Madagascar - Second Environment Program Project

GLOBAL ENVIRONMENT FACILITY Madagascar Second Environment Program Project Document November 1996 THEWORLDBANK i  GEF Documentation The Global Environment Facility (GEF) assists developing countries to protect the global environment in four areas: global warming, pollution of internationai waters, destruction of biodiversity, and depletion of the ozone layer. The GEF is jointly implemented bythe United Nations Development Programme, the United Nations Environment Programme, and the World Bank. GEF Project Documents - identified by a green band - provide extended project- specific information. The implementing agency responsible for each project is identified by its logo on the cover of the document. Global Environment Goordination Division Environment Department Wortd Bank 1818 H Street, NW Washington, DC 20433 Telephone: (202) 473-1816 Fax: (202) 522-3256  Report No. 16133-MAG Madagascar Second Environment Program Project Document November 1996 Envimnment Group and Cdg8 Central Afr 2 Africa Region  CURRENCY EQUIVALENTS Currency Unit Malagasy Franc (FMG) US$ 1.00 FMG 4,200 SDR I US$ 1.45851 WEIGHTS AND MEASURES Metric system MALAGASY FISCAL YEAR January I - December 31 LIST OF ACRONYMS AGIR Appui a la Gestion de l'environnement A travers des Instruments Regionalises et l'approche locale (Regional and Local Environment Management Support Component) ANAE Association Nationale d'Actions Environnementales (National Association for Environmental Actions) ANGAP Association Nationale pour la Gestion des Aires Protegees (National Association for the Management of Protected Areas) APPP Annual Participatory Programming Process CAPE Composante Aires Protegees et Ecotourisme CFSIGE Centre de Formation pour les Sciences de l'Information Geographique et Environnementale (Environment Information Training Center) COS Comite d'Orientation et de Suivi (Steering Committee of the Environment Program) DD Direction des Domaines (Land Titling Directorate) DEF Direction des Eaux et Forets (Water and Forests Directorate) EPI, EP2, EP3 Environment Program Phase 1, Phase 2, Phase 3 ESFUM Eco-Systemes Forestiers A Usage Multiple (Multiple-Use Forest Ecosystems) FORAGE Fonds Regional d'Appui a la Gestion de l'Environnement (Regional Fund for Environment Management) FTM National Geographic Institute GEF Global Environment Facility ICDP Integrated Conservation and Development Project IFAD International Fund for Agriculture Development NTFP Non-Timber Forestry Products ONE Office National de l'Environnement (National Environment Office) PPDOP Participatory Process for the Definition of Options and Priorities PRIF Pre-Investment Financing RPC Regional Programming Committee UNDP United Nations Development Program USAID United States Agency for International Development WWF World Wide Fund for Nature Vice President: Mr. Callisto Madavo Country Director: Mr. Michael Sarris Technical Manager: Ms. Cynthia Cook Task Team Leader: Mr. Michel Simeon  MADAGASCAR SECOND ENVIRONMENT PROGRAM Table of Contents PROGRAM SUMMARY PART I: PROJECT SUMMARY I. INTRODUCTION - THE PROGRAM APPROACH 1 II. BACKGROUND 2 A. Economic and Social Background 2 B. The Environment 2 C. Agricultural Strategy and Related IDA- and IFAD-Funded Operations 4 III. THE FIRST ENVIRONMENT PROGRAM 5 A. Objectives 5 B. Components 5 C. Lessons 6 (1) Environmental management strategy 8 (2) Institutions 9 (3) Program scope 9 (4) Sustainability 9 (5) Community involvement 10 IV. THE SECOND ENVIRONMENT PROGRAM 10 A. Concept, Rationale and Objectives 10 B. Status of Program preparation 15 C. Summary description 16 D. Detailed description 17 E. Cost estimates 23 F. Financing 24 G. Procurement 25 H. Disbursement 27 V. PROGRAM IMPLEMENTATION 29 A. Organization and management 29 B. The Annual Participatory Programming Process 30 C. Monitoring, evaluation and beneficiary assessment 32 D. Procurement and Disbursement Procedures 32  E. Accounting, Auditing and Reporting Requirements 33 F. Supervision of program implementation 34 VI. BENEFITS AND RISKS 35 A. Overall justification 35 B. Cost-benefit analysis 35 C. Financial sustainability and cost recovery 37 D. Environmental sustainability 39 E. Risks 39 VII. ASSURANCES, CONDITIONS AND RECOMMENDATIONS 40 A. Assurances obtained at negotiations 40 B. Conditions of Board Presentation 41 C. Conditions of effectiveness 41 E. Conditions of disbursement 41 F. Recommendation 41 PART II: TECHNICAL ANNEXES 1. Lessons from the First Environment Program I bis Participation and Consultation 2. Composition of the multi-donor Program Appraisal team 3. Cost Tables and financing plan 4. Outline of Manual of Procedures for Environmental Management (coordination and inter-institutional relationships) 5. The Annual Financial Programming Process 6. Terms-of-Reference for multi-donor supervision staff 7. Monitoring and Evaluation 8. Disbursement Schedule 9. Economic analysis 10. Documents in program files 11. Letter of Environmental Management Policy A. I Protected Areas listed according to Priorities A2 Protected Areas Qualifying for GEF Assistance (Listed According to Priorities) A.3 Madagascar: Map of Protected Areas category classifications (A, B, & C) A.4 Biographical Features of Protected Areas Qualifying for GEF Assistance B. Gazetted forests of biological significance C. Calculation of GEF Incremental Costs  MADAGASCAR SECOND ENVIRONMENT PROGRAM Program Summary Executing Agencies Ministry of Environment - National Environment Office ANGAP (Parks management organization) DEF (Water and Forests Directorate) DD - Direction des Domaines (Land Titling Directorate) ANAE (National Association for Environmental Actions) FTM (National Geographic Institute) CFSIGE (Environment Information Training Center) Probable Cost: US$155 million Proposed IDAJITF Credit: US$30 million - Standard IDA terms IDA Lending Program: FY 97 L Proposed GEF grant: US$ 20.8 million GEF Focal Area Biodiversity GEF Country Eligibility Convention ratified as of March 4, 1996 GEF Implementing Agencies UNDP, World Bank GEF Preparation Costs: PRIF US$ 0.5 million Associated UNDP Projects Spatial Approach to Natural Resources Management - US$ 0.58 million Marine Resources Management - US$ 1.5 million Environmental Policy and Training - US$ 0.5 million Proposed IFAD Credit US$ 8.1 million Government Financing US$ 31.0 million Financing Plan: contributions agreed during negotiations: GEF, UNDP, IFAD, USAID, Germany, France, European Union, WWF to be firmed up with other donors: Switzerland, Norway, Japan Program Appraisal Date: November 1995 and April 1996 (multi-donor) Appraisal Date (WB): June 1996 Negotiations Date: September 1996 Estimated Starting Date: February 1997 Program Duration: 5 years Environment Category: C  - ii - Program description The credits and grant would help finance the cost of: (i) improving the management of natural resources, including soil, water, forest, coastal zones and biodiversity, and start addressing urban problems; (ii) implementing generic mechanisms at regional and local level to support regionalization of programming and local management of natural resources; (iii) developing environmental management tools that are required in terms of drawing an inventory of natural resources, creating effective monitoring systems to track their evolution, formulating environmental strategies and policies, and undertaking necessary environmental analysis and management. Program cost and financing: The cost of the programs estimated at US$ 155 million, including US$ 13.7 million of contingencies and US$ 23.3 million of taxes. ITF would finance US$ 30 million, GEF is expected to finance US$ 20.8 million (GEF financing would be managed jointly by UNDP and the Bank), IFAD US$ 8.1 million (managed by the Bank) and other donors US$ 65.1 million. Government would finance about US$ 31.0 million (4.0 million taxes, 7.7 million tax-exempt financing, and 19.3 million through tax exemption against external grants). Program benefits: Long term sustainable growth of the country cannot be achieved in the absence of proper management of its natural resources, and the cost of inaction would be higher than the cost of the program. The program would combine concrete actions which have short term measurable benefits with long term undertakings (e.g. policies, education) to ensure sustainability. Direct beneficiaries would include communities affected by the soil conservation schemes and the development activities of the conservation projects (protected areas, forest management, coastal management). Most beneficiaries would be within the poorest segments of the population. Induced benefits would come from the introduction of improved environmental impact analysis and mitigation measures for public investment, as well as from private investments in ecotourism facilities and services that would be induced by the program. Models have been developed that demonstrate that key activities can be economically justified under a fairly wide range of initial conditions. Program sustainability The long-term financial sustainability of protected areas would be ensured by a combination of income from ecotourism with the revenue from capital investment (e.g. through a trust fund or foundation such as the one recently established in the country).  - iii - Financial sustainability of forestry operations would come from a decrease in the need for Government intervention together with an improvement in recovery of stumpage fees and other levies. In order to ensure long-term sustainability of ANAE mini-projects and FORAGE, cost recovery would be progressively introduced. The level of cost recovery would depend on the importance of direct benefits versus externalities. Fifty per cent of recovered funds would remain with ANAE, and thus contribute to the financial viability of the institution. The other fifty per cent would be managed at village community level to finance expansion and/or maintenance of mini-project investments. Risks: Policy risks. There is a strong relationship between environmental degradation, population increase and economic stagnation, including the decline of agriculture, so that the impact of the environment program would be limited in the absence of significant progress on the other fronts. In particular, policies that discriminate against agriculture and tourism would affect the program negatively. Such issues are being addressed under the on-going structural adjustment dialogue. Institutional risks are related to potential political instability that would affect the institutional set-up. Other risks are related to weak implementation capacity. ONE and other implementing agencies are subjected to formal implementation capacity to help them clarify their mandate, streamline their organizational structure and procedures, assess their human resources and program their training requirements. Finally, integrating Madagascar's present governmental agencies into the regional approach to natural resource management will be a challenge. Fortunately, the ongoing decentralization process is fully compatible with this objective.   PART I: Project Summary   MADAGASCAR SECOND ENVIRONMENT PROGRAM I. INTRODUCTION - THE PROGRAM APPROACH 1.1. Faced with the many severe environmental problems facing the country, the Government prepared a National Environmental Action Plan (NEAP) in 1988, with the support of a group of donors, international agencies and NGOs, led by the Bank. The fifteen year program foresees the first five-year phase aimed at creating a proper policy, regulatory and institutional framework, a second phase aimed at the consolidation of the programs initiated under the first phase, and a third phase that would achieve the mainstreaming of environment into macroeconomic management and sector programs. 1.2. The First Phase Program (EPI) is under implementation and will end in December 1996. An analysis of achievements and lessons learned is presented in chapter III, and further detailed in Annex 1. Program implementation is coordinated by ONE, the National Environment Office, and by an annual meeting of a steering committee (COS: Comit6 d'Orientation et de Suivi) composed of representatives of Government Agencies, NGOs, the civil society and donors, but the EPI is made up of a number of separate projects. Efforts to manage the annual budgetary process in a consolidated way are under way and a common monitoring system is being put in place. 1.3. At the time of the formulation of the NEAP and the EP I, the country did not have the necessary institutional framework to deal with environmental issues and programs, and as a result the work was developed with a large external input. In contrast, the Second Phase Program (EP2) was prepared by national institutions, in a country-driven participatory process that has developed since mid-1994 (see also Chapter IV - B), with interaction with donors taking place in meetings of the COS and through multi-donor missions. 1.4. Although the Environment cannot be considered a sector (it is rather a dimension of problems that spans across all sectors), the Program described in this report is part of a new generation of investment operations that follow an integrated sector approach, i.e. the SIPs (Sector Investment Programs). This approach, which aims at improving the effectiveness of public expenditures, has the following main characteristics: = It covers all or most priority activities related to the environment =g It is prepared by local stakeholders => It is supported by all donors active in the environment in Madagascar z> It minimizes reliance on international long-term consultants => It involves common implementation arrangements  -2 - II. BACKGROUND A. Economic and Social Background 2.1. Madagascar's per capita income has plummeted by 40 per cent over the past two decades and stands now at US$230. According to the 1996 Poverty Assessment, about 75 percent of Madagascar's population now lives in poverty compared to 43 percent in the 1960s. Ninety per cent of the poor live in rural areas. In other words, 68 per cent of the total population are poor and live in rural areas The population's sense of impoverishment is accentuated by poor health conditions and a decline in education standards. 2.2. The recent years have been characterized by policy advances and reversals. Some positive steps toward economic reform have been taken: floating the exchange rate, lowering import tariffs, sharp price increases for energy, eliminating the commodity subsidies (which were introduced in 1994), official abrogation of "parallel financing", passage of a new banking law, and the appointment of expatriate administrators for the two state-owned banks, whose operations were threatening to derail macroeconomic stability. In addition, the composition of the public investment program has improved, and there have been significant sectoral achievements, including: an improved rice harvest in 1994/95, suggesting a supply response to price and exchange rate liberalization and stronger extension efforts; establishment of a private, non-profit drug procurement unit; rational pricing policies in energy; and liberalization of the petroleum sector. More recently, backwards steps were taken towards reactivating controls on private sector activity and stalling liberalization. However, agreement has now been reached with the IMF and IDA on a policy framework that opens the way to structural adjustement, thus giving hope again that improvement will materialize. 2.3. The Malagasy economy is natural resource based. Agriculture (including livestock, fisheries and forests) determines the global economic performance and is itself affected by national economic policies. The agricultural sector accounts for 31 per cent of GDP, provides raw materials for more than half of the industrial and services sectors, and employs over 70 per cent of the work force. Agricultural exports account for 60 per cent of foreign currency earnings. Exports of agricultural products will be key in determining growth. Although the number of foreign tourists is currently low (50,000 per year), tourism in general and ecotourism in particular are expected to fuel growth. Gems represent another revenue-generating sector. 2.4. In this context, the World Bank Country Assistance Strategy for Madagascar aims at helping the government promote private sector-export-led growth, attack poverty, improve natural resource management, build local capacity, and improve project implementation. B. The Environment 2.5. Biodiversity Significance. Madagascar has been called the single highest major biodiversity conservation priority in the world owing to its combination of high diversity, endemism, and degree of threat. Although Madagascar occupies only about 1.9% of the land area of the African region, it has more orchids than the entire African mainland, and is home to about 25% of all African plants. Overall, about 80% of Madagascar's plant species are endemic, and for animals the proportion is usually even higher, the best example being the lemurs, close to 100% of which occur naturally only in Madagascar. In addition, 95% of the country's 265 reptiles and 99% of its 120 amphibians are endemic, and figures for other groups of organisms  are comparable. Higher-order endemism is also extremely high in Madagascar, making even less diverse Malagasy taxa exceptionally valuable. For instance, although there are only eight genera of endemic Malagasy fish, the genetic information in these species has been compared to the entire very rich cichlid fish fauna of the African rift lakes. Madagascar has also recently been selected as a critical site for marine conservation worldwide. 2.6. Madagascar is known for its high degree of environmental degradation. According to available information, almost eighty per cent of the country's original forest cover has disappeared, or has been severely degraded. The area covered with primary natural forest has declined from about 25 per cent of total surface in 1950 to 20 per cent in 1972 and less than 15 per cent today. Forest cover would disappear within 25 years if current trends continue. This results in the loss of topsoil (up to 150-200 tons per hectare per year on bare land). Poverty and the low level of agricultural technology (e.g. slash-and-bum agriculture) compounded by a rapid population increase (over 12 million rising at 3 per cent a year) are the main causes of natural resources degradation, including deforestation, vegetation fires, soil erosion and loss of fertility. The threats of deforestation, bush fires, and extensive cropping of marginal lands are removing the ground cover necessary to keep the highly erodible soils in place. Wilderness destruction is eliminating viable habitat critical to innumerable plants and animals not yet known to science, the same plants and animals which may hold the key to the discovery of a cure for some major diseases and provide alternative sources of income such as fruits, nuts, honey and other nontimber forest products. This degradation threatens not only biological diversity, but also watershed and soil stability vital to the agrarian economy. Poverty continues to threaten the sustainability of the natural resource base and rural poor need more options in order to utilize available natural resources in a sustainable manner. Reversing the downward spiral of environmental degradation would thus mostly benefit the poor, while maintaining exceptional biodiversity. 2.7. The negative impact of environmental degradation on the economy remains very high. The economic cost of lower agricultural productivity due to soil loss and siltation, damaged infrastructure, and the need to build new infrastructure to higher standards was estimated to equal between 5 and 15 per cent of Madagascar's GNP annually in 1990. Furthermore, as mentioned above, the country is losing largely endemic species and essential ecosystems of environmental, genetic, and medical importance, thereby making Madagascar one of the world's top priorities in terms of environment and conservation. 2.8. Environmental Action Program. Aware of these problems, the Government prepared a National Environmental Action Plan (NEAP) in 1988, with the support of a group of donors, international agencies and NGOs, led by the Bank. The NEAP, together with the National Environmental Policy and the Environmental Charter, clearly recognized the link between environmental protection and economic development. The NEAP consisted of the following six programs to be implemented over a period of 15 years: (a) protecting and managing the national heritage of biodiversity, with a special emphasis on parks, reserves and gazetted natural forests, in conjunction with the sustainable development of their surrounding areas; (b) improving the living conditions of the population. This would be done in rural areas by improving the protection and management of natural resources. Particular attention would be paid to watershed protection, reforestation, and agroforestry. In  - 4 - urban areas, this would involve improving water supply and sanitation, waste management and pollution control in general; (c) promoting environmental education, training, and communication; (d) developing mapping and remote sensing tools to meet the demand for natural resources and land management; (e) developing environmental research on terrestrial, coastal and marine ecosystems; and (f) establishing mechanisms for managing and monitoring the environment. In 1990, the NEAP was given legal power by the adoption of the National Environment Charter and the National Environmental Policy (Law 90-033, December 21, 1990). C. Agricultural Strategy and Related IDA- and IFAD-Funded Operations 2.9. The World Bank Agricultural Strategy for Madagascar released on February 23, 1994 aims at promoting market-oriented policies, improving agricultural services, improving the management of natural resources, rehabilitating and expanding rural infrastructure, and streamlining the sector's public expenditures. 2.10. All the IDA-funded operations in the agricultural sector, and other operations in other sectors, have logical and/or operational linkages with the environment. Malagasy and Bank staff are currently developing these linkages. 2.11. The Forests Management and Protection Project (Cr. I 878-MAG), deemed unsatisfactory for too long, was closed one year early in 1995. However, the component consisting of three large-scope contracts designed to reinforce DEF's capacity were carried out further under the EPI. This offered the advantage for both the country and the Bank to integrate related operations. 2.12. EP I institutions such as ANAE and ANGAP have developed operational partnerships with the National Extension Service operating under the Second Agricultural Services Program (Cr.2729-MAG). 2.13. ANAE, DD and DEF are also coordinating activities with the Rural Engineering Service funded by the Second Irrigation Rehabilitation Project (Cr.2644-MAG). 2.14. ANAE uses the services and advice of the National Agricultural Research Institute (FOFIFA) in helping peasants choose better seeds and agricultural techniques, and in drawing a balance sheet of soil conservation efforts in Madagascar since 1950. FOFIFA is supported by the National Agricultural Research Project (Cr.2042-MAG). 2.15. Operators supported by ANGAP around protected areas and by ANAE in watersheds, have established cooperation agreements with rural finance operators supported by ADMMEC under the Rural Finance Pilot Project (Cr.2459-MAG).  2.16. Although formal collaboration still hasn't been established with the Livestock Sector Project (Cr.2433-MAG), there is a logical interaction that needs to be encouraged in the improvement of pasture land and the reduction of bush fires. 2.17. Finally, ONE and DEF have established links with the Second Energy Project, recently approved, to promote the sustainable use of fuelwood and sustainable development of the energy industry. 2.18. IFAD-funded operations. Since 1979, IFAD has participated in financing six projects: the Mangoky Agricultural Development Project (Loan No. 011 -MG), the Second Village Livestock and Rural Development Project (Loan No. 091-MG), two successive projects in the Highlands (Loans No. 119-MG and No.231-MG), the Midwest Development Support Project, (Loan No.286- MG) and the Upper Mandrare Basin Development Project (Loans No.376-MG and SRS-045-MG). The first three loans are closed and the other three scheduled to close in 1996, 1999 and 2001 respectively. The experience acquired shows the significant capacity that can be generated by actively involving beneficiaries and their organizations in a contractual relationship with a project. Experience also highlights the weakness of the institutions involved and the chronic lack of counterpart funds. The design of the proposed program takes these lessons into account. III. THE FIRST ENVIRONMENT PROGRAM A. Objectives 3.1. EPI had two main objectives: (i) to establish the foundations for environmental management through institution building, studies, and human resource development; and (ii) to develop operations of an urgent nature, namely: (a) protecting the heritage of biodiversity in the parks, reserves and gazetted forests, in conjunction with the development of the surrounding communities; and (b) fighting deforestation and erosion in priority watersheds where the negative economic impact was the highest. B. Components 3.2. EPI consists of six components, all partly funded by IDA: (i) protecting and managing biodiversity at the level of fifty Protected Areas and a number of gazetted forests; (ii) developing community-based soil conservation and watershed management mini-projects; (iii) developing land management tools through mapping and remote sensing; (iv) improving land security through cadastral operations; (v) promoting environmental sensitization, education and training, and developing environmental policies and procedures; and (vi) developing a support program including institution building, reinforcement of the environmental data base, marine and environmental research, monitoring and evaluation. 3.3. Program implementation has been to a large extent through local and international NGOs. Despite the fact that progress on many components has been slower than anticipated initially, most of the project's objectives are being met. Some 42,000 families are benefiting from over 1,100 mini-projects for soil conservation work by ANAE (Association Nationale d'Actions Environnementales); twenty one national parks and other protected areas are being established and managed to the extent that ANGAP's (Association Nationale pour la Gestion des Aires Protegees) current funding allows; with nearly 840,000 ha surveyed, land titling has  - 6 - begun to have an impact in and around protected areas; FTM (National Geographic Institute) has significantly improved its mapping capacity and produced aerials photographs and other geographic instruments over 80,000 km2 of protected and surrounding areas, and ONE (National Environment Office) has developed activities in promotion, video production, training, policy formulation and regulatory framework improvement. New legislation has been established allowing the creation of Foundations and Trust Funds, and a National Environment Foundation (Tany Meva) has been established. A new forest policy has been formulated and is being translated into new legislation, providing for decentralization of forest management and rationalization of management plans and logging permits, and the reactivation of the existing National Forestry Fund. New legislation is also providing for the possibility of giving responsibility for natural resource management to local communities, under a negotiated contractual arrangements that will spell out the management system and the distribution of revenues. 3.4. A Forests Management and Protection Project (Credit 1 878-MAG) was also implemented to: (i) help the FANALAMANGA parastatal develop the Mangoro industrial plantation to a production level which would allow profitable exploitation. This component represented the third phase of the Bank's involvement in the forestry sector in Madagascar; and (ii) assist DEF (the Waters and Forests Directorate) in programming, forest exploitation control, assistance to villagers for reforestation, and expansion and protection of natural reserves. The implementation of the FANALAMANGA component was satisfactory during the Project but the timber sales levels were insufficient to compensate for the poor results recorded during the first two phases and the ERR calculated was close to zero. DEF, for its part, experienced great difficulty in implementing the project, because of both management and technical deficiencies, and lack of a sector strategy. The situation improved significantly since the Project's mid-term review in 1992 with the reformulation of the Project focusing on forest inventory, the formulation of a new human resource policy and a new forestry policy. All activities initiated by the mid-term review and some new ones (the creation of new protected areas and the management of natural gazetted forests) were transferred in 1994 to the umbrella of the Environment Project, and are currently proceeding satisfactorily. The support to FANALAMANGA was terminated with the end of Credit 1878-MAG. Because of the time it took to carry out the consultation process to produce new forestry policies, forest management activities have been limited to a pilot scale, and thus had a limited impact in changing farmers' practices. C. Lessons 3.5. Fulfillment of the program's objectives is generally satisfactory, although it varies from one component to another. After four years, the first phase of the Environment Program (EP I), can be evaluated according to the criteria presented in Box 1. A detailed discussion of how the EPI has fared on each of these criteria is presented in Annex I  Box 1 - Lessons of EP1 at a Glance Criteria Strengths Weaknesses Capacity *Groundwork for program approach * Policies formulated without Building and * Spatial and regional approach adopted enough capacity to implement Policy *3 institutions created * EP I slow to reach cruising Framework +3 institutions reinforced speed *Creation of environmental units in * Institutional feud sectoral Ministries * Overlapping responsibilities *Environmentally sustainable sectoral *No arbitration mechanisms policies *New forestry policy, Forest Code bill * Local management of renewable natural resources Law bill *MECIE Decree *Evaluation of the land tenure policy and cadastral system forthcoming Link between * 1,000 demand-driven miniprojects * Limited scope and resources Conservation * Management in 21 protected areas of miniprojects and Development *Creation of 5 new protected areas *Too little done in too many underway areas *Land titling pilot operations around 4 *Inadequate synergy with protected areas other development operations *Natural forest management in 4 forests (reforms in tourism, agriculture, industry) *Sensitization slow and underfunded *Belated evaluation of cadastral work Sustainability * Evidence of significant field impact for * Costly ICDPs ANAE and ANGAP (monetary benefits *Economic analysis only and adoption rates) nascent *Increased public awareness *Education, sensitization, * Community-based movements training underfunded * GEF mobilized for biodiversity * Tany Meva Foundation established *Ownership in EP2 design Participation and *Beneficiary assessment *Most participative ICDPs also Decentralization *Participative forest policy formulation slower to produce hard data, *Workshop on Participation in ICDPs donors' impatience * Symposium on Human Occupation in Protected Areas, Mahajanga Declaration *Antsirabe Symposium on local management of resources _3 regional priority-setting workshops Implementation *Computerized financial management * Monitoring and evaluation operational system ineffective *Computerized project management *Cumbersome procurement introduced and administration  - 8 - 3.6. Main strengths include the effective development of institutions and partnerships, high visibility and a substantial demonstration effect, both domestically and internationally, and effective field results (see above). Weaknesses were a slow and uneven take-off, insufficient program integration, consolidated monitoring not yet operational, and an as yet insufficient role given to environmental concerns when formulating policies that require hard choices, whether at the national or local level. The most important lessons which can be drawn from the first phase of the Environment Program, including the results of beneficiary assessment and other participatory processes that were carried out as part of EP2 formulation, concern the importance of impact evaluation, the overall environmental strategy, institutions, program scope and sustainability, and the importance of community involvement: 3.7. Impact evaluation. There has been no effort thus far at evaluating the impact of the policy framework on the environment-such as taxation of agricultural exports, the composition of public spending, or the investment regime. At the level of the operations, inadequate attention has been given to evaluating costs and benefits associated with environmental protection activities. For example, it is only very recently that ANAE started collecting the biophysical data necessary for evaluating on-site benefits associated with the introduction of more environment-friendly agricultural practices. However, systems to collect and evaluate data for estimating off-site benefits are yet to be developed. Similarly, not enough analysis has been carried out to evaluate benefits from proper exploitation of non-timber forestry products (e.g. medicinal plants, screening of plants for genetic engineering purpose), as well as the potential impact of ecotourism development. Developing this knowledge is critical not only to orient and prioritize environmental initiatives, but also to help formulate policies and examine the extent to which farmers should be subsidized to shift towards more environment-friendly agricultural practices. (1) Environmental management strategy 3.8. Depletion of Madagascar's natural resource base can be reduced by changing the enabling policies, institutions, incentives, and other conditions so that resource users have the authority to manage their own resources, and the responsibility and incentives to do so in a sustainable manner. Environmental outcomes are the by-product of land use management and production decisions. In the absence of a land management and agricultural production policy, there is no viable resource conservation policy, because the method by which people manage land and production options determines their use of the forest. In particular, the realization that biodiversity cannot be isolated from other environmental concerns has led to the development of a regional/local approach to biodiversity conservation under EP2 that would be complemented by agricultural and other income generating activities that also aim at improving the management of natural resources at the local level. Therefore, the environmental strategy needs to increase the emphasis on rural development and smallholder land management on farmland and open access lands, especially in the areas where population pressure is the greatest, which are often far from the protected forests and parks. This approach would be implemented within a context which fosters better integration and sectoral links with the ongoing decentralization process, rural development efforts and regional growth pole activities with a spatial definition beyond the narrowly defined peripheral zones of the protected areas. The design of the program takes into account the outcome of all this work. The EP2 would complement the activities undertaken under several agricultural programs (extension, research, irrigation, livestock) that are also aimed at improving the management of natural resources at the farm level; more generally, it would be a key part of a global development strategy that combines macro-  -9- economic stabilization, structural reform and the promotion of private sector investment and export-led growth. (2) Institutions 3.9. The first phase of the environment program involved the establishment of several new institutions. Building capacity within these new institutions has taken time - even more time than initially anticipated - and has absorbed much of the efforts of this program. Although the impact of this work is difficult to measure, it is clear that key results have been achieved: ONE (National Environment Office) is well established in its role as both a coordinating and policy formulation agency; ANGAP and ANAE have developed a clear vision of their mission and their business is growing. Now that the various agencies have reached their cruising speed, clarifying their roles and mandates vis-a-vis other Central Government agencies is essential; this has been spelled out in detail in a recently produced Manual of Inter-institutional Relationships (the outline of the manual is presented in annex 4). (3) Program scope 3.10. One central idea behind the design of the first Environment Program was to integrate all activities which support the environment into a single program - particularly those activities concerning biodiversity conservation, soil conservation and policy development. This integration helped foster priority-setting on a national scale and coordination of donor funding, as well as creating synergy between closely linked programs (e.g. improved land security as a means to improve soil, water and biodiversity conservation). However, another result of integrating all of these issues into the EPI was the creation of an operation that was relatively complex for new institutions to manage. In the second phase, the rationale for maintaining such an integration is still the same. In addition, there are further environmental concerns which the Malagasy would like to address (e.g. improvement of marine and coastal environment, and improvement of environmental policies and standards in urban areas), as a follow-up to research and policy formulation under EPI. It will be essential to keep improving the existing management mechanisms in order to maintain the Environment Program within the limits of the Government's ability to implement it. As sectoral programs increasingly take the environment into account, another challenge will be to determine which are the environment-related activities that would be better carried out within the context of sector programs and thus be left out of the Second Phase Program (EP2). (4) Sustainability 3.11. Inadequate attention has been paid to the financial sustainability of the country's environmental efforts. At present, about 90 percent of the costs of environmental management are financed by foreign development agencies. More specifically, the long term financial sustainability of some of the activities initiated under the EPI is not clear. This is particularly true for the Integrated Conservation and Development Projects, which have been started in some of the Protected Areas. Under its current economic situation, Madagascar cannot afford to protect its biodiversity patrimony alone. The expected global benefits lead to necessary cost- sharing with the international community, hence the opportunity to use GEF resources.  - 10- (5) Community involvement 3.12. Another very clear lesson learned in the course of the first phase, is the importance of working with the communities affected in the preparation and implementation of any activity. There has been insufficient recognition that environmental outcomes are the result of farmers' land use management and production decisions and that they hold the future of Madagascar's environment. Working with communities is the key. The ownership created when communities are involved increases the pace of implementation, the positive impact on the environment and the sustainability of this impact. This is now widely recognized in the country, and it is anticipated that all future programs will rely heavily on local participation, including beneficiary assessment. IV. THE SECOND ENVIRONMENT PROGRAM A. Concept, Rationale and Objectives 4.1. The Roots of Madagascar's Environmental Problems. At the root of Madagascar's environmental problems is the economy's failure to take off. Since Independence in 1960, misguided development policies have led per-capita GDP to decline by about half, the incidence of poverty to double, and most socio-economic indicators to decline. Madagascar is one of the few countries in the world where children will be less well educated than their parents. This situation is all the more tragic that Madagascar shares many of the characteristics of neighboring Mauritius or more distant Indonesia where effective development policies have been so successful at dramatically reducing poverty in less than a generation. Following the country's peaceful transition to a democratic regime in the early 1990s, there were great expectations that the country would adopt more growth-oriented economic policies and start reversing several decades of economic decline. This breakthrough has not yet materialized and the conditions necessary to stop poverty from spreading have yet to be established. Therefore, the vast majority (seventy-percent) of Madagascar's population (growing at over 3 percent per year) will continue to depend for its livelihood on low-productivity extensive subsistence agriculture-the main and most severe source of environmental degradation. 4.2. Root Causes of Biodiversity Loss. The GEF PRIF process clarified both the immediate and the root causes of terrestrial biodiversity loss in Madagascar which are essentially the same as those driving the overall spiral of environmental degradation. Expanding human populations using inappropriate agricultural technologies, including slash and burn, with little security of land tenure and few opportunities besides subsistence agriculture, are overexploiting existing agricultural and marginal lands and directly encroaching on forest areas in search of new land. Contributing to this is a breakdown in traditional regulatory mechanisms caused by increasing human migration within the country. These effects are further compounded by poorly regulated commercial exploitation of forests for timber due to weaknesses in central policies and institutions, and a failure to invoke the cooperation of all stakeholders, particularly those at local and regional levels. While existing protected areas are continually threatened by inadequate management, the major part of the country's biodiversity still lies outside statutory protected areas. Hence biodiversity loss is a direct consequence of forest loss. While coastal and marine sedimentation resulting from soil erosion is widespread, the impact of this on marine biodiversity is unknown. Currently the distribution, importance, status and threats to marine biodiversity as a whole are little known and understood.  - 11 - 4.3. The objectives of the program are to reverse current environmental degradation trends and to promote sustainable use of natural resources, including soil, water, forest cover and biodiversity. Another key objective is to create the conditions for environmental considerations to become an integral part of macroeconomic and sectoral management of the country. The program would be the second phase of implementation of the NEAP. It would continue and strengthen activities already launched under the first phase and initiate work in new areas where environment problems are important, as described below. The global environment objective of the GEF support to the Program is to curb the loss of globally significant biodiversity by slowing current environmental degradation trends, promoting the sustainable use of natural resources, and creating the conditions for environmental considerations to become an integral part of macroeconomic and sectoral management of the country. 4.4. The environmental program proposed in this document has to be understood as one that will endow the country with the capacity to manage its environmental resources more effectively and reduce the rate at which its natural resources are being depleted. It will not be able to stop environmental degradation altogether or to reverse it. This can only be achieved through an improvement in Madagascar's development performance. As in many other developing countries, the ultimate battle for Madagascar's environment will depend upon the economy's ability to intensify the use of land and develop non-agricultural sources of incomes. 4.5. The overall development hypothesis of the program is that depletion of Madagascar's natural resource base can be reduced by changing the enabling policies, institutions, incentives, and other conditions so that resource users have the authority to manage their own resources, and the responsibility and incentives to do so in a sustainable manner. The parallel hypothesis is that only through such an approach can the country's biodiversity and other natural resources be protected, in the context of rural poverty, political volatility and uncertain economic growth. 4.6. Resource sustainability requires changing behavior on the part of millions of Malagasy, including the way people perceive and manage resources - incorporating long term objectives into the short term calculus of resource users. It has been shown both here and elsewhere in Africa that this is possible to do, but it requires focusing on those enabling conditions that affect user behavior, and requires the flexibility to address the differences faced over the diversity of economic practices and ecosystems found in Madagascar. The battle to protect Madagascar's biodiversity will be won or lost on agricultural land away from the forest, because the battle in which rural populations are engaged is about production and land use, not about the environment. 4.7. In this battle, environmental outcomes are the by-product of land use management and production decisions. In the absence of a land management and agricultural production policy, there is no viable resource conservation policy, because how people manage land and production options determines what they do with the forest. Therefore, increased emphasis on rural development is required. This also requires patience, coordination among partners and a willingness to change as evolving circumstances merit. For that reason, the manner in which the environment program is planned and implemented - which emphasizes the building of sustainable institutional capacity among small businesses, local associations/NGOs and local officials through partnership programs - is a key element of the overall hypothesis. The EAP process itself becomes a key element of the success of the program. Some assumptions related to the development hypothesis include:  - 12 - => There is a strong link between choices on natural resources use, and between different stakeholders. => Getting enabling conditions in place will lead to improved natural resources management (NRM) use, and reduced depletion of NR. => A key risk is whether that will in fact protect endemic species sufficiently, given variables beyond the control of the efforts of donors and their partners, including the threat of unintended internal migration? => Two parallel tracks are evident: * Putting in place national-level enabling conditions, with emphasis on policies, analytic capability, financial sustainability, and economic growth incentives. * Testing local/regional multi-resource partnership strategy with emphasis on growth poles in target regions which is aimed at reducing pressure on regional protected and environmental sensitive areas. 4.8. Biodiversity Areas and Conservation Priorities. Madagascar possesses a network of 39 protected areas, with 5 more in the process of classification. These 44 protected areas, covering a total area of around 1.4 million ha or 2.3% of the total land area, are divided into 9 national parks (5 existing ones and 4 under creation), 11 integral natural reserves and 23 special reserves (some protected areas are made of two parts with different status), all of them terrestrial (see Annex A and Map). The Government also intends to classify a small number of marine areas into national parks. In addition, around 15% of the territory is still covered by biodiversity-rich natural forests. To fully elaborate the conservation lessons learned in EPI, a GEF PRIF financed a participatory process for the design of the biodiversity elements of the Second Environment Program Support Project (EP2). The GEF preparatory activity involved two stages. The first stage was a scientific priority-setting workshop followed by the second stage, a participatory priority-setting process which integrated both scientific findings and local stakeholder priorities. The scientific workshop followed a methodology established for the Amazon and other key biodiversity areas. It assembled over one hundred of the foremost authorities on the biodiversity of Madagascar. These specialists defined priority areas for eight species groups and identified historical patterns of habitat loss and current human pressures. Through a participatory process, the workshop elaborated an integrated set of geographic priorities for biodiversity conservation and research. Through a so-called Participatory Process to Define Options and Priorities (PPDOP) in natural resource conservation, this scientific output was then taken to the stakeholder level to evaluate possible solutions, institutional needs, and conservation approaches. The scientific priority-setting process found that over half of the highest priority research and conservation areas lay outside of parks and reserves (see Annex B on gazetted forests). The stakeholder consultations revealed the need to work with communities to manage forests and to develop a more decentralized approach to solving environmental problems. 4.9. Anticipated Global Environmental Benefits. EP2, and particularly the GEF supported components, will help conserve Nliad1ga.'car' S minique biological diversity. Madagascar has higher numbers of endemic species, more higlher-order endemism and more genetic information per unit area than perhaps anywhere on earth. This fact more than any other pushes Madagascar to the top of the global conservation priority list. A hectare of forest lost in Madagascar has a greater negative impact on global biodiversity than a hectare of forest lost virtually anywhere else on the planet.  - 13 - 4.10. GEF Operational Programs. Given the national scope of the EP2 and the range of ecological conditions in the country, the GEF project covers all four groups of focal ecosystems identified in the GEF Operational Strategy for Biodiversity. Due to the global biodiversity importance and extent of forest ecosystems in Madagascar the GEF project has a particular emphasis on these. Its second emphasis is on the relatively little known biodiversity of the coastal and marine systems. The GEF project will also address the unique semi-arid ecosystems of south-west Madagascar and, in that Madagascar's mountains are forest covered, Madagascar's mountain ecosystems. The activities to be carried out under the GEF project cover the full range of activities for both in-situ conservation and sustainable use that are suggested in the GEF Operational Strategy including protected areas, land use and resource management regimes, policy and institutional strengthening, stakeholder involvement, and inventory where the nature of biodiversity is currently unknown. 4.11. Specific GEF Project Objectives. The GEF funding will support a well-defined subset of activities within the overall EP2. Specifically the GEF objective is to extend the EP2 program to ensure that the root causes of the loss of globally important biodiversity are fully addressed. To meet this objective, GEF will support activities which contribute clearly to reducing the loss, and improving the sustainable use, of globally significant biodiversity, and which are beyond the resources of Government and other donors. These will fall under the following categories: (i) management of multiple-use forest ecosystems; (ii) management of protected areas including ecotourism; (iii) management of the coastal and marine environment; (iv) regional programming and local resource management; (v) formulation and communication of environmental policies, strategies and instruments; and (vi) biodiversity inventory and training in biodiversity management. 4.12. Environmental management strategy. Depletion of Madagascar's natural resource are the by-product of land use management and production decisions. In particular, the realization that biodiversity cannot be isolated from other environmental concerns has led to the development of a regional/local approach to biodiversity and other natural resources conservation under EP2 that would be complemented by agricultural and other income generating activities that also aim at improving the management of natural resources at the local level. Therefore, the environmental strategy needs to increase the emphasis on rural development and smallholder land management on farmland and open access lands, especially in the areas where population pressure is the greatest, which are often far from the protected forests and parks, requiring strong sectoral links from the protected areas to the regional growth poles. This approach would be implemented within a context which fosters better integration with the ongoing decentralization process, rural development efforts and regional growth pole activities with a spatial definition beyond the narrowly defined peripheral zones of the protected areas. The design of the program takes into account the outcome of all this work. The EP2 would complement the activities undertaken under several agricultural programs (extension, research, irrigation, livestock) that also aim at improving the management of natural resources at farm level; more generally, it would be a key part of a global development strategy that combines macro-economic stabilization, structural reform and the promotion of private sector investment and export-led growth. 4.13. Beneficiaries and target group. The main beneficiaries of the programme would be mostly households chronically food insecure, landless households, and stock-less households. Particular attention would be paid to farm and non-farm households generating their livelihood from local resources, which socio-economic studies have indicated are a rising percentage of the local population (including landless households exploiting local labour markets and production  - 14 - opportunities in non-agricultural activities -- including processing and trading). This particular segment of the population has been fully identified and quantified under existing and ongoing IFAD projects. It is understood, therefore, that the current project which does not lend itself to traditional IFAD targeting would rely mostly on existing IFAD activities. These existing projects would be mainstreamed into EP2 which has a national coverage and therefore aim at the same population. 4.14. Program design. The program was initially focused on sub-sector objectives, resulting in a set of sixteen relatively independent "vertical" components. In parallel, a process of problem analysis with a regional and local perspective was developed (PPDOP - see above), together with work on the formulation of a number of key policies, namely decentralization and local management of natural resources, as well as on the need for mechanisms to promote synergy - both between EP2 activities and more generally with other development programs. The synthesis of all these elements led to some restructuring of the initial proposals and to the introduction of some new components at regional level, as well as to the formulation of detailed proposals for the annual programming process. Significant adjustments to the scope of the program and to the size of some components were introduced as a result: the scale of the watershed management and of the forest management components was significantly reduced on the basis of less ambitious targets; the scope and cost of the urban component and of the proposal on prevention of natural catastrophes were cut down; most support activities were also scaled down; the marine component was broadened up, and a Regional Fund was introduced. A key conclusion is that biodiversity conservation is not a component, but cuts across all activities. Proposals for Bank and GEF participation to the Program were defined during the process. 4.15. Gender issues. Men and women play a different role in the way people manage their natural resource base. Although all the components of the EPI include activities that are specifically benefiting women, the analysis carried out as part of appraisal indicates that a more pro-active approach was warranted. A working group has been set up, that has identified four areas of focus, and corresponding objectives and monitoring indicators are under development. They are: (i) the importance of women in the staff of the various implementing agencies; (ii) the need to carry out a specific analysis of the role of women when formulating many of the activities of the Program (e.g. ANAE's mini-projects, forest management plans); (iii) the need to promote active female participation to the formulation of all program activities and to improve their access to education opportunities; and (iv) the need to actively promote the development of women's organizations, both in rural and urban areas. 4.16. The IDA's Country Assistance Strategy for Madagascar was discussed by the Executive Directors on July 12, 1994. The Bank Group's overarching objectives in Madagascar are to help the government promote private sector-export-led growth, attack poverty, improve natural resource management, build local capacity and improve project implementation. The proposed project is consistent with the country strategy and contributes to meeting most of the foregoing objectives. The Bank has played a leading role since 1987 in the formulation and implementation of the NEAP. Continued involvement is essential to sustain the Government's commitment to difficult and critical changes in its public investment program, including by promoting the transition from projects to programs, and to mobilize the support of other donors. The Bank has also a key role to play in helping the country to mobilize GEF financing in relation with the global nature of the benefits that are expected from improved biodiversity protection. 4.17. The involvement of IFAD would help the program to capitalize upon experience gained under IFAD-funded agricultural development projects, and contribute to strenghten a poverty-  - 15 - focused, client-led approach to conservation into both the national policy and institutional framework. Hence, IFAD participation comes as a suitable instrument for poverty alleviation and improvement of the welfare of the rural poor. Finally, the programme's strong emphasis on beneficiary participation in design as well as implementation is well in line with the Fund's basic strategic approach in Madagascar. Poverty alleviation would be more effective if approached within the broader context of a national integrated programrne aiming at long-term sustainable growth through proper and effective management of natural resources, and the present program constitutes an appropriate entry point for IFAD to move gradually away from area based projects towards national programmes, in coordination with other donors mainly the World Bank. 4.18. Rationale For GEF Financing. Madagascar is without doubt one of the world's most important biodiversity countries. Although not as species-rich as some other countries in the Afro-tropical Realm, its exceptional levels of plant and animal endemism make Madagascar the country with sole responsibility for safeguarding some of the world's most interesting biodiversity. The discrepancy in Madagascar between threats to globally-significant biodiversity and government capacity to address them is unparalleled. Six years of concerted government and donor effort has made significant progress, but major support is still needed. Full implementation of these initiatives will only be possible with GEF funding. 4.19. The GEF contribution to EP2 is eligible for GEF funding in line with all four operational programs under the Operational Strategy for Biodiversity. In accordance with article 8 of the Convention on Biological Diversity the GEF project will address in situ conservation through support to protected areas and sustainable use across four major ecosystems: coastal, marine and wetlands; forests; mountains; and arid and semi-arid lands. The GEF project is a national priority as identified in the NEAP and conforms with COP guidance to support conservation and sustainable use of ecosystems and habitats and endemic species. It will promote sustainability through demonstration projects and innovative measures to strengthen local community involvement and integrate conservation and sustainable use with regional development programs. GEF funding is incremental and requested for only a small part of a holistic national plan that will address a comprehensive Madagascar-wide program, supported by all major donors, to protect the environment and promote sustainable development 4.20. The GEF contribution to EP2 will lay the groundwork for new approaches addressing root causes of biodiversity loss in the country. It will build integral components of biodiversity conservation into revitalized forestry institutions and strengthen the administration of protected areas. Finally and most importantly, it will build consideration of biodiversity into on-going national programs aimed at decentralizing the management of natural resources. GEF inputs are essential in overcoming the transaction costs of putting these new systems in place while maintaining ongoing conservation efforts. B. Status of Program preparation 4.21. Participatory approach to Project Processing. The process of formulating the second phase program is being carried out entirely by Malagasy agencies. The initial participatory process, during the period June-December 1994, resulted in the preparation of an identification report that was discussed at the December 94 meeting of the program's Steering Committee (COS: Comite d'Orientation et de Suivi). Detailed preparation work was completed in November 1995, resulting in a report for each of the proposed sixteen components, plus a two volume  - 16- synthesis. In addition, four other groups of reports were made available to the multi-donor appraisal team, covering: (i) the outcome of the recently carried out Beneficiary Assessment of all EPI activities; (ii) the results of the international scientific workshop on biodiversity; (iii) the results of the Participatory Process (PPDOP); and (iv) the outcome of three regional priority setting workshops carried out in November 95 in Toamasina, Antsiranana and Toliara. Finally, a formalized institutional capacity analysis of ONE was carried out in March-April 1996, and similar ones for ANGAP, ANAE and DEF are scheduled to take place before end- 1996. 4.22. The appraisal process. A multi-donor pre-appraisal mission took place in June-July 1995, and full program appraisal took place end-November 1995, involving ten donors, four international NGOs and all Malagasy agencies (mission composition is given in annex 2. The team was structured in four groups, each one led by a different donor and two national counterparts. The work was structured into thirty two tasks (components or specific themes), and for each one a group of national and external experts has been assembled. Overall, some highly motivated 150 people have been working full time for three weeks. Everybody acknowledged that an exceptionally good team spirit developed during the process, which has allowed to reach a consensus on the priorities, strategies, scope and content of the EP2. Two follow-up multi- donor missions took place in March-April and June-July 1996, formal IDA appraisal being carried out as part of the latter. Strong emphasis is being put on participatory preparation and appraisal, integration of activities into one single program to ensure proper balance between components, and compatibility with the country's overall PIP. C. Summary description 4.23. The program will essentially pursue, improve and expand the priority activities that were initiated under EPI by incorporating the lessons learned and adding selected new components. As stated in the Government Policy Statement presented in annex I 1, the program emphasizes decentralization and local management of natural resources, particularly forests, as well as mechanisms to promote synergy - both between EP2 activities and more generally with other development programs. The program has three sets of components: field operations; strategic activities; and support activities, as described in the diagram below. 4.24. Implementation will be carried out by the various line agencies that were set-up during the first phase. High level policy guidance will be entrusted to a National Environment Council, under the Presidency of the Republic. Policy level coordination will be the responsibility of an Interministerial Environment Committee. Operational level coordination will be carried out by ONE. At field level, all activities would be managed with strong local participation. 4.25. Total program cost is currently estimated at US$ 155 million (including taxes and contingencies). Such a cost is comparable to the cost of EPI (US$ 150 million, most of it net of taxes). The level of pledges made by the different donors is US$ 108.5 million, in addition to US$ 15.5 already financed. Assuming that Government would finance about US$ 31 million (4 million taxes, 8 million net-of-tax financing, and 19 million through tax exemption against external grants), the financing gap stands at US$ 5 million. It would be covered either by additional financing expected from some donors (e.g. Japan, Norway) or by scaling down the program. The country's commitment to such a large program would need formal confirmation, in the form of a "program-law". The law would be presented to the Parliament during its Autumn 96 session.  - 17 - EP2: Program structure Field Operations Strategic Forest Protected Soil & Marine / Activities Manag.nt Areas Water Coastal Ecotourism Manag.nt Urban Strategies Policies Capacity building Instruments Regional programming and local managemen Environmental Regional Regional Support to Impact Support Fu nd Local Manag. Assessment Support activities EP2 Multi-donor Appraisal Team D. Detailed description 4.26. The program is defined as three sets of components, corresponding respectively to field operations, strategic activities and support activities, as follows: -. Field Operations would fall under two categories: 1. Specialized Sub-sector Activities: 4.27. Corresponding to about eighty per cent of program cost, these activities would be geared towards improved management of natural resources, including soil, water, forest and biodiversity, and would include: * Sustainable Soil and Water Management; US$ 43.5 million (ANAE: 30.5; Ankarafantsika: 7.3, already financed; other watersheds: 5.7): Following the model developed under the EPI, ANAE would continue its decentralization process, expand its regional coverage and implement about 4,000 mini- projects under EP2. ANAE would keep expanding its current role, acting both as a funding and contracting channel responding to locally felt needs in matters of soil conservation and erosion control and as a soil conservation and rural development diagnostician. In addition to direct interventions based on the current demand-driven approach, ANAE would also design and develop the coordination linkages between the many villages concerned so as to resolve watershed-wide issues. The focus would be on demand-driven,  - 18 - low-cost and locally adapted intervention that can contribute to spontaneous adoption of improved practices by other farmers (multiplier effect). In addition, specific watershed management operations would be developed, either in cases where major investments need to be protected (Ankarafantsika and the Marovoay Plain; Mantasoa and Tsiazompaniry and the Antananarivo Plain; Taheza and the Ambahinakoho dam; Lokoho and the Andapa Plain) or on a small scale pilot basis (continuation of the work undertaken with FAO support on four watersheds in the Antananarivo Region). No GEF funds will be allocated to this component. IFAD will contribute US$7.1 million to the financing of ANAE's mini-projects. Multiple-use Forest Ecosystem Management; US$ 29.9 million: New forestry policies have been formulated under the EP I, through a decentralized and highly participatory consultation process. The resulting strategy is to give back responsibility to local communities for the management of natural resources. Under EP2, a number of gazetted forests and community forests would be put under sustainable management. The process would include the following steps: (i) completion of the national ecological forestry inventory, and reconnaissance survey in the various regions in order to firm up the original list of forest blocks, as well as to identify new protected areas (300,000 ha); (ii) completion of on-going pilot forest management schemes (180,000 ha); (iii) participatory formulation of management plans, involving neighboring communities and the Forest Service (400,000 ha); and (iv) implementation phase, i.e. management of the forest for multiple use, in accordance with the management plan (150,000 ha under EP2, continuation under EP3). The total of 580,000 ha would correspond to about 8% of the forest cover of the country of about 8 million hectares, of which about four million hectares of gazetted forests. In order to ease pressure on the natural forest, the program would also encourage farmers and private enterprises to plant more trees, through land use planning and technical advise. Implementing such a program would also require reorganization as well as significant capacity building of the Forestry Service. In this framework, GEF funding of US$ 5 million will support the expansion of current government programs to empower sustainable community management of biodiversity rich forests outside the existing park and reserve system. Specifically, GEF will contribute to: (i) System wide planning and the identification and zoning of new protected areas, on the basis of the results of on-going inventory work; this will help ensure the appropriate definition of forest functions as either primarily production, watershed protection, or biodiversity protection. This will be achieved through long- term technical assistance in biology and land use planning and short-term technical assistance in the identification of new protected areas. (ii) Planning and implementation of sustainable community-based forestry management schemes in regions of key biodiversity importance (Annex B). (iii) Training offorest service staff and other human resources development,  - 19- to meet the challenge of incorporating biodiversity concerns into community forest management. Government human resources to work with communities will be strengthened, based on a review of human resources needs. And (iv) Development of sustainable use and harvesting regimes for non timber forestry products, including ecotourism and marketing of NTFPs, to give communities greater incentives to conserve standing forest. * National Parks and Ecotourism (CAPE); US$ 43.1 million (including the continuation of several ICDPs - Integrated Conservation and Development Projects - already under implementation): In continuation of the work already developed under EPI, the objectives during the EP2 would be to: (i) complete the establishment of the network of protected areas (39 areas, 21 of which are already well advanced under EPI), through survey work, proper delimitation and legal action; (ii) provide infrastructure, equipment and staff to ensure effective conservation; (iii) promote ecotourism development; (iv) carry out applied conservation research programs in order to establish and monitor proper ecological indicators; (v) promote environmental awareness and strengthen environmental education. The network would be made of eleven National Parks or Integral National Reserves, and twenty eight other protected areas, for a total of 1.4 million hectares. The ICDP approach would be progressively replaced by the generic regional support mechanisms presented below. ANGAP would progressively take over direct management of the network from ICDPs operators. This would require a change in the formal mandate of ANGAP. Under CAPE, GEF funding of US$ 7.8 million will support management planning, equipment and operations at a number of parks and reserves which harbor globally significant biodiversity and which would otherwise receive no management because of resource scarcity and low ecotourism potential. Other donors will support transfer of field management to ANGAP for all 11 level-A areas' and the establishment of management at 4 of the 19 level-B and 5 of the 8 level-C reserves. GEF will support management plans for the remaining 15 level-B areas and 3 of the 8 level-C areas (See Annex A), through: (i) Management plans for 8 currently unmanaged or partially managed protected areas. Model management plans will be prepared, based on a review of existing management plans for areas under similar pressure; (ii) Management Assistance. Equipment, infrastructure, human resources development and technical support will be supplied for the implementation of management plans in 19 protected areas; (iii) Operating and Administrative Costs. (iv) Analytical work to support policy reform on tourism taxation: the government currently has no policy on tourism concessions that would allow concession revenues from tourism services near protected areas to return for protected area operating costs (it has been proposed that tourism services within a certain distance radius of a protected Level-A areas have been selected because of their high ecotourism potential; level-B areas face high pressures but have little ecotourism potential; level-C areas face lower short-termn pressures and have little ecotourism potential, but are of equally high biodiversity significance.  - 20 - area would be subject to concession fees which would return to the protected area to help defray management costs). * Marine and Coastal Environment; US$ 6.6 million: work would proceed in parallel at two levels: (i) national level: formulation of coastal zone management policies, legal framework and master plan; and (ii) design and implementation of management plans at local level, initially in the Nosy Be and Toliara areas, and formulation of recommendations for a new generation of marine parks in Madagascar. Defining long term institutional arrangements would be one of the outcomes of this component. In the mean time, the activities would be coordinated by a steering committee (ECOMAR) and managed by a small unit within ONE. GEF funding of US$ 2 million will support a field inventory of coral reef ecosystems, concentrating on the rich reefs of the western and southern coasts, the identification of critical sites, the establishment of local level management at additional sites (the most threatened, highest diversity ones), and the formulation of recommendations for a new generation of marine parks in Madagascar. * Urban Environment; (cost included in other components - no GEF funding required): the urban environment activities included in the program are presented here for clarity, but are actually included under other components described below. The activities would include: (i) the integration of environmental concerns into urban development policies, including the updating of the Urban Code; this activity would be carried out as part of the Strategic Activities component (Policies-Strategies- Instruments); (ii) support to urban management activities by communities and local Governments, included as part of the AGIR component. A Steering Committee would be established to pilot urban-related activities; its secretariat would be within ONE. 2. Regional Programming and Local Management (AGIR). 4.28. Generic mechanisms at regional and local level would support regionalization of programming and local management of natural resources, through the following three components: * Support to Local Natural Resource Management and Land Tenure Security: US$ 6.9 million from non-GEF sources: the two objectives are (i) to enable transfer of management rights on public land, on a voluntary basis, from the state to village communities and to clarify the various land tenure rights in these villages; and (ii) redefine land management policies for the longer term. The first objective would be met by: (i) setting-up the appropriate legal and regulatory framework; (ii) creating a body of environmental mediators to facilitate the dialogue between state representatives and villages; (iii) training environmental mediators; (iv) building the capacity of the land-tenure administration (Direction des Domaines); and (v) implementing the scheme at the level of 150-200 villages, by mobilizing operational teams which include a mediator,  - 21 - technical specialists and surveyors. During the initial phase (two or three years), ONE will directly manage the entire process. Beyond this initial phase, the operational teams will be contracted directly by sub-sector components in answer to villages request. To meet the second objective, the country would carry out a comprehensive participatory process (at national and decentralized levels) aiming at reassessing land use right policies and developing consensus on the necessary evolution of public land management (particularly in relation with decentralization). The expected outcome of this last process would be a revised Land Law (Code foncier). * Support to Regional Programming and Spatial Analysis; US$ 4.3 million, of which US$ 3.0 million would be provided by GEF: six small regional technical units would be established to provide support to EP2 Regional Programming Committees (RPCs), in the form of visiting experts and full-time secretariat, for program management, for technical analytical work (e.g. watershed management, ecological corridors, urban environment problems) and for the formulation of local environmental strategies and sub- projects for financing by the Regional Fund presented below. AGIR essentially establishes a new mode of addressing the root causes of biodiversity loss and other natural resources degradation in Madagascar, which grew out of the participatory design of the program.