The World Bank BR Marine Protected Areas Project (P128968) REPORT NO.: RES35926 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF BR MARINE PROTECTED AREAS PROJECT APPROVED ON SEPTEMBER 19, 2014 TO BRAZILIAN BIODIVERSITY FUND - FUNBIO ENVIRONMENT & NATURAL RESOURCES LATIN AMERICA AND CARIBBEAN Regional Vice President: Axel van Trotsenburg Country Director: Paloma Anos Casero Regional Director: Anna Wellenstein Practice Manager/Manager: Valerie Hickey Task Team Leader: Adriana Goncalves Moreira, Sylvia Michele Diez The World Bank BR Marine Protected Areas Project (P128968) I. BASIC DATA Product Information Project ID Financing Instrument P128968 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 19-Sep-2014 31-Oct-2019 Organizations Borrower Responsible Agency Brazilian Biodiversity Fund - FUNBIO Brazilian Ministry of Environment - MMA Project Development Objective (PDO) Original PDO The Project's Global Environmental Objective (GEO) is the same as the Project's Development Objective (PDO), namely, (a)to supportthe expansion of globally significant, representative and effective Marine and Coastal Protected Area System in Brazil, and (b) to identify mechanisms for its financial sustainability. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-18151 26-Sep-2014 26-Sep-2014 18-Dec-2014 31-Oct-2019 18.20 9.59 8.61 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank BR Marine Protected Areas Project (P128968) Overview of GEF’s Marine Protected Area Project (GEFMAR): Project implementation progress has been considered satisfactory. GEFMAR has made substantial progress with the achievement of major milestones. These include the creation and consolidation of Marine and Coastal Protected Areas totaling 92 million hectares (surpassing the Project Development Objective’s (PDO) target of 17.5 million hectares) expanding Brazil’s marine protected surface from 1.57% to 26.34% of its Exclusive Economic Zone; the identification of a financial mechanism to support Marine and Coastal Protected Areas through the new policy on creation/management of a fund for federal environmental compensation resources (Law 13.668 of May 28, 2018) achieving another PDO indicator (Financial Mechanisms for long-term financing of MPAs); the establishment of the monitoring and evaluation system and improvement on the quality of the Project coordination and management. These important developments resulted in the achievement of two PDO level indicators ahead of schedule. The grant has an undisbursed balance of USD$ 8.6 million and is currently 52.7% disbursed. The PDO remains achievable, the performance of the implementing agencies is satisfactory, and the government remains committed to complete the project. Restructuring letters from the government (November 29, 2018 and May 9, 2019) and FUNBIO (June 4, 2019) were submitted to the Bank requesting the reallocation of proceeds of the Grant, and the modification of the closing date. The purpose of this restructuring paper is to seek the approval of the country director to introduce these changes (described below). Proposed Changes Two types of changes are proposed: 1) Reallocation of grant proceeds: A reallocation of grant proceeds between disbursement categories is requested. The complementary counterpart funding from Petrobras (R$ 60 million, Annex 2 and 3) has allowed for this strategic reallocation of resources to establish a Protected Area Trust Fund, hereafter entitled “Marine Fund”. The mechanism proposed to deliver this solution is an endowment fund, with the primary objective of maximizing income and preserving the capital over the long term. A new Disbursement Category will be created to reallocate US$8.5 million from Disbursement Category 1 for the establishment and initial capitalization of this new endowment Fund. This would be the first Marine Fund in Brazil, which seeks to reinforce and expand ongoing efforts to protect and manage Brazil’s extensive coastal and marine environments, along with its rich biodiversity and ecosystem services. With the Marine Fund capitalized, only the interest earned on the capital will be used to finance subprojects under the Grant. The interest earned on the principal shall only be used for the purposes intended and any expenditures financed with the interest earned by the closing date will be subject to the project’s final audit review. The Marine Fund will be modelled on the successful strategy of the Transition Fund for the Amazon Region Protected Areas Program (ARPA). The main objective is to establish a financial mechanism that can provide long-term financial sustainability of marine protected areas in Brazil. The endowment fund would provide long-term funding for MPAs and will be capitalized at a level sufficient to provide investment income that would cover a portion of the MPAs and annual recurrent costs over the long term. The Government foresees a second phase of the GEFMAR Project for the expansion of the Marine Fund, leveraging additional financing from GEF7, the private sector, and other donors. Consequently, the establishment of this endowment Marine Fund is critical to lay the basis for long-term financial sustainability of MPAs and to attract new partnerships, donors, and continue to build on this effort. The World Bank BR Marine Protected Areas Project (P128968) The governance, institutional, and implementation arrangements of the Marine Fund are already defined (Annex 1) and will complement GEFMAR’s governance via the establishment of a separate and independent Deliberative Council for the Fund. FUNBIO, the current implementing agency of the project, will be responsible for the implementation and administration of the Fund, in partnership with ICMbio and the Ministry of Environment. A financial management (FM) assessment of FUNBIO was undertaken (Annex 5) for the establishment of the Marine Fund. FUNBIO, the Project grant beneficiary, is currently responsible for carrying out the Project’s administrative and financial management tasks, accounting, and disbursements arrangements. FUNBIO’s experience demonstrates that the arrangements proposed for the new Marine Fund are appropriate to implement and to monitor grant funds. The overall conclusion of an FM assessment performed by the Bank is that FUNBIO’s financial management arrangements, as set out for this Project, are acceptable and the FM risk is maintained as Low. 2) Extension of closing date: An extension of the closing date by six months (from October 31, 2019 to March 31, 2020) is requested. This is to finalize the setup of the Marine Fund, including asset management, M&E, and to oversee its administration. In summary, this period will ensure the governance, financial, and implementation arrangements of the Fund are in place and operational. In summary, the reallocation of grant proceeds and the extension of the closing date will allow the grant recipient to: (i) establish the first Marine Fund in Brazil as a long-term financial mechanism to protect and manage coastal and marine environments; (ii) execute Petrobras funds for successful completion of the project activities in the eligible GEFMAR Protected Areas (Annex 4) and (iii) full achievement of the PDO. Attached is the Government request for the restructuring of the Project, and the following supporting annexes for the establishment of the Fund: Annex 1 - Fund Governance and Implementation Arrangement Annex 2 - Financing Agreement between Petrobras and FUNBIO Annex 3 - Receipt of Petrobras’ First Disbursement Annex 4 - Eligible GEFMAR Protected Areas Annex 5 - FUNBIO financial management assessment This restructuring fully complies with the Bank Directive for Investment Project Financing as: (a) the Project’s DO remains achievable; (b) the performance of the Recipient remains satisfactory; (c) the Bank and the Recipient agree on actions that will be undertaken by the recipient to complete the Project; (d) the Project is not subject to suspension of disbursements; and (e) the Recipient does not have any outstanding audit reports nor are there any audit reports which are not satisfactory to the Bank. II. DETAILED CHANGES LOAN CLOSING DATE(S) The World Bank BR Marine Protected Areas Project (P128968) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications TF-18151 Effective 31-Oct-2019 31-Mar-2020 31-Jul-2020 REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed TF-18151- GO, WK, CS, N- 001 CS, SURV A , OP 18,200,000.00 7,906,871.50 9,700,000.00 100.00 100.00 Currency: & TRG USD Capitalization for the Marine Fund under Part 0.00 0.00 8,500,000.00 100 1.2 of the Project Total 18,200,000.00 7,906,871.50 18,200,000.00