), PHRD ($1.70 m) and GOA ($1.27 m). COMPONENT 2. Community-level investment in sustainable agriculture and natural resource management (US$ 4.21 million) : This component will assist communities living inside or immediately adjacent to the two national parks to shift their traditional agricultural and natural resource use practices towards more modern and efficient approaches that place less pressure on natural resources and ecosystems. The main focus is on promoting a shift away from low value livestock husbandry based primarily on grazing in vulnerable high-elevation pastures, to more intensive and productive methods based on fodder production. With the help of technical advisors, communities will develop village investment plans, drawing upon a menu of options (seeds, fertilizers, agricultural equipment, small scale irrigation, milk collection and storage facilities, artificial insemination services, fencing material for pasture management, etc.). Assistance will also be provided for restoring and improving the management of badly degraded municipal pastures close to villages. In addition to fodder production, access to agricultural machinery and irrigation will help villagers to increase production of potatoes and other marketable crops (rehabilitation of access roads under Component 1 will enhance access to markets). Local demand for wood in the SDNP area is estimated to be as much as 20 times the sustainable off-take level, with the gap being met through illegal, unsustainable cutting. Even with restoration and better management, sustainable off-take from the natural forest will not be able to meet the current level of demand. The project will support pilot scale community-based Page 8 reforestation, and subsequent management, of denuded or badly degraded municipal and State forest lands, with the expectation that this approach will expand to much larger areas once government and community participants gain experience with it. The project will also support a small scale demonstration of the benefits of more efficient wood-burning stoves for domestic heating. The project will target 55 villages, representing about half of the total population in the two parks 8 . The villages and VCs will be selected on the basis of criteria, including their dependence on the natural resources of the park areas (and consequently the threat they currently represent to the park and their potential to be negatively affected by access restrictions imposed by park management); their interest in participating and willingness to organize themselves and to contribute time and labor; the amount of cultivatable land potentially available for forage production, etc.. Specific activities to be financed under this component include: technical assistance, small scale works (ponds and pipelines for irrigation; facilities for the MEs); goods and equipment for the village investments and services; and operating costs for the Municipal Enterprises that will implement Component 2 activities. This component will be financed by GEF ($1l19 m), IDA ($2.29 m), PHRD ($ 0.46 m), and Government ($ 0.48 m). COMPONENT 3. Rural Enterprise Development (US$ 1.96 million): In the past there were some medium-sized factories and commercial workshops in the project areas, but these have virtually disappeared since independence. Tourism is also very limited, with the few modern accommodations and services being mainly owned by people from outside the area. Component 3 aims to stimulate economic diversification in the project areas by assisting local entrepreneurs to start or expand small and medium commercial enterprises. The project will fund small mobile business advisory teams to help interested clients identify and assess the viability of commercial ventures and prepare business plans. It will also provide matching grants (ca. $2000-$10,000) for start-up or expansion of small or medium enterprises, based on independent evaluation of the business plans. When a larger amount or longer term financing is required, the advisors will help the prospective entrepreneurs apply for loans from existing banks or other credit institutions. For both the technical assistance and matching grants, priority will be given to activities that are linked to national park objectives (including tourism- related enterprises, alternative energy and energy efficiency, and value-added processing of sustainably harvested (non-threatened) natural products such as fruits and nuts) and enterprises that support Component 2 objectives (e.g. value-added dairy products). Proposals from the poorest villages, or those with a strong public goods element, will receive a higher proportion of grant financing, up to 100% in some cases. Given the time and resources available, the objective is not to achieve a large scale transformation of local economies, but to catalyze a shift by stimulating interest, demonstrating and testing different types of business opportunities, building local understanding and capacity for business planning and development, and creating an environment that will encourage other 8 Including 67% of the population inside the SDNP, and 29% of the population of villages inside or close to the boundaries of the ONP, as expansion of the ONP will have comparatively little impact on these villages Page 9 SME programs and micro-credit institutions to increase their presence in the project areas. This component will be financed by IDA ($0.65 million), GEF (0.63 million), PHRD ($0.53 million) and Government (0.15 million). COMPONENT 4. Project Management, Monitoring and Evaluation, and Communications (US$ 1.78 million): This component will support overall project management and administration, including the staffing and operating costs of a central Project Implementation Unit and three “branch” PIU offices (two in Shah Dag area, one in Ordubad area). The branch offices are needed because of the size, remoteness, difficulty of access and poor communications infrastructure of the project areas. The PIU will be responsible for procurement, financial management and general administration, including facilitating inter-Ministerial and inter-agency coordination, and for developing and implementing a Monitoring and Evaluation (M&E) system addressing both project operations and impacts, and be responsible for progress reporting. For Component 1, the M&E system will make use of the GEF/WWF Alliance PA Management Effectiveness Tracking Tool (METT). The PIU will also coordinate several cross-cutting activities, including the development and implementation of a communications plan (in collaboration with local authorities and NGOs) to increase awareness and knowledge of the project and its objectives and activities at all levels; detailed socio-economic studies to improve targeting of project benefits; and facilitating the development of a cross-sectoral, multi- stakeholder tourism development plan for the greater Shah Dag area. This component will be financed by GEF ($1.07 m), IDA ($0.37 m), and Government ($0.32 m). 5. Financing Source: ($m.) BORROWER/RECIPIENT 2.22 INTERNATIONAL DEVELOPMENT ASSOCIATION 6.96 GLOBAL ENVIRONMENT FACILITY 5.00 JAPAN: MINISTRY OF FINANCE - PHRD GRANTS 2.70 Total 16.88 6. Implementation A Project Implementation Unit (PIU), established under the Ministry of Ecology and Natural Resources, will have overall responsibility for project implementation and coordination, including planning, procurement (for all goods, works and services except those falling under community-based procurement, under Component 2), financial management and accounting, monitoring and evaluation, progress reporting, training on project implementation procedures, and cross-sectoral coordination and government liaison. The MENR PIU is well experienced in these matters, having served effectively for implementation of the Urgent Environmental Investment Project. For the AREP it is being strengthened technically (capacity in natural resources management) and with the addition of small, locally-based regional offices to facilitate implementation and communication with stakeholders in these large, remote areas. The regional offices will also serve as a home base for the long-term technical service providers under Components 2 and 3. Page 10 MENR, through its Department of Biodiversity Conservation and Development of Specially Protected Natural Areas (DBCDSPNA) will have overall responsibility for implementation of Component 1. However, in Azerbaijan, each Specially Protected Natural Area (SPNA) is established as a separate legal entity with its own Charter, which lays out its objectives, rules and regulations and legally establishes its management body (Administration). For ONP, the existing park Administration will continue, with some restructuring and increase in staff to address the much larger area and expanded objectives and management requirements. For SDNP, a new type of structure will be established to accommodate the diversity of land use, land ownership and stakeholders involved. This will include a multi-sectoral Governing Board 9 , an executive SDNP Administration (SDNPA) which reports to the Governing Board, and a Stakeholder Advisory Group. The overall structure will be approved by Cabinet to ensure the effective collaboration of the different line ministries. The five existing SPNAs and the six State Enterprises for Forest Conservation and Restoration in the SDNP area will be dissolved as separate entities and incorporated into SDNP. Overall responsibility for management of State Forests and State pasture lands within the park areas will be transferred to the park Administrations, but the management will be implemented in conjunction with key stakeholders such as the Ministry of Agriculture (MA) and the Chief Local Executive Authorities of the Rayons. The main institutional mechanism for implementation of Component 2 will be Municipal Enterprises (ME), which are non-profit legal entities owned by the Balladiyas. Participating villages will be grouped in Village Clusters (VC) with 3-5 villages each, for more efficient and cost-effective implementation. Because of limited time and resources, about half the villages within the project areas will participate directly in Component 2. These have been identified based on criteria such as population density, accessibility, availability of agricultural land for fodder crop production, and the extent to which the villages represent a source of pressure on the natural resources in the parks (and are likely to suffer negative impacts due to grazing restrictions). The project will meet capital and operating costs of the MEs for 18 months, but MEs will charge for services such as artificial insemination, milk collection, agricultural extension and rental of agricultural equipment, with the expectation that they will continue to operate beyond the project. In the absence of suitable service providers in the project areas, implementation of Component 3 will be contracted to a business consulting firm or suitable NGO 10 . The contractor will establish small mobile business advisory teams, whose responsibilities will include: (i) preparation and dissemination of awareness-raising and instructional materials; (ii) one-on-one support to interested clients to identify business opportunities and prepare business plans and grant applications; and (iii) where appropriate, assisting clients to identify credit providers and prepare loan applications. A second contract will be awarded for administration of the matching grants program, including: evaluating proposals for their technical, financial, environmental and social viability and passing recommendations to an Awarding Committee (headed by the PIU); administering and monitoring the use of grant funds; and regular reporting to PIU on progress of implementation of these activities. 9 including representatives from other Ministries with direct interests in the area (e.g. Agriculture, Tourism, etc.), Rayon Executive Authorities, Balladiyas, NGOs and the private sector 10 The preference is for a single contract, but separate contracts for SD and Ordubad areas may be required Page 11 7. Sustainability The project aims to put in place systems for more sustainable use of natural ecosystems that are currently being overused and degraded, and to promote economic development that will reduce reliance on mass consumption of natural resources. In the short term this will be mainly through improved protection, but the longer term objective is develop community/user-based management systems and to trigger a shift from traditional, low-input livelihoods based on mining of natural resources (forests and pastures) towards more value-added economic activities that are less dependent on these resources or use them more efficiently. Because of the short time frame, the project can only serve as a catalyst for such a shift, by introducing new approaches, demonstrating opportunities, changing incentives, providing some start-up capital, and improving market access through rehabilitation of key access roads. These multiple-use NPs are expected to be more sustainable in the long run than conventional, exclusive PAs because they will enjoy greater local and national support. The Government is committed to expanding its PA system and to providing the necessary recurrent budget, and the resources available for this purpose hould increase over the next few decades with overall economic growth from oil revenues. At the same time, the scale of institutional development and capital investment is being limited to reduce operating costs. Over the longer term, the PA system will have the potential to generate revenues from tourism (entry fees, concessions, etc.) to help cover maintenance costs. At present the parks cannot legally retain revenues to supplement operating budgets, but changing this will be a key objective in modernizing the PA system over the next few years. The community level investments to be supported under Component 2 are expected to be sustainable because they will be selected by the communities based on their own needs and priorities. The Municipal Enterprises will have low operating costs and will operate on a cost recovery basis, so that they can continue beyond the life of the project. To maximize viability and sustainability of small enterprises supported by the project, the matching grants will normally require applicants to present a long-term financing plan and provide at least 50% of start-up cost. 8. Lessons Learned from Past Operations in the Country/Sector Based on experience with similar projects in the Europe/Central Asia Region and elsewhere, the following lessons have been incorporated into the project design: · Project design should be focused, limited in terms of geographic area and types of activities; new approaches should be piloted before mainstreaming them at national level; · Be realistic about what can be achieved within the available time frame and the capacity of implementing agencies, particularly when the project involves elements such as the introduction of new ideas, approaches and skills; substantial strengthening or establishment of new institutional structures; community mobilization and participation; or restriction of traditional access to natural resources 11 ; 11 Which involves implementation of an Access Restriction Process Framework Page 12 · Set specific and realistic objectives and interim targets, which can be used to evaluate progress and re-orient components or implementation approaches if needed; · Combine enforcement and incentives for effective protection and sustainable management of biodiversity and natural systems; · Involve key stakeholders early in the project design and in the preparation phase to ensure ownership and to ensure that the design and specific investments make sense in the country and local contexts; · Combine financial assistance for SME start-ups/expansion with professional business advice and, to the extent possible, address constraints in the overall business environment (tax and other policies, regulatory processes, infrastructure, etc.); These lessons are reflected in the project design. For example, the project will focus on the Shah Dag and Ordubad areas, rather than addressing the overall PA system, with the objective of demonstrating approaches that can be replicated in other areas. Considerable effort has been made to involve local stakeholders in the preparation phase, including the establishment of local project offices, and the project includes measures to ensure communities have the opportunity, means, knowledge and incentives to participate in park management. Component 2 is strongly focused on livestock improvement and related economic activities, rather than supporting a broad menu of potential local development objectives. Implementation targets are purposely modest, based on a realistic implementation schedule that allows adequate time for key steps including recruiting personnel, procuring works and goods; carrying out community mobilization, awareness-raising and participatory planning activities; building institutional capacity; developing business plans; etc. The project includes a substantial investment in Technical Assistance (TA) for PA management, community mobilization and small enterprise development, because preparation studies identified a lack of such services in the project areas as a major potential constraint to success. However, the TA is primarily local, and structured to ensure an emphasis on capacity building and in-service training. Experience from the Azerbaijan Rural Investment Project (among others), indicated the importance of identifying institutional mechanisms for implementing community-level investment activities at an early stage, and also the limitations of relying on existing NGOs or community organizations. Based on consultations with stakeholders and legal specialists, Municipal Enterprises were selected as the most appropriate vehicle, as they are already familiar to most people, are relatively easy to create, and their assets belong to the municipality, which is a well-established elected body representing the entire community. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP / GP 4.01) [X] [ ] Natural Habitats ( OP / BP 4.04) [X] [ ] Pest Management ( OP 4.09 ) [ ] [X] Cultural Property ( OPN 11.03 , being revised as OP 4.11) [ ] [X] Involuntary Resettlement ( OP / BP 4.12) [X] [ ] Indigenous Peoples ( OD 4.20 , being revised as OP 4.10) [ ] [X] Forests ( OP / BP 4.36) [X] [ ] Safety of Dams ( OP / BP 4.37) [ ] [X] Page 13 Projects in Disputed Areas ( OP / BP / GP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP / GP 7.50) [ ] [X] The project is expected to have an overall positive environmental impact by conserving globally and nationally significant biodiversity, protecting rare, transboundary ecosystems and the enhancing the sustainability of natural resource use in the project areas. Other likely environmental benefits include: reduced soil erosion (improving downstream water quality), flood moderation (protecting downstream infrastructure such as roads, bridges and irrigation systems), and carbon sequestration in improved pastures and forests. Barn improvements (sanitation and ventilation) under Component 2 will improve environmental health conditions both for livestock and for the people who handle them. The Environmental Assessment ( OP 4.01) undertaken during project preparation identify the following potential environmental impacts from the project: (a) degradation of flora and fauna, erosion and waste disposal caused by construction and/or rehabilitation of infrastructure within the National Parks, including checkpoints and guard stations, visitor centers, roads and trails, etc.; (b) disturbance of wildlife, generation of solid waste, overuse or pollution of surface water and various social disruptions due to increased tourism/recreational use; and (c) impacts associated with construction, waste disposal, over-harvesting of vulnerable species, etc. caused by some micro-projects under Components 2 and 3. Mitigation measures to address these impacts are outlined in the Environmental Management Plan (EMP), and will be incorporated into the Project Implementation Plan, and into the Operational Manual for Components 2 and 3. These include assessing proposed construction sites for potential biodiversity or environmental concerns, including waste management measures and site clean-up requirements in construction designs and contracts, environmental screening of micro-project proposals, etc. The EMP also lays out responsibilities of the MENR and other government agencies, the PIU and micro-project beneficiaries. These include carrying out the appropriate level of environmental screening or assessment, and obtaining required clearances and environmental permits and monitoring compliance and impact . The Natural Habitats Policy ( OP 4.04) and the Forest Policy ( OP 4.36) are triggered because the project areas include relatively pristine natural habitats, a large part of which is indigenous forest, for which management plans will be developed and implemented. However, the project will result in improved protection of these areas, not result in any destruction or increased exploitation. Natural areas with high biodiversity value, including the existing PAs, will be incorporated into the two new National Parks as core conservation areas, and their protection is expected to improve as a result of the project. Support for livestock husbandry are not expected to increase livestock numbers in the area, as it will introduce and support methods that promote intensified (fodder and stall-fed) rather than extensive grazing approaches. There are no important endemic local livestock or crop varieties at risk of being displaced by introduction of improved varieties. * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 14 Although no villages or households will be relocated and land ownership and rights will not be affected, the World Bank’s Involuntary Resettlement Policy (OP 4.12) is triggered because the establishment/ enlargement and improved enforcement of the two National Parks will reduce access to pastures and forests that are traditionally used and important for local livelihoods. In the long term, restoration and sustainable management of these ecosystems will benefit the users, but the short term impacts need to be mitigated, as detailed in the project’s Access Restriction Process Framework. These include involving local users in park zoning and management planning, phasing in of grazing restrictions, and support for developing alternative livestock rearing methods, sources of wood, and income sources (including some employment in the parks themselves). Development assistance provided under Components 2 and 3 will be particularly targeted to villages that are most affected (those nearest areas which become closed to grazing). Matching requirements for grants will be reduced or eliminated for applicants from the highest elevation (poorest and most vulnerable) villages, and for enterprises with particularly high social benefits. 10. List of Factual Technical Documents Process Framework. Gordon Appleby Environmental and Social Impact Assessment. ACEP Economic and Financial Analysis for Azerbaijan Rural Environment Project. Jacobs GIBB LTD 11. Contact point Contact: Agnes I. Kiss Title: Lead Ecologist Tel: (202) 458-7180 Fax: Email: Akiss@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop