The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) REPORT NO.: 150175 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ADDITIONAL FUNDING FOR READINESS PREPARATION GRANT APPROVED ON FEBRUARY 5, 2018 TO REPUBLIC OF NICARAGUA JUNE 29, 2020 ENVIRONMENT, NATURAL RESOURCES AND BLUE ECONOMY GLOBAL PRACTICE LATIN AMERICA AND CARIBBEAN Regional Vice President: J. Humberto Lopez (Acting) Country Director: Yaye Seynabou Sakho Regional Director: Anna Wellenstein Practice Manager/Manager: Valerie Hickey Task Team Leader(s): Zenia María Salinas Vallecillo 1 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) ABBREVIATIONS AND ACRONYMS BSP Benefit Sharing Plan BOSAWAS BOSAWAS Biosphere Reserve CFM Carbon Fund Meeting ENDE REDD+ National Avoided Deforestation Strategy (for its Spanish Acronym) ER Emission Reductions ERP Emission Reductions Program FCPF Forest Carbon Partnership Facility FGRM Feedback Grievance Redress Mechanism INAFOR National Forest Institute (for its Spanish Acronym) INETER Nicaraguan Institute of Territorial Studies (for its Spanish Acronym) MARENA Ministry of Environment and Natural Resources (for its Spanish Acronym) MEFCCA Ministry of Family Economy (for its Spanish Acronym) PC Participants Committee (of the FCPF) PCN Pacific-Northern/Center region RAF Readiness Assessment Framework (of the FCPF) REDD+ Reduction of Emissions from Deforestation and forest Degradation REL Reference Emissions Level SDCC Secretary for the Development of the Caribbean Coast SPPP Secretary of the Presidency for Public Policy US United States 2 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) BASIC DATA Product Information Project ID Financing Instrument P120657 Carbon Offset Trust Fund Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 30-January-2018 30-June-2020 Organizations Borrower Responsible Agency Ministry of Environment and Natural Resources Republic of Nicaragua (MARENA) OPS_PROCESSING_DISCLOSABLE_TABLE Processing Form Type Based on the proposed changes this Restructuring type is Short Restructuring Paper Level 2 Decision Authority CD Decision Project Development Objective (PDO) Original PDO: To help Nicaragua become ready for future ENDE-REDD+ implementation by preparing those its key elements, systems, and/or policies needed, in a socially and environmentally sound manner. PDO of current Project: To help Nicaragua become ready for future ENDE-REDD+ Strategy implementation by preparing its key elements, systems, and/or policies needed, in a socially and environmentally sound manner. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (in US$ million) 1 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF099264 30-Jan-2018 30-Jan-2018 11-Apr-2018 30-Jun-2020 5.0 4.88 0.12 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Explanation Has the waiver(s) been endorsed or approved by Bank Management? Explanation 2 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Grant for this Project is funded by the Forest Carbon Partnership Facility (FCPF), of which the World Bank acts as a Trustee. The Agreement, dated January 30, 2018, was countersigned on the same date and a corrigendum was signed on February 5, 2018. The Agreement was declared effective on April 11, 2018. The Grant amount for this Project is US$5 million, which corresponds to an Additional Funding approved by FCPF through Resolution PC/22/2016/8. The original Grants (for US$0.2 million and US$3.6 million) were signed on August 31, 2011 and December 26, 2013, respectively, resulting in a total grant of US$8.8 million. The current Grant supports the implementation of Reduced Emissions from Deforestation and Forest Degradation (REDD+) Readiness activities as per the Readiness Preparation Proposal approved by the FCPF. 2. The Project Development Objective (PDO) is “to help Nicaragua become ready for future ENDE-REDD+ Strategy implementation by preparing its key elements, systems, and/or policies needed, in a socially and environmentally sound manner�. Currently, US$4,882,432 (98 percent) of the Grant proceeds has been disbursed. Nicaragua, through the Ministry of Environment and Natural Resources (MARENA), has made progress on REDD+ readiness preparation by building on the country’s effort to grant land rights to Indigenous and Afro-descendant Communities, as follows: (a) Component 1 – Readiness Consultation and Organization (i) Subcomponent 1a: National REDD+ Management Arrangements. MARENA put in place a Project Management Unit that implements the REDD+ funding, which comes mainly from FCPF support, and coordinates REDD+ activities. MARENA coordinates the REDD+ National Management Platform, comprised of the main national government institutions involved in land-use change, including the Ministry of Family Economy (MEFCCA), the National Forest Institute (INAFOR), the Secretary for the Development of the Caribbean Coast (SDCC), and the Secretary of the Presidency for Public Planning (SPPP). The National Management arrangement also includes the Northern and Southern Caribbean Coast Regional Autonomous Governments and 23 Indigenous and Afro- descendant Governments. MARENA also coordinates the Monitoring, Reporting, and Verification (MRV) roundtable integrated by INAFOR and the Nicaraguan Institute for Territorial Studies (INETER); it is responsible for inquiries, complaints, and grievances by stakeholders, and information sharing and stakeholder consultation and participation. The REDD+ Management Platform is divided in three Groups: Group I, the steering committee, is integrated by authorities of the above institutions; Group II is the technical working group composed by technical-level representatives of the above-mentioned institutions; and Group III is integrated by the broad based of stakeholders who participate in consultations. (ii) Subcomponent 1b: Consultation, Participation, and Outreach. MARENA regularly engages with key stakeholders and facilitates their participation in the REDD+ preparation process, including on activities related to the national REDD+ Strategy, the Emission Caribbean Coast Program (ER Program), reference levels, and the MRV system. Consultation and participation of key stakeholders build on early dialogues organized during the implementation of the original grants, and of the plan for consultation, participation, and outreach undertaken as part of the Strategic Environmental and Social Assessment. MARENA makes efforts to engage marginalized groups, 3 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) including forest-dependent women, youth, Indigenous Peoples and Local Communities. The consultation process has been inclusive and transparent. (b) Component 2 – REDD+ Strategy Preparation (i) Subcomponent 2a: Assessment of Land Use, Land-Use Change Drivers, Forest Law, Policy and Governance. MARENA conducted in-depth assessments to identify key drivers of deforestation and forest degradation, as well as activities concerning conservation, sustainable forest management, and enhancements of forest carbon stocks. The assessments also show how shortcomings in current land use, in forest law, policy, and governance contribute to deforestation and forest degradation, and presented solutions. The Readiness Grant contributed to strengthen the INAFOR’s National Forest Program, which informed the country’s REDD+ strategy and identified ways to address the priority drivers of deforestation and forest degradation. (ii) Subcomponent 2b: REDD+ Strategy Options. MARENA, together with the National Management Platform, developed the first version of the National Avoided Deforestation Strategy REDD+ Strategy focused on the Caribbean Coast. This version of the REDD+ Strategy forms the basis for the development of a set of policies that integrates the Emission Reductions Program (ERP) of the Caribbean Coast, the BOSAWAS Biosphere Reserve and the Indio Maíz Biological Reserve. The FCPF Carbon Fund accepted the ERP on July 2019. The second version of the REDD+ strategy includes the Pacific-Central-Northern (PCN) part of the country. The REDD+ Strategy addresses the drivers of deforestation and forest degradation in the context of the national priorities for sustainable development, the National Climate Change Policy, and the Nationally Determined Contributions to the climate change mitigation goals of the Paris Agreement. (iii) Subcomponent 2c: Implementation Framework. MARENA defined institutional and legal arrangements to implement the ERP, which will inform the implementation arrangements for the REDD+ Strategy. The first version of the REDD+ Strategy includes line actions specific to the circumstances of the Caribbean Coast. The Project supported an update of the SDCC strategy to include REDD+ dimensions. The institutional arrangements define the role of government, landowners, and other participants in REDD+ transactions to share and deliver REDD+ benefits, respecting the rights of Indigenous Peoples and forest-dependent communities, and to manage carbon transactions through transparent process. The implementation framework will be tested with the ERP of the Caribbean Coast, BOSAWAS, and Indio Maíz. MARENA also promoted the adoption of legislation to adopt the Benefit Sharing Plan (BSP); defined carbon rights and sought the opinion of the General Attorney about the adopted definitions; defined Benefit Sharing mechanisms and financial modalities; and developed a Feedback Grievance Redress Mechanism (FGRM). MARENA still must define procedures for official approvals of the BSP and define a National REDD+ Registry of REDD+ activities. (iv) Subcomponent 2d: Social and Environmental Impacts. MARENA assessed the environmental and social impacts of the priority REDD+ Strategy Options to develop the REDD+ Strategy and the stand-alone Environmental and Social Management Framework to address the environmental and social impacts of the REDD+ Strategy and the ERP, in compliance with the Bank’s Environmental and Social Standard. MARENA also created an institutional structure to ensure effective management of social and environmental issues. 4 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) (c) Component 3: Reference Emissions Level (REL). MARENA developed a methodology and protocol to determine the REL both at the national level and for the ERP accounting area. The MRV roundtable estimated changes in forest area and carbon content over time and the corresponding emissions, used to measure performance of REDD+ policy interventions relatively to the REL. (d) Component 4: Monitoring Systems for Forests, and Safeguards. (i) Subcomponent 4a: National Forest Monitoring System. The MRV roundtable developed a system capable of generating information that allows comparison of changes in forest area and carbon content relatively to the REL. However, the development of an operational forest monitoring system is a long-term effort that entails a combination of remote sensing and field-based data collection from the national forest inventory. (ii) Subcomponent 4b: Information System for Multiple Benefits, Other Impacts, Governance, and Safeguards. MARENA developed a system to monitor priority non-carbon benefits such as biodiversity conservation and creation of employment. The system will also allow to monitor, report, and share information regarding implementation of the safeguards plans. 3. Procurement performance and Financial Management are rated satisfactory, and there are no outstanding audits. The Environmental Assessment (EA) Category remains B and safeguards performance is rated satisfactory. B. Rationale for restructuring 4. MARENA was unable to meet the original timeline for Grant implementation, mainly due to the need to address stakeholder issues. Some Civil Society Organizations (CSOs) manifested concerns about the ERP, reflecting their lack of familiarity with REDD+. Addressing these concerns required MARENA to strengthen the communication, consultation, and stakeholder engagement plan. Doing this compromised MARENA’s ability to complete some activities in the original plan, including on the ENDE-REDD+ Strategy, the FGRM, the benefit-sharing mechanism and consultation plan, as well as ERP safeguards and legal packages required for ERPA signing. 5. The Closing Date extension would allow MARENA to complete the following activities: a. Conduct a final round of local-level consultation on the BSP. b. Finalize, publish and disseminate the second version of the REDD+ Strategy. c. Establish a Safeguards and FGRM Commission, which will be responsible for overseeing implementation of ERP safeguards plans. d. Finalize the ERP implementation framework, particularly the benefit-sharing mechanism. e. Continue implementing the strengthened communications, stakeholder engagement, and consultations plan. 6. To complete activities within the extended timeframe, MARENA developed an action plan. II. DESCRIPTION OF PROPOSED CHANGES C. Proposed Changes 5 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) 7. This is a Level II restructuring for an extension of the Closing Date by six months from June 30, 2020 to December 31, 2020. There are no changes to the PDO. The proposed extension will allow to carry out the above-mentioned activities and to achieve the PDO and associated targets. 8. The extension of the Closing Date fully complies with the Bank Directive for Investment Project Financing as: (i) the PDO remains achievable; (ii) the performance of MARENA remains satisfactory; (iii) the World Bank and MARENA agree on actions that will be undertaken to complete Grant activities; (iv) the Grant is not subject to suspension of disbursements; and (v) MARENA does not have any outstanding or qualified audit reports. 9. The revised (proposed) disbursement estimates are based on the detailed Action Plan that was submitted by MARENA along with the request for extension. Proposed estimates for FY19 and FY20 are actual disbursements to date. 10. The implementation schedule has been revised and presented in the Action Plan attached to the Government’s request of extension. 11. The overall risk rating remains unchanged. III. SUMMARY OF CHANGES Changed Not Changed DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ EA category ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ APA Reliance ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ 6 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ Implementing Agency ✔ DLIs ✔ Safeguard Policies Triggered ✔ Legal Covenants ✔ IV. DETAILED CHANGE(S) OPS_DE TAILE DCHA NGES_ PD O_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications TF099264 Effective 30-Jun-2020 30-Jun-2020 31-Dec-2020 30-Apr-2021 OPS_DE TAILE DCHA NGES_ CANCELLATI ONS_ TABLE OPS_DE TAILE DCHA NGES_REA LLOCAT ION _TABLE OPS_DE TAILE DCHA NGES_ DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Year Current Proposed 2018 600,000 600,000 2019 3,700,000 2,058,635 2020 700,000 2,223,797 2021 0 117,568 Total 5,000,000 5,000,000 OPS_DE TAILE DCHA NGES_S ORT_TABLE 7 The World Bank Nicaragua REDD+ Readiness Preparation Support Project (P120657) SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance ⚫ Substantial ⚫ Substantial Macroeconomic ⚫ Moderate ⚫ Moderate Sector Strategies and Policies ⚫ High ⚫ Moderate Technical Design of Project or Program ⚫ Moderate ⚫ Moderate Institutional Capacity for Implementation and ⚫ Substantial ⚫ Substantial Sustainability Fiduciary ⚫ Moderate ⚫ Moderate Environment and Social ⚫ High ⚫ Substantial Stakeholders ⚫ Substantial ⚫ Substantial Other N/A N/A Overall ⚫ Substantial ⚫ Substantial OPS_DE TAILE DCHA NGES_E A_TABLE Environmental Assessment (EA) Category Change of EA Category Original EA Category N/A Partial Assessment (B) Current EA Category Proposed EA Category Partial Assessment (B) 8