59120 Document of The World Bank FOR OFFICIAL USE ONLY ------ ----- ------ Report No: AB4149 PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF EURO 20.8 MILLION (US$28.8 MILLION EQUIVALENT) TO THE REPUBLIC OF CROATIA FOR A EUROPEAN UNION NATURA 2000 INTEGRATION PROJECT DECEMBER 29, 2010 ENVIRONMENT AND NATURAL RESOURCES MANAGEMENT EUROPE AND CENTRAL ASIA This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank's policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective October 31, 2010) Currency Unit = Euro 1 Euro = US$1.3861 FISCAL YEAR Republic of Croatia: January 1 ­ December 31 World Bank: July 1 - June 30 ABBREVIATIONS AND ACRONYMS DA Designated Account ECA Europe and Central Asia EMF Environment Management Framework EU European Union GAF Governance and Accounting Framework GIS Geographic Information System GPS Global Positioning System IBRD International Bank for Reconstruction and Development IFI International Financial Institution INSPIRE Infrastructure for Spatial Information in Europe ISP Implementation Support Plan KEC Karst Ecosystem Conservation LAG Local Action Groups MoC Ministry of Culture MP Management Plan MPA Marine Protected Areas Natura 2000 European Union-wide network of nature conservation areas established under the 1992 Habitats Directive and the 1978 Birds Directive NEN National Ecological Network NGO Non Governmental Organization NSDI National Spatial Data Infrastructure PA Protected Area PIU Project Implementation Unit POM Project Operation Manual PPF Project Preparation Facility PROFOR Program on Forests SAC Special Areas of Conservation SF Structural Funds SGA State Geodetic Administration SINP State Institute for Nature Protection TA Technical Assistance Regional Vice President: Philippe Le Houérou Country Director: Peter Harrold Sector Director: Peter Thomson Sector Manager: John Kellenberg Co-Task Team Leaders: Nathalie Johnson and Vera Dugandzic Table of Contents I. Strategic Context .................................................................................................................. 10 A. Country Context .......................................................................................................... 10 B. Sectoral and Institutional Context............................................................................... 10 C. Higher Level Objectives to Which the Project Contributes........................................ 14 II. Project Development Objectives.......................................................................................... 15 A. PDO............................................................................................................................. 15 B. Project Beneficiaries ................................................................................................... 15 C. PDO Level Results Indicators ..................................................................................... 15 III. Project Description............................................................................................................... 16 A. Project Components .................................................................................................... 16 B. Project Financing ........................................................................................................ 17 C. Project Costs and Financing (million Euros) .............................................................. 18 IV. Implementation .................................................................................................................... 18 A. Institutional and Implementation Arrangements ........................................................ 18 B. Results Monitoring and Evaluation ............................................................................ 19 C. Sustainability............................................................................................................... 20 V. Key Risks and Mitigation Measures .................................................................................... 21 VI. Appraisal Summary ............................................................................................................. 21 A. Economic and Financial Analysis ............................................................................... 21 B. Technical ..................................................................................................................... 23 C. Financial Management ................................................................................................ 23 D. Procurement ................................................................................................................ 24 E. Social (including safeguards) ...................................................................................... 24 F. Environment (including safeguards) ........................................................................... 25 Annex 1: Results Framework and Monitoring.............................................................................. 27 Annex 2: Detailed Project Description ........................................................................................ 30 Annex 3: Implementation Arrangements ..................................................................................... 33 Annex 4: Full Operational Risk Assessment Framework (ORAF) ............................................. 44 Annex 5: Implementation Support Plan ........................................................................................ 48 Annex 6: Team Composition ........................................................................................................ 53 Annex 7: Economic and Financial Analysis ................................................................................. 54 Annex 8: Consultative and Participatory Elements in the Protected Areas and Land Surveying Laws of Croatia ........................................................................................................... 77 PAD DATA SHEET Croatia EUROPEAN UNION NATURA 2000 INTEGRATION PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: December 29, 2010 Sectors: General public administration sector (70%); Country Director: Peter C. Harrold General agriculture, fishing and forestry sector Sector Director: Peter Thomson (15%); Forestry (15%); Themes: Biodiversity (50%); Sector Manager: John V. Kellenberg Environmental policies and institutions (10%); Team Leader(s): Nathalie Johnson Participation and civic engagement (20%); Other Project ID: P111205 rural development (20%) Lending Instrument: Specific Investment EA Category: B Partial Assessment Loan Project Financing Data: Proposed terms: Payable in 20 years, including 5 years of grace and level principal repayment, at six-month EURIBOR for Euro plus variable spread for Variable-Rate Single Currency Loans, subject to any waiver of a portion of such interest as may be determined by the Bank from time to time. [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Amount (Euro M) Total Project Cost: 43.68 Cofinancing: 20.00 (parallel EU Structural Funds) Borrower: 2.88 Total Bank Financing: IBRD 20.80 Borrower: Republic of Croatia Responsible Agency: Mr. Zoran Siki, State Secretary for Nature Protection Ministry of Culture Runjaninova 2 Zagreb 10000 Croatia Tel: 385 1 4866 315; Fax: 385 1 4866 385 zoran.sikic@min-kulture.hr 4 Estimated Disbursements (Bank FY/ Euro M) FY 11 12 13 14 15 16 Annual 0.78 5.91 7.48 3.88 1.78 0.98 Cumulative 0.78 6.69 14.16 18.04 19.82 20.80 Project implementation period: 5 years Expected effectiveness date: March 15, 2011 Expected closing date: April 30, 2016 Does the project depart from the CAS in content or other Yes No significant respects? If yes, please explain: Does the project require any exceptions from Bank policies? Yes No Have these been approved/endorsed (as appropriate by Bank Yes No management? Is approval for any policy exception sought from the Board? Yes No If yes, please explain: Does the project meet the Regional criteria for readiness for Yes No implementation? If no, please explain: Project Development Objectives: (i) Support Park and County Public Institutions to implement Natura 2000 objectives in investment programs; (ii) strengthen capacity for EU-compliant reporting and biodiversity monitoring; and (iii) introduce programs that involve a wide group of stakeholders in Natura 2000 network management. 5 Supported through the following three components: 1. Ecological Network Investments: Protected area and national ecological network site investments to help demonstrate and strengthen integration of Natura 2000 objectives; consultant services for nature interpretation design; and engineering services. Priority technical equipment will be provided for park rangers, the State Institute for Nature Protection, and the Ministry of Culture, and fire protection equipment for coastal protected areas. 2. Ecological Network Data Systems: Consulting services to help plan, prioritize, and organize biological inventory and populate data systems to fulfill EU reporting requirements; field work to perform biological inventory and habitat mapping and monitoring services; consultant services to harmonize data systems with the EU INSPIRE Directive requirements, and computer hardware and software upgrades. 3. Ecological Network Capacity Building: Consultant services to help promote inter- sectoral cooperation; and pilot programs to (i) develop proposal of agri-environment measures for Natura 2000 sites, (ii) improve protected areas boundary delineation, (iii) introduce a park volunteer program, and (iv) diversify protected area finance. It will also support training on accessing EU grant programs for nature protection and tools to improve park management; learning through study tours and seminars; a public information campaign; and project management and operating costs. Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Yes No Natural Habitats (OP/BP 4.04) Yes No Forests (OP/BP 4.36) Yes No Pest Management (OP 4.09) Yes No Physical Cultural Resources (OP/BP 4.11) Yes No Indigenous Peoples (OP/BP 4.10) Yes No Involuntary Resettlement (OP/BP 4.12) Yes No Safety of Dams (OP/BP 4.37) Yes No Projects on International Waters (OP/BP 7.50) Yes No Projects in Disputed Areas (OP/BP 7.60) Yes No Conditions and Legal Covenants: N/A (No dated Covenants or Conditions) Loan Agreement Description of Condition/Covenant Date Reference Due 6 Section I. 1. The Borrower, through Ministry of Culture (MOC), shall assign the overall Implementation oversight and implementation of the Project to the Nature Protection Directorate Arrangements (NPD). A. Institutional Arrangements 2. The Borrower shall ensure that MOC carries out the Project in accordance with the provisions of the Project Operation Manual (POM) and the Environmental Management Framework (EMF), and shall not amend, waive or abrogate any provisions of the POM or EMF without the Bank's prior approval. 3. The Borrower shall maintain, during and until the completion of the Project, the Project Coordination Committee (PCC) chaired by the State Secretary for Nature Protection of MOC and formed, as described in the MOC Decision no. 612-07/09- 44/3 dated November 26, 2009, by representatives from different government bodies, a representative of civil society and representatives of the State Institute for Nature Protection, the National Parks, Nature Parks, and County Public Institutions. The PCC shall be responsible for: (i) monitoring and supervising implementation of Project activities; (ii) coordination of Project activities with program activities of institutions represented in the PCC, and (iii) exchange of information. 4. The Borrower, through MOC, shall maintain, until the completion of the Project, a Project Implementation Unit (PIU), located within the Department for Strategic Planning in Nature Conservation and European Integration (DSPNCEI) under the NPD, and ensure that the PIU functions at all times in a manner satisfactory to the Bank. The PIU shall report to a Project Director who is the head of NPD and it shall be comprised of a full time project coordinator, full time procurement specialist, full time financial management specialist, a full time specialist in economics and monitoring and evaluation. 5. The Borrower, through MOC, shall maintain, until completion of the Project, a Project Support Unit (PSU) within the State Institute for Nature Protection (SINP) to provide the MOC with expertise knowledge, information for planning and procurement, and to actively help with implementation of tasks under Part II of the Project. The PSU shall be lead by the Director of SINP and shall consist of SINP experts. Section I. 1. The Borrower shall implement the Project activities in accordance with the EMF Implementation and shall conduct the activities described in Schedule 1, Part I of the Loan Arrangements Agreement in accordance with the EMF and the specific site Environmental C. Safeguards Management Plans (EMPs) adopted for each investment site involving civil works. 2. The Borrower shall: (a) prior to tendering of works for investments to be financed under Part I of the Project, develop and adopt site specific EMPs for each of the respective site in accordance with the template incorporated in the EMF; (b) disclose such EMPs and conduct proper consultations in accordance with the EMF; and (c) carry out the Project activities under Part I in accordance with the EMF and the respective EMP. 3. The Borrower shall conduct the activities described in Schedule 1, Part I of the Loan Agreement in accordance with the Ecological Network Impact Assessment (or Appropriate Assessment). 7 Section II. Project 1. The Borrower shall maintain or cause to be maintained a financial management Reporting and system in accordance with the provisions of Section 5.09 of the General Conditions Evaluation of the Loan Agreement. B. Financial Management, 2. Without limitation on the provisions of Part A Section II of the Loan Financial Reports Agreement, the Borrower shall prepare and furnish to the Bank not later than 45 and Audits days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Bank. 3. The Borrower shall have its Financial Statements audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Borrower, commencing with the fiscal year in which the first withdrawal was made under the Preparation Advance for the Project. The audited Financial Statements for each such period shall be furnished to the Bank not later than six months after the end of such period and made publicly available in a manner acceptable to the Bank. Section IV. 1. The Borrower may withdraw the proceeds of the Loan in accordance with the Withdrawal of Loan provisions of Article II of the General Conditions, this Section, and such additional Proceeds instructions as the Bank shall specify by notice to the Borrower (including the A. General "World Bank Disbursement Guidelines for Projects" dated May 2006, as revised from time to time by the Bank and as made applicable to this Agreement pursuant to such instructions), to finance Eligible Expenditures as set forth in the table in paragraph 2 below. 2. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Loan ("Category"), the allocation of the amounts of the Loan to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category. Category Amount of the Loan Percentage of Allocated Expenditures to be (expressed in EUR) financed (1) Goods, Works, Consultants' Services, 20,339,000 100% Training, and Operating Costs for the Project (2) Refund of the 409,000 Amount payable pursuant Preparation Advance to Section 2.07 (a) of the General Conditions (3) Front-end Fee 52,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General Conditions TOTAL AMOUNT 20,800,000 8 Section IV. 1. Notwithstanding the provisions of Part A of Section IV of the Loan Agreement, Withdrawal of Loan no withdrawal shall be made from the Loan Account for payments made prior to Proceeds the date of this Agreement, except that withdrawals up to an aggregate amount not B. Withdrawal to exceed Euro five hundred thousand (EUR 500,000) may be made for payments Conditions; made prior to this date but on or after December 15, 2010, for Eligible Withdrawal Period Expenditures under Category (1). 2. The Closing Date is April 30, 2016. 3. For the purpose of this Schedule, the terms: (i) "Training" means expenditures incurred by the Borrower for activities under Part III of the Project, such as trainer honoraria; hotel, transport, travel, and per diems for trainees; and study tour expenses; and (ii) "Operating Costs" means expenditures incurred by the Borrower on account of the Project implementation for office supplies, utilities, bank charges, communication tools, advertisement fees, translation and interpretation services, transportation, insurance for goods and salaries for PIU staff, including qualified social charges, but excluding salaries for the Borrower's civil servants. 9 I. Strategic Context A. Country Context 1. Over the last 15 years, Croatia achieved impressive economic and social progress. Prior to the onset of the global financial crisis, the Croatian economy grew at a healthy 4-5 percent annually, incomes doubled, and economic and social opportunities dramatically improved. Croatia's per capita income reached about 63 percent of the European Union (EU) average, and EU membership negotiations are to be completed in 2011. However, Croatia like most countries in the region has not remained immune to the crisis and the impact is being felt across all segments of the economy and society. 2. Croatian economic output contracted by 2.5 percent in Q1 2010, from a 4.5 percent decline in Q4 last year. The decline in Gross Domestic Product (GDP) came on the back of weak domestic demand and investment activity falling 13.9 percent year over year. However net exports remain the strong offsetting factor, contributing around 2.5 percentage points to the growth rate due to export-led growth by 3.6 percent year over year versus imports declining by 4.8 percent year over year. On the supply side, almost all sectors, except agriculture, had a negative contribution to growth. The largest contraction came from construction (18.7 percent year over year), hotels and restaurants and transport, which went down by more than 5 percent. 3. It is expected that the government's new Economic Recovery Program, announced in April 2010 and under implementation, will help safeguard sustainability and growth. The program aims to redefine the role of the state (fiscal policy; public administration and state asset management), provide support to growth and recovery (promotion of the Croatian economy, judicial reform, labor market reform and economic recovery); and increase responsibility to future generations (education and science, environment, social security). 4. Tourism and its related sub-sectors rely heavily on Croatia's reputation as a country with outstanding cultural and biological diversity, and is an integral component of the recovery program. Tourism revenue currently contributes to over 14.1 percent of GDP (2009), with the major sub-sector of hotels and restaurants contributing 3.9 percent of gross value-added in GDP (2009). The system of protected areas in Croatia supports this level of economic activity and through its conservation, can help ensure that tourism remains an important source of sustainable income in the future. B. Sectoral and Institutional Context 5. European Union Accession Challenge. Following successful completion of the Karst Ecosystem Conservation (KEC) Project in December 2007, the Government of Croatia requested continued support from the World Bank for a follow-up project to help expand and support Croatia's preparations for EU integration in the Nature Protection Sector. The KEC project demonstrated a systematic approach to addressing biological data collection gaps, participatory park management planning, and community investments to enhance biodiversity benefits across five parks in Croatia. EU accession requires an expanded ecological network beyond the core National and Nature Parks to be designated and aligned with EU Nature Protection Legislation, 10 and the Birds and Habitats Directives. Based on these Directives, EU members must determine which areas are important for conservation of European endangered species and habitat types. Croatia's National Ecological Network (NEN), proclaimed in October 2007, covers 47 percent of Croatian Territory and 39 percent of territorial sea and serves as the preliminary basis for defining the future Natura 2000 network in Croatia, a requirement for accession. The European Network, Natura 2000, is comprised of Special Protected Areas for wild birds, designated under Birds Directive, and Special Areas of Conservation (SAC)1 designated under the Habitats Directive. This network of areas extends across public and private lands with varying degrees of legal protection and requires new approaches for public and private collaboration to ensure biological values (e.g., habitats for key species) are maintained. 6. The European Union does not grant transition periods for countries to establish their Natura 2000 network, even though extensive preparation time is required; this network will legally go into effect on the date of accession. Over the past decade, several EU infringement cases have been brought against New Member States that failed to adequately establish their part of the Natura 2000 network, underscoring the importance of early preparation work and continued commitment to effective implementation after accession. The EU has estimated the annual costs of maintaining the existing Natura 2000 network at Euro 6.1 billion--each member state is responsible for financing its own component.2 To help meet these costs, EU members are eligible to draw from a variety of EU grant programs that support co-financing investments to operate and maintain the network. While Croatia would become eligible for these funds after accession, capacity to absorb and program EU grant resources are still low, especially at county and park levels. Further work is required prior to accession to build capacity for its management and prepare for longer-term access to EU grant funds to help support financial sustainability. 7. In the 2007-2013 programming period, EU member grants for nature protection became more complex with the introduction of mainstreaming across other EU instruments. The European Agriculture Fund for Rural Development has 21 articles of relevance to Natura 2000. The European Fisheries Fund has 15 articles of relevance. The European Regional Development Fund has 27 articles of relevance, and the European Social Fund, Cohesion Fund, and Research Framework Programs (FP7) each has three or less articles of relevance (but of equal importance). EU LIFE+ is the only EU grant instrument with a dedicated focus on biodiversity and nature, however, its scope is limited by requiring that grant proposals first justify why other grant programs cannot support it. Thus, access to EU grant funds for nature protection is relatively complex and will depend on a strong proactive capacity to identify opportunities. 8. Past Support, Ongoing Programs, and Remaining Gaps. The GEF-financed Karst Ecosystem Conservation (KEC) Project, completed in 2007, was rated Highly Satisfactory and was the single largest donor funded investment program ever undertaken in biodiversity conservation in Croatia. Among other achievements, KEC introduced the first participatory park management plans and a GIS-based computerized platform for data management, and demonstrated the benefits of community grant programs to help achieve conservation goals. 1 Once a SAC is designated, member states must establish measures to maintain or restore it at a "favorable conservation status." Natura 2000 management plans are used to establish conservation strategies for the habitats and species present, as the Habitats Directive does not dictate what conservation measure must be taken. 2 Financing Natura 2000-Guidance Book, DG Environment, June 2007. 11 Currently, several ongoing EU IPA (and previously the EU CARDS and PHARE program) capacity building grants are helping Croatia to prepare for accession in the area of nature protection and are the primary source of non-budget funds to the sector. However, significant additional resources and efforts are urgently required over a relatively short time frame if Croatia is to avoid the mistakes of other countries and maximize its access to EU grant funds after accession. Croatia deferred introduction of agri-environment measures for the Natura 2000 network under its pre-accession funds3 due to start-up complexity, and has had difficulties initiating agri-environment pilots under current funds in three pilots in or near protected areas. Substantial efforts are still required to prepare stakeholders and build up the existing data systems for Natura 2000 and to enable future EU grant Natura 2000 payments. Marine areas have been the most significant gap in Croatia's current ecological network, and several donor funded projects are currently underway to help address this gap, including to better understand the biological resources in existing marine protected areas and to secure other important marine areas for protection.4 Several EU grants are focused on early-stage capacity-building efforts for marine Natura 2000, and this loan would complement these efforts and help further strengthening of institutions in the existing protected areas network as well as the county public institutions responsible for expanded ecological network management. 9. Legal Framework. Croatia's National Ecological Network (NEN), proclaimed in October 2007, is the basis for the future Natura 2000 network in Croatia. The NEN includes 19 national and nature parks--approximately 8.5 percent of Croatian land territory--that is managed by dedicated park administrators. It also includes an additional 38.5 percent of land territory that has national and regional conservation importance, including formal protected areas in different categories and non-protected lands with management oversight by County Public Institutions [for nature protection]. The County Public Institutions are still relatively young with most being established since 2007 in response to a widened role for counties to promote and manage all parts of the NEN within their borders. National Parks and Nature Parks continue to report at a higher level to the Ministry of Culture. The State Institute for Nature Protection (SINP) is a technical body reporting to the Ministry of Culture with the mandate to coordinate biological inventory data, provide expertise for designation of the Natura 2000 network, and conduct studies for designation of protected areas. 10. Management Planning as a Driver for Investment Prioritization. Management Plans (MPs) are required for all National and Nature Parks under Croatia's Law on Nature Protection, and are required for all Natura 2000 sites under the EU Habitats Directive. A critical input to the management planning process and resulting Action Plans is the assessment of biological data at each site. The planning process and management plans prepared under KEC provided a pilot model for completing similar plans for the remaining National and Nature Parks by the end of 2010, and for marine protected areas by the end of 2011. These plans are also required for all sites within the NEN. Key elements include: extensive stakeholder consultation and participation; a concise statement of the vision and mission for each Protected Area (PA) outlining strategic objectives and guidelines for management; and action plans that identify specific management objectives as well as detailed activities with resources to achieve them. 3 Croatia started with SAPARD, which has now transitioned to IPARD. 4 EU legislation seeks designation of Marine Special Areas of Conservation to protect areas used by marine wildlife from pollution or over-fishing (e.g., feeding/spawning grounds, reefs, lagoons, intertidal areas). 12 11. Integrating the Nature Protection System. In addition to the specific objectives of each park or PA, the overall NEN has important objectives that can best be met through a system- wide approach. This includes data collection and analysis for national-level monitoring of the status and trends of biodiversity, providing a diverse and sustainable basis for a growing tourism industry and educating national and international visitors about the value and challenges of nature protection. The proposed system in Croatia is considered representative of local ecosystems, except for marine areas, which are still in the process of early identification. 12. Links with Local Population. Most protected areas in Croatia have local rural populations whose activities can have significant synergies with the PAs, and conversely, the PAs can help improve the welfare of local populations. Therefore, establishing incentives for local people to cooperate and share benefits is important for Natura 2000 management. EU Accession opens possibilities for several grant programs under the broad umbrella of Rural Development (e.g., Agri-Environment and Natura 2000 payments) which can complement Natura 2000 specific conservation objectives. Croatia is still in the early stages of preparing for these programs. The proposed loan will help prepare a model for the use of these EU grant instruments in the context of the ecological network. 13. Links to Tourism and the National Economy. Nearly one out of every five international and almost one third of domestic tourism visits currently include the National and Nature parks. Croatia's tourism image is justifiably heavily marketed on its unique combination of scenic beauty, rural landscapes, and historic and cultural monuments.5 Several parks are internationally known and receive between 500,000 and one million tourists each year, generating special challenges for nature conservation efforts. Other parks are less visited because they lack infrastructure, but are equally interesting and can be made more accessible to visitors with improved services. There is a need to spread tourist visits across parks both geographically and throughout the calendar year while raising the quality of services, investing in conservation, enhancing parks as a vehicle to educate the public, and maintaining them as important sites for rest and recreation. From an agricultural perspective, Croatia has been developing a market niche in higher value-added ecological production and natural products that are compatible with Croatia's special strengths and can be integrated even further in the nature protection and tourism offeringss. Croatia has also invested in improvements to internal domestic air and highway transportation links over the last decade, which has cut travel time and improved ease of mobility within Croatia. The "shrinking" of distances provides a timely opportunity for more tourists to better understand the true geographic, ecologic, and cultural diversity Croatia has to offer, and spread economic benefits of tourism more deeply into rural areas. 14. Rationale for Bank Involvement. The World Bank is one of the largest international financiers of biodiversity investments and draws on substantial international experience which no other international financial institution (IFI) in the Europe and Central Asia (ECA) Region has. The client has specifically requested that the Bank continue its support, based on highly successful earlier collaboration in Croatia on nature protection. The loan will draw on lessons and experience from the earlier Global Environment Facility financed Karst Ecosystem 5 2.2 million tourists (1.8 million foreign) visited Croatia National and Nature Parks in 2009 (95 percent between April and June), or 19% of international and 28% of Croatian tourists. 13 Conservation project, plus add several distinct features that will expand support directly in line with EU accession goals. The Bank is actively supporting the agriculture sector accession harmonization process, land registration and cadastre reforms, and water sector investments which have linked agendas with the proposed loan. The global perspective the World Bank teams have in supporting the larger Croatia program provides a unique perspective which further strengthens World Bank capacity to provide real time client support in this sector. 15. It has become clear in hindsight that several New Member States could have benefitted more from a larger and longer-term financial and technical support program to help with preparation and early stage integration with the Natura 2000 network. This project provides Croatia with timely resources to both complement and attract other finance to the sector at an important bridging period when urgent investments and capacity reforms are needed. The project also helps fill an important financial gap in light of across the board government-wide budget cuts in response to the global financial crisis at a moment when sector budgets were projected to increase rather than decline. Opportunity costs for failing to absorb EU grants are highest in the initial years of EU membership when this project will provide financial support. Finally, the projects supports economically important investments needed to promote a more sustainable path for future growth and helps build on Croatia's strengths as an internationally recognized destination for nature based tourism. C. Higher Level Objectives to Which the Project Contributes 16. Recognizing the need for increasing the sustainability of long-term development and to facilitate Croatia's accession to the European Union, the World Bank Country Partnership Strategy (CPS) for Croatia confirms that the environment remains a priority area for Bank assistance. The primary country specific development goal in the CPS that this project supports is strengthening the environment and nature protection. It also supports goals for: (i) enhancing the efficiency and effectiveness of public finance through its focus on sustainable finance of the nature protection system; (ii) reducing regional and urban and rural disparities through its support for community driven investments; (iii) preparing Croatia to adapt to and mitigate climate change through broadening ecosystem-based approaches to land management; and (iv) improving disaster risk management and mitigation by support to help fill gaps in fire protection capacity at individual park areas. 17. The project supports the CPS cross-cutting theme of supporting Croatia's accession to the European Union by assisting the government of Croatia in its obligation as a member of the EU to implement requirements of the Birds and Habitats Directives. It will specifically support enhancement of Croatia's capacity to absorb EU funds, especially after accession. The project also supports implementation of Croatia's Strategy and Action Plan for the Protection of Biological and Landscape Diversity and meeting international commitments under a wide range of agreements including the European Landscape Convention and the International Convention on Biological Diversity. 18. The government's April 2010 Economic Recovery Program comes in response to consequences of the global financial crisis and structural weaknesses the crisis revealed. The 14 Program calls for Croatia to "use its strengths and emerging opportunities which include a favorable geographic position, pleasant climate and beautiful nature, considerable land and water resources, valuable and preserved culture, tradition of good higher education in natural and technical sciences, and the expected forthcoming EU accession." It includes Sustainable Growth as one of three key pillars. The proposed project will directly support several priority actions under this program including support to strengthen incentives and tools for sustainable finance to the environment, support to public sector education and training, support for introduction of a system of volunteering to promote practical work experiences for youth, and capacity building for use of EU funds. II. Project Development Objectives A. PDO 19. The development objectives of the proposed project are to: (i) help support Park and County Public Institutions to implement Natura 2000 objectives in investment programs; (ii) strengthen capacity for EU-compliant reporting and biodiversity monitoring; and (iii) introduce programs that involve a wide group of stakeholders in Natura 2000 network management. B. Project Beneficiaries 20. Beyond the Ministry of Culture and the State Institute for Nature Protection, the primary beneficiaries at the regional and local level include National and Nature Parks and County Public Institutions and various socio-economic stakeholders, and a range of user groups that are important players in the management of Natura 2000 sites. These include farmers, landowners, foresters, hunters, walkers, hikers, and fishermen, who will be targeted by information campaigns. Their participation and involvement in the project capacity building activities will be sought. The Project Coordination Committee and several working groups will also have representatives from local and regional interest groups, professional associations, and non- governmental organizations (NGOs), which also have a major role to play in nature conservation and Natura 2000. Adequate representation of women will be ensured at all levels. 21. The Croatian public will also directly or indirectly benefit by awareness and information campaigns under the project. Youth will be among the principal segments of the public to be targeted through various promotional activities associated with the Natura 2000 network, and through the pilot park volunteer program. 22. Approximately 750 stakeholders such as farmers, entrepreneurs in tourism, artisans, cultural institutions, educational institutions, hunting associations, fishing associations, NGOs, etc. that could contribute to sustainable local development linked to protected areas were identified through desk studies, workshops, and survey tools and analyzed in the preparation process. C. PDO Level Results Indicators 15 23. The following key outcome indicators have been agreed: (i) Progress made in increasing annual capital and other investment expenditure across the Parks estate; (ii) Extent of Croatia covered by an accurate habitat map at 1:25,000 scale; (iii) Number of project promoted programs in operation that actively involve stakeholders with Natura 2000. III. Project Description A. Project Components 24. The project is comprised of three components which mutually support and reinforce each other: Ecological Network Investments, Ecological Network Data Systems, and Ecological Network Capacity Building. 25. Ecological Network Investments (10.9 million IBRD): Protected area and national ecological site investments will help demonstrate and strengthen the integration of Natura 2000 objectives, consultant services for nature interpretation design, and engineering services. Priority technical equipment will be provided for park rangers, the State Institute for Nature Protection, and the Ministry of Culture, and fire protection equipment for four selected coastal Nature and National Parks. Ecological Network Investments are organized in two phases based upon different levels of readiness and nature institution capacities. These will be used to actively engage nature institutions in learning to design and implement investments using requirements similar to those required by future EU Structural Funds. A key outcome target is a more explicit demonstration of how investments, including educational and interpretive materials, can support the goal of maintaining "favorable conservation status" at Natura 2000 sites as defined by the EU Habitats Directive. Beneficiaries, in parallel, will be supported through consultant services to use newly acquired skills to develop next stage investments for the future Structural Funds pipeline. Investment in forest fire protection equipment responds to a gap analysis undertaken which revealed vulnerability of certain Nature Parks in the dry Mediterranean coastal region to forest fire risk. 26. Ecological Network Data Systems (4.6 million IBRD): This component will comprise: (i) consulting and technical services to help plan, prioritize, and organize biological inventory and populate data systems to fulfill EU reporting requirements; (ii) field work to perform biological inventory of species and habitat mapping and monitoring services; (iii) consultant services to harmonize data systems with a central geo-portal to meet EU INSPIRE Directive requirements; and (iv) computer hardware and software upgrades. The State Institute for Nature Protection (SINP) is tasked with the primary responsibility for consolidating nature protection data, organizing biological monitoring and inventory work which responds to EU reporting requirements under the Birds and Habitats Directives. Investments will help SINP strengthen their capacity to better manage, organize, generate habitat maps, and report from common data collection protocols and standards aligned with the European Environment Agency requirements so that a wide group of researchers and scientists can participate in data collection. As Natural 16 Resource Data is one of the 17 spatial data themes under the EU Inspire Directive, the project will support data system compliance with EU INSPIRE Directive requirements. 27. Ecological Network Capacity Building (3.6 million IBRD): This component will comprise consultant services to help promote inter-sectoral cooperation and pilot programs to: (i) develop a proposal for agri-environment measures for Natura 2000 sites, (ii) improve protected areas boundary delineation, (iii) introduce a park volunteer program, and (iv) help improve systems to track and diversify protected area finance. It will also support training on access to EU grant programs for nature protection and tools to improve park management, learning through study tours and seminars, a public information campaign, and project management and operating costs. In addition, the project will support a variety of activities to: (i) help build capacity for better cohesion and integration of the protected areas and ecological network system; (ii) help attract additional resources and improve the financial sustainability of investments in protected areas; (iii) help improve public awareness, involvement, and education on the need for, and purpose of, protected areas and the ecological network; and (iv) better integrate the local community in the management of the ecological network by promoting agri- environment incentive programs and introducing volunteer programs. B. Project Financing Lending Instrument 28. The project will be financed through an IBRD Specific Investment Loan (SIL) of approximately 20.8 million Euros (US$28.8 million equivalent). A SIL was selected as the most appropriate IBRD instrument to help finance shorter term investment needs. The capacity developed through this process will help to implement similar kinds of investment programs with EU grant funds in the future. The loan will finance one part of a wider "Program" of Nature Protection Investments with parallel financing through EU Grants (ongoing IPA and future Structural Funds). The Ministry of Culture and Park and County Public Institutions are also contributing their own budget resources for co-financing investments under this program. 17 C. Project Costs and Financing (million Euros) IBRD or IDA Project % Project Cost By Component and/or Activity Financing Cost Financing 1.0 ECOLOGICAL NETWORK INVESTMENTS 10.9 33.8 32.3 1.1 Protected Area and NEN-Driven Investments (works) 9.9 1.2 Equipment (goods) 1.1 2.0 ECOLOGCAL NETWORK DATA SYSTEMS 4.6 4.6 100.0 2.1 Biodiversity Inventorying and Monitoring 4.0 2.2 INSPIRE Harmonization 0.6 3.0 ECOLOGICAL NETWORK CAPACITY BUILDING 3.6 3.6 100.0 3.1 Inter-Sectoral Cooperation & Pilot Programs 1.3 3.2 Training & Public Outreach 1.2 3.3 Project Management and Operating Costs 1.2 Total Baseline Cost 19.2 42.1 45.6 Physical Contingencies 0.6 0.6 Price Contingencies 0.6 0.6 Total Project Costs1 20.3 43.2 47.1 Interest during construction - - PPF/PPA 0.4 0.4 Front-end Fee 0.1 0.1 Total Financing Required 20.8 43.7 47.6 1 ­ Identifiable taxes and duties are 4,080,975, and the total project cost, net of taxes, is 15,106,761. Therefore, the share of project cost net of taxes is 79%. IV. Implementation A. Institutional and Implementation Arrangements 29. The project would be led by the Ministry of Culture, which is the central governmental body for nature protection in Croatia. Other key institutions with implementation roles include: (i) the State Institute for Nature Protection (responsible among other things for preparing the proposal of the Natura 2000 network), (ii) Croatia's 19 protected areas and 20 county level nature protection institutions; (iii) the Ministry of Agriculture, Fisheries and Rural Development; (iv) the State Geodetic Administration; (v) the Ministry of Regional Development, Forestry, and Water Management; and (vi) the Ministry of Environmental Protection, Physical Planning and Construction. The project would help promote collaboration with other sectors so that joint decisions will benefit nature protection. A Project Coordination Committee (PCC) comprised of representatives of different ministries, a representative of civil society, and representatives of the National Parks, Nature Parks, and Country Public Institutions has been established to help coordinate project activities. Several Working Groups will be established under the PCC to facilitate more detailed work on specific inter-sectoral challenges including two already established on Agri-environment measures, and PA Border Delineation and Registration. Other working groups likely to be formed include, but are not limited to, one on park finance issues, and one to help promote collaboration on communications with the tourism sector. 18 30. The project will fund full-time dedicated consultant staff to supervise project management, ensure regular reporting, fulfill fiduciary requirements for financial management and procurement, and support project M&E. It is expected that the currently supported Project Preparation Unit staff positions will be maintained and additional positions such as the M&E/economist (single-purpose) position will be added. In addition, SINP as one of the direct beneficiaries of the project will assign staff to specific project activities and form a Project Support Unit (PSU) led by the Director of the SINP. The role of the SINP PSU is to provide the PIU with expert knowledge and information in planning, procurement and in undertaking project activities. In addition, existing beneficiary government institutions will assign staff to specific project activities. These arrangements including terms of reference for key staff are specified in more detail in the project operations manual. 31. The fiduciary functions will be conducted by consultants funded under the existing PPF. Significant strengths of the project financial management arrangements include: (i) availability of staff with prior experience in the implementation of Bank-financed projects, (ii) PIU experience in preparing withdrawal applications, IFRs and annual project financial statements, and (iii) a track record of unqualified audit opinions for the Karst Ecosystem Conservation project financial statements. The financial management risk identified in the Operational Risk Assessment Framework is that the current part-time FM arrangements in the Ministry might not be sufficient to provide the implementation support required; also, staff in SINP and park institutions are not familiar with World Bank procedures, which could delay processing of payments and disbursements, and cause internal control deficiencies. It was determined that the currently engaged FM staff will be hired full-time in the MoC and paid through the Loan proceeds. In addition, training on World Bank procedures and guidelines should be provided to the MoC, SINP, and Park staff, and clear responsibilities related to the project need to be assigned within these structures. 32. Partnership Arrangements. As the project directly supports an area of mutual interest, the European Commission, through its Zagreb Delegation, has been a key partner throughout project preparation. The Government of Croatia will however take over full responsibility for administration of EU funds for nature protection once it becomes a member State, anticipated during implementation of this loan. After accession, the project would focus more on supporting Croatia's efforts for reporting progress in implementation of the relevant EU Directives and building capacity to program and build a strong pipeline for future EU grants. The Project Coordination Committee will be used as an inter-Ministerial coordination and data sharing mechanism. The project will also support strong working level cooperation with the Ministry of Agriculture, Fisheries, and Rural Development given the importance of the National Rural Development instruments to Nature Protection. Partnerships with all coordinated donor programs will be ensured through the implementation team embedded within the Ministry of Culture Nature Protection Directorate. B. Results Monitoring and Evaluation 33. The project has established an outcome and results monitoring framework. Project Monitoring and Evaluation (M&E) would be the responsibility of the Project Implementation Unit (PIU) within the Ministry of Culture's Nature Protection Directorate, which has M&E 19 capacity from work on other Bank projects. M&E will be based on both survey and administrative data sources. The baseline indicators are being developed from several project preparation studies including the social assessment survey, the valuation surveys, PPF financed preparation consultant reports, the WWF Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) Tool at the system-wide level, and the Management Effectiveness Tracking Tool (METT) at the park level. Both a mid-term and an end-of project survey will be commissioned by the PIU to follow-up on measuring certain indicators. Data will also be provided by individual parks and counties, and the State Institute for Nature Protection which collects data in its routine work. The M&E capacity of the Ministry of Culture to collect and analyze data across the entire ecological network will be strengthened by the introduction of an economist position in the PIU who will work with and train an entry level economist in the Department for Strategic Planning in Nature Conservation and European Integration. Local level M&E capacity will be strengthened through targeted training programs which complement ongoing investments. A mid-term review will be carried out to assess overall progress. Lessons learned, recommendations for any improvements, and stakeholder feedback would be used in restructuring the project if necessary. The results of the M&E activities will be continually incorporated into the implementation process. C. Sustainability 34. Institutional Sustainability. The national government agencies responsible for biodiversity conservation, county governments, and local protected area management and technical staff fully support the project. A core implementation unit for the project is embedded in the Ministry of Culture's Nature Protection Directorate. The project preparation counterpart team includes representatives from local level protected areas, protected area advisory boards, county management, national level government officials, and experts in biodiversity conservation, forestry, water, agriculture, and tourism. At the field level, where day-to-day project implementation will occur, the implementation team is working closely with the directors of protected areas, as well as the local authorities responsible for physical planning, forest management, and environmental protection. Sustainability will also be addressed through capacity building and institutional strengthening aimed at increasing coordination between various implementing agencies at the local, regional, and national levels. 35. Social Sustainability. From its inception, the project has tried to involve key stakeholders in project preparation and implementation, including policy makers, citizens and NGOs to ensure social sustainability. Project support will involve the local communities by supporting activities that will reduce pressure on natural resources through effective management and alternatives, increase in public awareness and support for biodiversity conservation. Support to promote Agri-Environment measures will ensure community involvement in decision making.6 36. Financial Sustainability. The Project supports development and implementation of improved tools to promote the financial sustainability of the protected area and nature protection system. It will also focus on implementation of several key recommendations from a review conducted in 2009 through establishment of an inter-government working group on these issues. 6 Approximately 33% of Natura 2000 sites are on agricultural lands. 20 The Government has a demonstrated track record of being committed to ensuring that protected area operations and maintenance are financed adequately and in a sustained fashion. V. Key Risks and Mitigation Measures 37. The overall project risks are rated Medium-Impact and considered manageable with mitigation measures in place. Potential risks and mitigation measures are summarized in the Operational Risk Assessment Framework (see Annex IV). Project objectives are strongly aligned with EU accession--a process with its own momentum that is commanding most of the government's attention. The project follows from a successfully implemented project with strong continuity of staff in the line Ministry (State Secretary and Project Director) who are familiar with World Bank procedures. Staff hired under the PPF who would continue as part of the implementation team under the project, are experienced with implementing other World Bank projects. The project has benefitted from a detailed preparation process that consulted with stakeholders and agreed on priority needs. Component 1 protected area investments have undergone several rounds of pre-screening and evaluation according to readiness criteria that normally apply to EU Structural Fund applications. Capacity weaknesses are known and there are significant efforts under Component 3 to strengthen capacities in the project. Most accession-related tasks need to be done in any case and are not dependent on the date of accession. VI. Appraisal Summary A. Economic and Financial Analysis 38. The EU Natura 2000 Integration Project will generate a wide variety of benefits through the support of investments, biological inventorying, training and capacity building efforts for ecological network and future Natura 2000 network management. The main benefits for which monetary estimates could be made were the values of conservation and preservation elicited through a willingness to pay survey, watershed protection and erosion control, marine protected areas, non-timber forest products and wildlife. Site-specific estimates for conservation and preservation values were possible at selected parks and Counties, with estimates for the remaining parks and Counties derived using the methods detailed in Annex 7. 39. Ecological Network Investments. Of the 35 selected protected area-driven investments, 8 were in National Parks, 11 in Nature Parks, 16 in County Public Institutions (CPIs), and 1 for SINP. They range in value from 20,000-800,000 and encompass a wide array of activities including trails, paths, and educational and interpretative centers. All projects were linked to conservation activities in accordance with the pre-selection criteria mentioned in Annex 7. Conservation and preservation benefits were estimated based on the willingness-to-pay survey (WTP) and depended on the type of park, tourist visitation, and potential demand growth at each site type. Water protection and erosion control benefits were calculated using the area of forest cover where erosion was likely to occur, depending on relative slope and other characteristics associated with high erosion rates. Marine benefits were calculated for Kornati National Park using the approximate area where endangered sea grasses are located. Non-timber forest products and wildlife benefits were calculated using forest area and information on local revenues generated from these activities. 21 40. Ecological Network Data Systems. Activities under this component will generate several types of public benefits. Information collected through biodiversity inventorying efforts will lead to more informed decision making and management of the current ecological network and future Natura 2000 network, while support for the integration of the Nature Protection Information System (NPIS), as part of the National Spatial Data Infrastructure (NSDI) and in meeting the EU INSPIRE Directive, will result in significant time and cost efficiency savings by using a one-stop data source that is publicly available. 41. Ecological Network Capacity Building and EU Structural Funds. Training and capacity building efforts are expected to strengthen the ecological network and future Natura 2000 network. For example, the project will support more innovative funding schemes through successful applications to EU Structural Fund (SF) grants. While the benefits of training are largely a function of trainees' applications of the acquired skills, one benchmark indicator is the successful application to SF grants. Recently, several IPA grant proposals were rejected largely due to the lack of staff capacity at the time to absorb EU funds. This loss represents an opportunity cost and alternative sources of funding now need to be identified. Currently, the SF application pipeline for nature protection totals over 20 million in infrastructure investments--a substantial benefit that can be realized with additional training in project development. 42. Summary. Aggregating the net present value of benefits and costs under each component, the overall project economic rate of return (ERR) is 16 percent in 5 years and 33 percent in ten years without the additional benefit of SFs and is 45 percent in year 10 with SFs.7 Although over 60 percent of project benefits accrue under visitor's WTP for greater preservation and conservation, sensitivity analysis shows that if only a fraction of the WTP were uniformly charged as an entrance fee, the overall ERR is 21 percent. Visitation demand is conservatively assumed to be constant throughout the life of the project, however if demand were to grow its historical rate of 3 percent this would increase the overall project ERR to 23 percent. 43. Distribution of Benefits. The distribution of benefits is closely tied to the category of benefits. Ecological Network Investments will yield substantial public benefits from greater conservation and preservation efforts and private benefits will be generated through contracts, employment and income. The Ecological Network Data Systems & Capacity Building components have both public and private benefits. Since most of the training activities will be in the public sector, the resulting actions taken by trained individuals will yield public benefits from better ecological network and future Natura 2000 network management. There are also private benefits from increased employment by those supplying the inventorying and training within Croatia and internationally. 44. Alternatives. The proposed set of Ecological Network Investments was an evolving list of park- and County-specific works that went through several rounds of screening according to technical criteria--including a model filter that is normally used for EU Structural Funds. Several large proposals, in excess of 1 million, were not considered and are to be included in the SF pipeline. Originally, fire protection and demining activities were included; however, were later dropped since they were to be integrated into other State budget initiatives or projects. 7 Structural Funds are assumed to enter into effectiveness in year 6 of the economic analysis. 22 Another alternative was for the project to focus only on one region such as marine areas; however, given the need to rapidly increase the level of institutional preparedness system-wide for aligning nature protection to the Birds and Habitats Directives for EU Accession, a much more comprehensive effort was warranted. For the marine areas, sufficient EU funds (IPA project and Structural Fund project proposals) are planned. 45. Risks. The main project risk for benefit realization would be that visitation numbers continue to decline as a consequence of the global financial crisis. The economic analysis currently assumes flat visitation growth over the project period; however, preliminary tourism numbers for the first quarter of 2010 indicate a good recovery from 2009 levels.8 It is anticipated that the popularity of Croatia's sites will continue to draw international interest. In Croatia, 89 percent of tourist revenues are from international tourism, which has been relatively stable over the past ten years. As shown from the sensitivity analysis, fluctuations in visitation have relatively modest effects on benefit realization, so the overall risk is rated as low. B. Technical 46. The technical readiness of project investments has focused on screening ecological network investments based in part on advancement in project designs, time needed to obtain construction and building permits, and review of documentation to ensure that no major land ownership or resource access issues are anticipated to emerge. Several proposed investments have been either rejected or deferred to a second stage in the project on this basis. The PPF financed a World Bank-experienced part-time procurement specialist who has been focused on ensuring the procurement readiness of first-year contracts; this position will be full-time once the loan is effective. A consultant services contract for investments that incorporate nature- interpretive design (which is critical to the project's educational and public awareness goals) has been included to strengthen effective integration in investments. An engineering support contract for construction site supervision across all sites will be financed through the project. Terms of reference for first-year consultant contracts and bidding documents for first-year civil works contracts have been prepared and submitted to the Bank for review in advance of negotiations. C. Financial Management 47. A Project Preparation Facility (PPF) in amount of US$500,000 was granted to the Borrower to assist in financing activities aimed towards the establishment of the PIU and the economic analysis of the project activities, the environmental impact assessment and delivery of tailored workshops and trainings. The advance became effective in May 2009; the closing date was extended to December 15, 2010. The financial management arrangements for the ongoing PPF were reviewed in July 2010 and were found satisfactory. Currently, the PIU is staffed with a part-time Financial Management consultant with relevant experience in the World Bank procedures. Given the low number of transactions under the PPF advance, the part-time arrangements were considered adequate. However, a full-time contract position is required for 8 The number of tourist arrivals rose by 9% y/y to 2.7mn in July, while the number of tourist overnights went up by 7% y/y to 19mn (ISI Emerging Markets, Aug. 2010). 23 the financial management arrangements of the loan which would be signed no later than the project effectiveness date. 48. The modular Access database developed by the PIU to keep the project's accounting records is considered sufficient for maintaining PPF and loan accounting records. The system has been further enhanced to accommodate automatic generation of IFRs. Quarterly IFRs have been submitted to the Bank on a regular basis in the negotiated formats. The latest reports cover Q2 2010 and are considered acceptable. The formats of the IFRs had been updated with the changes in categories/components imposed by the Loan. 49. Audit TORs have been amended and agreed with the PIU. It was decided to have a single audit for the PPF, which will be due by June 15, 2011. In the past, the MoC implemented Karst Ecosystem Conservation project which closed as of December 31, 2007. For this project, the MoC carried out its financial management functions in accordance with Bank procedures. The project had unqualified audit reports acceptable to the Bank, and appropriate financial management monitoring reports which were sent to the Bank timely. D. Procurement 50. A procurement capacity assessment was carried out as part of the pre-appraisal mission in early July. The general conclusion is that the core Project Implementation Unit (PIU) has adequate experience and capacity to carry out procurement activities related to the proposed project. The staff is familiar with Bank procurement procedures and guidelines, as they have been involved in and gained substantial knowledge and experience from implementing another Bank-financed project. No particular risks have been identified. The measures for increasing and maintaining the team's capacity have been discussed with the PIU and agreed. The procurement plan for the project has been prepared and its final version will be agreed at project negotiations. It will be updated in agreement with the Bank annually or a required to reflect the actual project implementation needs and improvement of institutional capacity. 51. A summary of Governance and Accountability Framework (GAF) is included in Annex 5 and provides the agreed actions for mitigating fraud and corruption risks. It summarizes the actions that have been agreed to and will be undertaken by PIU to reinforce project governance, thereby enhancing transparency of project activities, increasing public accountability, and reducing opportunities for corruption, collusion or fraud. E. Social (including safeguards) 52. A social assessment and baseline survey was completed as part of project preparation activities. The project design benefited early from stakeholder inputs through a series of workshops held across the country and through stakeholder participation in protected area-driven investment identification. Approximately 750 stakeholders including farmers, entrepreneurs in tourism, artisans, cultural institutions, educational institutions, hunting associations, fishing associations, and NGOs, who could contribute to sustainable local development and are linked to protected areas, have been identified and analyzed. Six regional workshops and focus groups were conducted from March 15­25, 2010. The aim of the workshops was to introduce key 24 stakeholders to the project's planned activities, gather their suggestions and include them in the planning of investments in the nature protection system, and contribute to strengthening the knowledge of the general public about the benefits of biodiversity conservation and the opportunities and challenges for the national ecological network and future NATURA 2000 areas. Special emphasis was given to the presentation of agri-environmental programs, as well as the opportunities they offer for rural development in and around protected areas. The results of the socio-economic analysis for each region of the ecological network and a preliminary assessment of co-operation of protected areas and public institutions with key stakeholders / users of land were prepared for the workshops. The Project Coordination Committee established during preparation includes an environmental NGO to help contribute other stakeholder views into project design. 53. The project will not finance activities related to land acquisition or involuntary physical displacement or relocation of people. The safeguard review examined possible applicability of World Bank OP/BP 4.12 policy regarding indirect impacts from restricted access to natural resource use by project activities: (a) promoting activation of the Natura 2000 network on private lands; and (b) implementing the protected area boundary delineation pilot program aimed to clarify poorly defined historic boundaries of protected areas. It concluded that: (i) private owner participation in agri-environment measures at Natura 2000 sites is voluntary and involves defined incentive payments for compensation which does not trigger the policy; and (ii) there is minimal risk of conflict in the boundary delineation pilot program as these are described as edge of villages/agricultural areas, i.e., the places which would not have any restricted use. The two sites identified under the pilot program are: i) a special reserve of Durdevacki Pijesci (the Sands of town of Durdevac) and ii) Nature Park Papuk. Both sites have draft management plans developed using highly participatory process and public hearing procedures. No new restrictions of use of natural resources by local communities which would adversely affect their livelihoods are anticipated under the pilot program. 54. The Borrower has prepared a detailed summary of the participatory process for public consultations in accordance with various national legal regulations and the policy for public disclosure to promote conflict resolution if it is needed in the park boundary delineation pilot activity. Additionally, the World Bank has completed a safeguards equivalency assessment in Croatia in 2010 which provides good information on national policies and practices. 55. Croatia is Party to the U.N. Convention on Rights of Persons with Disabilities (2007) and in line with the goals of this treaty, the project would aim to incorporate "universal design" principles into nature park infrastructure and training and education programs to the extent possible. F. Environment (including safeguards) 56. The overall project design is fully aligned with Croatia's environmental national and European objectives. An overall Environmental Management Framework (EMF) concluded that the project will not generate any potential large scale, significant and/or irreversible impacts. All potential impacts identified would be localized (primarily during construction) and can be addressed through appropriate environmental mitigation and management measures. Each 25 proposed investment involving civil works has been screened and an appropriate environmental monitoring and mitigation plan has been prepared. Additionally these investments will be subject to construction permitting at the local/county level which includes review and comments on permit conditions by relevant environmental authorities. 57. Examples of investments involving civil works include refurbishment of cultural buildings into multi-purpose visitor centers, educational walking and bicycle trails, special infrastructure to protect fragile ecosystems (e.g., a floating boat dock in Kornati National Park that will help prevent anchor damage to important sea grass habitats), and visitor services such as parking, toilets, and trash receptacles to reduce impacts to habitats. The overall EMF identified and assessed potential environmental impacts of all identified types of the projects. Project investments focus on already declared protected areas with investments in most of the 19 National Parks and Nature Parks, and the proposed Natura 2000 network coordinated by the 20 county public institutions for nature protection. The investments are being used as learning by doing tools to help park institutions build capacity to develop future proposals for EU Structural Funds. An initial group of 35 investment proposals were identified and are the subject of the Environmental Management Plan (EMP). Site specific EMPs are being prepared as part of this process together with the overall EMF. Additional investments supported in the outer years of the project will follow a similar typology using the same screening process described in overall EMF. The overall EMF together with sample EMPs was presented to the public on September 23, 2010. The documents were disclosed on the website of the Ministry of Culture and were as well available in paper form. 58. The Natural Habitats Policy is applicable because the project would support investments within protected areas, including but not limited to visitor center and sanitation facilities. All infrastructure investments within protected areas will be done in accordance with the park and environmental management plans. The Physical Cultural Resources Policy is also applicable because the project will also support refurbishment of some cultural monuments identified as priority to protected areas. Other Safeguards Policies Triggered (if required) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [] Natural Habitats (OP/BP 4.04) [X] [] Pest Management (OP 4.09) [] [X] Physical Cultural Resources (OP/BP 4.11) [X] [] Involuntary Resettlement (OP/BP 4.12) [] [X] Indigenous Peoples (OP/BP 4.10) [] [X] Forests (OP/BP 4.36) [] [X] Safety of Dams (OP/BP 4.37) [] [X] Projects in Disputed Areas (OP/BP 7.60)* [] [X] Projects on International Waterways (OP/BP 7.50) [] [X] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 26 Annex 1: Results Framework and Monitoring CROATIA: European Union Natura 2000 Integration Project Project Development Objective (PDO): Support Park and County Public Institutions to implement Natura 2000 objectives in their investment programs; strengthen capacity for EU-compliant reporting and biodiversity monitoring; and introduce programs that involve a wide group of stakeholders in Natura 2000 network management. Cumulative Target Values** Responsibilit Description PDO Level Results Unit of Data Source/ Core Baseline Frequency y for Data (indicator Indicators* Measure YR 1 YR 2 YR3 YR 4 YR5 Methodology Collection definition etc.) Indicator One: Progress Total expenditure on made in increasing annual Final Park annual capital works and capital and other investment % increase 2010 0 3% 6% 9% 12% Annually financial Min Culture purchases as well as expenditure across the Parks figures statements pre-investment estate studies and research Indicator Two: Extent of Measure progress in Interrogation of Croatia covered by an % of bringing habitat map 2.4% 5% 15% 30% 45% 60% Annually Biodiversity SINP accurate habitat map at country into a more refined GIS 1:25,000 scale scale. Indicator Three: Number of Establishment and project-promoted programs in monitoring of operation that actively Social surveys, programs for involve stakeholders with Number of Questionnaires, Training, Public 0 1 2 3 4 4 Annually Min Culture Natura 2000 programs Feedback on Awareness, Web Site Volunteering, Agri- environment Measures INTERMEDIATE RESULTS Intermediate Result (Component One): Increase capacity of PA staff to innovate and respond to EU funding opportunities while increasing effectiveness of PA management. Cumulative Target Values** Responsibilit Description PDO Level Results Unit of Data Source/ Core Baseline YR 1 YR 2 YR3 YR 4 YR5 Frequency y for Data (indicator Indicators* Measure Methodology Collection definition etc.) Intermediate Result indicator Min. Projects prepared by Project status One: Number of nature Projects Semi- Culture/Min. the Parks/CPIs that 0 0 10 10 20 30 monitoring protection project Accepted annual Environment receive an reports; IB applications made to EU (ENV/EE acceptance letter for 27 Structural Funds and Fund) the SF(NP) pipeline accepted in the funding pipeline Intermediate Result indicator Through the use of Two: Number of No. Parks Submission of the METT: 19 Min. National/Nature parks using the 0 5 10 15 19 Annual METT forms Management (100%) Culture/SINP actively monitoring their METT by Parks Effectiveness management effectiveness Tracking Tool Intermediate Result indicator Response Three: Proportion of visitors forms Tracking to Parks who complete designed, % of Min Culture/ appreciation of response forms 0 1% 2% 3% 4% 5% Annually distributed and visitors SINP improved facilities deposited in and site features boxes for analysis Intermediate Result (Component Two): Natura 2000 inventory and monitoring program operating effectively. Intermediate Result indicator Progress in One: Number of 50 x 50 km inventory of Interrogation of grids surveyed for nationally Semi- nationally threatened Number 0 20% 27% 34% 44% 54% Biodiversity SINP threatened (CR, EN, VU) annual species through GIS species population of GIS database. Intermediate Result indicator PAMS, MoC Two: Integration of existing PA database, Common data Full Data biodiversity databases to Data KEC, Natura Min exchange platform Stage Gap Metadata Pilot Data Exchange communicate & exchange Scoping Exchange Annually 2000, Culture/SINP; created and current Achieved Analysis Structure Exchange with SGA data with SGA Portal in line Protocols CROflora, SGA information systems Portal with EU INSPIRE Directive CROfauna, integrated CROspeleo Intermediate Result indicator Application of IUCN Three: Percent of Croatian Review of criteria to update Red Book species re-assessed % 0 0 0 0 15% 40% Annually updated Red SINP status of threatened based on new field survey Data Sheets species data 28 Intermediate Result (Component Three): Active participation of various stakeholders in helping to achieve Natura 2000 goals Intermediate Result indicator Household % (of Tracking the number One: Awareness of Natura survey respondents in of respondents who 2000 Ecological Network (repeated) of highest level 20% of Years 1, 3, are not only aware of among people living in and 3% 3% 10% 75 people (15 x Min Culture of awareness sample 5 Natura 2000, but around designated sites 5 Parks); out of 4 levels also of its RAPPAM and queried) implications to them METT tools Intermediate Result indicator Interviews of Two: Farmers trained in agri- farmers from Tracking farmer environment measures the PPA readiness and relevant to Natura 2000 stakeholder interest in Natura Number 0 0 0 100 200 300 Annually Min Culture purposes survey and/or 2000-related agri- participating in environment (CAP training Pillar II) measures sessions Intermediate Result indicator Two rounds of Three: Number of protected Records from training assumed area staff trained to work Number 0 0 20 20 40 40 Annually training Min Culture with second one with volunteers courses after pilots have been tested 29 Annex 2: Detailed Project Description CROATIA: European Union Natura 2000 Integration Project 1. The project is comprised of three project components which mutually support and reinforce each other: Ecological Network Investments (Euro 10.9 million); Ecological Network Data Systems (Euro 4.6 million); and Ecological Network Capacity Building (Euro 3.6 million). A. Ecological Network Investments 2. Protected area and national ecological network site investments to help demonstrate and strengthen the integration of Natura 2000 objectives, consultant services for nature interpretation design, and engineering services. Priority technical equipment will be provided for park rangers, the State Institute for Nature Protection, and the Ministry of Culture, and fire protection equipment for coastal protected areas. 3. Ecological Network Investments, organized in two phases in line with different levels of readiness and nature institution capacities, will be used to actively engage nature institutions in learning to design and implement investments using requirements similar to those demanded by future EU Structural Funds. A key outcome targeted is a more explicit demonstration of how investments, including educational and interpretive materials, can support the goal of maintaining "favorable conservation status" at Natura 2000 sites as defined by the EU Habitats Directives. Beneficiaries in parallel will be supported through consultant services to use newly acquired skills to develop next stage investments for the future Structural Funds pipeline. 4. Forest protection equipment responds to a gap analysis revealing vulnerability of certain Nature Parks in the dry Mediterranean coastal region to forest fire risk. Parks which are legal entities currently hold the hold primary legal responsibility for forest fire prevention (in coordination with the counties) within their boundaries irrespective of legal land ownership. B. Ecological Network Data Systems 5. Consulting services to help plan, prioritize, and organize biological inventory and populate data systems to fulfill EU reporting requirements; field work to perform biological inventory of species and habitat mapping; consultant services to harmonize data systems with a central geo-portal to meet the EU INSPIRE Directive requirements, and computer hardware and software upgrades. 6. The State Institute for Nature Protection (SINP) is tasked with the primary responsibility for consolidating nature protection data, organizing biological monitoring and inventory work with responds to EU reporting requirements under the Birds and Habitats Directives. Investments will help SINP strengthen their capacity to better manage, organize, generate a habitat map, and report from common data collection protocols and standards aligned with the European Environment Agency requirements so that a wide group of researchers and scientists can participate in data collection. 30 7. The project will help support biological inventory work focusing on a prioritized and systematic field work program to increase Croatia's readiness to present and defend its Natura 2000 network at EU Bio-geographic Seminars. Outputs would help develop distribution maps for habitats and species, and create national factsheets to help increase the efficiency of fieldwork. The program will help strengthen the State Institute of Nature Protection's (SINP) capacity to continue to conduct this work into the future and it will help develop proposals for ongoing support under the future Structural Funds. Specific investments include field surveys and digitization and conversion of research and field data into electronic formats. Actions under this component would also support consulting services to help integrate data systems (NPIS and NSDI) that would help Croatia in meeting the requirements of the EU INSPIRE Directive. C. Ecological Network Capacity Building 8. Consultant services to help promote inter-sectoral cooperation will include pilot programs to (i) develop a proposal for agri-environment measures for Natura 2000 sites, (ii) improve protected areas boundary delineation, (iii) introduce a park volunteer program, (iv) help strengthen and diversify protected areas finance, (v) support training on access to EU grant programs for nature protection and tools to improve park management; learning through study tours and seminars; a public information campaign, and (vi) project management and operating costs. 9. The project will support a variety of needs to help build capacity for better cohesion and integration of the protected and ecological network system, help attract additional resources and improve financial sustainability of investments in protected areas, help improve public awareness, involvement, and education on the need for and purpose of protected areas and the ecological network, and better integrate the public and local community in the management of the ecological network by introducing agri-environment incentive programs. It will also help introduce volunteers across the nature protection institutions. 10. Inter-Sectoral Work with Agriculture. Support will promote development of agri- environment measures for Natura 2000 sites; to: (a) establish the minimum criteria for cross- compliance relating to Natura 2000 sites; (b) develop an efficient and effective inspection system for adherence to cross-compliance; (c) develop additional conservation measures for habitats and species of European interest; and (d) develop the methodology for calculating the agri- environment payment levels. An inter-ministerial working group has been established to supervise this work. 11. Boundary Delineation Pilot Program. The project will finance a pilot program to help test improvement of boundary delineation at two protected areas which relied on landmarks in some cases no longer there, and pre-dated new legislation that requires geo-referenced data coordinates for more precision. The limits of existing boundary information were identified as a constraint to bringing the nature protection systems in line with the EU INSPIRE Directive and especially regarding future payments in agriculture which is based on cadastral parcels/ agricultural plots; and at times problematic to the park management planning process. The project will support a study to help clarify the quickest legal process to updates protected area boundaries, and then test implementation of this process. An inter-ministerial working group 31 including the Ministry of Culture and State Geodetic Administration has been established to oversee this work. 12. Park Volunteer Program. The project will support development of a program for introduction of volunteers in the nature protection system focused on strengthening capacities of institutions for development of volunteer programs and management of volunteers, and pilot and educate the first volunteers at two pilot protected areas in Croatia (Mljet and North Velebit National Parks). Support would focus on piloting an initial training program for "Volunteer Coordinators;" a "Manual for Park staff on including of volunteers in their work" and a "Guide to Volunteers." 13. Protected Area Financing. The project will support acquisition and piloting of tailored Natura 2000 park management software which includes standardized project-based financial tracking modules to provide better tools at the park level. MoC will explore options to establish a third working group on Sustainable Park Finance around the time of project effectiveness to help review the feasibility of various financing mechanisms such as: fiscal instruments to encourage nature conservation; benefit and revenue sharing agreements; market-based charges for protected area goods and services including tourist charges, bio-prospecting, advertising, and introduction of a single-ticket entry scheme for Nature and National Parks; and feasibility for establishing an endowment fund to help supplement existing government budget allocations. 14. Protected Area Staff Training. The project would support a program for long-term and continuous training for protected areas civil servant staff. In terms of training content, the main demand and need especially at the local level is on strengthening knowledge of EU grant programs for nature protection and how they work. Training would focus initially on Structural Funds programs to help support project objectives and implementation, but would also focus on the objective of widening and diversifying the range of targeted EU instruments over time. Other areas of training focus will be on strengthening management skills, monitoring and evaluation, diversification of financing to protected areas and strengthening economic skills, good environmentally friendly and universal design practices, and interpretation. These priorities were identified through a participatory training needs assessment and more detailed training program content are being specified prior to appraisal. 15. Project Management. The project will finance priority consultant services and operational costs for a project implementation unit which will work on a daily basis side by side with civil servants within the Ministry of Culture in their coordination of this program. 32 Annex 3: Implementation Arrangements CROATIA: European Union Natura 2000 Integration Project Project Administration Mechanisms 1. The project is being implemented by the Ministry of Culture through its Nature Protection Directorate. The State Secretary for Nature Protection within the Ministers Cabinet will hold primary responsibility for the project on behalf of the Ministry and will help with strategic guidance during project implementation. The State Secretary will also chair the Project Coordination Committee and help to make key decisions including those which require integrating views of other Ministries. A Project Coordination Committee was established and held its first meeting in February 2010. Representatives from different government Ministries include those responsible for Nature Protection, SAPARD/IPARD, Physical Planning, Fisheries, Forestry, Water Management, Tourism, EU Funds Programming, and Land Administration. It also includes a representative of civil society and representatives of the National Parks, Nature Parks, and County Public Institutions. It is expected that several working groups will be established under this Committee to facilitate more on specific inter-sectoral challenges. Two initial working groups on land and agri-environment issues established through Ministerial Decrees have already been established and held meetings. 2. The Project Director, also Director of the Nature Protection Directorate, will be responsible for hiring any consultant staff under the project and day to day guidance to the implementation team. The Project Director is also responsible to ensure that the project is well coordinated within the Ministry and across government and will facilitate access to the implementation team as necessary. A project implementation team hired under consultant contracts will be established and located within the Nature Protection Directorate. This unit will be co-located with the Department for Strategic Planning in Nature Conservation and European Integration under the Nature Protection Directorate to ensure that day to day activities are closely coordinated. The Project Implementation Unit will be comprised of a full-time project coordinator, full time procurement specialist, full-time financial management specialist, and a full-time economist monitoring and evaluation specialist. Other consultants will be hired to support specific tasks such as additional environmental engineering and procurement expertise in combination with an engineering design and supervision contract; and trainers within a larger training program contract. 3. Financial management will rely on both project specific accounting software and the Ministry of Culture Finance Directorate systems. Procurement will be centrally managed through the PIU; however, it will rely to a large extent on the participation of beneficiary entities (e.g., parks and county public institution staff) in this process. Project specific training would be targeted at a much wider audience. Project and Program wide M&E will similarly be lead by the Project Implementation Unit staff and will use inter-connected computer systems to request information from other beneficiary institutions. 4. For Structural Funds Coordination, the Ministry of Culture's Nature Protection Directorate, through its Department for Strategic Planning in Nature Conservation and European Integration, will facilitate development and pre-screening of all nature protection pipeline 33 proposals. The Environmental Protection and Energy Efficiency Fund will be accredited by the EU to act as a consolidated Intermediate Body (IB) for all structural funds for nature as well as waste, air, and energy investments under the Operational Program Environment and Energy. The Managing Authority (MA) for the same Structural Funds will be the Directorate for European Union at the Ministry of Environmental Protection, Physical Planning and Construction. The State Secretary for Environment will be the head of this Managing Authority. Financial Management 5. The overall financial management risk for the project is substantial before mitigation measures, and with adequate mitigation measures agreed, the financial management residual risk is moderate. The Inherent Risk of the project is rated as moderate, while the controls risk is rated as substantial before the mitigation measures. After introduction of mitigation measures such as extending a contract for FM consultant from part-time to full-time, and training of MoC, SINP and parks in WB procedures, the controls risk will be reduced to moderate. 6. Budgeting and Counterpart Funding Arrangements. Annual budgets as well as budgets for 3 years are prepared by the MoC. The budgets are communicated to the MoF. In addition, the annual approved budgets, adopted by the Croatian parliament, are made public in the Official Gazette. The project budget is integrated in the State Budget. 7. Flow of funds. The implementation of project activities will be under the Ministry of Culture. The MoC will manage project implementation and will be responsible for such functions as: procurement, financial management, monitoring and evaluation, and reporting. The fiduciary functions would be conducted by hired consultants under the existing PPF (subsequently the loan). 8. Accounting and Maintenance of Accounting Records. Under the PPF, the PIU developed a modular Access database to keep the records of the project. The database contains several modules, e.g., for project management, legislation, procurement, finance, and reporting. The supporting documentation for the project transactions will be sent on a monthly basis to the MoC accounting department and booked in their accounting system. Accounting policies to be applied to the project include the following major assumptions: (i) cash accounting as the basis for recording transactions; (ii) reporting done in the currency of the loan; and (iii) consolidated IFRs prepared for all components, including all project funds. The project financial statements will be prepared on a cash basis, i.e., invoices are recognized when received and registered in a document evidence module in the accounting system, and expenditures are recognized only after payment. The project accounting policies are described in the financial management chapter of the draft Operational Manual. Internal Controls and Internal Audit 9. The MoC will maintain Project accounts and will ensure appropriate accounting of the funds provided. The formats of the IFRs have been agreed and confirmed. The IFRs will be prepared on a quarterly basis. IFRs will be prepared for each calendar quarter and submitted within 45 days after the end of the reporting quarter. The IFRs will include: Project Sources and 34 Uses of Funds, Uses of Funds by Project Activity, Designated Account Statement, and Statements of Expenditure (SOE) will be presented in the loan currency. If the loan currency differs from the currency of the Designated Account (DA), the DA reconciliation statement will be presented in the currency of the relevant DA. 10. The MoC has adequate internal controls for the project, including regular reconciliation of bank accounts, adequate segregation of duties, proper accounting policies and procedures and monthly reconciliation of disbursement summaries of the World Bank with accounting records will be performed. Designated Account reconciliation statements, Client Connection figures will be reconciled monthly with the accounting records. Until full reliance can be placed on the accuracy of the automatic reporting, IFRs would be reconciled quarterly with the accounting data. SOEs will be prepared in a separate excel file and kept for each payment made, based on bank statements. The IFRs will be reconciled quarterly with the trial balance out of which they are prepared, including the relevant bank statements. Evidence of the reconciliation made will be kept in project records. MoC will maintain, print and store all back up documentation (trial balance, bank statements, journal entries etc.) for the quarterly IFRs in a file. 11. Contracts will be signed by the Minister of Culture or State Secretary of the MoC. Every invoice will be verified and initialed by the Procurement and Financial Management specialists who check if the delivery was made in accordance with the contract and if financial data is accurate. Payment orders are approved and signed by the Director of Directorate for Nature Protection or Director of the Directorate for Financial Affairs or State Secretary and initialed by the Project Coordinator, and Financial Management Specialist. The PIU shall report on the uses of funds to the MoC on a monthly basis with copies of bank statements and invoices attached to the monthly statement, and sent to the MoC accounting department to be recorded in the Ministry accounting system. Reconciliation between PIU and MoC financial data will be carried on monthly basis and the reconciliation documents should be properly filed by the PIU. 12. Disbursement data and payments performed are reported to the Ministry of Finance with each withdrawal application, together with the respective bank statements. Accounting data of the MoC and MoF Treasury SAP system shall be equal and are verified by MoC Accounting Department. 13. Periodic Financial Reporting. The MoC shall prepare and furnish to the Bank not later than forty five (45) days after the end of each calendar quarter, interim unaudited financial reports for the project covering the quarter, in form and substance satisfactory to the Bank. 14. External Audit. The MoC will be responsible for the timely compilation of the annual project financial statements for the independent external audit. Project financial statements (including SOE and DA activities) will be audited by an independent auditor acceptable to the Bank. Each audit of the Financial Statements shall cover the period of one (1) fiscal year of the Borrower, commencing with the fiscal year in which the first withdrawal was made under the Loan. The terms of reference for the audit have been agreed with the Bank, and will be attached to the Minutes of Negotiation. In addition, the auditors are expected to deliver management letters in relation to the project. Each management letter will identify internal control deficiencies and accounting issues, if any. The audit reports, audited financial statements and 35 management letter will be delivered to the Bank within six months of the end of each fiscal year. The audited Project Financial Statements will be made publicly available in a timely fashion and in a manner acceptable to the Bank. Disbursement Arrangements 15. There will be one Designated Account (DA) opened for the MoC for the loan proceeds. The DA will be opened in a commercial bank acceptable to the World Bank. Loan funds will flow from the World Bank to the Designated Account and then from Designated Account to contractors on the basis of the approved invoices. There will also be a possibility to use special commitments (in case of goods imported) or direct payments methods from World Bank to contractors for larger payments as indicated in the Disbursement Letter. 16. The MoC will prepare the application for withdrawals to be submitted to the Bank and the payment orders for suppliers. Such procedure is described in detail in the FM chapter of the project Operational Manual. 17. Disbursement from the Loan Account will follow the traditional method, either through reimbursement, direct payment to suppliers, issuance of the Bank's Special Commitment, or payments from and replenishment of the DA, with the use of SOEs or with full documentation. Withdrawal applications for the replenishments of the DA will be sent to the Bank directly by the MoC every quarter. 18. However, the option of report-based disbursement will be available to the MoC, and subject to satisfactory reporting arrangements and successful application of accounting software. Therefore, the MoC will develop cash flow forecast and reporting capabilities, if the report based disbursements is applied. The withdrawal of funds can be linked with the due date for submission of quarterly IFRs. In such a case the Withdrawal Application shall be accompanying by the cash forecast, reconciliation of the Designated Account and copies of the Bank Statement. Advances will be disbursed provided that there are no overdue IFRs. The reconciliation (recovery process) of expenditures will be carried out on a quarterly basis in line with IFRs, and therefore each IFR should be sent to the disbursement department together with the withdrawal application. The recovery withdrawal applications will be supported by full IFRs including in particular Summary SOE (part of IFRs) showing types of expenditures with applied disbursement percentages and expressed in EUR (currency of the loan), and a DA statement including a copy of the Bank Statement. 19. Supporting documents for SOEs, including completion reports and certificates, will be retained by the MoC and made available to the Bank during project supervision. Disbursements for expenditures above the SOE threshold levels will be made against presentation of full documentation relating to the expenditures. The reimbursement of expenditures from the DA may be made on the basis of certified SOEs, based on the SOE thresholds defined in detail in the Disbursement letter. The ceiling and authorized allocation for the IBRD DA will be defined in the project Disbursement Letter. The DA will be denominated in EUR. 36 20. Local contribution under the project would be provided directly by the SINP, National Parks, Nature Parks and County Public Institutions, and would amount to around EUR 2.88 million of the total project costs. The front-end fee would be entirely deducted from the loan proceeds. Local contributions will be made from separate accounts of the SINP, National and Nature Parks, and County Public Institutions. Withdrawal of the Proceeds of the Loan Category Allocated (in EUR) % of Expenditures to be financed 1. Goods, Works, Consultants' Services, 20,339,000 100% including Training and Operating Costs for the Project 2. Refund of the Preparation Advance 409,000 N/A 3. Front-end Fee 52,000 N/A Total 20,800,000 100% Retroactive Financing 21. Advance Contracting and Retroactive Financing. Advance Contracting and Retroactive Financing will be carried out in accordance with the Procurement Guidelines or Consultant Guidelines, as the case may be, up to an amount of EUR 0.5 million and dating back from December 15, 2010 onwards. This provision is necessary to meet any immediate financing needs. Procurement Arrangements 22. Procurement risk assessment. A procurement capacity assessment was carried out as part of the pre-appraisal mission in early July 2010. The general conclusion is that the core Project Implementation Unit (PIU) has adequate experience and capacity to carry out procurement activities related to the proposed project. The staff is familiar with Bank procurement procedures and guidelines as they have been involved and gained substantial knowledge and experience during the implementation of another project financed by the Bank. It is envisaged that the project will finance various contracts for simple civil works at a relatively small estimated values with a wide geographic spread, consultancy contracts and a few contracts for goods, including two contracts for ICT of small value as indicated in the procurement plan. The detailed design and BOQ for the civil works have been already prepared and the PIU is prepared to launch the procurement procedure for the first three contracts after project negotiations. The PIU is coordinating with the relevant beneficiaries and departments in the Ministry to prepare the TORs for the first few priority consultant contracts, including Nature Interpretation Capacity Building, Civil Works Supervision, Engineering Safeguard Coordinator, and Monitoring and Evaluation Consultant. The selection procedure for those will be launched immediately after project negotiations. The only risk that has been identified is that some of the civil works contracts procurement will take place at the same time. Attention should be paid and good coordination will be required for the procurement of the numerous civil works contracts, as well as the 37 contract management later on. Additional procurement capacity may be required to strengthening the PIU capacity 23. Risk Rating. The procurement risk is assessed as moderate. No specific risks for procurement are indicated in the ORAF, therefore the standard procurement covenants should apply. Risk mitigation measures have been agreed with the PIU. 24. Procurement Guidelines Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised in October 2006, revised May 2010, and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised in October 2006, revised May 2010; and the provisions stipulated in the Legal Agreement. 25. Procurement Plan and Procurement Arrangements. The PIU, at appraisal, developed a Procurement Plan for project implementation which provides the basis for procurement methods. In the procurement plan, all contracts are grouped in bid packages as much as possible to encourage better competition. This plan was agreed between the Borrower and the Bank during the negotiations. It will be available at the office of the PIU, and on the Bank's external website. The Procurement Plan shall be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Table A: Procurement Arrangement and Schedule for Goods and Works Procurement Domestic Prior Ref. No. Description Packages Comment method Preference Review NIP-01-01 Works for NP Brijuni 1 NCB No N NIP-01-02 Works for NP Kornati 1 NCB No N NIP-01-03 Works for NP Krka 1 NCB No Y NIP-01-04 Works for NP Mljet 1 NCB No N NIP-01-05 Works for NP Paklenica 1 NCB No N NIP-01-06 Works for NP Plitvicka jezera 1 NCB No N NIP-01-07 Works for NP Risnjak 1 NCB No N NIP-01-08 Works for NP S.Velebit 1 NCB No N NIP-01-09 Works for PP Biokovo 1 NCB No N NIP-01-10 Works for PP Kopacki Rit 1 NCB No N NIP-01-11 Works for PP Lonjsko polje 1 NCB No N NIP-01-12 Works for PP Medvednica 1 Shopping No Y NIP-01-13 Works for PP Papuk 1 NCB No N NIP-01-14 Works for PP Telasica 1 NCB No N Possible SSS contracting for NIP-01-15 Works for PP Ucka 2 Shopping No N artisan performance NIP-01-16 Works for PP Velebit 1 NCB No N NIP-01-17 Works for PP Vransko jezero 1 NCB No N Works for PP Zumberak i NIP-01-18 1 NCB No N Samoborsko gorje NIP-01-19 Works for JU Brodsko-posavska 1 NCB No N Works for JU Dubrovacko- NIP-01-20 1 NCB No N neretvanska NIP-01-21 Works for JU Istarska zupanija 1 NCB No N 38 Procurement Domestic Prior Ref. No. Description Packages Comment method Preference Review NIP-01-22 Works for JU Karlovacke zupanije 1 NCB No N Works for JU Koprivnicko- NIP-01-23 1 Shopping No N krizevacke zupanije Works for JU Krapinsko-zagorska NIP-01-24 1 NCB No N zupanije Works for JU Meimurske NIP-01-25 1 NCB No N zupanije NIP-01-26 Works for JU Osjecko-baranjska 1 NCB No N Works for JU Primorsko-goranske NIP-01-27 1 NCB No N zupanije Works for JU Sisacko-moslavacke NIP-01-28 1 Shopping No N zupanije Works for JU Splitsko- NIP-01-29 1 NCB No N dalmatinska NIP-01-30 Works for JU Sibensko-kninska 1 NCB No N Works for JU Varazdinske NIP-01-31 1 NCB No N zupanije Works for JU Viroviticko- NIP-01-32 1 NCB No N podravske zupanije NIP-01-33 Works for JU Zadarske zupanije 1 NCB No N Works for JU Zagrebacke NIP-01-34 1 Shopping No N zupanije SINP - Large Carnivore NIP-01-35 1 NCB No N Educational-informative Centre Since the projects are not in Reserve for 2nd Phase preparation it is not possible NIP-01-36 4 NCB No N Investments for Public Institutions to estimate concrete dates for implementation NIP-01-37 Interpretation equipment 2 NCB No N There is possibility for DC NIP-01-41 Fire Fighting Equipment for Parks 2 NCB No N in small amounts for special camera upgrades Monitoring and Ranger SINP will prepare the NIP-01-42 3 NCB No N Equipment for Natura 2000 needs technical specifications Monitoring and Ranger NIP-01-43 2 NCB No N Equipment NIP-01-44 Furniture for MoC (PIU) 1 Shopping No N NIP-01-45 Vehicles for MoC and SINP 1 NCB No N Acquisition and processing of Could get for free; SINP NIP-02-02 1 ICB No Y high resolution satellite images will check Hardware & software related to NPIS and habitats mapping plus NIP-02-03 2 NCB No Y IT equipment for SINP and MoC (PIU) To be analyzed if DC is NIP-02-04 Maintenance of NPIS 2 NCB/DC No Y justified Software for Countryside Access NIP-03-15 1 DC No Y Management System 39 Table B. Procurement Arrangement and Schedule for Selection of Consultants Procurement Domestic Prior Ref. No. Description Packages Comment method Preference Review Environment Management Plan NIP-01-38 1 SSS No Y for specific works sites The activity is split into two contracts, one for NIP-01-39 Civil Engineering Services 2 LCS No Y northern and one for southern Croatia NIP-01-40 Engineer/Safeguard Coordinator 1 IC No Y Identification of species and NIP-02-01 Multiple CQ/IC No N habitats for inventory NIP-02-05 Field research of habitats 1 QCBS No Y Field research and laboratory NIP-02-06 processing for collecting new Multiple QCBS/CQ No Y inventory data Development of the Nature protection information system and NIP-02-07 Cultural heritage system 1 IC No Y according to the INSPIRE directive Intersectoral GIS Data exchange NIP-02-08 1 QCBS No Y solution Support for Agri-Environmental NIP-03-01 1 QCBS No Y scheme Nature Interpretation Capacity NIP-03-02 Building & NIP Communication 1 QCBS No Y strategy Boundary delineation and NIP-03-03 registration of accurate PA 1 QCBS No Y boundaries Programmed for the training of The number of contracts NIP-03-04 employees of the nature Multiple IC/CQ No N will be later defined protection system Training and Communication NIP-03-06 1 IC No Y Specialist Programme for the volunteers in NIP-03-07 1 CQ No Y the nature protection system Two contractors for two Various Studies, Analysis and NIP-03-08 2 CQ No N different studies during Surveys project lifetime NIP-03-09 Financial Audit 1 LCS No Y NIP-03-10 Project Coordinator 1 IC No Y NIP-03-11 Procurement Specialist 1 IC No Y NIP-03-12 Financial Specialist 1 IC No Y NIP-03-13 Project Office Manager 1 IC No Y NIP-03-14 PIU FM System Upgrade 1 IC No N NIP-03-16 Economist and M&E Specialist 1 IC No Y 26. Post-review Percentages and Frequency. Contracts not subject to Bank's prior review will be post reviewed by the Bank' procurement specialist assigned to the project. Post review of contracts will be carried out once per year. At a minimum 1 out of 10 contracts will be randomly selected for post review. 40 27. Risks and Mitigation Measures. The following measures were agreed to mitigate the remaining risks and maintain the implementing team's capacity. A Procurement section of the Operations Manual has been prepared by the PIU, which, among other things, elaborates on the roles and responsibilities in the management and coordination of the procurement process, preparation of terms of reference and technical specifications, evaluation, establishment and appointment of evaluation committees, conflict of interest mitigation measures, record keeping, contract management, a complaint handling mechanism, etc. As needed, an additional staff with experience in civil works will be hired to strengthen the capacity of the PIU for coordination and management of the procurement and management of the civil works contracts. The Bank's Procurement Specialist assigned to the project will provide the team with a full set of the most resent procurement documents, including but not limited to Procurement and Consultant Guidelines, standard and sample bidding documents, proposal, evaluation report documents, etc., in hard copy and on CD. Governance and Accountability Framework (GAF) 28. A governance and accountability framework covering enhanced disclosure provisions and transparency, complaints handling mechanisms, sanctions and remedies, mitigation against collusion, fraud, and nepotism, stakeholder participation during implementations; financial audits, and monitoring and evaluation was developed at appraisal. A more detailed description of this can be found in Annex 5. Environmental and Social (including safeguards) 29. To address the safeguard issues, the project team in the Ministry of Culture together with the Croatia certified EIA consultant prepared an overall project Environmental Management Framework (EMF) and is in the process of preparing site specific EMPs for 35 investments that are known at this stage of the project. The overall EMF shortly describes the project, provides information about legislative and institutional framework for the project implementation, defines the general contest of the site specific EMP, describes the consultation with the public process, identifies six subproject groups (buildings, tracks/paths, buildings and paths, caves, sea investments, anchoring, and other), and for those groups identifies the potential environmental impacts and mitigation measures during construction and operation phase. Some additional investments might be supported in the outer years of the project of a similar typology following the same screening process. The site specific EMPs for additional investments will be prepared according to overall Environmental Management Framework prepared for the project. The site specific EMPs for identified groups were prepared prior to appraisal. The EMF together with seven EMPs, covering different groups of sub project investments was disclosed to the public and consulted. The documents were disclosed on the website of the Ministry of Culture. One national level consultation on the overall project EMF and several sample site-specific EMPs were organized for project appraisal. The documents were disclosed in the local language on the website of the Ministry of Culture. The PIU took a proactive approach sending the overall EMF 41 to stakeholders ranging from well known NGOs to participating Nature Institutions. The public consultation was held on September 23, 2010 in Zagreb. During project implementation (depending on the readiness of the individual sub projects), site-specific consultations will be conducted at the local level in coordination with the construction permitting process. Site- specific EMPs will be posted by the relevant institution on their website. 30. Compliance with environmental and social safeguards will be the primary responsibility of the PIU in the Ministry of Culture, with one staff clearly tasked to monitor this with the support of technical consultants. Monitoring tasks will include monitoring the implementation of site specific EMPs, screening the new potential investments and updating the existing EMPs to incorporate any additional permit requirements beyond the mitigation measures identified through the project-level review. Each beneficiary institution with an investment involving civil works will also have a site specific Environmental Management Plan. They will be responsible for ensuring adequate public opportunity for inputs and disclosure of documentation. As the project will cover numerous investments, the obligation of monitoring of implementation of site specific EMPs and reporting on the same, will be added to supervising engineering contracts. The PIU is also responsible for oversight of the pilot boundary delineation work. The project staff has adequate experience and capacity related to World Bank social and environmental safeguards based on implementation of previous World Bank-financed projects. There are no environmental and social risks or issues that go beyond the coverage of the safeguards policies. Actually, the project will strengthen the implementation of the Habitats and Birds directives. Project Monitoring & Evaluation 31. Project Monitoring and Evaluation (M&E) would be the responsibility of the PIU within the Ministry of Culture's Nature Protection Directorate, which has M&E capacity from work on other Bank-financed projects. M&E will be based on both survey and administrative data sources. Baseline indicators are being developed from several project preparation studies including the social assessment survey, valuation surveys, PPF-financed preparation consultant reports, the Management Effectiveness Tracking Tool (METT), and the WWF Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) Tool. Both a mid-term and an end- of project survey will be commissioned by the PIU to follow-up on measuring certain indicators, while others will be measured on an annual or semi-annual basis. Data will also be provided by individual parks and counties, and the State Institute for Nature Protection which collects data in its routine work. The M&E capacity of the Ministry of Culture to collect and analyze data across the entire ecological network will be strengthened by the introduction of an economist position in the PIU. This person will train an entry level economist in the Department for Strategic Planning in Nature Conservation and European Integration through the project. Local level M&E capacity will be strengthened through targeted training programs which complement ongoing investments. A mid-term review will be carried out to assess overall progress. Lessons learned, recommendations for any improvements, and stakeholder feedback would be used in restructuring the project if necessary. The results of the M&E activities will be fed back into the implementation process as improved practices. 42 Proposed Project Implementation ­ Structure Project Coordination Committee Working Group 2 Working Group 1 PA Border Delineation Working Groups Agrienvironment and Registration 3 and 4 MINISTRY OF CULTURE CABINET Independent dept. Finance State Secretary for for planning of Directorate Nature Protection development projects WB NP Directorate (LOAN Bilateral FUNDS) EU IPA Dept. for SP and EU EU Structural Funds PIU SINP CPIs Park PSU Institutions Monetary flows Beneficiaries Reporting line Coordination 43 Annex 4: Full Operational Risk Assessment Framework (ORAF) CROATIA: European Union Natura 2000 Integration Project Project Development Objective(s) Support Park and County Public Institutions to implement Natura 2000 objectives in their investment programs; strengthen capacity for EU- compliant reporting and biodiversity monitoring; and introduce programs that involve a wide group of stakeholders in Natura 2000 network management. PDO Level Results 1. Progress made in increasing annual capital and other investment expenditure across the Parks estate. Indicators: 2. Extent of Croatia covered by an accurate habitat map at 1:25,000 scale. 3. Number of project promoted programs in operation that actively involve stakeholders with Natura 2000. Proposed Mitigation Measures Risk Category Risk Rating Risk Description Project Stakeholder Risks M­L Certain stakeholders want a higher level of NGO/CSO Representation on Project Coordination Committee; NGO on Agri- involvement in sector activities, and could oppose Environment Working Group. the project if not involved. Broad consultation during preparation. High expectations from non-government and Control expectations with regular communications and making all project documents academic institutions for direct involvement transparent. Outreach and Communications program supported. /contracts are unmet. Implementing Agency Risks M-I Administrative staffing numbers in nature Government agreement to hire additional staff in SINP and MoC. institutions remain below desirable levels and impact ability to meet project objectives. Cuts to the Ministry of Culture budget for Nature The project focuses on strengthening other sources of finance to protected areas but is Protection to the point that it affects not expected to substitute for Ministry of Culture budget funds. Ensure positive implementation and counterpart funding (due to incentives to generate new revenues to parks. There is a State Secretary (high political) continued impacts of the financial crisis). Position for Nature Protection; activities and investments integrate cultural dimension. 44 Proposed Mitigation Measures Risk Category Risk Rating Risk Description Staff in SINP and park and county institutions are At least one full-time FM staff in MoC to be hired and paid through the Loan proceeds; not familiar with World Bank procedures which training on the World Bank procedures and guidelines should be provided to SINP and may delay project implementation. The current Park staff. part-time FM arrangements in the Ministry might not be sufficient to provide the implementation It is recommended that clear responsibilities related to the project need to be assigned in support required. SINP, Park and County Institutions. Min. Culture cannot influence budget allocations to County Public Institutions are beneficiaries of investment and training provided through County Public Institutions for Nature Protection ­ the loan; promote access to EU grants and realization of local benefits at county and local but it is accountable for promoting activation of the level; support activities that promote an integrated vision for all levels of nature Natura 2000 network and counties have a large protection management. role. Some biological inventory groups (researchers Legal clarification of obligations for data sharing in all contracts; all data generated to /scientists) may have a vested interest to continue feed into one common system so duplication will be avoided; data more than 10 years using the same data under different contracts. old must be updated per EU requirements. 45 Proposed Mitigation Measures Risk Category Risk Rating Risk Description Project Risks Design M-I Training program is difficult to implement due to Ensure training programs supported at the top of administration and include a training- time pressures of staff and lack of trainers. of-trainers program. PIU training specialist to work with training coordinator in Min. Culture. The design options selected are already integrated into existing training programs. Agri-environment measures for NATURA 2000 Project to support studies to prepare proposal for NATURA 2000 agri-environment fail to be accredited by EU during the life of the programs at the national level and focus on preparatory actions at the local level; that is project. needed in any case regardless of when program accreditation is achieved. Some parks/counties may be over-optimistic on Park-driven investments designed in two phases; consultant support to help parks with project `readiness' criteria. nature interpretation; and engineering site supervision tasks. Begin procurement actions for first phase before loan effectiveness; operations manual ready by negotiations. Risk that Structural Funds do not start in 2012. Also risk that lack of clarity in Structural Funds Project to support Min. Culture and SINP involvement in Development of Structural detailed procedures early enough causes delays in Funds procedures. pipeline development Most project outcomes are not dependent on the timing of accession. Early consultant contract helping to prioritize inventory work to also focus on most There is an accepted SINP practice of single source efficient procurement packaging. TORs final and agreed by negotiations. contracting with state owned institutions (universities, natural history museums, research Anticipate some direct contracting up front but encourage efficiencies through greater institutes) that may exclude some other able clustering of tasks and competition where possible. institutions from biological inventory work. NGO advisory support to the design to ensure the process taps into a wide group of able organizations. Harmonize method with Structural Funds application guidelines if timing enables this. Social & Environmental L Risk that World Bank environment and social Designated person in govt. implementation team to oversee safeguard implementation. safeguards are not complied with. Monitor implementation of the site specific EMPs. If the Boundary delineation pilot program fails to integrate an effective public participation Social/training specialist under the training contract. mechanism it could result in land-use and boundary disputes or conflicts. Process Framework to describe how pilot programs will address this risk including field testing of a participatory process (study to be funded that will define this). 46 Proposed Mitigation Measures Risk Category Risk Rating Risk Description Risk of abuse in agri-environment program if an Project will finance an agri-environment study to establish an environment monitoring adequate monitoring and enforcement mechanism and enforcement mechanism. is not established. NGO participation on the Working group to help define this mechanism. Program & Donor L Risk the loan funds crowd-out grant funds. Maintain WB loan flexible enough to make adjustments if other donor grant funds can be substituted. Bank supervision missions to meet with other donors. Delivery Quality M-L Monitoring and Evaluation becomes difficult to Harmonize M&E reporting systems for project; budget annual programming; designated manage centrally or M&E reporting overload from M&E staff. the nature protection institutions. SINP's relatively weak capacity for monitoring A Project Support Unit will be formed in SINP with primary tasks to manage and contract implementation, communicating with oversee the biological inventory program. service providers, collecting reports and invoices could slow down implementation of this International consultant contract to be capacity transfer-focused. component. Overall Risk Overall Risk Rating Comments Rating During at Preparation Implementation Project objectives are strongly aligned with EU accession which is a process with its own momentum that is commanding L M- I most of government's attention in any case. The project follows from a successfully implemented project with strong continuity of staff within the line Ministry (State Secretary and Director) who understand World Bank procedures. Staff hired under the PPF who would continue as part of the implementation team under the loan, are experienced with implementing other World Bank loans. The project has benefited from a detailed preparation process to vet out highest needs and consult with stakeholders. Capacity weaknesses are known and strengthening is a main focus of the project. Most accession related tasks need to be done in any case and are not dependent on the date of accession. Legend: L - Low; M-L - Medium, driven by likelihood M-I - Medium, driven by impact H - High 47 Annex 5: Implementation Support Plan CROATIA: European Union Natura 2000 Integration Project Strategy and Approach for Implementation Support 1. The strategy for implementation support (IS) was developed based on the nature of the project and its risk profile. Its aim is to make IS to the client more flexible, efficient, and focused on the risk mitigation measures defined in the ORAF. 2. Procurement. IS for procurement will include: (a) providing training to beneficiary entities (e.g., parks and county public institution staff) through a procurement system centrally managed by the Project Implementation Unit (PIU); (b) reviewing procurement documents and providing timely feedback to the Procurement Specialist; (c) providing detailed guidance on the Bank's Procurement Guidelines to the Procurement Specialist who has focused on ensuring procurement readiness of first year contracts; and (d) monitoring procurement progress against the detailed Procurement Plan, which will be updated every six months (or as required) to reflect project implementation needs and improvements in institutional capacity. 3. Financial Management. IS will also review the project's financial management system including, but not limited to, accounting, reporting and internal controls. It was determined that the controls risk will be reduced to moderate after introduction of the following mitigation measures: (a) hiring of the current part-time Financial Management (FM) Consultant as a full- time Specialist in the Ministry of Culture (MoC), who will be paid through the Loan proceeds; and (b) provision of training on World Bank procedures and guidelines to MoC, the State Institute for Nature Protection (SINP), and parks staff. The Bank team will also work with the Project Director to assist the PIU in improving coordination among the different departments and units for financial management and reporting. Financial management will rely on both project specific accounting software and the MoC Finance Directorate systems. 4. Environmental and Social Safeguards. Compliance with environmental and social safeguards will be the primary responsibility of the PIU in the MoC, with one staff specifically tasked to monitor compliance. Each beneficiary institution with an investment involving civil works will prepare a site-specific Environmental Management Plan ensuring adequate public opportunity for inputs and disclosure of documentation. The Project staff has adequate experience and capacity related to World Bank social and environmental safeguards based on implementation of previous World Bank projects. The Bank team will provide guidance to the PIU in MoC to address any issues as they may arise. The PIU is also responsible for oversight of the protected areas boundary delineation pilot and will ensure the participatory process embedded within various national legal regulations and the policy for public disclosure is followed (see Annex 10 description). 5. Anti-Corruption. The Bank will support Croatia's judicial, anti-corruption and governance strategy through the Bank-financed Justice Sector Support Project and Governance Assessment. The Bank's communication platform will contribute to wider knowledge on government efforts and achievements in this area, which is under high scrutiny by the European Union. 48 6. Other Issues. Project risks such as ensuring training programs for park staff would be best addressed jointly with the PIU and the ranger training coordinator at MoC. When organizing the biological monitoring program it will be crucial to anticipate some direct contracting upfront while encouraging efficiencies through greater clustering of tasks and competition where possible. The direct involvement of NGOs and their advisory support in designing this work should ensure the process taps into a wide group of capable organizations. Implementation Support Plan 7. Bank team members will be based both at headquarters and in the Croatia Country Office to ensure timely, efficient and effective implementation support to the client. Task team leadership will be shared between headquarters and the country office. Formal IS missions and field visits will be carried out twice a year. Detailed inputs from the Bank team are outlined below: Technical inputs. Technical knowledge of biodiversity inventory and mapping, nature interpretation tools, and engineering works and site supervision requirements are required for reviewing bid documents to ensure fair competition through proper technical specifications and fair assessment of the technical aspects of bids/contracts. During project implementation, technical supervision is required to ensure contractual obligations are met. The Bank's project team and PIU staff will conduct site visits to parks and public county institutions on a regular basis throughout the duration of the project. Fiduciary requirements and inputs. The key challenge Croatia faces in fiduciary management is to maintain sound budget execution and planning, while improving audit/control standards, now harmonized with the EU acquis. Both the project's Financial Management and Procurement Specialists will be based in the PIU at MoC to provide timely support. The Bank project team will also help MoC identify capacity building needs to strengthen its financial management capacity and improve procurement management efficiency. The Bank's regular FM and procurement supervisions provide timely advice on budget planning and/or any need for adjusting financing priorities within overall allocations of spending ministries. The MoC will be responsible for the timely compilation of annual project financial statements for the independent external audit. Project financial statements (including SOE and DA activities) will be audited by an independent auditor acceptable to the Bank. Each audit of the Financial Statements shall cover the period of one (1) fiscal year of the Borrower, commencing with the fiscal year in which the first withdrawal was made under the Loan. 8. Thematic. Opportunities will be taken when they arise to exchange information with other similar Bank projects in the region. There may also be opportunities to collaborate with protected areas work supported by the World Bank in neighboring countries such as Serbia, Montenegro, Turkey, and Albania. Partnerships and learning exchanges with other close EU neighbors such as Slovenia, Austria, Italy, and Hungary will also be promoted through the project. 49 Governance and Accountability Framework (GAF) 9. A Governance and Accountability Framework (GAF) was developed to mitigate fraud and corruption risks. It summarizes the actions that have been agreed to and will be undertaken by the project implementation team to reinforce project governance, thereby enhancing the transparency of project activities, increasing public accountability, and reducing opportunities for corruption, collusion or fraud. 10. The following provides a summary of the GAF action plan: 11. Enhanced Disclosure Provisions and Transparency. The project will make use of the website and other communication channels (notice boards at the MoC and its Nature Protection websites, press releases and/or conferences, public meetings) to disclose information regarding the project. All forms of communication will also include display channels available to the public to make inquiries and to file complaints. Terms of Reference for consultant assignments will be published on the website of the MoC at the time of publication of Requests for Expressions of Interest (REoI). Contractors will be required to take pictures of activities and/or physical progress as part of their reports, to be uploaded on the MoC website on a regular basis. Contract awards and outcomes of procurement and selection procedures will be published on the website of the MoC and for all internationally advertized contracts on the website of United Nations Development Business (UNDB) and the dgMarket. 12. Complaints Handling Mechanism. The POM in its procurement section will provide information on the complaints handling mechanism. Complaints will be acted upon in a professional and timely manner, and confidentiality of the sources of information will be maintained. 13. Sanctions and Remedies. In all contracts, evidence of corruption, collusion or nepotism will result in termination of the relevant contract, possibly with additional penalties imposed in accordance with Bank and government regulations. 14. Mitigating Collusion, Fraud and Nepotism. The PIU will make use of the MoC official website to disclose procurement related information. In addition, all individuals (staff of the MoC or external experts) who will be involved in evaluation, preparation of technical specifications, terms of reference, and other procurement related documents will sign declarations of impartiality prior to their involvement in the process. The PIU will maintain fairness and transparency in the procurement process by responding to complaints effectively, and enforcing sanctions appropriately and consistently if there are proven cases of collusive or corrupt practices. 15. Stakeholder Participation in Oversight. The project design benefited early from stakeholder inputs through a series of workshops that introduced key stakeholders to the project's planned activities, gathered their suggestions, and included them in the planning of investments in the nature protection system. The Project Coordination Committee established during preparation includes an environmental umbrella NGO to help channel other stakeholder views into project design and implementation. During implementation, representatives of 50 NGOs/CSOs will be encouraged to join in discussions with the PIU staff, and members of academia are welcomed in agri-environment working group. Stakeholder participation should be inclusive during project implementation, while regular communication channels and easy and transparent access to documents should be guaranteed. The project will also support a public outreach and communications program. Various socio-economic stakeholders and a range of user groups who are important players in management of Natura 2000 sites such as farmers, landowners, foresters, hunters, walkers, hikers, and fishermen will be targeted by information campaigns. Their participation and involvement in the project capacity building activities will be encouraged. The Croatian public will also directly or indirectly benefit by awareness and information campaigns. Young people will be among those targeted through various promotional activities associated with Natura 2000 network such as the volunteer program. 16. Audit. The internal audit and control system is fully functional, and the fiscal reporting system has improved through the Single Treasury Account. The MoC has adequate internal controls for the project, including regular reconciliation of bank accounts, adequate segregation of duties, proper accounting policies and procedures, and monthly reconciliation of World Bank disbursement summaries with accounting records. External auditors are expected to identify any internal control deficiencies and accounting issues. The audit reports, audited financial statements and management letter will be delivered to the Bank within six months of the end of each fiscal year. The audited Project Financial Statements will be made publicly available in a timely fashion and in a manner acceptable to the Bank. 17. Monitoring and Evaluation. The PIU within MoC's Nature Protection Directorate has developed M&E capabilities from working on other World Bank projects, and an outcome and results monitoring framework has already been agreed. M&E will be based on both survey and administrative data sources. The baseline indicators being developed draw from several project preparation studies. These studies include: a social assessment survey, a series of evaluation surveys, and specific consultant reports prepared under the PPF-financed phase. At the system- wide level, the WWF Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) Tool will be used, while the Management Effectiveness Tracking Tool (METT) will be applied at the park level. In order to enhance the M&E capacity of MoC to collect and analyze data across the entire ecological network, an economist will be hired by the PIU. This person will train an entry level economist in the Department for Strategic Planning in Nature Conservation and European Integration through the project. Targeted training programs will also be organized to complement ongoing investments. A mid-term review will be carried out to assess overall progress. Lessons learned, recommendations for any improvements, and stakeholder feedback will be used in restructuring the project if necessary. The results of the M&E activities will be fed back into the implementation process as improved practices. 51 I Main Focus of Support to Implementation Time Focus Skills Needed Resource Partner Role Estimate First twelve Start-up of large Nature $100,000 Close collaboration months consultant support Interpretation; with EU partners contracts and first engineering will be required as civil work review; EU the program for investments; ensure program expertise; future Structural close coordination biological Funds is developed with process for monitoring planning future Structural Funds programs 12-60 months Effective Project $400,000 Close collaboration implementation of management; with structures programs; adapt strategic thinking; within Croatia project to EU environmental responsible for EU accession issues; economics; grant programs, ensure collaborative Geographic and EU reporting. learning by doing Information including by helping Systems; to infuse external Biodiversity knowledge as needed. Conservation II. Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments Biodiversity 2/year Social Local Staff Agriculture Instruments 5/project life Environmental 2/year Economics/M&E/GIS 10-14/year total across the 2/year To be adjusted annually EU Nature Programs team 2/year based on actual budgets EU Reporting and provided Monitoring Procurement Local Staff Financial Management 2/year Public Communications Local Staff III. Partners Name Institution/Country Role European Union European Donor and Leading Delegation /Croatia Organization for the EU Accession Process 52 Annex 6: Team Composition CROATIA: European Union Natura 2000 Integration Project World Bank staff and consultants who worked on the project: Name Title Unit Karin Shepardson Lead Operations Officer, Co-TTL ECSSD Vera Dugandzic Operations Officer, Co-TTL ECSSD Nathalie Johnson Sr. Environmental Specialist ECS03 Lamija Marijanovic Financial Management Specialist ECSSD Antonia G. Viyachka Procurement Specialist ECSPF Ahmad Slaibi Young Professional ECSSD Craig Meisner Environmental Economist ECSSD Stefano P. Pagiola Sr. Environmental Economist ESSD Agnes I. Kiss Lead Biodiversity Specialist and Safeguards ECAVP Ljiljana Boranic Team Assistant ECCHR Vanja Frajtic Junior Communications Associate ECCHR Emanuela Montanari-Stephens FAO Consultant - Nature Interpretation ECSSD AnaMarija Frankic Consultant- Coastal and Marine Specialist ECSSD Natasa Vetma Operations Officer ECSSD Paul Goriup Nature Protection Consultant-EU Funds ECSSD Anneliese Viorella Voinea Financial Management Consultant ECSPF Paula Lytle Senior Social Development Specialist ECSSD Ruxandra Costache Counsel LEGEM Hannah Koipillai Sr. Finance Officer CTRFC Peter Dewees Peer Reviewer SDV Claudia Sobrevilla Peer Reviewer SDV Glen-Marie Lange Peer Reviewer SDV Irina Ramniceanu Peer Reviewer ECSSD 53 Annex 7: Economic and Financial Analysis CROATIA: European Union Natura 2000 Integration Project Ecological Network Benefits Provided by Protected Areas 1. This Annex presents the results from the economic analysis for the Croatia EU Natura 2000 Integration Project. The overall development objective of the proposed project is to support Park and County Public Institutions to implement Natura 2000 objectives in their investment programs; strengthen capacity for EU-compliant reporting and biodiversity monitoring; and introduce programs to involve a wide group of stakeholders in Natura 2000 network management. 2. Protected areas in Croatia provide many benefits. Tourism provides the largest `visible' direct benefit owing to its diverse system of National and Nature Parks and increasingly in other more remote areas that traditionally were not part of the visitation circuit (e.g. unique sites off the beaten path). Currently tourism revenue represents over 14.1 percent of Gross Domestic Product, however the contribution is likely higher once indirect effects are taken into account.9 The conservation and preservation of these areas for future, sustainable, tourism and recreation is necessary for both public and private benefit. 3. Preservation and Conservation Values. Croatia's system of parks, cultural heritage and geographical sites are an important tourism asset for Croatia as is witnessed by the millions of tourists who visit Croatia on an annual basis. The protection of these resources is necessary to ensure the sustainable flow of benefits in the long-term and that the generated revenues are invested back into greater conservation. To quantify the benefits of protected areas and the services they provide, several contingent valuation surveys of tourists' willingness to pay (WTP) for protected area preservation and conservation were conducted during the summer/fall of 2009. In the survey, information on trip costs was also elicited in order to estimate Travel Cost Models (TCM) for comparison with estimated WTP.10 Contingent Valuation (CV) is a commonly used technique to elicit the monetary value of goods and services for which markets do not exist. Respondents are asked for their willingness to pay or for their willingness to accept compensation (WTA) for specified increases or decreases in the level of the service.11 4. An experienced international consultant conducted the contingent valuation survey of tourist willingness to pay for protected area conservation and preservation. Tourists were provided a brief description of the park/area and its main features. Tourists were then asked a 9 Indirect effects are created when income derived by direct flows are spent elsewhere in the economy on goods and services. This creates the so-called `multiplier effect' of a dollar as it is re-spent in an economy. 10 As opposed to stated preference techniques such as Contingent Valuation, the Travel Cost Model (TCM) is a revealed preference technique that uses observable behavior on trip costs to estimate consumers' surplus. TCMs assume that the cost of travel to, and at, the site is a proxy for the value of the recreational experience. TCM estimates are also viewed as a lower bound on recreation value since they are based on actual behavior. In the survey travel costs and time were collected in order to estimate TCM models. 11 There are specific `guidelines' one can follow to avoid truly hypothetical answers, such as reminding respondents to take into account their budget constraint, what they've spent thus far on the trip (and the current entrance fee in this case) and also reminders of substitute sites (such as other parks in Croatia). Surveys were also pretested to set WTP bid ranges so that plausible fees would be presented to the respondent. 54 series of questions on their activities while in the park/area and whether they would be willing to pay to support improvements in these services. They were then asked what they would be willing to pay, in addition to the entrance fee, to ensure that the many plants, animals, geological, cultural and landscape features within it are fully protected for people to enjoy without being damaged or extracted. The survey was conducted among 1,206 Croatians and 1,293 foreign visitors in a sample of four National Parks (Paklenica, Brijuni, Risnjak and Kornati), two Nature Parks (Lonjsko Polje and Papuk) and two County Public Institutions (Sibensko-Kninska and Varazdinska). Results of the survey show that Croatians have strong preferences for the preservation and conservation of protected areas, and are willing to pay about 9 /tourist/visit for National Parks, 6 /tourist/visit for Nature Parks and over 22 /tourist/visit for County Public Institutions, as shown in Figure 7.1. Foreign tourists place even higher values on the National Parks (19 /tourist/visit) and County Public Institutions (19 /tourist/visit), as shown in Figure 7.2. Figure 7.1 Estimates of Willingness to Pay (WTP) for the Conservation of National Parks, Nature Parks and County Public Institutions by Croatian Visitors Mean willingness-to-pay and 95 percent confidence interval - Croatians (Euros/visit) 50 45 40 35 30 25 20 Lower bound 15 10 Mean 5 Upper Bound 0 Source: Visitor survey, World Bank, 2009. 5. Variation in WTP estimates is quite small among the National and Nature Parks for Croatians, while the larger variation in the Counties is most likely due to differences in knowledge about park attributes. Foreigners have a higher absolute WTP for National Parks and relatively few visit Nature Parks, hence the sample was not able to elicit a WTP estimate for Lonjsko Polje and Papuk. 55 Figure 7.2 Estimates of Willingness to Pay (WTP) for the Conservation of National Parks, Nature Parks and County Public Institutions by Foreign Visitors Mean willingness-to-pay and 95 percent confidence interval - All foreigners (Euros/visit) 45 40 35 30 25 20 15 Lower bound 10 Mean 5 0 Upper Bound Source: Visitor survey, World Bank, 2009. 6. Comparison of estimated WTP values with other studies is difficult in this case since others present their results on a per-hectare basis, which is perhaps more appropriate when you are concerned about managing a certain square area however tourism is more predicated on the number and length of visit. As an internal check, comparing the WTP values with TCM estimates reveals that they are within the confidence interval of one other, which confirms that stated and actual behavior are not statistically different from one another (Figure 7.3). Comparing the results from this survey with the most recent National and Nature Park survey conducted by the Institute of Tourism respondents to Krka National Park recorded the highest expenditure of 26/visit, followed by Brijuni National Park with 24/visit and Plitvice Lakes National Park with 17/visit.12 Thus the results from either the CV or TCM technique are comparably within these ranges. 12 Tomas - National Parks and Parks of Nature Survey 2006. Institute for Tourism. Zagreb, Croatia, 2007. Summary available at: http://www.iztzg.hr/en/institute/projects/research/. 56 Figure 7.3 Estimate Comparisons between Willingness to Pay (WTP) and Travel Cost Models (TCM) for the Conservation of National Parks and Nature Parks Comparison of mean willingness-to-pay and travel cost estimates (Euros/visit) 45 40 35 30 25 20 Lower bound 15 Mean 10 Upper Bound 5 0 Source: Visitor survey, World Bank, 2009. 7. The total benefits from tourism are predicated on the total number of visitors to Croatia. Figure 7.4 shows that tourist arrivals and overnights largely recovered to their pre-war levels and have been growing at about 3 percent in the past five years and 8 percent in the last ten years. The financial crisis did have an impact on visitation. Arrivals fell by 2.9 percent in 2009, and overnight stays fell by 1.3 percent mostly due to the economic crisis. However, preliminary statistics for 2010 already reveal that this shock will be relatively short-lived in comparison to the impacts from the war ­ with full recovery in perhaps one to two years.13 13 The number of tourist arrivals rose by 9% y/y to 2.7mn in July 2010, while the number of tourist overnights went up by 7% y/y to 19mn. In June-July 2010, the number of tourist overnights increased by 5% y/y to 31mn, while the number of tourist arrivals went up by 3% y/y to 5.5mn. 57 Figure 7.4 Trends in Tourism Arrivals and Overnight Stays Tourism arrivals and overnights 1985-2009 (thousands) 80000 First democratic elections 70000 Croatian War of Independence begins ­ Siege of Dubrovnik End of Croatian War of Independence 60000 NATO bombing of neighboring 50000 FR Yugoslavia 40000 30000 20000 10000 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year Arrivals Tourist nights Source: Croatian Bureau of Statistics, various years. 8. Similar growth trends are found with visitation to the National and Nature Parks. As Figure 7.5 shows National Parks have averaged 3 percent in terms of annual visitation growth over the past five years and 14 percent in the past ten ­ owing to the recovery of tourism ex-post the war. Although accurate data on all parks before the war is relatively difficult to come by, data from large National Parks suggest that visitor numbers have basically recovered to pre-war levels. Historically, Nature Parks represented little in terms of park visitation before 1999, but now constitute 16-17 percent of all park visits ­ a trend which is likely to continue as these relatively un-marketed areas are developed, integrated into the local tourism circuit and more actively promoted to the international crowd. Strictly speaking, Nature Parks experienced an average growth rate of 50 percent in the past ten years. For the purposes of projecting visitation demand over the next five years of the project, and accounting for a slower growth rate due to the financial crisis, we conservatively assume a flat visitation growth (zero percent) in National Parks, Nature Parks and Counties. Beyond this ­ growth rates are anticipated to continue along their long-term trend. 58 Figure 7.5 Trends in Annual Visitation to National and Nature Parks Annual visitation to National and Nature Parks 1997-2009 (thousands) 2500 2000 1500 1000 500 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year National parks Nature parks Source: Croatian Bureau of Statistics, various years. 9. To calculate the benefits of preservation and conservation the mean willingness to pay was multiplied by the most recent official number of tourists for each site. For sites that were not part of the original sample of parks or Counties, we use the benefits transfer method14 where the average WTP is calculated by park-type or County (in /tourist/visit) and this is multiplied by the visitor statistics for each park or County. While the ideal would be to conduct surveys at each site, so that individual estimates could be derived ­ this is part of a longer term monitoring effort by the parks and Counties in measuring visitor satisfaction. It is also important to point out that the derived values are annual flows ­ so the computation is a function of the park-type and annual visitation demand. Table 7.1 shows the assumed visitation growth and the resulting preservation and conservation benefits per park and County. 14 The benefits transfer (BT) method is used to estimate economic values for ecosystem services by transferring available information from studies already completed in another location and/or context. For example, values for recreational fishing in a particular state may be estimated by applying measures of recreational fishing values from a study conducted in another state. The basic goal of benefit transfer is to estimate benefits for one context by adapting an estimate of benefits from some other context. Benefit transfer is often used when it is too expensive and/or there is too little time available to conduct an original valuation study, yet some measure of benefits is needed. It is important to note that benefit transfers can only be as accurate as the initial study. One limitation of using the BT method is that values are typically non-linear at the margin ­ meaning that they are highly sensitive to changes in site attributes across sites. To the extent that the sample of Croatian parks and Counties are representative of other policy sites, the degree of non-linear benefits is less than using study site estimates from outside Croatia. Conditions that ensure a quality transfer include: the goods (or services) across sites should have roughly similar characteristics; the population in both areas should be similar; and values in the first study should have been estimated recently since preferences may change over time. 59 Table 7.1 Conservation and Preservation Benefits of Protected Areas Discounted conservation and Demand Visitation ('000) preservation benefits ('000 ) growth Year Year Area 0 1 2 3 4 5 0 1 2 3 4 5 NPV National/Nature Park NP Brijuni 0.0 162.7 162.7 162.7 162.7 162.7 162.7 3,263.9 3,108.4 2,960.4 2,819.4 2,685.2 2,557.3 14,837.3 NP Kornati 0.0 89.3 89.3 89.3 89.3 89.3 89.3 3,132.2 2,983.0 2,841.0 2,705.7 2,576.9 2,454.2 14,238.8 NP Krka 0.0 632.4 632.4 632.4 632.4 632.4 632.4 11,982.0 11,411.4 10,868.0 10,350.5 9,857.6 9,388.2 54,469.5 NP Mljet 0.0 88.5 88.5 88.5 88.5 88.5 88.5 1,676.0 1,596.2 1,520.2 1,447.8 1,378.9 1,313.2 7,619.0 NP Paklenica 0.0 110.4 110.4 110.4 110.4 110.4 110.4 1,240.9 1,181.8 1,125.5 1,071.9 1,020.9 972.3 5,641.0 NP Plitvice Lakes 0.0 939.7 939.7 939.7 939.7 939.7 939.7 17,805.9 16,958.0 16,150.4 15,381.4 14,648.9 13,951.4 80,944.5 NP Risnjak 0.0 21.4 21.4 21.4 21.4 21.4 21.4 201.4 191.8 182.7 174.0 165.7 157.8 915.6 NP Sj. Velebit 0.0 16.0 16.0 16.0 16.0 16.0 16.0 304.0 289.5 275.7 262.6 250.1 238.2 1,381.9 PP Biokovo 0.0 35.8 35.8 35.8 35.8 35.8 35.8 214.4 204.2 194.4 185.2 176.4 168.0 974.5 PP Kopacki rit 0.0 31.3 31.3 31.3 31.3 31.3 31.3 187.4 178.5 170.0 161.9 154.2 146.9 852.1 PP Lastovo 0.0 26.3 26.3 26.3 26.3 26.3 26.3 157.0 149.5 142.4 135.6 129.2 123.0 713.8 PP Lonjsko polje 0.0 14.3 14.3 14.3 14.3 14.3 14.3 85.2 81.2 77.3 73.6 70.1 66.8 387.4 PP Medvednica 0.0 11.3 11.3 11.3 11.3 11.3 11.3 67.6 64.4 61.3 58.4 55.6 53.0 307.4 PP Papuk 0.0 56.9 56.9 56.9 56.9 56.9 56.9 340.0 323.8 308.4 293.7 279.7 266.4 1,545.5 PP Telasica 0.0 89.0 89.0 89.0 89.0 89.0 89.0 532.3 506.9 482.8 459.8 437.9 417.0 2,419.6 PP Ucka 0.0 1.6 1.6 1.6 1.6 1.6 1.6 9.5 9.1 8.7 8.2 7.8 7.5 43.4 PP Velebit 0.0 27.4 27.4 27.4 27.4 27.4 27.4 163.8 156.0 148.6 141.5 134.8 128.3 744.6 PP Vransko jezero 0.0 46.8 46.8 46.8 46.8 46.8 46.8 279.7 266.3 253.7 241.6 230.1 219.1 1,271.3 PP Zumberak SG 0.0 10.1 10.1 10.1 10.1 10.1 10.1 60.3 57.4 54.7 52.1 49.6 47.2 274.0 Central Croatia Bjelovarsko-bilogorska 0.0 12.7 12.7 12.7 12.7 12.7 12.7 240.5 229.1 218.2 207.8 197.9 188.5 1,093.4 Karlovacka 0.0 161.3 161.3 161.3 161.3 161.3 161.3 3,049.7 2,904.5 2,766.2 2,634.5 2,509.0 2,389.6 13,864.0 Koprivnicko-krizevacka 0.0 15.6 15.6 15.6 15.6 15.6 15.6 294.8 280.8 267.4 254.7 242.6 231.0 1,340.3 Krapinsko-zagorska 0.0 56.5 56.5 56.5 56.5 56.5 56.5 1,068.4 1,017.5 969.0 922.9 878.9 837.1 4,856.7 Medimurska 0.0 32.4 32.4 32.4 32.4 32.4 32.4 611.8 582.6 554.9 528.5 503.3 479.3 2,781.0 Sisacko-moslavacka 0.0 29.3 29.3 29.3 29.3 29.3 29.3 553.6 527.2 502.1 478.2 455.4 433.7 2,516.4 Varazdinska 0.0 38.6 38.6 38.6 38.6 38.6 38.6 1,036.3 987.0 940.0 895.2 852.6 812.0 4,711.2 Zagrebacka 0.0 36.9 36.9 36.9 36.9 36.9 36.9 698.6 665.3 633.6 603.5 574.7 547.4 3,175.7 Grad Zagreb 0.0 633.5 633.5 633.5 633.5 633.5 633.5 11,979.8 11,409.3 10,866.0 10,348.6 9,855.8 9,386.5 54,459.6 Littoral (Adriatic coast) Dubrovacko-neretvanska 0.0 957.2 957.2 957.2 957.2 957.2 957.2 18,101.2 17,239.2 16,418.3 15,636.5 14,891.9 14,182.8 82,287.2 Istarska 0.0 2,755.3 2,755.3 2,755.3 2,755.3 2,755.3 2,755.3 52,102.1 49,621.1 47,258.2 45,007.8 42,864.6 40,823.4 236,853.7 Licko-senjska 0.0 386.7 386.7 386.7 386.7 386.7 386.7 7,312.9 6,964.6 6,633.0 6,317.1 6,016.3 5,729.8 33,244.0 60 Discounted conservation and Demand Visitation ('000) preservation benefits ('000 ) growth Year Year Primorsko-goranska 0.0 2,205.6 2,205.6 2,205.6 2,205.6 2,205.6 2,205.6 41,708.4 39,722.3 37,830.8 36,029.3 34,313.6 32,679.6 189,604.4 Splitsko-dalmatinska 0.0 1,657.9 1,657.9 1,657.9 1,657.9 1,657.9 1,657.9 31,351.7 29,858.8 28,437.0 27,082.8 25,793.2 24,564.9 142,523.5 Sibensko-kninska 0.0 746.5 746.5 746.5 746.5 746.5 746.5 8,196.9 7,806.6 7,434.8 7,080.8 6,743.6 6,422.5 37,262.8 Zadarska 0.0 1,049.0 1,049.0 1,049.0 1,049.0 1,049.0 1,049.0 19,836.9 18,892.3 17,992.7 17,135.9 16,319.9 15,542.8 90,177.8 Slavonia Brodsko-posavska 0.0 23.1 23.1 23.1 23.1 23.1 23.1 437.2 416.3 396.5 377.6 359.7 342.5 1,987.3 Osjecko-baranjska 0.0 78.4 78.4 78.4 78.4 78.4 78.4 1,482.2 1,411.6 1,344.4 1,280.4 1,219.4 1,161.3 6,738.0 Pozesko-slavonska 0.0 9.6 9.6 9.6 9.6 9.6 9.6 182.1 173.4 165.2 157.3 149.8 142.7 827.8 Viroviticko-podravska 0.0 14.4 14.4 14.4 14.4 14.4 14.4 272.2 259.2 246.9 235.1 223.9 213.3 1,237.5 Vukovarsko-srijemska 0.0 33.8 33.8 33.8 33.8 33.8 33.8 639.7 609.2 580.2 552.6 526.3 501.2 2,908.0 Total 13,345.5 13,345.5 13,345.5 13,345.5 13,345.5 13,345.5 242,860.4 231,295.7 220,281.6 209,792.0 199,801.9 190,287.5 1,104,031.5 Notes: Discount rate: 5%; NP ­ National Park; PP ­ Nature Park. 61 10. Watershed Protection and Erosion Control. Forests within protected areas also provide important benefits in terms of ecological service functions, such as habitats for flora and fauna and water protection and erosion control. Watershed benefits accrue through stabilizing soils and decreasing the probability of erosion from rainfall. Approximately 55 percent of Croatia's forests are located on soils which would be exposed to heavy erosion if no forest cover was available. However, even modest erosion can have serious impacts such as flooding, sedimentation of rivers affecting hydroelectric plants and clogging irrigation and drainage channels. Forests also act to regulate hydrological cycles important for water quantity and quality for human consumption and inland and coastal fisheries. Watershed protection is difficult to ascertain since the benefits are site-specific and dependent on factors such as precipitation and the slope of the terrain. Studies from other European countries suggest that the value of these functions could be in the order of 42 DM/ha/year (27 US$/ha/year).15 A recent study of Mediterranean forest functions in Croatia concluded that the value of water protection and erosion control is likely to be much more modest and would be no greater than 10 /ha/year.16 Greater protected area management includes the maintenance of forest cover for water protection and erosion control ­ and as such will yield substantial economic benefits. Forest cover at the County and park-level are provided in Table 7.2. We assume that greater forest protection would result in an approximate 10 percent increase in watershed protection and erosion control benefits in the National and Nature Parks and 1 percent in Counties. This is analogous to saying that benefits are approximately 1 /ha/year and 0.1 /ha/year, respectively. Benefits are presented in Table 7.2 by multiplying forest area and this approximate damage aversion estimate. Table 7.2 Watershed Protection and Erosion Control Benefits in Protected Areas Discounted annual flow of benefits ('000 ) Year Area Forest Area (ha) * 0 1 2 3 4 5 NPV National/Nature Park NP Brijuni 489 0.5 0.5 0.5 0.4 0.4 0.4 2.2 NP Kornati 50 0.1 0.0 0.0 0.0 0.0 0.0 0.2 NP Krka 4,419 4.6 4.4 4.2 4.0 3.8 3.6 19.9 NP Mljet 2,591 2.7 2.6 2.4 2.3 2.2 2.1 11.7 NP Paklenica 5,637 5.9 5.6 5.3 5.1 4.8 4.6 25.4 NP Plitvice Lakes 25,161 26.1 24.9 23.7 22.6 21.5 20.5 113.2 NP Risnjak 6,181 6.4 6.1 5.8 5.5 5.3 5.0 27.8 NP Sj. Velebit 9,247 9.6 9.2 8.7 8.3 7.9 7.5 41.6 PP Biokovo 10,534 10.9 10.4 9.9 9.5 9.0 8.6 47.4 PP Kopacki rit 8,176 8.5 8.1 7.7 7.3 7.0 6.7 36.8 PP Lastovo 2,735 2.8 2.7 2.6 2.5 2.3 2.2 12.3 PP Lonjsko polje 35,335 36.7 35.0 33.3 31.7 30.2 28.8 158.9 PP Medvednica 15,140 15.7 15.0 14.3 13.6 12.9 12.3 68.1 PP Papuk 33,262 35.3 33.6 32.0 30.5 29.0 27.7 152.8 PP Telasica 223 0.2 0.2 0.2 0.2 0.2 0.2 1.0 PP Ucka 14,771 15.3 14.6 13.9 13.3 12.6 12.0 66.4 PP Velebit 115,782 120.3 114.6 109.1 103.9 99.0 94.3 520.8 PP Vransko jezero 654 0.7 0.6 0.6 0.6 0.6 0.5 2.9 15 Sabadi, R., D. Vuleti, and J. Gracan (2005) Croatia. In Merlo, M., Croitoru, L. (Eds.), Valuing Mediterranean Forests: Towards Total Economic Value. CABI Publishing, Wallingford, Oxon, pp. 105­122. 16 Sabadi, R., D. Vuleti, and J. Gracan (2005) Croatia. In Merlo, M., Croitoru, L. (Eds.), Valuing Mediterranean Forests: Towards Total Economic Value. CABI Publishing, Wallingford, Oxon, pp. 105­122. 62 Discounted annual flow of benefits ('000 ) Year Area Forest Area (ha) * 0 1 2 3 4 5 NPV PP Zumberak SG 26,685 27.7 26.4 25.1 24.0 22.8 21.7 120.0 Central Croatia Bjelovarsko-bilogorska 108,540 11.3 10.7 10.2 9.7 9.3 8.8 48.8 Karlovacka 226,478 23.5 22.4 21.3 20.3 19.4 18.4 101.9 Koprivnicko-krizevacka 63,903 6.6 6.3 6.0 5.7 5.5 5.2 28.7 Krapinsko-zagorska 46,689 4.9 4.6 4.4 4.2 4.0 3.8 21.0 Medimurska 13,857 1.4 1.4 1.3 1.2 1.2 1.1 6.2 Sisacko-moslavacka 204,023 21.2 20.2 19.2 18.3 17.4 16.6 91.8 Varazdinska 46,955 4.9 4.6 4.4 4.2 4.0 3.8 21.1 Zagrebacka 96,294 10.0 9.5 9.1 8.6 8.2 7.8 43.3 Grad Zagreb 12,999 1.4 1.3 1.2 1.2 1.1 1.1 5.8 Littoral (Adriatic coast) Dubrovacko-neretvanska 71,879 7.5 7.1 6.8 6.5 6.1 5.9 32.3 Istarska 147,519 15.3 14.6 13.9 13.2 12.6 12.0 66.4 Licko-senjska 234,679 24.4 23.2 22.1 21.1 20.1 19.1 105.6 Primorsko-goranska 251,391 26.1 24.9 23.7 22.6 21.5 20.5 113.1 Splitsko-dalmatinska 212,746 22.1 21.1 20.0 19.1 18.2 17.3 95.7 Sibensko-kninska 89,317 9.3 8.8 8.4 8.0 7.6 7.3 40.2 Zadarska 112,845 11.7 11.2 10.6 10.1 9.6 9.2 50.8 Slavonia Brodsko-posavska 72,748 7.6 7.2 6.9 6.5 6.2 5.9 32.7 Osjecko-baranjska 100,992 10.5 10.0 9.5 9.1 8.6 8.2 45.4 Pozesko-slavonska 79,187 8.2 7.8 7.5 7.1 6.8 6.4 35.6 Viroviticko-podravska 64,325 6.7 6.4 6.1 5.8 5.5 5.2 28.9 Vukovarsko-srijemska 73,424 7.6 7.3 6.9 6.6 6.3 6.0 33.0 Total 2,647,861 572.3 545.1 519.1 494.4 470.9 448.4 2,477.9 Notes: Discount rate: 5%; NP ­ National Park; PP ­ Nature Park * Forest cover in Counties does not include forest cover in the park. Shaded parks have areas in multiple Counties, thus forest cover is proportioned to the area of the park within the County. Data source: Agency for Environment Protection - Corine Land Cover (2006). 11. Non-timber Forest Products and Wildlife. Forested areas also supply a number of harvestable products and are home to a rich diversity of wildlife. Improved conservation management of these areas is likely to yield more sustainable harvests of certain non-timber forest products such as forest fruits (chestnuts, walnuts, and berries), mushrooms, truffles, medicinal herbs and plants, fibrous materials, or honey. In some instances, resources within protected areas may be off limits and their harvesting either restricted or outlawed. Studies have shown that specific NTFPs can be an important source of rural income and across Croatia's total forested area amount to 23/ha in total economic value.17 Greater conservation efforts in protected areas will also benefit the wildlife population that forms an important part of recreation in Croatia. Although wildlife benefits can be difficult to quantify, one nearly inappropriate and lower bound measure is the amount spent by recreational hunters ­ which has averaged 29/ha in the past. To calculate the benefits we assume that greater forest protection will result in, at least, 17 Croitoru, L., 2007. Valuing the non-timber forest products in the Mediterranean region. Ecological Economics. 63: 768-775. 63 a 1 percent increase in NTFP and wildlife values, or 0.23/ha and 0.29/ha, respectively. Forest area was multiplied by these factors and the resulting benefits per area are provided in Table 7.3. Table 7.3 Non-timber Forest Product and Wildlife Benefits in Protected Areas Discounted annual flow of benefits ('000 ) Year Area Forest Area (ha) * 0 1 2 3 4 5 NPV National/Nature Park NP Brijuni 489 0.3 0.2 0.2 0.2 0.2 0.2 1.1 NP Kornati 50 0.0 0.0 0.0 0.0 0.0 0.0 0.1 NP Krka 4,419 2.3 2.2 2.1 2.0 1.9 1.8 9.9 NP Mljet 2,591 1.3 1.3 1.2 1.2 1.1 1.0 5.8 NP Paklenica 5,637 2.9 2.8 2.6 2.5 2.4 2.3 12.6 NP Plitvice Lakes 25,161 13.0 12.3 11.8 11.2 10.7 10.2 56.1 NP Risnjak 6,181 3.2 3.0 2.9 2.7 2.6 2.5 13.8 NP Sj. Velebit 9,247 4.8 4.5 4.3 4.1 3.9 3.7 20.6 PP Biokovo 10,534 5.4 5.2 4.9 4.7 4.5 4.3 23.5 PP Kopacki rit 8,176 4.2 4.0 3.8 3.6 3.5 3.3 18.2 PP Lastovo 2,735 1.4 1.3 1.3 1.2 1.2 1.1 6.1 PP Lonjsko polje 35,335 18.2 17.3 16.5 15.7 15.0 14.3 78.8 PP Medvednica 15,140 7.8 7.4 7.1 6.7 6.4 6.1 33.8 PP Papuk 33,262 17.1 16.3 15.5 14.8 14.1 13.4 74.2 PP Telasica 223 0.1 0.1 0.1 0.1 0.1 0.1 0.5 PP Ucka 14,771 7.6 7.2 6.9 6.6 6.3 6.0 32.9 PP Velebit 115,782 59.6 56.8 54.1 51.5 49.1 46.7 258.2 PP Vransko jezero 654 0.3 0.3 0.3 0.3 0.3 0.3 1.5 PP Zumberak SG 26,685 13.7 13.1 12.5 11.9 11.3 10.8 59.5 Central Croatia Bjelovarsko-bilogorska 108,540 55.9 53.2 50.7 48.3 46.0 43.8 242.0 Karlovacka 226,478 116.6 111.1 105.8 100.8 96.0 91.4 505.0 Koprivnicko-krizevacka 63,903 32.9 31.3 29.9 28.4 27.1 25.8 142.5 Krapinsko-zagorska 46,689 24.0 22.9 21.8 20.8 19.8 18.8 104.1 Medimurska 13,857 7.1 6.8 6.5 6.2 5.9 5.6 30.9 Sisacko-moslavacka 204,023 105.1 100.1 95.3 90.8 86.4 82.3 454.9 Varazdinska 46,955 24.2 23.0 21.9 20.9 19.9 18.9 104.7 Zagrebacka 96,294 49.6 47.2 45.0 42.8 40.8 38.9 214.7 Grad Zagreb 12,999 3.0 2.8 2.7 2.6 2.5 2.3 12.9 Littoral (Adriatic coast) Dubrovacko-neretvanska 71,879 37.0 35.3 33.6 32.0 30.5 29.0 160.3 Istarska 147,519 76.0 72.4 68.9 65.6 62.5 59.5 328.9 Licko-senjska 234,679 120.9 115.1 109.6 104.4 99.4 94.7 523.3 Primorsko-goranska 251,391 129.5 123.3 117.4 111.8 106.5 101.4 560.5 Splitsko-dalmatinska 212,746 109.6 104.3 99.4 94.6 90.1 85.8 474.4 Sibensko-kninska 89,317 46.0 43.8 41.7 39.7 37.8 36.0 199.1 Zadarska 112,845 58.1 55.3 52.7 50.2 47.8 45.5 251.6 Slavonia Brodsko-posavska 72,748 37.5 35.7 34.0 32.4 30.8 29.4 162.2 Osjecko-baranjska 100,992 52.0 49.5 47.2 44.9 42.8 40.8 225.2 Pozesko-slavonska 79,187 40.8 38.8 37.0 35.2 33.6 32.0 176.6 Viroviticko-podravska 64,325 33.1 31.5 30.0 28.6 27.3 26.0 143.4 Vukovarsko-srijemska 73,424 37.8 36.0 34.3 32.7 31.1 29.6 163.7 Total 2,647,861 1,359.9 1,295.2 1,233.5 1,174.8 1,118.8 1,065.6 5,887.8 Notes: Discount rate: 5%; NP ­ National Park; PP ­ Nature Park 64 * Forest cover in Counties does not include forest cover in the park. Shaded parks have areas in multiple Counties, thus forest cover is proportioned to the area of the park within the County. Data source: Agency for Environment Protection - Corine Land Cover (2006). 12. Marine Protected Areas. Marine Protected Areas (MPAs) in Croatia are host to a rich diversity of marine life, with more than 750 species of marine flora and fauna and 4 species of sea grass ­ some now extinct in other parts of the Mediterranean. This rich diversity provides valuable productive, cultural and regulatory ecosystem services such as the production of food resources, support for recreational activities, climate regulation, mitigation of natural hazards (coastal erosion) and waste processing. Recent studies suggest that the total economic value of these functions is on the order of 389 million/year ­ with the value of food production in the range of 23/ha/year.18 Many of Croatia's MPAs are also home to endangered species of sea grasses ­ such as Posidonia oceanica. P. oceanica are identified as a priority habitat for conservation under the EU Habitats Directive (Dir 92/43/CEE).19 Conservation measures in these areas focus on protection from physical damage through the installation of artificial reefs and see-grass friendly moorings for boats, which reduce the erosive pressure of trawling and free anchoring in shallow meadows. The protected area investment in Kornati National Park proposes to build a series of centralized anchoring points to avoid further damage from sporadic boat anchoring. Taking into consideration that approximately 20 percent of the marine protected area in Kornati National Park is home to P. oceanica, this would represent an annual benefit of 78,900/year from food production alone.20 While the other benefits of climate regulation, coastal erosion, and waste processing are recognized, we take this value as a conservative measure of total benefit. 13. Other Benefits. In addition to the main benefits mentioned above, the project would also have a positive impact on the following: a. Biodiversity Inventorying. The project will support specific biodiversity inventorying efforts that will form an integrated knowledge system across the whole Croatian Territory. Information generated under this component will foster more informed decision-making for Ecological Network Impact Assessments (ENIA), development decisions and also provide support for development of NPIS. While the costs of these activities are included in the economic analysis, the benefits are not quantified. b. Ecological Network Capacity Building. Capacity building and training are an integral part of this project to develop skills and promote exchange and collaboration across agencies. Targeted support will be provided to the Ministry of Culture Nature Protection Directorate and Nature Protection Inspection Directorate, the State Institute for Nature Protection, county 18 Mangos, A., J-P. Bassino, D. Sauzade, 2010. The Economic Value of Sustainable Benefits from the Mediterranean Marine Ecosystems: Study report, Blue Plan: Regional Activity Centre, UNDP, Sophia. 19 The undersea area of Kornati National Park and Telascica Nature Park is characterized by rich sea-bottom (benthic) biocenoses. The most frequent are the well-developed and widespread sea-flowering plant species Posidonia oceanica. P. oceanica's significance is reflected in many aspects: preservation of biodiversity (meadows of posidonia are biologically the richest community in the Mediterranean Sea), oxygen production, prevention of sea-bottom and coastal erosion, CO2 sequestration and others. Posidonia meadows have, on account of their significance, been included in the EU Natura 2000 network. 20 The marine area of Kornati National Park is approximately 16,600 ha, and 20 percent would be 3,320 ha (personal communication with Kornati National Park Manager). 65 institutions, and protected area staff at national and county levels. The focus will be on strengthening management capacity, sustainable finance, monitoring and evaluation, and interpretation. One important goal of the training will be in building skill sets for developing proposals for EU Structural and other grant funds, one of the primary sources of future funding for nature protection activities. Successful applications would result in substantial financial resources that would be integral to the sustainable financing of nature protection activities. The current Structural Fund (SF) application pipeline for nature protection investments totals over 20 million and this would represent a substantial benefit that would accrue under greater training in project development. The economic analysis was performed with and without Structural Funds, assuming that successful applications would become available in the sixth year ­ or after project completion. c. Fire Management. Forest fires damage landscape values, wood production, hunting, and recreation and affect other ecological services such as watershed protection and erosion control mentioned above. A previous World Bank reforestation project estimated the loss of these values due to fire, well in excess of 2,000 US$/ha/year. Under the current project it is anticipated that some support will be made to first responders within coastal parks for fire prevention, but the benefits are not included in the economic analysis. d. Improved Livelihoods. Protected areas provide important ecological services to communities and greater conservation of these resources serves to ensure a stable source of income. Under the project, several types of programs will be piloted to create local economic opportunities that are consistent with nearby protected area management objectives. These include incentive payments for conservation-oriented land use. Beneficiaries would take part in programs or start business initiatives and this would result in an improvement in welfare. The aim of this program will be to support economic activities (e.g., farming) whilst maintaining or restoring the species and habitats present in a favorable conservation status. The benefits of these programs are likely to be substantial however not directly included in the economic analysis. e. Health Benefits. It is well known that there are substantial health benefits from recreational hiking, walking and outdoor activities in general ­ in the form of avoided health costs in the future. Although the quantification of these benefits is quite difficult to ascertain, it is clear that the development of more trails and interpretive paths within the parks fosters this healthy lifestyle. However, health benefits are not included in the economic analysis. f. Education and Public Awareness. The project will also support a variety of education and awareness initiatives aimed to increase knowledge, participation and education on protected areas and promote a more inclusive role of communities in managing local protected area resources. Information will be integrated into the education system's curriculum and a volunteer program will be started with the nature protection institutions. Although the benefits of such outreach activities are clear, these benefits are not quantified here. 66 Ecological Network Investment Costs 14. Protected Area and Natura 2000 Site -Driven Investments. The project will support priority investments which help implement Action Plans for National Parks and Nature Parks and County-level Public Institutions responsible for Nature Protection to promote a clearer public understanding of the role and importance of the ecological network and help maintain "favorable ecological status" of targeted Special Protected Areas (SPAs) for birds, and Special Areas of Conservation (SACs) for specific Habitats of European importance. Hands-on support provided throughout the investment processing cycle will help public institutions develop in parallel, a pipeline of next stage investments for future EU Structural Funds. Examples of investments include refurbishment of cultural buildings into multi-purpose visitor centers; educational walking and bicycle trails, special infrastructure to protect fragile ecosystems such as a floating boat docks in Kornati to avoid anchor damage to important sea grass habitats; and visitor services such as parking, toilets, and trash receptacles to reduce impacts to habitats. Support will also be provided for fire prevention equipment to parks in their roles as first responders and as public educators - focusing on the most vulnerable coastal and island protected areas. 15. Protected Area-driven investment proposals followed a two-stage multi-criteria screening process to prepare a short-list of investments that would be included in the loan. Park and County area managers submitted project proposals to the World Bank Project Preparation Unit and were evaluated according to the following first-stage criteria: a. Consistency with the goals of the project, justification, cost effectiveness, financial and organizational sustainability (25%). Project proposal fits with the development objectives of the project; is a well-defined investment that fully justifies its need and describes how this investment will benefit the receiving nature protection organization or unit; significantly enhances financial and organizational self-sustainability of the receiving organization or unit; and is of appropriate size for the intended project as benchmarked against other projects in terms of volume (e.g. Structural Funds pipeline); b. Contribution to socio-economic and local development in the park areas and protected areas (25%). Project proposal that clearly has a realistically achievable broader socio-economic benefit or contribution to the local developmental agenda and local community; c. Correspondence with the management plan or annual plan (20%). Project proposal that fits into a developed management plan or a specific strategy of the receiving nature protection organization or unit; d. Contribution to the development of public institutions of smaller capacities (15%). Project proposal that comes from a smaller, less known, decentralized, and potentially marginalized nature protection organization or unit; this is to counter any potential bias towards mainstream organizations or related projects; e. Direct contribution to biodiversity protection (15%). Project proposal that directly enhances or preserves biodiversity. 16. A second screen was also performed using a checklist used for Structural Fund applications: 1) measuring the applicant's competence and capability to implement the project, 2) that the project falls within the scope of the Birds and Habitats Directives concerning the 67 conservation status of habitats and species of European and/or national interest, and 3) the overall readiness of the project in terms approvals, plans and budgets. 17. Over 100 projects were received following several preparation workshops and evaluated according to the screening criteria above. This produced a short-list of 35 investments totaling over 8.5 million, with all 35 of the projects passing the screening criteria. These projects were then considered in the economic analysis. The final list of projects included in the economic analysis is provided in Appendix 7.1. 18. Ecological Network Data Systems. The project will help support biological inventory work focusing on a prioritized and systematic field work program to increase Croatia's readiness to present and defend its Natura 2000 network at EU Bio-geographic Seminars. Outputs would develop distribution maps for species and detailed habitat map for Croatia, and create national factsheets to help increase the efficiency of fieldwork. The program will help strengthen the State Institute of Nature Protection's (SINP) capacity to continue to conduct this work into the future and it will help develop proposals for ongoing support under the future Structural Funds. Specific investments include field surveys and digitization and conversion of research and field data into electronic formats. Actions under this component would also support consulting services to help integrate data systems that would help Croatia in meeting the requirements of the EU INSPIRE Directive (NPIS, NSDI). For the purposes of the economic analysis component costs are divided equally among the parks and Counties and presented in Table 7.4. 19. Ecological Network Capacity Building. The project will also support a variety of needs to help build capacity for better cohesion and integration of the protected areas system; help attract additional resources and improve financial sustainability of investments in protected areas; help improve public awareness, involvement, and education on the need for and purpose of protected areas; and better integrate the public and local community in the management of the ecological network. It will also help introduce volunteers across the nature protection institutions. For the purposes of the economic analysis component costs are divided equally among the parks and Counties and presented in Table 7.4. Table 7.4 Project Component Costs Protected Area- Ecological Network Ecological Network Area Driven Investments () Data Systems () Capacity Bldg () NP Brijuni 460,000 131,857 104,057 NP Kornati 819,000 131,857 104,057 NP Krka 756,000 131,857 104,057 NP Mljet 378,500 131,857 104,057 NP Paklenica 126,000 131,857 104,057 NP Plitvice Lakes 289,000 131,857 104,057 NP Risnjak * 734,000 263,714 208,114 NP Sj. Velebit 512,500 131,857 104,057 PP Biokovo 307,000 131,857 104,057 PP Kopacki rit 409,500 131,857 104,057 PP Lastovo - - - PP Lonjsko polje 277,500 131,857 104,057 PP Medvednica 33,300 131,857 104,057 PP Papuk 252,000 131,857 104,057 PP Telasica 212,000 131,857 104,057 68 Protected Area- Ecological Network Ecological Network Area Driven Investments () Data Systems () Capacity Bldg () PP Ucka 46,500 131,857 104,057 PP Velebit 364,500 131,857 104,057 PP Vransko jezero 405,500 131,857 104,057 PP Zumberak SG 358,000 131,857 104,057 Central Croatia Bjelovarsko-bilogorska - - - Karlovacka 102,000 131,857 104,057 Koprivnicko-krizevacka 50,700 131,857 104,057 Krapinsko-zagorska 195,500 131,857 104,057 Medimurska 196,500 131,857 104,057 Sisacko-moslavacka 20,800 131,857 104,057 Varazdinska 174,000 131,857 104,057 Zagrebacka 44,500 131,857 104,057 Grad Zagreb - - - Littoral (Adriatic coast) Dubrovacko-neretvanska 114,400 131,857 104,057 Istarska 123,500 131,857 104,057 Licko-senjska - - - Primorsko-goranska 205,000 131,857 104,057 Splitsko-dalmatinska 195,500 131,857 104,057 Sibensko-kninska 151,800 131,857 104,057 Zadarska 106,000 131,857 104,057 Slavonia Brodsko-posavska 72,500 131,857 104,057 Osjecko-baranjska 106,200 131,857 104,057 Pozesko-slavonska - - - Viroviticko-podravska 185,300 131,857 104,057 Vukovarsko-srijemska - - - National Parks 4,075,000 1,186,714 936,514 Nature Parks 2,665,800 1,318,571 1,040,571 Counties 2,044,200 2,109,714 1,664,914 Total 8,785,000 4,615,000 3,642,000 Notes: NP ­ National Park; PP ­ Nature Park; "-" no investment; * - Costs for Risnjak National Park includes those for the SINP investment because of their co-location. Results 20. All of the above benefits and costs were aggregated with several simulations run to calculate the net present value (NPV) and economic rate of return (ERR) of each investment. Ultimately it was found that using the stated maximum WTP for each park or County resulted in individual project ERRs well in excess of 100 percent. While it is tempting to use the maximum WTP, this indicator should actually be viewed as the total potential revenue that could be captured. Alternatively, the WTP measure could be used as a proxy for adjusting entrance fees to a level that would help in financing any proposed investment. What this implies is that parks and Counties need not raise their entrance fees by the full potential WTP ­ rather only to the 69 point that justifies the investment (i.e. an `optimal' entrance fee that attains a given ERR). Setting the goal of attaining an ERR in 5 years of 12 percent or greater, optimal entrance fees for the National and Nature Parks ranged from 0-34/visitor and in most instances were zero for the Counties ­ since up-front investment costs were lower and the area-based benefits much greater. Setting the goal of attaining an ERR 12 percent in 10 years yielded optimal entrances fees in the range of 0-10/visitor. Thus park managers could develop an entrance fee schedule whereby for the first 5 years a slightly higher rate could be charged to absorb initial investment costs and could then decrease in year 10 (or possibly earlier) to accommodate operating and maintenance expenses. This reduction in fees is particularly pronounced for the areas that receive SF benefits in year six. Table 7.5 below summarizes the current and proposed optimal entrance fee structure.21 Table 7.5 Current and Estimated Entrance Fee Schedule for Economic Rates of Return 12 Percent for Ecological Network Investments, Data Systems and Capacity Building Entrance fee such that: Current Current ERR-5 12% w/ ERR-10 12% ERR-10 12% entrance entrance Stated or w/o Structural w/ Structural w/o Structural fee fee 1 WTP 2,3 Funds 4 Funds Funds Area (KN/visit) (/visit) (/visit) (/visit) (/visit) (/visit) NP Brijuni 35 4.87 20.07 1.15 0.90 0.90 NP Kornati * 150 20.86 35.08 2.20 0.15 1.35 NP Krka * 80 11.13 18.95 0.42 0.00 0.32 NP Mljet 90 12.52 18.95 1.72 1.17 1.17 NP Paklenica * 35 4.87 11.25 0.76 0.00 0.51 NP Plitvice Lakes * 95 13.21 18.95 0.12 0.00 0.09 NP Risnjak 40 5.56 9.41 14.00 9.80 9.80 NP Sj. Velebit * 30 4.17 18.95 11.00 0.00 7.40 PP Biokovo 35 4.87 5.98 3.35 2.20 2.20 PP Kopacki rit 10 1.39 5.98 6.15 5.50 5.50 PP Lastovo 0 0.00 5.98 0.00 0.00 0.00 PP Lonjsko polje * 25 3.48 5.98 5.35 1.30 2.60 PP Medvednica * 30 4.17 5.98 4.50 0.00 3.15 PP Papuk * 25 3.48 5.98 1.25 0.00 0.60 PP Telasica * 28 3.89 5.98 1.26 0.10 0.90 PP Ucka * 30 4.17 5.98 34.00 0.00 23.50 PP Velebit 15 2.09 5.98 0.00 0.00 0.00 PP Vransko jezero 20 2.78 5.98 3.95 3.25 3.25 PP Zumberak SG 130 18.08 5.98 11.00 6.70 6.70 Central Croatia Bjelovarsko-bilogorska 18.91 0.00 0.00 0.00 Karlovacka 18.91 0.00 0.00 0.00 Koprivnicko-krizevacka 18.91 2.05 0.65 0.65 Krapinsko-zagorska 18.91 1.42 0.85 0.85 Medimurska 18.91 3.70 3.05 3.05 Sisacko-moslavacka 18.91 0.00 0.00 0.00 Varazdinska 26.84 2.10 1.40 1.40 21 Current entrance fee information was collected from individual park and County websites (although Counties do not currently charge any fee). Some parks offer a multitude of activities each with associated fees. For the purposes of the economic analysis, only the base entrance fee was used for comparison. 70 Entrance fee such that: Current Current ERR-5 12% w/ ERR-10 12% ERR-10 12% entrance entrance Stated or w/o Structural w/ Structural w/o Structural fee fee 1 WTP 2,3 Funds 4 Funds Funds Area (KN/visit) (/visit) (/visit) (/visit) (/visit) (/visit) Zagrebacka 18.91 0.35 0.00 0.00 Grad Zagreb 18.91 0.00 0.00 0.00 Littoral (Adriatic coast) Dubrovacko-neretvanska 18.91 0.06 0.03 0.03 Istarska 18.91 0.01 0.01 0.01 Licko-senjska 18.91 0.00 0.00 0.00 Primorsko-goranska 18.91 0.00 0.00 0.00 Splitsko-dalmatinska 18.91 0.00 0.00 0.00 Sibensko-kninska * 10.98 0.06 0.01 0.02 Zadarska 18.91 0.02 0.00 0.00 Slavonia Brodsko-posavska 18.91 1.55 0.60 0.60 Osjecko-baranjska 18.91 0.36 0.06 0.06 Pozesko-slavonska 18.91 0.00 0.00 0.00 Viroviticko-podravska 18.91 4.65 2.40 2.40 Vukovarsko-srijemska 18.91 0.00 0.00 0.00 Notes: NP ­ National Park; PP ­ Nature Park; * - Areas that have prepared Structural Fund proposals; 1 ­ Exchange rate: 1 = 7.19 HRK; 2 ­ Stated WTP by foreigners; 3 ­ WTP for some areas calculated using the benefits transfer approach; 4 ­ Entrance fees with and without SFs are the same for ERR-5 since SF benefits do not accrue until year 6. 21. Table 7.6 below summarizes all discounted benefits and costs along with the economic rates of return using optimal entrance fees that generate an ERR 12 percent in 5 years ­ with and without SF benefits. Over half of the benefits accrue under the WTP (which is dictated by revenues from entrance fees) and over 25 percent from NTFPs and wildlife. The ERR for National parks is slightly lower than the Nature parks since the initial investment costs are larger and take longer to recover, whereas the relatively modest investment costs in the Counties are recovered more rapidly. The effect of Structural Funds is felt in year 6 (after the project is over) and increases the ERR by over 40 percent in the National and Nature parks ­ currently the bulk of SF applications in the pipeline. Overall, protected area investments, data systems and capacity building lead to an ERR of 16 percent in year five and 33 percent or higher in later years. 71 Table 7.6 Economic Rates of Return for Ecological Network Investments, Data Systems and Capacity Building (with and without Structural Fund benefits) Discounted costs (mil. ) @ Discounted benefits (mil. ) @ 5% discount rate 5% discount rate WTP Water protection Marine Protected Area Ecological Ecological for conservation and Protected NTFPs/ Structural Total Driven Network Network ERR ERR Period/Area & preservation erosion control Areas Wildlife Funds 1 benefits Investments Data Systems 2 Capacity Bldg 2 wo/ SFs w/ SFs 5-years National Parks 6.7 0.3 0.4 0.1 - 7.4 4.4 1.1 0.9 12% 12% Nature Parks 4.4 1.2 0.0 0.6 - 6.3 3.1 1.2 0.9 14% 14% Counties 2.7 1.1 0.0 5.4 - 9.3 2.5 1.9 1.5 23% 23% Total 13.9 2.6 0.4 6.2 - 23.0 10.0 4.2 3.3 16% 16% Benefit share 60.2 11.3 1.6 26.9 10-years National Parks 12.0 0.5 0.6 0.2 10.1 23.3 5.1 - - 31% 48% Nature Parks 7.9 2.2 0.0 1.1 6.3 17.5 4.1 - - 31% 46% Counties 4.9 2.0 0.0 9.7 0.1 16.6 3.6 - - 39% 39% Total 24.7 4.6 0.6 11.0 16.5 57.5 12.8 - - 33% 45% Benefit share 43.0 8.1 1.1 19.2 28.7 15-years National Parks 16.1 0.6 0.9 0.3 - 17.8 5.7 - - 33% 49% Nature Parks 10.6 3.0 0.0 1.5 - 15.1 4.9 - - 33% 47% Counties 6.5 2.6 0.0 13.0 - 22.2 4.5 - - 40% 40% Total 33.2 6.2 0.9 14.8 - 55.1 15.0 - - 35% 46% Benefit share 60.2 11.3 1.6 26.9 20-years National Parks 19.3 0.7 1.0 0.4 - 21.4 6.2 - - 33% 49% Nature Parks 12.7 3.6 0.0 1.8 - 18.1 5.5 - - 34% 47% Counties 7.9 3.2 0.0 15.7 - 26.7 5.1 - - 40% 41% Total 39.9 7.5 1.0 17.8 - 66.2 16.8 - - 36% 46% Benefit share 60.2 11.3 1.6 26.9 Notes: 1 ­ Structural Funds are a one-time (discounted) benefit in the 6th year; 2 ­ Ecological Network data systems and capacity building occurs within the loan period of 5 years. 72 22. Sensitivity Analysis. A sensitivity analysis was undertaken on the most important assumptions. Since entrance fees play a key role in defining the majority of benefits several further simulations are run with alternative fee structures and visitation rates. If a nominal 5 HRK (0.70) is charged in all National parks and 10 HRK (1.39) in each Nature park the resulting overall ERR-10 is 47 and 25 percent, respectively, with no change in visitation over time. If visitation were to rise by even 1 percent in each of the National and Nature Parks the ERR-10 is 48 and 26 percent, respectively. Historical visitation rates are on the order of 3 percent in the National parks and upwards of 50 percent in Nature parks over the past ten years ­ even after accounting for the decline due to the economic crisis in 2009. Since most Counties do not charge an entrance fee at this time, even if a flat entrance fee of 1 HRK (0.14) is charged the project ERR-5 is 35 percent and ERR-10 is 59 percent. 23. Distribution of Benefits. The distribution of benefits is closely tied to the category of benefits ­ but the majority of benefits remain within Croatia. Ecological Network Investments will yield substantial public benefits from greater conservation and preservation efforts and private benefits will be generated through contracts, employment and income. The Ecological Network Data Systems and Capacity Building components also have both public and private benefits. Since most of the inventorying and training activities will be in the public sector, the resulting actions taken by individuals will yield public benefits from better ecological network and future Natura 2000 network management. There are also private benefits from increased employment by those supplying the inventorying and training within Croatia and internationally. 24. Alternatives. The proposed set of Ecological Network Investments was an evolving list of park- and County-specific works that went through several rounds of screening according to technical criteria ­ including the mock SF filter described above. Several large proposals, in excess of 1 million, were not considered and are to be included in the future SF pipeline. Originally fire protection and demining activities were included, however were later dropped since they were to be integrated into other State budget initiatives or projects. Another alternative was for the project to focus only on one region such as marine areas ­ however given the level of institutional preparedness for aligning nature protection to the Birds and Habitats Directives for EU Accession, a much more comprehensive effort was warranted. Under a `no project' alternative, Croatia would still undertake activities under the loan, however given the current economic crisis and consequent budget constraints, it is likely that Nature Protection and other initiatives directed towards the management of Natura 2000 network would not be fully ready to take all of the obligation after Croatia's Accession. 25. Risks. The main project risk for benefit realization would be that visitation numbers continue to decline as a consequence of the economic crisis. However, the economic analysis currently assumes flat visitation growth over the loan period and preliminary tourism numbers for the first quarter of 2010 indicate a good recovery from 2009 levels. It is anticipated that the popularity of Croatia's sites will continue to draw international interest. In Croatia 89 percent of tourist revenues are from international tourism which has been relatively stable over the past ten years. Also, as shown from the sensitivity analysis fluctuations in visitation have relatively modest effects on benefit realization, so the overall risk is rated as low. 73 Appendix 7.1: Proposed Protected Area-Driven Investments INSTITUTION PROJECT NAME PROJECT PURPOSE Informing the visitors about the unique natural and cultural values of protected areas in NP Brijuni The boathouse the Republic of Croatia; education on the protection of those areas, through the example of sustainable development of Brijuni National Park. The project purpose is to stop degradation and to restore sea bottom biocenosis in the NP Kornati Buoys and pontoons system areas in Kornati NP where anchoring is occur. Spatial disperse and education of NP visitors - to decrease the number of visitors at NP Krka Sustainable management of visitors in the Krka National Park Skradinski buk and to support sustainable development in the north part of NP Krka. To maintain or restore the traditional agriculture and grasslands maintenance and NP Mljet Bridge at the Veliki Most locality increase local population and visitor knowledge about species and habitats on the island Mljet. The purpose of the project is development of educational and interpretative programs and facilities for different age groups, particularly children and young people for whom NP Paklenica Classroom in Nature we cannot offer other adequate programs at the moment, about how important are the nature features of the park and Natura 2000 species and habitats. In order to insure a high quality experience of natural values for our visitors we decided to expand the existing sightseeing system on forest ecosystems. We want to achieve a NP Plitvicka jezera Presentation center of forest ecosystems - "Corkova uvala'' higher degree of organization, to increase the information level, enrich interpretation of the area, to monitor visitors and to promote the importance of preserving natural values of National park Plitvice lakes. The Management Plan outlines major threats to conservation of habitats and species, Improvement of visitation and information system of Risnjak National Park which are manifested through uncontrolled visitation and neglect of agricultural land due NP Risnjak ­ Kupari to population decline. To reduce these threats, it is necessary to organize quality reception of visitors, which includes their education. Main purpose of the project is implementation of the action plans connected to preserving high grassland biological diversity and cultural heritage as well as improved services for visitors ­ interpretation, education and first-hand experience of spending NP S.Velebit Establishment of basic infrastructure for park management time in an unspoiled nature. Additional purpose of the project is to increase the management capacity of the Public Institution through improved supervision of the area, improved conditions for scientific and expert research. The purpose of the information centers and educational trails within the Park is visitor PP Biokovo Provision of information centers in Biokovo Nature Park education as well as presentation and promotion of Biokovo's natural beauty through informational and educational content. The purpose of this project is to fulfill the needs of visitors in nature friendly way (Natura 2000 and eco-tourism - principles from N2K web Croatian site). They can PP Kopacki Rit Improvement of visiting system observe the nature, explore, ride a bicycle and flow with a smaller or larger boat by not endangering habitats or species. Other cultural and educational facilities can be offered to them with the aim to promote natural values. A system of "Chardak" observation platforms -ensure effective monitoring of waterfowl and flood dynamics as an ecological key process on the wet grassland and riparian PP Lonjsko polje Historic 'cardaci' viewpoints hardwood forest habitats as well as to minimize the negative impact of visitors on those most vulnerable areas. The main purpose of the project is to increase knowledge of a typical visitor of the Park PP Medvednica Info-desk Bliznec about the Nature Park Medvednica and its role as a part of National Ecological Network and the Nature 2000 proposal. Construction of the facility for JU PP Papuk operations (wooden house about 60 m2 PP Papuk Eco-point Jankovac space for the guide, part for the exhibition display, gift shop and toilet facilities for 74 INSTITUTION PROJECT NAME PROJECT PURPOSE visitors and a base for research and monitoring) to maintain the designated natural habitats at a favorable conservation status Foot-trail objective: Expand the Nature Park trail system in purpose of encouragement for sustainable agriculture to the local community, as well as offering the ability to acquaint visitors with natural and cultural values. Trail system also has part in better fire PP Telasica Visitor signaling and trail Dugo polje protection. Informational and educational system of the Nature Park objective: Imply to visitors for growing environmental protection need, as well as introducing natural and cultural values of the Nature Park "Telasica", through educational boards and trails. Education in Ucka Nature Park represents one of the main ways of nature protection. It also promotes awareness of natural and cultural values and emphasizes the importance of preserving natural and cultural heritage as the basis for human existence and action. Education in Ucka Nature Park is oriented at all users of the park area (visitors, school PP Ucka Arranging an outdoor educational display - "Eye of Ucka" children of all ages, local people, small businesses within the park etc.) with the aim of providing information about the reasons for protection, about the local area's cultural and biological assets, about the need to preserve the natural landscape, and also about the problems regarding sustainable development of this area. With reconstruction of Premuzic trail, that passes along important sites of national ecological network (NEN) and potential sites of NATURA 2000, we would like to PP Velebit Restoration of Premuzieva staza trail and visiting needs adjustment reinforce and increase public knowledge and awareness of the importance of preserving the specific flora and fauna natural habitats, and the trail itself, which presents valuable cultural heritage, we would like to renovate and preserve. The project purpose is to improve infrastructure in the Vransko Lake Nature Park and thus increase the Public Institution's educational, promotional and visitor capacities in Construction of the bird-watching tower with educational trail and PP Vransko jezero order to raise public awareness, educate schoolchildren and other visitors and help to restoration of Crkvine port maintain high level of conservation and effective protection (research and monitoring) of the protected area which is NEN and potential NATURA 2000 site. The main objective is the renovation and adaptation of two educational centers to make them able to receive a significantly higher number of school children, other visitors and local residents. The main aim of their education would be the protection of Nature Park's PP Zumberak i Samoborsko gorje Visitor center Budinjak and Educational - visitor center Slani dol natural values with an emphasis on the importance of the ecological network of protected areas and future areas of NATURA 2000: providing enough room and equipment for creating new educational programs which involve exploring protected wild species and habitat types. To raise visitor capacity on the protected landscape Gajna with purpose to inform, JU Brodsko-posavska Info center ''Stan na Gajni'' with educational trail educate, and incite local community to participate in conservation of NEN and Natura 2000 sites with sustainable activities. The purpose of this project is to present the importance of cave ecosystems and sites of ecological network in Croatia through the arrangement of cave Nakovana and it's JU Dubrovacko-neretvanska Adaptation of Nakovana cave (Peljesac) opening for public, and to assist the local community through the awareness in sustainable use of natural resources. The project aims to make available the Lim bay to visitors and users without damage to a JU Istarska zupanija Info center Limski bay protected area. Ensure protection of cave Vrlovka, through implementation of conservation measures of JU Karlovacke zupanije Vrlovka cave species by education of visitors, creating conditions for sustainable management. Educational trail marking and construction of the viewpoint at the To preserve significant landscape area Kalnik important for wild species and endangered JU Koprivnicko-krizevacke zupanije significant landscape Kalnik habitat types. Project purpose is to establish educational and promotional center in Radoboj (90 m2) JU Krapinsko-zagorska zupanije Educational center Radoboj which would serve as a central place for promotion of natural values and also NEM and 75 INSTITUTION PROJECT NAME PROJECT PURPOSE NATURA 2000 sites of the County. To establish efficient (non-aggressive) way of education within nature protection system of Medjimurje County which will (therefore) provide benefits for local communities and JU Meimurske zupanije Partial adaptation of the Krizovec visitor center with educational trail good services for visitors, in order to perform feasible activities on nature and wildlife protection in Mura-Drava regional park and Natura2000 area. The project purpose is to draw attention end educate school children and strengthen public awareness general public in the Osijek ­ baranja county as well as visiting visitors JU Osjecko-baranjska Educational trail in the significant landscape Erdut to the importance of Erdut Municipality's landscape in all its aspects (conservational, ecological, historical, horticultural) as a future part of Natura 2000 ecological network. The Project purpose is to reconstruct the cave's infrastructure in order to enhance the JU Primorsko-goranske zupanije Adaptation of Lokvarka cave safety and security of guests, and to protect, improve and monitor NATURA 2000 sites. The purpose of this project is to set up modern Info points, along state road which follows the River Una dale, with basic information about natural values of the area, and JU Sisacko-moslavacke zupanije INFO-points on the territory of Ecological Network ­ of Una River Dale that way present and promote the area and raise awareness of the necessity of its protection among all people. The project purpose is to raise public awareness and enforce conservation guidelines for target features in this area. The project will also promote natural and cultural values of JU Splitsko-dalmatinska Educational trail, Imotska jezera Gaj" this area to both local and other people. The promotion is expected to raise awareness of necessity of more efficient protection. This will influence both people and municipality to accept unique natural values as their own and care for them. The project purpose is to promote the protected area of the NATURA 2000 site (Krka JU Sibensko-kninska Walking trail channel St. Ante river Mouth) in Sibenik ­ Knin County and improve the safety of the site, preservation and promotion of the site. To increase awareness and education levels of visitors, users and local inhabitants on the needs and reasons for the protection of species and habitats around Trakosan Lake and JU Varazdinske zupanije Info-desk and education trail Trakosan its park-forest, that are part of NEM and NATURA 2000 Network through establishment of an info point and development of the education trail. The project purpose is to revive one and give the information about necessity of JU Viroviticko-podravske zupanije INFO-Educational Center (IEC) in Noskovacka dubrava preservation natural biodiversity for this part of Virovitica-Podravina county. The project purpose is preservation of habitat and plant species by improvement of path JU Zadarske zupanije Una - Spring of Life towards Una Spring. Information center for local residential and visitors in order to introduce Natura 2000 in JU Zagrebacke zupanije Adaptation of ''Posavski stagalj'' info-desk Zagreb County. To improve awareness about importance of large carnivores in Gorski Kotar, as part of an Ecological network of the Republic of Croatia and potential NATURA 2000 network, SINP Large Carnivore Educational-informative Centre and promote development of eco-tourism based on natural values, for benefit of local communities. Note: NP ­ National Park; PP ­ Nature Park; JU ­ County institution; SINP ­ State Institute for Nature Protection 76 Annex 8: Consultative and Participatory Elements in the Protected Areas and Land Surveying Laws of Croatia CROATIA: European Union Natura 2000 Integration Project During project preparation, a report was prepared to review the consultative and participatory elements of the protected areas, national ecological network, and the land surveying laws of Croatia. The report screened proposed activities supported through NIP (e.g., support for protected area-driven investments, a boundary delineation pilot, and a pilot program to promote agri-environment measures) against World Bank social safeguard requirements and concluded that activities supported by NIP will not require any special social safeguard measures. Key factors considered in reaching this conclusion included the following. There is a clear legal distinction between sites that are designated as protected areas within the national ecological network, and sites that are within the ecological network but are not designated as protected areas. The Nature Protection Act (NPA) and the Ordinance on Establishment of the National Ecological Network (OENEN) address procedures that apply to these types of sites. Existing practices and legal requirements in Croatia stipulate public participation in the preparation of protected area management plans, and the same participatory procedures apply for NEN site management plans. The protected areas site designation process includes public participation in line with EU practices and is well described in the law. This includes provisions for temporary restrictions during the site designation process. Establishment of the National Ecological Network of Croatia involved an extensive participatory process. Both the OENEN and the NPA describe policies and practices for compensation of restricted use of natural resources applicable to both users and land owners. Both the OENEN and the NPA contain provisions for the use of subsidies to legal entities and natural persons to compensate for protection of biological and landscape diversity. The boundary delineation pilot, which seeks to test the most efficient legal and technical process for transcribing legally declared protected area borders into a spatially-defined register of protected areas, will be tested under NIP at two sites that have already been proclaimed using a participatory process. The law on State Survey and Real-Estate Cadastre (SSREC) will additionally apply to any land surveying work done under this pilot program. The public participation requirements in article 46 of the SSREC law are even more comprehensive than procedures contained in the NPA. Some examples of this are a stipulation for written confirmation from landowners that they were shown cadastral survey and technical reports and agree with the state gathered data; provision for an administrative procedure to handle complaints; and an appeals process against decisions to reject a complaint. Some of the relevant excerpts from Croatian law include: 77 Public Participation in the Law on State Survey and Real-Estate Cadastre22 Article 46 -- The cadastral documentation for the Real Property Cadastre is made on the basis of the data gathered and processed through cadastral surveys or technical reambulation, the data gathered during the public review of the cadastral survey or technical reambulation report (hereon: public review) and the data transferred from the established or renewed Land Register. -- The public review is carried out by a State Geodetic Administration commission appointed by the Director General at the same time and in connection with the establishment or the renewal of Land Registers. -- During the public inspection process, persons shown as the real property title holders in the cadastral survey and technical reambulation report will confirm in writing that they were shown the cadastral survey and/or technical reambulation data and that they agree with the state of the gathered data. -- A book of complaints is kept during the public review. -- Field inspections are compulsory upon the receipt of a complaint. -- If it is necessary on the basis of the carried out field inspections to change the data contained in the cadastral survey or technical reambulation report, the changed data will be on public review again. -- Unfounded complaints will be rejected through a decision passed in an administrative process. -- Appeals are allowed against a decision to reject a complaint. -- The Director General shall pass regulations governing the public review process. Key Public Participation Provisions in the Nature Protection Act Article 22 (NPA) -- A proposal of an act of designation shall be founded on an expert base proposal drawn up by the National Institute for Nature Protection (hereinafter referred to as: the Institute) which shall establish the assets of the area to be protected, the method of administering the area, as well as on a statement drawn up by the body passing the act of designation concerning the funds granted for managing the protected area. -- The expert base proposal referred to in paragraph 1 of this Article shall include a detailed description of characteristics and assets of the area to be protected, evaluation of the state of that area, consequences ensuing from the adoption of an act of designation, especially with regard to property rights and business activities presently obtaining, as well as the estimate and sources of funds necessary for implementing the act on the designation of the protected area. -- The public shall be informed of the proposal for the designation of a protected area. Informing the public implies that access is accorded to the public concerning the proposed act on designation of the protected area as well as the expert base proposal containing cartographic documentation. -- The procedure of providing public access to information in granting the status of national parks, nature parks, strict nature reserves and special nature reserves shall be organized and implemented by the Ministry, while the procedure of providing public access to information relative to other protected areas (park monument, regional park, important 22 provisional translation (Ministry of Foreign Affairs and European Integration) 78 landscape, forest park and park landscaping monument) shall be organized and implemented by the county or the City of Zagreb. Article 166 (NPA) -- In the course of drafting legislation or acts on designating protected natural assets, administration plans for protected areas and plans for the use of natural resources as well as the generally applicable and legally binding regulations and documents in the field of nature protection, the participation of the public shall be provided for. -- In the course of the procedure referred to paragraph 1 of this Article the public must be informed via public announcement. 79