GLOBAL ENVIRONMENT FACILITY 1 3541IPC- Republic of Peru National Trust Fund for Protected Areas Project Document March 1995 THE WORLD BANK GEF Documentation The Global Environment Facility (GEF) assists developing countries to protect the global environment in four areas: global warming, pollution of international 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 Division Enviroinient Department World Bank 1818 H Street, NW Washington, DC 20433 Telephone: (202) 473-1816 Fax: (202) 522-3256 Report No. 23540-PER Republic of Peru National Trust Fund for Protected Areas Project Document March 1995 CURRENCY EQUIVALENTS Currency Unit=New Sol US$1.0 = 0.4576 New Soles US$1.0 - 1.6044 Deutsche Mark WEIGHTS AND MEASURES The metric system is used throughout the report FISCAL YEAR January 1 - December 31 GLOSSARY CIDA Canadian International Development Agency DGAPFS Directorate General of Protected Areas and Wildlife (Direccion General de Areas Protegidas y Fauna Silvestre) FONANPE Trust Fund for the Conservation of Peru's Protected Areas (Fondo Nacional para Areas Naturales Protegidas por el Estado) GEF Global Environment Facility GET Global Environment Trust GOP Government of Peru GTZ Deutsche Gesellschaft fuir Technische Zusammenarbeit GmbH INRENA National Institute of Natural Resources (Instituto Nacional de Recursos Naturales) NGO Non-Governmental Organization PROFONANPE The entity created as a not-for-profit entity of public interest but under private law to administer the assets of PROFONANPE (Pro Fondo Nacional para Areas Naturales Protegidas por el Estado) SINANPE National System of Natural Areas Protected by the State (Sistema Nacional de Areas Naturales Protegidas por el Estado) TC Technical Commnittee This report is based on the findings of an appraisal mission which visited Peru in August, 1994. Mission members were Messrs./Mmes. Claudia L. Alderman (mission leader). Alberto Ninio (Envirornental Lawyer), Bemardita Zapata (consultant, financial issues), Mark Cymrot (consultatit, legal iss i). Ms. Michele de Nevers (LA2EU) was the peer reviewer. Other people who contributed to the project preparation wt . Messrs./Mmes. Christine Kimes, GEF coordinator, Kathleen Mikitin (ENVGC) and Jainison Suter (consultant). Mr. Rudl IfVan Puymbroeck (LEGLA) provided legal advice, and Mr. Francisco Tourreilles provided advice cn financial miatters. The GEF outside technical reviewers were Messrs./Mmes. Norman Myers, John Terborgh and Margaret Symington. Messrs. Yoshiaki Abe and Nicholas Krafft were Department Director (LA3DR) and Division Chief (LA3NR) respectively. April 26, 1995 12:01pm Part I: Project Summary PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS GRANT AND PROJECT SUMMARY Source of Grant: Global Environment Trust (GET) Grant Recipient: The Republic of Peru Beneficiaries: Designated Peruvian National Parks and Reserves Amount: SDR 3.5 million (US$5.0 million equivalent) Total Project Cost: US$6.361 million (five-year pilot phase) Terms: Grant Financing Plan (five-year pilot phase): GET Grant 3.5 SDR (US$5.0 million equivalent), for investment capital for the trust fund FONANPE US$1.361 million, interest income from trust fund Economic Rate of Return: Not applicable Map: IBRD 2501OR ESTIMATED GRANT DISBURSEMENTS BY YEAR (US$ '000) World Bank FY95 FY96 FY97 FY98 FY99 Fiscal Year Annual 5.0 0 0 0 0 Cwnumlative 5.0 5.0 5.0 5.0 5.0 PERU NATIONAL TRUST FUND FOR PROTECTED AREAS 1. Country/Sector Background. Peru ranks as one of the biologically most important countries in South America, and among the handful of megadiversity countries in the world. It contains a higher proportion of the species-rich forests of Western Amazonia and the tropical Andes than any other country. Peru has an estimated 19 percent of the bird species, 9 percent of the mammals, and 9 percent of the amphibians in the world. The Peruvian Amazon contains an extraordinary assemblage of species: in the Iquitos area in northern Peru, for example, a single hectare of tropical rain forest has been found to contain 300 species of trees, by far the highest heterogeneity on Earth, for such a small land sample. Two of Peru's large protected areas, Manu Biosphere Reserve and Tambopata- Candamo Reserved Zone, contain the world's highest recorded diversities of birds, mammals, reptiles, amphibians, freshwater fishes, vascular plants, trees, butterflies, and invertebrates. 2. Peru's unique biodiversity, however, faces threats. The most important of these stem from the deforestation resulting from several decades of spontaneous and government-promoted colonization of mountain slopes in the eastern Andes and in tropical and temperate inter-Andean valleys. Although over ninety percent of the Amazonian lowlands of the country are still forested, some large vertebrates and valuable timber species are now confined to an estimated 30 to 40 percent of Peru's Amazon. 3. The government recently eliminated many of the distortionary economic incentives that made colonization of its Amazonian lowlands attractive to Peruvian subsistence farmers. In late 1990 the Peruvian Congress passed an environmental code that contains several conservation provisions, including the positive step of abolishing legislation which provided incentives for colonizing Amazonia. Furthermore, the code requires the preparation of an environmental impact statement for any development activity in Amazonia -- whether public or private. Recently, legislation has also been passed requiring environmental impact assessment for mining, fishing and industrial development investments. Despite these legislative efforts, however, the government may have difficulty slowing the colonization of the Amazonian lowlands. After a decade of severe economic and political crisis, Peru is significantly reformulating its policies, setting the stage for economic recovery. It has succeeded in drastically reducing the inflation and terrorist activity that crippled the nation until very recently. These changes can imply a large influx of tourists and, more importantly, increased investment to exploit Peru's natural resources, both of which pose real threats to the country's biological wealth. 4. These problems, however, have not yet directly damaged the integrity of Peru's vital sites of biodiversity. Peru has managed to set aside more than 6 million hectares of wet, moist, and dry tropical forest in national parks, reserves, and sanctuaries throughout the country. Moreover, the legislation related to protected areas in Peru is comprehensive and sound. In 1993, the government established the National Institute of Natural Resources (INRENA), bringing together the expertise of all Peruvian public agencies involved with the management and conservation of Peru's natural resources. Peru's legislative and institutional efforts notwithstanding, the Government of Peru (GOP) has been unable to devote sufficient resources to its conservation areas. It cannot afford to develop or implement a coordinated national management plan for protected areas. Conservation efforts have thus been haphazard. Only four national parks receive any management services through INRENA; the other protected areas have no permanent management personnel. The 1991 Tropical Forestry Action Plan reported that the park system employs 110 park guards for 5.5 million hectares, or one guard per 50,000 hectares. This index is only one among many that may be construed to indicate the severe deficiency of administrative and managerial inputs. Moreover, because of low salaries and lack of job security from budgetary fluctuations, the Peruvian park system has been unable to attract and retain qualified personnel. 5. Project Objectives. The project has four major objectives, to: (i) provide a long term and predictable source of funding for the protection of Peru's biodiversity through the establishment of a trust fund, the income of which would be used for financing the management of priority protected areas; (ii) improve INRENA's capacity to protect and manage Peru's protected areas; (iii) provide the country with a reliable institutional mechanism to channel debt donations for sustainable development and conservation through bilateral and commercial debt-for-nature swap agreements; and (iv) test the viability of trust funds as mechanisms for providing long term and sustainable funding for biodiversity conservation. 6. Project Description. Peru's government is committed to developing innovative mechanisms which would guarantee the appropriate management of Peru's protected areas and biodiversity. To this end, in December of 1992, the GOP created by Decree Law the Fondo Nacional para Areas Protegidas por el Estado (FONANPE), as part of a trust fund mechanism designed to provide long- term, sustained funding for Peru's protected areas. At the same time, the government created PROFONANPE as a not-for-profit institution under private law to manage the fund and to direct the use of its investment proceeds. In anticipation of the GEF grant, and on the bases established by the preparation of this project, PROFONANPE started operating in June 1993 under a grant from the German technical cooperation agency, the Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH (GTZ). During its first year, PROFONANPE has strengthened itself as an organization by conducting an institutional strategic planning exercise involving a dozen NGOs, has developed criteria for managing its small grants program, has issued requests for proposals, and has negotiated Peru's first debt-for-nature swap. 7. To support PROFONANPE, the Global Environment Trust (GET) would provide SDR 3.5 million (US$5.0 million equivalent) as seed money for the Peruvian trust fund. In keeping with the GEF's goal of using its resources to leverage additional funds, the GET grant would be complemented by a parallel grant of US$1.5 million from GTZ. While the German grant does not form part of the capital of the trust fund per se, this contribution will help to consolidate and strengthen the GOP's capacity to coordinate all Peruvian conservation efforts and will lay the basis for the conservation activities supported by the trust fund. Moreover, GTZ's contribution will provide essential operational funds during the pilot phase of PROFONANPE until the trust fund reaches a sufficient size for the income to sustainably finance the project activities with its own income. 8. The by-laws governing the operation of FONANPE were drafted by a working group comprised of representatives from the GOP and from seven Peruvian conservation NGOs. This group also developed criteria for selecting the protected areas which would be initially supported by the project. These criteria include: (i) the global importance of the area for biodiversity conservation, in terms of species diversity and endemism; (ii) the relative feasibility of management; and (iii) the degree of environmental impact resulting from human activity. Although several protected areas meet these criteria, given resource constraints, three priority areas were selected for initial support by the trust fund: Manu National Park and Biosphere Reserve, Rio Abiseo National Park, and Noroeste Biosphere Reserve (composed of the Cerros de Amotape National Park, Coto de Caza el Angolo, Bosque Nacional de Tumbes and Manglares de Tumbes National Sanctuary). As the trust fund's capital increases through additional contributions, other protected areas would be integrated into the program, based on the criteria described above and on the Master Plan for National Protected Areas currently being developed under the auspices of GTZ. 9. The income generated by the trust fund (estimated conservatively at US$ 1.361 million for the first five years) will be used to finance a variety of conservation activities in the selected areas and their buffer zones. Schedule A provides a summary of the project costs, and Schedule B contains the procurement and disbursement arrangements for the project. The activities eligible for funding include: * Financing the recurrent costs of protected area management (mainly staff salaries and operating expenses) * Drafting, revising and implementing management plans * Establishing and managing buffer zones * Training professionals in park and wildlife management * Instituting environmental education and public awareness programs for communities associated with protected areas * Implementing projects that integrate conservation and development to benefit the communities living in the protected areas and their buffer zones * Institutional support for the strengthening of the field work of INRENA's Directorate General of National Protected Areas and Wildlife * Administrative expenses of PROFONANPE 10. The complementary activities financed separately by GTZ include: (i) support to INRENA in the form of infrastructure, equipment and training; (ii) development of a master plan for the management of all protected areas in the country; (iii) hiring of consultants to provide technical support to INRENA; (iv) institutional building and operational costs of PROFONANPE; and (v) a two-year program of small grants for NGOs to support sustainable development and conservation projects. This program will be managed jointly by PROFONANPE and GTZ. 11. Project Implementation. PROFONANPE is governed by a Board of Directors, composed of three representatives from the Peruvian government, three representatives from Peruvian conservation NGOs elected by the Peruvian Environmental Network, and a representative from an international cooperation agency (initially the GTZ). One of the government representatives will assume chairmanship of the Board. PROFONANPE's Board will meet at least twice a year to review project progress and to decide policy issues. The Board will additionally meet as needed to review the reports of the project coordinator and of the managers of the protected areas and the auditors, as well as to approve the annual work programs and budgets proposed by each protected area, and to carry out other responsibilities as specified in PROFONANPE's bylaws. 12. Day-to-day project management and administration would be carried out by a professional Project Coordinator appointed by the Board. The Board will be advised by an independent Technical Committee (TC) composed of scientists and natural resource management experts experienced in park and wildlife management and other disciplines relevant to program activities. A subset of this committee will be comprised of financial experts and will advise PROFONANPE on its financial investments. The TC would also be responsible for developing criteria for project monitoring and evaluation, and for conducting an annual evaluation on the performance of the asset manager. The - 4 - TC is an additional forum in which relevant conservation NGOs can contribute substantively to the project. 13. The allocation of resources within each protected area will be determined by PROFONANPE's Board of Directors on the basis of an annual work program prepared by the Project Coordinator. The work program will be based on an analysis of the requirements and needs of each area, made jointly by INRENA and PROFONANPE's Coordinator. Given the project's commitment to a community-based, participatory approach to conservation, the needs assessment will be made in consultation with each protected area's administrative officer, local committees (where they exist), park officers, grassroots organizations and local communities. Each work program will include a statement of specific objectives for the year and a description of activities to be undertaken in order to achieve those objectives. 14. The fund's assets would be managed by a Peruvian investment bank, according to investment objectives and guidelines specified in section IV of the attached Technical Report and recorded in the Project Agreement. These guidelines specify the investment risk profile and the acceptable trade-offs between growth of the total value of the investment capital and the stability of annual income flows. Part of the investment income generated each year would be spent to finance conservation activities in Peru, while a predetermined amount of the income would be reinvested to maintain the real value of the principal. 15. The utilization of the funds for the program during the five-year pilot phase will be reviewed during Bank supervision. Upon final evaluation of the performance of PROFONANPE, the Bank would cease its formal involvement with the project. However, if FONANPE is dissolved for whatever reason, or if it becomes evident, even after GEF's involvement in the project has ceased, that FONANPE's funds are being used for purposes other than biodiversity conservation, the Bank, as Trustee of the GET, would be entitled to obtain the repayment of the amount so spent. Also, the Bank as Trustee of the GET would be entitled to seek repayment for any expenditures that are not consistent with the terms of the Grant and Project Agreements. 16. Project Sustainability. The recurrent cost financing mechanism supported by this project provides built-in continuity of hard currency funding, under management arrangements which depend little on the constrained Government budget or adverse macroeconomic conditions. At the same time, PROFONANPE has proven to be an attractive vehicle for raising additional funds internationally. 17. Lessons From Previous Bank Involvement. There has been no previous Bank involvement in sectors relevant to this project in Peru itself. Experience in other countries has shown, however, that failure to intervene would result in progressive degradation of vulnerable habitats. Under the Global Environment Facility (GEF) there are several similar trust fund projects currently under preparation. These include the Foundation for Eastern Carpathian Biodiversity Conservation, the Bwindi Impenetrable Forest Conservation Trust in Uganda, and the Congo Wildlands Protection Project. The only other such project under implementation is the Bhutan Trust Fund for Environmental Conservation, where few lessons can yet be drawn, as the project has been in operation only a short time. Additionally, independently from GEF support, countries such as the Philippines and Bolivia have established national conservation-related funds with initially positive results. 18. What all the above-mentioned trust funds have in common is that they are designed to provide long-term, sustained funding for projects promoting conservation of biological diversity and sustainable use of natural resources. Too often, donors have focused on short term projects, providing funding for only 2 to 5 years. Yet, many conservation activities may require 10, 20 or more years of sustained funding to have a real impact. Unless funding is sustained over a long period, the results obtained from a short term project may evaporate. Trust funds can be effective mechanisms for guaranteeing a long term financial commitment and for overcoming unpredictable government and donor agency budget fluctuations. This is particularly important when funding recurrent costs. Reliable funding improves program stability, long-range planning, training and recruitment of personnel, and the overall impact of a conservation program. While the future of national environment funds is promising, we still have much to learn about their design and management. Generally, the design phase is a long and arduous process. This is because in order to establish credibility at the national level, there must be a process of consensus building particularly with regard to appropriate governance structures and criteria for eligibility of grants. Many technical questions need to be addressed as well, such as the appropriate fiduciary arrangements for the management of fund assets and the legal character of the fund. 19. Rationale for GEF Funding. Safeguarding biodiversity worldwide depends, in the short term, as much on selectivity as on scale. Protecting specific megadiversity parks such as those contemplated in this project will secure a small but ecologically viable sample of biodiversity until more comprehensive protection efforts can be mounted. In the case of Peru, the government cannot currently place global environmental initiatives at the top of its list of priorities. Peru is in the early phase of economic restructuring and recapitalization. In light of this situation, this project will serve as a model for long-term financing of protected areas in countries where political uncertainty and economic constraints currently preclude the government from allocating adequate resources to conservation activities. 20. The project's structure also provides an important opportunity for testing the design and management issues associated with financing the recurrent costs of biodiversity conservation. The trust fund is an appropriate mechanism in the case of Peru for several reasons. First, by releasing funds slowly over an extended period, the absorptive capacity of the institutions involved will not be exceeded. This will improve the likelihood that the funds will be used effectively. Second, the financial stability provided by the trust fund will alleviate the Peruvian park system's inability to retain qualified personnel because of low salaries and insecure job tenure resulting from budgetary fluctuations. Third, the recurrent costs that will be financed by the income of the trust fund are the hardest to raise repeatedly from donors, who like to support projects with a definite beginning and end. The income of the trust fund would supplement the limited support that Peru's government can allocate to these parks for the foreseeable future. If this financing is not provided, by the time Peru's economic situation improves to the point where the government can provide sufficient resources to support its protected areas, many of these areas could be largely deforested and their unique biological diversity lost or severely damaged. This GEF project could also be an important catalyzer of additional funding for conservation efforts in Peru. After nearly a decade of debt mismanagement, Peru is currently in the process of renegotiating its debt. Through the Club of Paris agreements, Peru's official bilateral debt has been given a framework for negotiations which include the option for debt-for-nature swaps and other debt reduction mechanisms. Under this framework, Peru's first debt- for-nature swap with Canada was approved and negotiations are under way with three additional countries. In this realm, PROFONANPE provides a reliable window for debt donations for - 6 - environmental and development purposes, an option which Peru did not have available before the GEF promoted the creation of the fund. 21. Actions Agreed. During negotiations the Bank and the Government agreed that: For twenty five years from the date of the Grant: (a) Decree and Bylaws. FONANPE and PROFONANPE's implementing legislation and by-laws will not be amended, abrogated, repealed or waived in a manner which, in the opinion of the Bank, would materially and adversely affect the implementation of the project or the attainment of its objectives; (b) Dissolution. If FONANPE is dissolved for whatever reason, or if it becomes evident, even after GEF's involvement in the project has ceased, that FONANPE's funds are being used for purposes other than biodiversity conservation, the Bank, as Trustee of the GET, would be entitled to obtain repayment of the amount so spent; (c) Repayment. The Bank as Trustee of the GET would be entitled to seek repayment for any expenditures that are not consistent with the terms of the Grant and Project Agreements. The Bank and PROFONANPE agreed that: (a) Investment Arrangements. For 10 years after the date of the Grant, the Board of PROFONANPE will not change the investment arrangements and guidelines without prior written agreement by the Bank. These guidelines are specified in Annex 2 of the attached Technical Report. (b) Annual Work Programs. For the duration of project supervision, PROFONANPE will send to the Bank for comment its annual work programs prior to Board approval and no later than November 15 of each year; (c) Procurement. In the context of the annual work program, PROFONANPE will submit to the Bank a procurement program, which is in compliance with the Bank's procurement guidelines; (d) Annual Progress Reports. For the duration of project supervision, PROFONANPE will submit to the Bank annual progress reports (which include the monitoring indicators specified in Annex 6 of the attached Technical Report), by April 1 in a format satisfactory to the Bank; (e) Technical Committee (TC). Within six months of effectiveness of the project, PROFONANPE will have constituted the TC and sent to the Bank for review a surmnary of the qualifications of each member. Within one year of project effectiveness, the TC will have prepared the project's Monitoring and Evaluation guidelines satisfactory to the Bank. - 7 - (f) Administrative Costs. PROFONANPE's administrative costs for 1995 will not exceed US$150,000 per year, and will not grow by more than five percent per year, except as may otherwise be approved by the Bank on the basis of increases of the resources of the trust fund or other funds administered by PROFONANPE. (g) Mid-term Project review. PROFONANPE will join the Bank on a mid-term project review at the end of 1997 to evaluate its implementation arrangements, its on-the-ground effectiveness in the protected areas themselves, and the performance of the asset manager. This review would serve to fine-tune the project and determine any needed modifications; evaluate investment performance; serve as the launching point for the concerted fund-raising effort to increase the trust fund's capital; (h) Auditing. PROFONANPE will contract the services of an independent auditing firm to carry out an annual audit of the finances of the project and of the trust fund. The auditors will review the project's financial records to determine if the actual expenditures match the approved work program and if satisfactory procedures of record-keeping are being used. The auditor's report will be forwarded to the Bank no later than four months after the close of PROFONANPE's fiscal year. (i) Implementation Completion Report. PROFONANPE will prepare an Implementation Completion Report within three months of the end of the Bank's supervision period. Sinhce the project has no finite time frame, the Implementation Completion Report will relate to implementation performance during the length of the Bank's supervision period. (j) Information Access. The Bank will retain the right to request any information, even beyond its formal involvement with the project, which would serve to evaluate the long- term effectiveness of the trust fund mechanism. Prior to effectiveness: (a) Legal Opinions. The Bank would require satisfactory legal opinions on the validity of the Grant and Project Agreements; and (b) Contract Between PROFONANPE and the Asset Manager. The Bank would require a signed contract between PROFONANPE and the investment manager satisfactory to the Bank. 22. Enviromnental Aspects. The project is classified as "C," which means that no negative environmental impact is expected. The project's primary objectives focus on environmental protection and should result in stronger in-country capability to manage protected areas and biodiversity. No resettlement will take place under this project, nor does the list of eligible activities to be funded under the project include resettlement. 23. Participatory Approach. This project was prepared with the active participation of seven Peruvian NGO's, which were involved in the definition of all aspects of the project, including the drafting of FONANPE's by-laws. Local communities would be intrinsically involved in the project, as well. First, in light of the project's commitment to the principle of local participation in conservation, decisions about the allocation of resources within each protected area would be made in consultation with each protected area's administrative officer, local committees (where they exist), park officers, grassroots organizations and local communities. Second, among the activities eligible for financing under the project is the implementation of projects that integrate conservation and development to benefit the communities living in the protected areas and their buffer zones. To the degree that a local community is interested in pursuing funding for a given project, it would be in a position to propose the inclusion of that activity in the annual work program for the park. Similarly, NGO's would be eligible to propose projects for inclusion in the annual work program so they may continue carrying out their work on behalf of the park and the park's neighbors. Third, projects in the area of environmental education and public awareness would be eligible to be financed by the program. Such projects could help foster a common understanding of the goals of the park between the park managers and the local communities. Fourth, park guards and other workers hired under the project are likely to be recruited from the Lommunities adjacent to the parks, and so local people could benefit from the improved employment opportunities. 24. Benefits. A few carefully selected and properly managed conservation areas in Peru would guarantee the survival of a representative, ecologically viable sample of Peru's diverse flora and fauna. The project will provide a mechanism to: (i) secure improved and sustained management of these conservation areas, and (ii) promote long-term strategic planning for the protection of biodiversity in the country. If successful, the institutional arrangements of the project will catalyze other resources for biodiversity conservation. Once the trust fund reaches its target of US$40 million, it would provide sufficient resources to afford basic management to all of Peru's protected areas. 25. Risks. The project faces the following risks: first, annual fluctuations in the rate of return of the portfolio may result in a reduction of the income available for project funding from one year to the next. Like all investments, the return each year will depend on market conditions, which are hard to predict at any given point. If the returns fall below five percent over the first few years, however, the program will have to be scaled down accordingly. The risk will diminish over the years as a cushion is built-up based on a spending rule which would reserve "excess" profits from higher return years to be used in lower return years. This cushion will be built by using a spending rule which limits the expenditures of the trust to at most five percent of the value of the fund's assets for the first three years, and at a rate not to exceed five percent of the three-year moving average value of the account assets subsequently. A second risk is that PROFONANPE's Board may be ineffective in its oversight of the fund's expenditures. This risk is minimized given the mixed composition of the Board, which embodies a variety of interests and levels of commitment. The third risk is that given the overwhelming pressures on the natural resources of the country, it is possible that despite all efforts, the project will be unsuccessful in stopping outside encroachment and damage to the protected areas. This risk will be reduced to the degree that the project involves local populations in the judicious management of the park through economic incentives and increased awareness of the importance of sustainably using the park's resources. Finally, there is some risk that the trust fund will not be able to catalyze more funds, and hence the level of disbursements for conservation activities would be relatively low. This, however, is unlikely, as several contributions from international donors are already under negotiations and it is highly probable that at least some of these will come to fruition. In any case, even if no additional donations are obtained for the trust fund, the level of resources going to protected areas via the GEF contribution already doubles the annual amount the government is currently spending in the protected areas. Attachments Washington, D.C. March 20 1995 - 10 - Schedule A PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS Estimated Project Costs by Component (US$ '000) I/ For Years 1-5 of the Project Project Component Local | Foreign | Total | As % of Expenditures Expenditures j _ Base Costs Endowment of FONANPE 5,000 5,000 79 Management of Selected Protected 711 711 11 Areas Project Coordinating Unit 650 650 10 TOTAL PROJECT COSTS 1,361 5,000 6,361 100 The costs presented above are based on a total amount available for the five-year pilot phase of the project amounting to US$1,361,000. This sum represents the expected net return from the investment of the US$5.0 million capital of the fund. The figures above were computed based on the spending rule described in Annex 2 of the attached Technical Report, and are limited to the resources which are pledged to date. As new resources are obtained, the program will be expanded accordingly, based on the priorities established by the Board of Directors and in accordance with the National Strategy for the Conservation and Management of Peru's Protected Areas. 1/ No physical or price contingencies are included as the investments will be limited to the amount of money available to the program each year. Schedule B PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS Summary of Procurement Arrangements Given the unique nature of this project, the standard procurement arrangements would not be meaningful, since the exact project activities cannot be predicted beforehand. Procurement concerns would be minimal, however, since expenditures deriving from this grant are not expected to exceed US$300,000 per year. Expenditures would involve mainly salaries, maintenance materials for park infrastructure, and minor equipment. To ensure compliance with Bank procedures, PROFONANPE will prepare for review by the Bank, a specific procurement program in the context of its annual operating plan, based on the following guidelines: Civil works under the project would be small and geographically dispersed. They would include small civil works such as the construction of park guard posts. Since the largest contract is not expected to exceed US$300,000, it is unlikely that foreign contractors would be interested. Civil works contracts up to US$300,000 would be procured using local shopping procedures (obtaining at least three quotations from any eligible contractor). Contracts for goods are not expected to exceed US$50,000 per contract, and would be awarded through local or international shopping. Contracts for civil works above US$300,000 and contracts for goods above US$50,000, would be awarded in consultation with the Bank in accordance with procedures to be agreed upon in each case. The selection and appointment of consultants would be made in accordance with the August 1981 Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency. Contracts with consulting firms valued at US$50,000 or more would be subject to prior Bank review (terms of reference, letter of invitation, recommendation for award and proposed contract). For individual consultants, prior Bank review (terms of reference, qualifications and conditions of employment) would be required for contracts valued at US$20,000 or more. Below these limits, the Bank's prior review would apply only to terms of reference. The use of standard documentation for the employment of consultants (letters of invitation and forms of contract) would be agreed with PROFONANPE. Summary of Disbursement Arrangements Estimated Schedule of Disbursement of GET Grant (US$ '000) World Bank FY95 FY96 FY97 FY98 FY99 Fiscal Year Annual 5.0 0 0 0 0 Cumulative 5.0 5.0 5.0 5.0 5.0 - 12 - Schedule C PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS Timetable of key project processing events Time Taken to Prepare: 31 months (December 1991 to June 1994) Prepared By: Ministry of Agriculture, PROFONANPE, and the NGO Working Group in support of PROFONANPE World Bank: Claudia Alderman (LA1RF), Rudolf Van Puymbroeck (LEGLA), Alberto Ninio (LEGEN). First Bank Mission: December 1991 Appraisal Mission Departure: July 1994 Date of Negotiations: January 1995 Planned Date of Effectiveness: April 1995 Summary Supervision Plan: Given the open-ended nature of the proposed project, and the practical difficulty of continuing supervision into the indefinite future, it is expected that supervision would take place for three to five years. The decision concerning the termination or extension of supervision beyond five years will be based on the Bank's examination of project performance, specifically, by evaluating whether the project has met its objectives. The criteria which will be used to evaluate the success of the project can be found in Annex 6. The Bank and PROFONANPE would jointly conduct a mid-term review to evaluate the project implementation arrangements and its effectiveness in the protected areas themselves. This review would serve to fine-tune the project and serve as the launching point for the concerted fund-raising effort to increase the trust fund's capital. Technical expertise: institutional specialist, ecologist, social scientist, financial analyst. Part II: Technical Annexes CURRENCY EQUIVALENTS Currency Unit=New Sol US$1.0 = 0.4576 New Soles US$1.0 = 1.6044 Deutsche Mark WEIGHTS AND MEASURES The metric system is used throughout the report FISCAL YEAR January 1 - December 31 GLOSSARY CIDA Canadian International Development Agency DGAPFS Directorate General of Protected Areas and Wildlife (Direccion General de Areas Protegidas y Fauna Silvestre) FONANPE Trust Fund for the Conservation of Peru's Protected Areas (Fondo Nacional para Areas Naturales Protegidas por el Estado) GEF Global Environment Facility GET Global Environment Trust GOP Government of Peru GTZ Deutsche Gesellschaft fir Technische Zusammenarbeit GmbH INRENA National Institute of Natural Resources (Instituto Nacional de Recursos Naturales) NGO Non-Governmental Organization PROFONANPE The entity created as a not-for-profit entity of public interest but under private law to administer the assets of PROFONANPE (Pro Fondo Nacional para Areas Naturales Protegidas por el Estado) SINANPE National System of Natural Areas Protected by the State (Sistema Nacional de Areas Naturales Protegidas por el Estado) TC Technical Committee April 19, 1995 2:18pm PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS PART II: TECHNICAL REPORT Table of Contents I. BACKGROUND AND COUNTRY SETTING .............................. - Introduction .................................................. - Legislation, Policy, and Institutional Framework ......................... 2. - II. THE PROJECT ................................................ . 4- Project Objectives ............................................. - Project Description ............................................. - Project Components ........................................... 5. - III. PROJECT COSTS AND FINANCING .................................. 6- Project Costs and Financing ...................................... 6. 6 - Procurement .................................................. - Disbursement ................................................ 7 - Accounts and Auditing .......................................... 7. 7 - IV. PROJECT ORGANIZATION AND IMPLEMENTATION .....................8. - Board of Directors ............................................ 8. - Project Coordinating Unit (PCU) ................................... 8. - Technical Committee ........................................... 8. 8 - Bylaws .................................................... - Annual Work Programs and Progress Reports ............................ - Asset Management Arrangements and Investment Guidelines. ....9............. 9 - Project Supervision ............................................. 10 - Program Monitoring ............................................ 10 - Reporting Requirements ..........................................- 10 - Mid-term Review ..............................................- 10 - Implementation Completion Report ...................................- 10 - Annex 1: Summary of Peru's Protected Areas ................................- 11 - Annex 2: Financial Analysis and Management ................................- 13 - Annex 3: Description of the GTZ-Financed Program ............................- 19 - Annex 4: Description of the Protected Areas Supported Under the Trust Fund ............ - 20 - Annex 5: Terms of Reference for the Technical Committee of PROFONANPE ............ - 24 - Annex 6: Monitoring and Evaluation ...................................... 25 - Annex 7: Project Eligibility and Selection Criteria ............................. 28 - Annex 8: PROFONANPE's Administrative Costs ..............................- 31 - Annex 9: Selected Documents Available in Project File .......................... 32 - PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS TECHNICAL REPORT I. BACKGROUND AND COUNTRY SEITING 1. Introduction. The Government of Peru (GOP) is committed to developing innovative mechanisms which would guarantee the appropriate management of the country's protected areas and biodiversity. To this end, in 1992, the GOP created the Fondo Nacional para Areas Protegidas por el Estado (FONANPE), as a trust fund to provide long-term, sustained funding for Peru's protected areas. At the same time, the Government created PROFONANPE as a private, not-for-profit institution charged with managing the trust fund. PROFONANPE is governed by a Board of Directors which includes representatives from the government, the NGO community and international cooperation agencies. The Board composition reflects a decision on the part of the GOP to forge a partnership between the public and private sectors for the management of Peru's protected areas. 2. The Country Setting. With a surface area of 1.28 million square kilometers, Peru is the third largest country in South America, and the largest in the tropical Andean region. The country is divided into three geographical zones -- coast, sierra and selva. Within the three zones there is a large array of habitat types which can be classified into 11 eco-regions, 16 biogeographical provinces, and 101 life zones and transitions. This habitat diversity has resulted in one of the greatest varieties of flora and fauna on Earth. 3. Flora and Fauna. Peru ranks as one of the biologically most important countries in South America, and among the handful of megadiversity countries in the world. It contains a higher proportion of the species-rich forests of Western Amazonia and the tropical Andes than any other country. Peru has an estimated 18 percent of the bird species, 9 percent of the mammals, and 7 percent of the amphibians in the world (see Table 1). Two of its large protected areas, Manu Biosphere Reserve and Tambopata-Candamo Reserved Zone, contain the world's highest recorded diversities for birds, mammals, reptiles, amphibians, freshwater fishes, all vascular plants, trees, butterflies, and invertebrates. Endemism (i.e. species unique to Peru) for vertebrate species is also extremely high. A study in 1987 by Brack recorded the following number of endemic species: 50 fish species, 90 bird species, 35 mammalian species, 69 species of reptiles and 28 species of amphibians. There is little doubt that with additional field work this list would increase substantially. The richest concentrations of species and endemism occur in the eastern Andean slopes because of their high year-round rainfall and relatively fertile soils. The Peruvian Amazon also contains an extraordinary assemblage of species: in the Iquitos area in northern Peru, for example, a single hectare of tropical rain forest has been found to contain 300 species of trees, by far the highest heterogeneity on Earth. TABLE 1 Percent of Total Neotropical and World Species Found in Peru Taxonomic No. % of % of World Group Species in Neotropics _ _ _ _ _ _ _ _ _ _ _ _ _ P er-u _ _ _ _ Mammals 359 29 9 Birds 1680 44 18 Reptiles 298 12 5 Amphibians 241 13 7 Vascular Plants 30,000 20 8 4. Peru's Natural Resource Base. Peru has been and will continue to be dependent upon its natural resources for social and economic development. There are many potential timber and non- timber products which, if properly developed through sound and sustainable practices, could serve significantly to increase the income and well-being of rural and urban communities throughout the Amazon region and other parts of the country. 5. The importance of Peru's biodiversity on a global scale cannot be overstated. Peruvian germplasm has played a substantial role in agricultural innovations in the past, and today is critical to plant production research around the world. Potatoes, tomatoes, beans, peanuts, guava, peppers, squash, varieties of corn and many other forest and animal products are native to and abundant in Peru and have figured prominently in the Peruvian diet for thousands of years. There is little if any current research, however, on the vast majority of Peru's native tropical plants and food crops, nor are there data on the demand and supply of these products for national and international food markets. 6. Approximately 60 percent of Peru is covered by forest, with the Amazonian region consisting mainly of tall, moist tropical forests. These species-rich forests provide an untapped resource for the social and economic improvement of communities in the Peruvian Amazon and in other rural and urban areas of Peru, as well as in other countries. For example, medicinal plants such as cinchona (for quinine) and curare (used in heart surgery) have assumed worldwide importance. New plants of medicinal importance are continually being discovered, with many coming from the traditional knowledge held by indigenous peoples in Peru's lowland selva. 7. Legislation, Policy, and Institutional Framework. In late 1990, the Peruvian Congress passed an environmental code that contains several important conservation provisions. The code took the positive step of abolishing legislation which provided incentives for colonizing Amazonia. Furthermore, the code requires the preparation of an environmental impact statement for any activity in Amazonia -- whether public or private. From 1993 through 1994, additional legislation was passed requiring environmental impact studies for investments in the development of mining, industry and fishing. 8. Despite these legislative efforts, however, Peru may have difficulty easing the pressures on its natural resources. After a decade of severe economic and political crisis, Peru is significantly reformulating its policies, setting the stage for economic recovery. It has already succeeded in dramatically reducing the inflation and terrorist activity that crippled the nation until very recently. These changes have already resulted in a substantial increase of tourists and will imply a large influx of tourists within the next few years and, more importantly, a substantial increase in investments to exploit Peru's natural resources (in particular timber, petroleum, natural gas and gold reserves). If not managed, these activities pose real threats to the conservation of the country's biological wealth. Additionally, in spite of probable improvements in rural living conditions, the government may be unable to slow the surge of settlement of the Amazonian lowlands as peasants try to escape the pervasive poverty in the highlands. 9. Despite these problems, however, Peru has managed to set aside major parks covering a variety of ecosystems. Indeed, some of the parks, such as Manu, protect a contiguous range of habitats -- from lowland forests to cloud forests at 14,000 feet, and highland puna grasslands. Many of these parks, although potentially "islands," are sufficiently large to minimize the risk of local species becoming extinct. Encouragingly, moreover, the legislation related to protected areas in Peru is comprehensive and sound. In 1990, the National System of Natural Areas Protected by the State (SINANPE) was created by Presidential Decree. Totalling 5.5 million hectares, the system encompasses 7 national parks, 8 national reserves, 2 hunting reserves, 7 national sanctuaries and 3 historic sanctuaries. These protected areas, in combination with 5 national forests, 6 protected forests and I communal reserve, cover over six percent of the national territory. A list of all Peru's protected areas, including their location and size can be found in Annex 1. In 1993 the government created the National Institute of Natural Resources (INRENA), which brings together the expertise of all public agencies involved with the management and conservation of Peru's renewable natural resources. 10. Peru's legislative and institutional efforts notwithstanding, the GOP has been unable to devote sufficient resources to its conservation areas. Only four national parks receive any management services through INRENA. Even when some resources are devoted to an area, they are insufficient: Machu Picchu, for example, which benefits from the strongest management of any unit in the system, continues to experience management problems due to the large number of visitors as compared to availability of park guards and visitors' services. Park staff, from guards to office administrators, frequently are inadequately trained. The lack of adequate staff stifles the parks' potential for conservation, research, recreation and revenue generation. The 1991 Tropical Forestry Action Plan reports that the park system employs 110 park guards for 5.5 million hectares, or one guard per 50,000 hectares2/. This index is only one among many that may be construed to indicate the severe deficiency of administrative and managerial inputs. To make matters worse, in 1992 a significant portion of these guards left their jobs due to termination of contracts, low morale and lack of resources. With the Government absent from the parks, most of the limited management in a few protected areas is carried out by Peruvian NGOs. The level of management provided varies, however, from area to area and from time to time depending on the financial situation of the NGO(s) involved. Only recently has INRENA started to hire new personnel for the park system, though under very restricted conditions. 2/ IUCN recommends as a general guideline a figure of I park guard per 5,000 ha. for park and reserves with dense forest systems. According to the objectives of the area, however, these figures may vary. Machu Picchu, a well visited tourist attraction, probably needs a higher number of guards than the IUCN recommendation. Other areas such as Manu and Tambopata Candamo probably need less as access is difficult and can be better controlled than areas with well-developed road systems. - 4 - 11. THE PROJECT 11. Project Objectives. The project has four major objectives, to: (i) provide a long term and predictable source of funding for the protection of Peru's biodiversity through the establishment of a trust fund for the benefit of Peru's protected areas, the income of which would be used for financing the management of priority protected areas; (ii) improve INRENA's capacity to protect and manage Peru's protected areas; (iii) provide the country with a reliable institutional mechanism to channel debt donations for sustainable development and conservation through bilateral and commercial debt-for-nature swap agreements; and (iv) test the viability of trust funds as mechanisms for providing long term and sustainable funding for biodiversity conservation. 12. Project Description. The Fondo Nacional para Areas Protegidas por el Estado (FONANPE), was created by the GOP as a trust fund with the goal of providing long-term, sustained funding for Peru's protected areas. At the same time, PROFONANPE was established under private law as a not-for-profit institution to manage FONANPE and to direct the use of the investment proceeds. In anticipation of the GEF grant, and on the bases established by the preparation of this project, PROFONANPE started operating in June 1993 under a grant from the German technical cooperation agency, the "Deutsche Gesellschaftfllr Technische Zusammenarbeit GmbH (GTZ)." During its first year, PROFONANPE has strengthened itself as an organization by conducting an institutional strategic planning exercise involving a dozen NGO's, developed criteria for managing its small grants program and issued requests for proposals, and negotiated Peru's first debt-for-nature swap. 13. To support PROFONANPE, the Global Environment Trust (GET) would provide US$5.0 million as seed money for the Peruvian trust fund. In keeping with the GEF's goal of using its resources to leverage additional funds, the GET grant is being complemented by a separate parallel grant of US$1.5 million from the GTZ. While the German grant does not form part of the capital of the trust fund per se, this contribution will help to consolidate and strengthen the GOP's capacity to coordinate all Peruvian conservation efforts and will lay the basis for the conservation activities supported by the trust fund. Moreover, GTZ's contribution will provide essential operational funds during the pilot phase of PROFONANPE until the trust fund reaches a sufficient size to sustainably finance the project activities with its income. 14. The GET grant would be placed in FONANPE, a trust fund legislatively established in Peru. The fund's assets would be managed by a Peruvian investment Bank, according to investment objectives and guidelines specified in the Project Agreement. These guidelines would specify the investment risk profile and the acceptable trade-offs between growth of the total value of the investment capital and the stability of annual income flows. Part of the investment income generated each year would be spent to finance conservation activities in Peru, while a predetermined amount of the income would be reinvested to maintain the real value of the principal. A discussion on the Peruvian capital markets, the process used to select the asset manager, investment guidelines and expected returns can be found in Annex 2. 15. The by-laws governing the operation of FONANPE were drafted by a working group comprised of representatives from the GOP and from seven Peruvian conservation NGOs 3/. This 3/ The Peruvian NGOS participating in the project preparation working group were the following: Asociacion para la Conservacion de la Selva Sur, Amazonia, Asociacion Peruana de Conservacion, Centro de Datos para la Conservacion, Fundacion Peruana para la Conservacion de la Naturaleza, Sociedad Pachamama, Sociedad Peruana de Derecho Ambiental. In addition, representatives from The Nature Conservancy and Conservation International also contributed to the preparation of the project. group also developed criteria for selecting the protected areas which would be initially supported by the project. These criteria include: (i) the global importance of the area for biodiversity conservation, in terms of species diversity and endemism; (ii) the relative feasibility of management; and (iii) the degree of environmental impact resulting from human activity. Although several protected areas meet these criteria, given resource constraints, three priority areas were selected for initial support by the trust fund: Manu National Park and Biosphere Reserve, Rio Abiseo National Park, and Noroeste Biosphere Reserve (composed of the Cerros the Amotape National Park, Coto de Caza el Angolo, Tumbes National Forest and Manglares de Tumbes National Sanctuary). A description of each area, including planned interventions and results, can be found in Annex 4. As FONANPE's capital increases through additional contributions, other protected areas will be integrated into the program, based on the criteria described above as well as the guidelines of the National System of Protected Areas Master Plan, and the National Strategy for the Conservation and Management of Peru's Protected Areas, currently under development. 16. Project Components. The proceeds of the GET grant during the five-year pilot phase of the project would be used to finance a variety of conservation activities in the selected areas and their buffer zones. Annex 7 summarizes project eligibility and selection criteria. The activities eligible for funding include: * Financing the recurrent costs of protected area management (mainly staff salaries and operating expenses) * Drafting, revising and implementing management plans * Establishing and managing buffer zones * Training professionals in park and wildlife management * Instituting environmental education and public awareness programs for communities associated with protected areas * Implementing projects that integrate conservation and development to benefit the communities living in the protected areas and their buffer zones * Institutional support for the strengthening of the field work of INRENA's Directorate General of National Protected Areas and Wildlife * Administrative expenses of PROFONANPE. 17. GTZ Funded Activities: The complementary activities financed separately by the GTZ include: (i) support to INRENA in the form of infrastructure, equipment and training; (ii) development of a master plan for the management of all protected areas in the country; (iii) hiring of consultants to provide technical support to INRENA; (iv) institution building and operational costs of PROFONANPE; and (v) a two-year program of small grants for NGOs to support sustainable development and conservation projects. A detailed description of the GTZ project activities can be found in Annex 3. - 6 - III. PROJECT COSTS AND FINANCING 18. Project Costs and Financing. Expected expenditures over the five years of Bank involvement amount to US$1,361,000 equivalent, which represents the projected net income of the trust fund for that period of time. The GET initial contribution of US$5.0 million will serve to capitalize the fund, while the separate GTZ contribution amounting to US$1.5 million would provide funds for operating costs in the first year of the program. Although the GTZ contribution will not form part of the investment capital of the trust fund per se, this donation serves the key function of providing the up-front financing needed to lay the basis for the conservation activities supported by PROFONANPE in ensuing years. 19. Initial donations by the Canadian International Development Agency provided PROFONANPE with office space and fully equipped offices in Lima. The operating costs of PROFONANPE, which approximate US$150,000 per year, are being covered in their totality by the GTZ grant for the first year of the project. After this time, administrative costs would be covered out of the trust fund's income, or by other donors. Consistent with the experience of other small trust funds, such as the ones in Bhutan and Uganda, the administrative costs for the first few years of the project constitute a relatively high percentage of the total income of the fund. As the trust fund grows, however, the ratio of administrative costs to income available for program activities would decline. In this particular case, as the trust reaches its expected level of capitalization of at least US$40 million, the administrative costs will represent under 10 percent of net income. Assuming that PROFONANPE reaches its capitalization goal by raising an additional US$5 million the first year, US$7 million the second year, US$8 million the third year, and US$7.5 million each in years 4 and 5, the respective administrative cost ratios would be 0%, 29%, 17%, 11 % and 9% for years one through five of the project. Regardless of the level of capitalization of the fund, however, the Project Agreement specifies that PROFONANPE's administrative costs for 1995 will not exceed US$150,000 per year, and will not grow by more than five percent per year thereafter, without explicit consent of the Bank (see Annex 7 for a detailed table of PROFONANPE's expenses). 20. Expenditure amounts are based on the assumption that the trust fund does not receive any additional contributions. To put this "worst case" scenario in perspective, however, it is useful to realize that even this limited level of funding would result in a threefold increase to the resources currently allocated by the government to protected areas. As new resources are obtained, PROFONANPE's program will be expanded accordingly, based on the priorities established by the Board of Directors and in accordance with the National Strategy for the Conservation and Management of Peru's Protected Areas. Specific details on PROFONANPE's spending rule, financial arrangements and projections are described in Annex 2. 21. The specific allocation of funds generated by the trust's investments will be determined by PROFONANPE's Board of Directors, based on work programs submitted by the selected protected areas. For the duration of the project supervision period, the Bank will have the opportunity to comment on the work programs, prior to PROFONANPE's Board approval. 22. PROFONANPE has set a target of US$40 million of principal for the trust fund. It has already begun efforts to raise these funds both from direct contributions and as debt-for-nature-swaps. As its first fund-raising success, PROFONANPE has negotiated the first ever debt-for-nature transaction in Peru through a bilateral debt donation from Canada for Can$ 500,000. Germany and Finland have committed additional bilateral debt donations to be channelled through PROFONANPE. Formal commitments to channel additional funds for park conservation projects have been recently made by the Amazon Cooperation Treaty, and the Dutch Technical Aid agency. Also, negotiations are under way for a second tranche of support from Germany for an additional US$1.5 million. To tap local resources, PROFONANPE will invite carefully selected, influential individuals interested in Peruvian environmental affairs to join an informal board or patronato. While the group will have no effective power, it is expected that the group will help mobilize local and international resources particularly in the private sector. Finally, after the project's mid-term evaluation, PROFONANPE and the government will organize a round table of donors to help reach the target amount of US$40 million for the trust fund. 23. Procurement. Given the unique nature of this project, the standard procurement arrangements would not be meaningful, since the exact project activities cannot be predicted beforehand. Procurement concerns would be minimal, however, since expenditures deriving from this grant are not expected to exceed US$300,000 per year. Expenditures would involve mainly salaries, maintenance materials for park infrastructure, and minor equipment. To ensure compliance with Bank procedures, PROFONANPE will prepare for review by the Bank, a specific procurement program in the context of its annual operating plan, based on the guidelines following guidelines: Civil works under the project would be small and geographically dispersed. They would include small civil works such as the construction of park guard posts. Since the largest contract is not expected to exceed US$300,000, it is unlikely that foreign contractors would be interested. Civil works contracts up to US$300,000 would be procured using local shopping procedures (obtaining at least three quotations from any eligible contractor). Contracts for goods are not expected to exceed US$50,000 per contract, and would be awarded through local or international shopping. Contracts for civil works above US$300,000 and contracts for goods above US$50,000, would be awarded in consultation with the Bank in accordance with procedures to be agreed upon in each case. The selection and appointment of consultants would be made in accordance with the August 1981 Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency. Contracts with consulting firms valued at US$50,000 or more would be subject to prior Bank review (terms of reference, letter of invitation, recommendation for award and proposed contract). For individual consultants, prior Bank review (terms of reference, qualifications and conditions of employment) would be required for contracts valued at US$20,000 or more. Below these limits, the Bank's prior review would apply only to terms of reference. The use of standard documentation for the employment of consultants (letters of invitation and forms of contract) would be agreed with PROFONANPE. 24. Disbursement. The total grant amount would be disbursed in one lump sum to the trust fund established in Peru as specified in the Grant Agreement. The asset manager would make quarterly wire transfers of the trust's income (within the limits established by the spending rule) to PROFONANPE's dollar-denominated account in Peru. PROFONANPE's coordinator would be authorized to make payments to suppliers or consultants in accordance with requests submitted by the managers of the selected protected areas, based on the expenditures specified in the annual work program approved by PROFONANPE's Board of Directors, and reviewed by the Bank. In accordance with PROFONANPE's operating procedures the funds received from each donor will be maintained in separate accounts. 25. Accounts and Auditing. PROFONANPE's Board would contract the services of an independent auditing firm to carry out an annual audit of the finances of the project and of the trust fund. The auditors will review the project's financial records to determine if the expenditures match the approved work program and if satisfactory procedures of record-keeping are being used. The auditor's report will be forwarded by PROFONANPE to the Bank no later than four months after the close of PROFONANPE's fiscal year. To ensure adequate record-keeping procedures, a management services consulting firm developed written procedures and guidelines for financial accounting specifically suited to the project. (Refer to the Manual of Norms and Procedures for - 8 - PROFONANPE, January 1994, and the Manual of Organization, Functions and Policies for PROFONANPE, January 1994, in the project files). As part of the assignment, this firm also provided training to the project coordinator to ensure that the guidelines were clearly understood and correctly implemented. This preparatory work should facilitate the subsequent work of the auditors, and ensure transparency, comprehensiveness and accuracy in record keeping. IV. PROJECT ORGANIZATION AND IMPLEMENTATION 26. Board of Directors. PROFONANPE is governed by a Board of Directors, composed as follows: three representatives from the Peruvian government, three representatives from Peruvian conservation NGOs elected by the Peruvian Environmental Network, (initially, the Sociedad Pachamama, Sociedad Peruana de Derecho Ambiental, and Desarrollo Comunitario) and a representative from an international cooperation agency (initially, the GTZ). One of the government representatives will assume chairmanship of the Board. The Board responsibilities will include: (i) approving the annual work programs and budgets; (ii) reviewing the reports of the project coordinator, protected area managers, and auditors; (iii) dealing with policy issues; (iv) carrying out other responsibilities as specified in PROFONANPE's bylaws. 27. Project Coordinating Unit (PCU). Project management and administration will be carried out by a PCU under the leadership of the Project Coordinator, who is appointed by the Board. The project coordinator will be responsible for: (i) day-to-day management and administration of PROFONANPE's activities 4/; (ii) ensuring that all accounting and records are kept according to established procedures; (iii) preparing the annual analysis of needs and requirements for each protected area and the corresponding work program, in coordination with INRENA; (iv) oversight of implementation, reporting and evaluation; (v) reporting to the Board regarding the status of project activities; (vi) liaison and coordination between the Board of Directors, the GOP, donors, and the technical committee; and (vii) fundraising to increase the capital of the trust. 28. Technical Committee. The Board will be advised by a Technical Committee composed of specialists in technical areas pertaining to the operations of PROFONANPE and program beneficiaries. It shall have in particular scientists and natural resource management experts experienced in park and wildlife management, and rural development. A sub-set of the committee will be comprised of financial experts, so as to advise PROFONANPE on financial matters. This committee will also be responsible for developing the guidelines for monitoring and evaluation of the project, and for providing an annual evaluation of the performance of the asset manager. The Tecnical Committee is an additional forum in which relevant conservation NGOs may contribute substantively to the project. Annex 5 contains the committee's terms of reference. 29. Bylaws. The by-laws that govern the operation of PROFONANPE were approved by its Board on December 1993. These bylaws can be found in the project files. 30. Annual Work Programs and Progress Reports. Decisions about the allocation of resources within each protected area will be based on an annual work program developed by the Project Coordinator, in coordination with INRENA. The work program will reflect an analysis of the requirements and needs of each area, and will be based on the Master Plan for the National System of Natural Areas Protected by the State (SINANPE) and the management plan and/or operating plan of 4/ The actual day-to-day implementation of project activities would be handled by the personnel of the protected areas themselves, INRENA, NGOs, universities, etc. as specified in the annual work plan of each protected area. - 9 - each conservation unit. Given the project's commitment to the principles of local participation in conservation decisions, the work program will be developed in consultation with each protected area's administrative officer, local committees (where they exist), park officers, grassroots organizations and local communities. The annual work program will include a statement of specific objectives to be pursued during the year and the activities to be undertaken in order to achieve those objectives. Where appropriate, work programs will designate those activities to be carried out by the Directorate General of Protected Areas and Wildlife (DGAPFS) and those components which could be implemented by NGOs, universities or consulting firms. The Board of PROFONANPE will send the annual work programs to the Bank for comment no later than November 15 of each year. (See Annex 7 for a detailed summary of project eligibility and selection criteria.) 31. PROFONANPE's coordinator will prepare for presentation to INRENA and the Board a report of the preceding year's activities and accomplishments. This report will assist the Board and the TC in their evaluation of the performance of each protected area. Moreover, the report would serve as the basis for the preparation of the progress report which the Board will present to the Bank by April 1 of each year for the length of project supervision. 32. Asset Management Arrangements and Investment Guidelines. The fund's assets would be managed by a Peruvian investment bank, according to investment objectives and guidelines specified below. These guidelines define the investment risk profile and the acceptable trade-offs between growth of the total value of the investment capital and the stability of annual income flows. Part of the investment income generated each year would be spent to finance conservation activities in Peru, while a predetermined amount of the income would be reinvested to maintain the real value of the principal. Given the project's objectives, PROFONANPE's investment strategy will seek to maximize total return, including interest, dividends and capital appreciation, while safeguarding a minimum level of annual income to maintain the real value of the capital and cover operating expenses and grant commitments. PROFONANPE's initial investment guidelines are detailed in Annex 2. 33. Reporting Requirements for Asset Manager The investment manager will prepare quarterly reports for PROFONANPE including a full accounting on changes in market value, total returns and cash distributions. 34. Performance Evaluation. For purposes of evaluating the investment manager's performance relative to this objective, an initial benchmark of 10 percent (dollarized, nominal return) will be used. For reference purposes, this level approximates a 500 basis point spread over the current "tipmex" (the deposit rate on foreign exchange certificates of deposit, and a local benchmark used for evaluating fixed income investments), and the year-to-date 1994 gain on the Lima Stock Exchange. Following a review of the investment manager's performance in the initial two years, another type of benchmark could be considered such as a weighted average index of the tipmex plus a spread for the fixed income component and the official Lima Stock Exchange index for the equity portion of the portfolio. 35. PROFONANPE's financial experts appointed to its technical committee will conduct an annual evaluation of the investment performance. While the Peruvian market is anticipated to yield satisfactory results over the next few years, these high returns may not be sustainable over the long term. The Board of Directors will therefore reserve the right to reconsider alternative investment management options, including offshore markets, and if necessary will make adjustments under terms of reference satisfactory to the World Bank. - 10 - 36. Project Supervision. Given the open-ended nature of the proposed project, and the practical difficulty of continuing supervision into the indefinite future, it is expected that supervision would take place for three to five years. The decision concerning the termination or extension of supervision beyond five years will be based on the Bank's examination of project performance, specifically, by evaluating whether the project has met its objectives. The impact of the project on the protected areas will be evaluated against the baseline information collected during project preparation and summarized in the background paper on each of the selected areas titled: "Informe sobre las Areas Protegidas Seleccionadas para Apoyo por el GEF." The criteria which will be used to evaluate the success of the project as a whole can be found in Annex 6. 37. Program Monitoring. The goals of monitoring and evaluation for the project are: (i) to evaluate the long-term effectiveness of the private trust fund mechanism for biodiversity conservation; (ii) to determine the optimal institutional, legal and financial arrangements for such a mechanism; and (iii) to evaluate what can be "bought" in terms of biodiversity conservation (and institutional capacity-building) by the trust fund. The success of the project is measured ultimately in biodiversity protection, while satisfactory institutional and legal arrangements and asset performance are only means to this end. A description of the proposed monitoring and evaluation arrangements and indicators is found in Annex 6. 38. Reporting Requirements. Prior to the Board's approval of the annual work programs, PROFONANPE will provide the Bank with the opportunity for review and comment. In addition, PROFONANPE will submit an annual project progress report by April 1 each year. This report will include the reports prepared by each protected area manager summarizing the preceding year's activities and accomplishments, as well as an overall evaluation of the operation of the program. 39. Mid-term Review. PROFONANPE and the Bank would conduct a mid-term review at the end of 1997 to evaluate its implementation arrangements, its on-the-ground effectiveness in the protected areas themselves, and the performance of the asset manager. This review would serve three functions: (i) fine-tune the project and determine any needed modifications; (ii) evaluate investment performance; and (iii) serve as the launching point for the concerted fund-raising effort to increase the trust fund's capital. Furthermore, if the mid-term review shows a clear accomplishment of the project objectives, it would provide interested but presently cautious donors with specific evidence of the merits of environmental trust funds. 40. Implementation Completion Report. Given that the Bank will make a one time disbursement, the project closing date (the latest date in which the GOP may withdraw the proceeds of the grant) will be defined as one year from the date of effectiveness. The Grant and Project Agreements will have a duration of twenty five years. PROFONANPE will prepare an Implementation Completion Report within three months of the end of the Bank's supervision period. Since the trust fund has no finite time frame, the Implementation Completion Report will relate to implementation performance during the length of the Bank's supervision period. -11- ANNEX 1 Annex 1: Summary of Peru's Protected Areas by Category, Location, Year Established, Surface Area and IUCN Category Category Location Year Area (Ha.) 91UCN Category National Parks P.N. CUTERVO Cjamurca 1961 2,500.0 D National Park P.N. CERROS DE AMOTAPE Tumbes. Piura 1975 91,300.0 H National Park P.N. HUASCARAN Ancash 1975 340,000.0 U National Park P.N. MANU Madre de Dioa, Cuzco 1973 1,532,806.0 U National Park P.N. RIO ABISEO San Martin 1983 274,520.0 U National Park P.N. IINGO MARIA Huanuco 1965 18,000.0 U National Park P.N. YANACHAGA Pasco 1986 122,000.0 D National Park National Reserves RN. JUNIN Junin 1974 53,000.0 I Strict Nature Rearve RN. LACHAY lima 1977 5,070.0 IV Managed Nature Reaerve RN. PARACAS Iea 1975 335,000.0 IV Managed Nature Reaerve RN. PAMPA GALERAS Ayacucho 1967 6,500.0 IV Managed Nature Reserve RN. TITICACA Pino 1978 36,180.0 1 StrictNatureReerne R.N. SAIUNAS-AGUADABLANCA Arequipa 1979 366,936.0 IV Managed Nature Resere RN. PACAYA-SAMIRIA Loreto 1972 ,800,000.0 I Strict Nature Reserve R.N. CALIPUY La Lbertad 1981 64,000.0 IV Managed Nature Resere National Sanctuaries RN. IHUAYLLAY Pasco 1974 6,815.0 mI Natural Monument S.N. CAIIPUY La LAbertad 1981 4,500.0 III Natural Monument S.N. PAMPAS DEL HEATH Madrede DioB 1983 102,109.0 HI Natural Monument S.N. LAGUNAS DE MEJIA Arequipa 1984 690.6 [V Wildlife Sanctuairy S.N. TABACONAS-NAMBALLE Cajamarca 1988 29,500.0 III Natual Monument S.N. AMPAY Apurimac 1987 3,635.5 Im Natu-l Monument S.N. MANGLARES DE TUMBES Tumbes 1988 2,972.0 IV Wildlife Sanctuary Historic Sanctuaries S.H. PAMPAS DE AYACUCHO Ayacucho 1980 300.0 V Protected Landacape S.H. CHACAMARCA Junin 1974 2,500.0 V Protected Landacape S.H. MACHUPICCHU Cuzco 1981 32,592.0 mI Natural Monument National Forests B.N. BIABO-CORDILLERA AZUL San Martin. Loreto, Ucayali 1963 2,068,308.5 VI] Managed Resources Area B.N. MARISCAL CACERES San Martin 1963 137,448.0 VD Managed Resources Area B.M. PASTAZA-MORONA-MARANON Loreto 1963 375,000.0 VL Managed Resources Area B.N. DE TUMBES Tumbes 1957 75,102.0 VD Managed Resources Area B.N. A. VON HUMBOLDT Huanuco, Ucayali 1965 570,800.0 VL3 Managed Reource Area -12- ANNEX 1 Category LAcation Year Area (Ha.) 91UCN Calebory Protectod Fore B.P. ALTO MAYO San Maitin 1987 182,000.0 VIl Managed Reourca Arca B.P. DE CANEf limna 1980 18.1 VIII Manged Reaowure Are B.P. DE PAGAIBAMBA Cajamarca 1987 2,078.4 Vm3 Maaged Reaourea Area B.P. PUI-PUI Junin 1985 60,000.0 VIm Manaed Raurces Area B.P. PUQUO SANTA ROSA Ia Libertad 1982 72.5 Vm Mawged Rmources Area B.P. SAN MAIIAS-SAN CARLOS Paco 1987 145.818.0 Vm Managed Raourcn Area Hunfin Pracrvea C.C. EL ANGOLO Piun 1975 65,000.0 Vm Multiple Ua Managemmt AreS C.C. SUNCHUBAMBA Cajamarca 1977 59,735.0 VII Muhipke Use Mangeaaet Ana Comunal Reserves RC. YANESHA Pasco 1988 34,744.7 VllI Mnged Rerour Area 9 IUCN: International Union for the Conservation of Natr -13 - ANNEX 2 Annex 2: Financial Analysis and Management Backgiround During the preparation of this project, several options for the investment of the trust fund assets were considered. These included establishing a trust account in the United States for the benefit of Peru's National System of Protected Areas, or alternatively, establishing a trust fund in an offshore jurisdiction such as the Bahamas Islands. These options were deemed unsuitable due to a number of reasons, including the risk of attachment of the funds by creditors of the Peruvian government. Following extensive analysis of these issues, it was determined that the optimal option from a legal perspective was to establish the fund in Peru where FONANPE enjoys express legislative freedom from attachment, as well as other privileges such as tax exemption, due to its not-for-profit status. At the request of PROFONANPE's Board, a consultant undertook a thorough analysis of local investment options in Peru, and on the basis of proposals solicited from five leading financial institutions, prepared a recommendation for the selection of a local investment manager. The analysis was completed on August 17, 1994 and recommended a local investment manager for PROFONANPE. This recommendation was subsequently ratified by PROFONANPE's Board in a meeting on August 23, 1994. The report, titled "Informe para el consejo directivo del PROFONANPE sobre la seleccion de un banco nacional para la administracion de los fondos del PROFONANPE en el Peru," can be found in the project's files. Analysis of the Peruvian Capital Markets Compared with the markets of the U.S., Europe and Japan, emerging markets are by definition less developed and characterized by a higher degree of volatility. Due to the fact that the Peruvian stock market has only been in full operation for a period of less than three years, a meaningful analysis of historical results is not available at this time. Hence, the superior returns obtained to date from emerging market instruments are based on a substantial risk premium corresponding to the high level of volatility associated with anticipated results. The Peruvian financial market has experienced dynamic growth over the past few years, based on sound macroeconomic changes undertaken by the Fujimori administration and the corresponding confidence of the international investment community. The recent enactment of a new General Law on Banking, Financial and Insurance Institutions (Legal Decree 770) has substantially expanded and liberalized the operations performed by the financial sector. Under this law, a national private pension system was established, which is expected to capitalize the domestic financial markets further. While traditional endowments and trust funds are not prevalent in Peru given the historic scarcity of long-term capital in this market, there are several experienced local financial institutions in Peru capable of managing the PROFONANPE trust account. The fact that the Peruvian market is largely dollarized facilitates free monetary exchange and enhances the attractiveness of a local investment management option. The Lima Stock Exchange set new price, volume and market capitalization records for the third consecutive year in 1993. During 1993, the general market index rose 91% in dollars, compared to 124% in 1992. Trading volume in stocks reached US$1.63 billion, a near four-fold increase from the US$409 million shares traded in 1992 and significantly greater than the volume in 1991 (US$122.5 million). Market capitalization nearly doubled from US$2.6 billion at the beginning of 1993 to US$4.9 billion by year-end 1993. Behind the market's three-year bull run were extensive market- -14 - ANNEX2 oriented structural reforms implemented since 1990, increasing the economic stability created by an IMF-monitored structural adjustment program, and with a significantly improved investment climate for growth. Peru's GDP rose 7% in 1993, the highest level recorded in Latin America for that year. All of these factors have greatly improved the economic and financial outlook for Peruvian companies, and hence their share values. Average daily trading value levels settled at US$8 million towards the end of 1993, and are expected to approximate US$12 million for 1994. This would take total trading to over US$3 billion in 1994, nearly double the record pace of US$1.6 billion set in 1993. Substantial increases in trading volume and market capitalization should continue to result from the privatization process, as it will lead to the listing of a number of new and important companies on the exchange, including Entel (telecommunications) and Electrolima (power utility). Two years ago, shares traded on the Lima Exchange were substantially undervalued, accounting for the significant share appreciation noted above. While spectacular gains are not anticipated, growth is expected to remain strong for several years, with average dollarized annual returns (nominal) in the 15-30% range, provided political stabilization and economic reform continue. By the end of 1994, the Lima Stock Exchange continued to set new price, volume and market capitalization records for the fourth consecutive year. While this market did experience a lower trading volume in the month of December, precipitated by the sharp devaluation of the Mexican peso and subsequent capital flight from that market, weekly trading volumes appear to be stabilizing. The fixed income market in Peru, while relatively small, is growing at a rapid pace. Traditional money market instruments, such as commercial bank deposits, repurchase agreements, bankers' acceptances, Central Bank Certificates of Deposit, treasury bonds and corporate bonds are currently yielding average annual returns of 7.5-11.5% on a dollarized basis. Financial Risks and Mitigating Factors The financial risks to the GET grant to PROFONANPE, resulting from a concentration of investments in Peru, have been mitigated to the fullest extent possible in the proposed investment management arrangement, as follows: Political Risk. Due to the legal nature of the FONANPE trust in Peru, the funds are not subject to attachment risk, as might be the case if the funds were invested offshore or in a market where Peru's international creditors could attempt to make a claim against these assets. In addition to attachment risk, political risk could also arise from political uncertainties that would destabilize financial market conditions. In the case of Peru, however, it is widely believed that regardless of the outcome of the April elections, current economic policies will be continued. Nonetheless, to safeguard against unanticipated risks in this capital market, the investment management agreement has been structured such that an average of 20% of the fund's assets will be invested offshore. In the event of a political emergency, all of the fund's assets could be transferred to this offshore account. Investment Risk. To the extent that investments are concentrated in a single emerging market, they may run the risk of high return fluctuations and potential loss of value. For this reason, the investment management strategy for this account has been conservatively structured to provide for a majority of the portfolio's assets (approximately 70%) to be invested in domestic and international fixed income returns. As noted above, the international component of this portfolio management arrangement provides for additional diversification into developed market securities to further reduce the risk of single market volatility to this fund. -15 - ANNEX 2 Devaluation Risk. Emerging market investments that are denominated in local currency may run the risk of loss of value, due to currency devaluation. However, in the case of Peru, where the capital markets are largely dollarized, this risk is significantly mitigated. The FONANPE trust account will be maintained in U.S. dollars and all fixed income investments will be made in local currency. Sophisticated currency hedging techniques are not currently available in emerging markets such as Peru. For dollar-denominated portfolios, local equity investments are denominated in local currency and U.S. dollar equivalent market values for this component are determined using the exchange rate in effect on the reporting or trade date (in the case of a sale transaction). Short-term currency hedging instruments (commercial bank foreign exchange contracts) are available to protect the value of investments from the date the trade is negotiated to the settlement date (usually a 2-3 day interval). This technique will be used by InterBanc/Interlnvest for the FONANPE trust (associated fees are included in the transaction cost assumptions for net return expectations). While this presents some devaluation risk to the FONANPE account, this risk is largely mitigated by the investment structure (majority of the portfolio is invested in short-term fixed income, dollar denominated investments) and the solid market fundamentals of the Peruvian economy. Inflation Risk. In a highly inflationary market, financial investments may run the risk of loss of real capital value due to inflation erosion. In order for PROFONANPE to achieve its long-term objective of maintaining the real value of the trust's assets, approximately 4% of the net asset value (in U.S. dollars) from the total annual return will be reinvested annually in the fund to safeguard its real value. This annual reinvestment provision is specified in a spending rule which is incorporated in the documentation governing this project. With respect to local currency-denominated equity investments of this trust, Peru has experienced favorable inflation trends that are expected to continue. Based on the local outlook for the Lima Stock Exchange, growth is expected to remain strong for several years with average annual returns (nominal) in the 15-30% range, provided political stabilization and macro-economic reforms continue as planned. Analysis of Proposals Investment management proposals were received from five top Peruvian financial institutions. In the Request for Proposal, these institutions were asked to present a global investment strategy for the investment of PROFONANPE's funds, based on a conservative risk profile. The principal criteria used to evaluate local banks as prospective investment managers were institutional capacity, investment banking experience, substance of investment strategy proposals for PROFONANPE, international capability (to invest a portion of the funds offshore) and administrative costs. Based on these criteria, three banks were qualified as acceptable investment managers for PROFONANPE's funds. In separate meetings with high-level representatives from the Ministry of Economy and Finance, these three institutions were confirmed as the most experienced banks in the country. In the absence of an official bank rating system in Peru, these official endorsements were deemed essential. Copies of the proposals submitted by these banks can be found in the project files. Investment Manaeement Parameters Given the project's objectives, PROFONANPE's investment strategy will seek to maximize total return, including interest, dividends and capital appreciation, while safeguarding a minimum level of annual income to maintain the real value of the capital and cover operating expenses and grant commitments. -16 - ANNEX 2 Since Peru's capital markets are expected to continue to develop at a rapid pace, the investment management contract will include fairly broad investment parameters with a significant degree of discretion for the asset manager, within the following specified investment guidelines: 1. The objective of the GEF grant investment account will be to maintain a conservative allocation of capital between fixed and variable income securities that will safeguard a minimum level of annual income to: a) cover program needs, which are set at a minimum of 5 percent; b) generate a capital reserve to offset potential investment losses in future years; and c) provide for an annual reinvestment in the amount of the projected long-term inflation rate (as estimated by the World Bank) to maintain the real value of the seed capital. 2. The starting asset allocation will be 70% in a variety of fixed income instruments and 30% in equities. The investment manager will then have the option to alter this allocation in fixed income assets from a high of 80% to a low of 60%, based on previous market performance and on their professional perception of market conditions. The equity component will conversely be adjusted between a low of 20% to a high of 40%. These asset allocation parameters will be reviewed, and possibly revised, on an annual basis to account for changes in market conditions. As the Peruvian market matures, a higher allocation in equities may be prudent given the potential for higher returns from this asset class. At the same time, once Peru concludes its external debt negotiations, an alternative offshore investment arrangement could be considered. 3. For domestic equity investments, the asset manager will select Peruvian companies with the strongest market fundamentals for this portfolio. Since Peru is an emerging market, the manager will diversify portfolio risk in complementary and countercyclical economic sectors. PROFONANPE will maintain some portfolio liquidity (through fixed income instruments with relatively short maturities) to take advantage of new issues, as they emerge. It is anticipated that the asset allocation of this portfolio can be adjusted in future years, by continually increasing the allocation of stocks, in order to maximize returns to PROFONANPE. The investment manager will be responsible for selecting investments whose underlying activities do not have adverse environmental impacts. 4. The manager will have the option to invest a small percentage of the total portfolio in international securities that qualify as high-grade investments in developed markets. The manager will use their professional discretion in determining the composition of the international component of this portfolio, between fixed income and variable securities. 5. The portfolio will be administered on a dollarized basis. Reportinig Requirements The investment manager will prepare quarterly reports for PROFONANPE including a full accounting on changes in market value, total returns and cash distributions. Performance Evaluation For purposes of evaluating the investment manager's performance relative to this objective, an initial benchmark of 10 percent (dollarized, nominal return) will be used. For reference purposes, this level approximates a 500 basis point spread over the current "tipmex" (the deposit rate on foreign exchange certificates of deposit, and a local benchmark used for evaluating fixed income investments), and the -17 - ANNEX 2 year-to-date 1994 gain on the Lima Stock Exchange. Following a review of the investment manager's performance in the initial two years, another type of benchmark could be considered such as a weighted average index of the tipmex plus a spread for the fixed income component and the official Lima Stock Exchange index for the equity portion of the portfolio. PROFONANPE's financial experts appointed to its technical committee will conduct an annual evaluation of the investment performance. While the Peruvian market is anticipated to yield satisfactory results over the next few years, these high returns may not be sustainable over the long term. The Board of Directors will therefore reserve the right to reconsider alternative investment management options, including offshore markets, and if necessary will make adjustments under terms of reference satisfactory to the World Bank. Proiected Cash Flows Regardless of the size of the trust fund's capital, the amount actually spent on project funding each year will be determined by a "spending rule" designed to provide a sustainable and predictable stream of income over time. A conservative spending rule, tied to a moving average of the value of the fund, will smooth out variations in total return caused by market volatility, and ensure a steady level of available income for program activities. The proposed spending rule specifies that only five percent of the three-year moving average of the value of the portfolio will be available for program spending in any given year. Given that a moving average is based on the lagged values of actual portfolio size, expenditures for the first three years will be set at a conservative rate of five percent of the current value of the portfolio. Subsequently, the spending rule will be used to determine allowed annual expenditures. Given that the project activities financed by the trust fund have no ending date, the purpose of the figures presented below is to illustrate likely patterns of income and expenditure during the first five years of the project. These figures show how according to the spending rule and based on a minimum annual return of 10%, the annual spending income for PROFONANPE would be equal to five percent of the average asset value. Of the balance remaining, the annual reinvestment rate to maintain the real value of the fund's assets would approximate 3.7 percent, and investment management fees and the contribution to the capital reserve would be 1.3 percent. Two models are presented: Table 1 shows anticipated revenues and expenditures for project years 1 to 5, under the assumption that the PROFONANPE does not receive any additional contributions. To put this "worst case" scenario in perspective, this limited level of funding would result in resources devoted to protected areas which are three times those allocated by the government at present. Table 2, on the other hand, provides a projection under the assumption that the US$ 40 million target is reached progressively over a five year period. -18 - ANNEX 2 TABLE 1 Trust Fund Anticipated Revenue Flow for Years 1 to 5 Assuming no Additional Capital Contributions (US$ '000) YEAR Year I Year 2 Year 3 Year 4 Year 5 1995 1996 1997 1998 1999 TOTAL Capital (nominal), BOY 5,000 5,213 5,434 5,665 5,906 Capital (real), EOYI' 5,000 5,027 5,053 5,080 5,107 Investment Income (nominal)9 500 521 543 566 591 2,721 Annual Reinvestment 185 193 201 210 219 1,008 Contribution to Capital Reserve2' 28 29 30 31 32 150 Investment Management Fees 38 39 41 42 44 204 Amount Available for Programsr 250 261 272 283 295 1,361 BOY: Beginng of Year TABLE 2 Trust Fund Revenue Flow for Years 1 to 5 Assuming Progressive Total Capitalization to US$ 40 million (US$ '000) YEAR Year I Year 2 Year 3 Year 4 Year 5 . _________________________________ 1995 1996 1997 1998 1999 TOTAL Capital (nominal), BOY 5,000 10,213 17,647 26,397 35,018 Capital (real), EOY5' 9,822 16,963 25,361 33,629 42,251 l Additional Capital Contributions 5,000 7,000 8,000 7,500 7,500 35,000 Investment Income (nominal) 500 1,021 1,765 2,640 3,502 9,428 Annual Reinvestment 185 378 653 977 1,296 3,489 Contribution to Capital Reserve 28 56 97 145 193 519 Investment Management Fees 38 77 132 198 263 708 Amount Available for Program 250 511 882 1,320 1,751 4,714 BOY: BeginBg of Year: EOY: End of Year 1/ Assumes a long-term inflation rate and annual re-investment rate of 3.7% per year. 2/ Assumes a 10% minimum nominal return based on a portfolio of 70% fixed income and 30% equities. 3/ Balance available. 4/ On average, a minimum of 5 % of the capital will be available to the program, although actual expenditures would be based on the "spending rule" described in the text. S/ Illustrated in 1994 dollars. -19 - ANNEX 3 Annex 3: Description of the GTZ-Financed Program The following is a description of the complementary project activities financed by the GTZ. 1. Institutional Strengthening, Equipment and Training (US$627,000). To date, INRENA and its predecessors have been unable to adequately carry out their mandate of managing Peru's protected areas due to lack of personnel, equipment, operating funds and a united, thoughtfully structured administration. To alleviate the lack of technical staff, the project will provide INRENA, for a period of two years, the services of a full time expert who will provide support in park management, planning and policy development. The project will also provide short-term consultants to carry out specific research and planning tasks. After the initial GTZ contribution ends, FONANPE would continue providing support to INRENA as needed, at the discretion of the Board of Directors. In addition to human resources, the project would provide INRENA with facilities and equipment. PROFONANPE has already transferred to INRENA part of the computers and one of the vehicles received from the Canadian International Development Agency (CIDA). This support should facilitate the integration of project activities with the ongoing work of INRENA, resulting in a mutually beneficial association. To improve communications with the remote protected areas, the project has also equipped INRENA with short wave radio communication equipment to link headquarters with the field stations. Also, the project is providing funding for the purchase of additional office equipment, furniture, supplies and some basic operational costs. 2. Training, however, will be the main vehicle for building Peru's long-term institutional capacity. Accordingly, GTZ is currently financing training for INRENA staff both at headquarters and in the field. The training programs range from short-term workshops and field courses to participation in training programs abroad. To coordinate this work, the project would provide a consultant to assist with the design and implementation of the training program. 3. Development of a National Strategy for the Conservation and Management of Peru's Protected Areas (US$360,000). INRENA does not currently have an integrated strategy for the management of its protected areas. Without such a plan, management of Peru's protected areas is haphazard and ineffective. Consequently, the project is financing the formulation of a master plan for the integrated and comprehensive management of all protected areas in the country. This master plan will also provide recommendations as to structural changes in Peru's protected area administration. 4. Grants to NGOs: Integrated Conservation and Development Projects (US$450,000). The project would finance a program of small grants to be awarded through open competition to NGOs, local grassroots organizations, or universities based on proposals submitted to FONANPE to be approved according to established procedures. The grants would finance the implementation of projects geared to advance the complementary objectives of natural areas conservation and income generation for rural inhabitants, such as agroforestry development, marketing of non-timber forest products and small-scale, ecotourism and commercial wildlife breeding of caimans or other species. Project selection mechanisms and criteria have already been developed by PROFONANPE, and the first round of proposal review will take place by mid-October 1994. 5. Operational Support for PROFONANPE (US$173,000). Initial donations by the Canadian International Development Agency provided PROFONANPE with office space and fully equipped offices in Lima. For the initial two years of the project, the expenses of the project coordinating unit would be borne by the GTZ grant with a possible extension of up to four years. Thereafter, and on a increasingly diminishing rate, these costs will be financed using a portion of the income of FONANPE. - 20 - ANNEX 4 Annex 4: Description of the Protected Areas Supported Under the Trust Fund Manu National Park and Biosphere Reserve 1. The Manu Biosphere Reserve encompasses over 1.5 million hectares, divided into three management categories: Manu National Park, a core area preserved in its most natural state; the Experimental or Reserved Zone, a buffer zone set aside for controlled experimental research and tourism; and the Cultural Zone, a transition area of permanent human settlements where sustainable uses of land and forest are promoted. The Reserve contains the world's highest recorded diversities for birds, mammals, reptiles, amphibians, freshwater fishes, all vascular plants, trees, butterflies, and invertebrates. In only a few square kilometers, at the Cocha Cashu Biological Station in the park's lowland rain forest, over 560 species of birds have been recorded. It is estimated that a comprehensive inventory would reveal close to 1,000 bird species in Manu. Current bird counts in Manu represent 25 percent of all bird species known in Latin America and nearly 10 percent of the earth's birds. Despite the botanical interest in Manu, relatively few plant collections have been made there. At least 1,200 species of vascular plants are reported from limited samples of the lowlands. This estimate is likely to increase substantially when plant inventories are completed for all altitudinal levels. The more than 200 species of trees reported from a 1-hectare plot of forest in Cocha Cashu alone makes this one of the world's most diverse forests. The appearance of the mature forests at Manu is impressive, with emergent trees reaching heights above 55 meters on well-drained sites. Manu is one of the last South American wilderness areas with extensive pure stands of large cedro (Cedrela spp.) trees. Elsewhere in the Neotropics this valuable timber species has been virtually eliminated. 2. The Manu National Park and Biosphere Reserve has been subject to mild stresses but is threatened by a dramatic escalation of both the number and intensity of its problems. The difficulties the Reserve faces originate from its management as well as from outside forces. No coherent management exists: Manu's administration is the responsibility of the regional government, whereas given that it is also a national park and biosphere reserve INRENA is responsible for technical support. Despite the existence of biannual management plans, and an "anthropological plan" addressing indigenous populations inside park boundaries, insufficient funds have precluded their implementation. In 1992, Manu's staff dropped from 33 to 8 people due to low salaries and morale. That year only one fifth of the already inadequate, allotted annual budget was actually distributed. The park suffers also from inadequately trained staff. The lack of infrastructure such as guard posts, docks and roads, as well as insufficient numbers of boats, trucks and radios, make policing the park extremely difficult. 3. Managing and protecting the park coherently and efficiently is increasingly important in the light of mounting outside threats. Immigrants from the highlands are encroaching on park territory, practicing destructive forms of shifting agriculture. Wood extraction from park lands is also reportedly increasing. Peasants have cleared and burned areas along the western highland and south western borders for pasture and cropping. The Camisea natural gas deposits near the western border will start being developed in 1995. This could cause an influx of population and subsequent pressure on the resources of the surrounding area. Park boundaries are at best poorly marked, and much of the Reserve frontier is totally unmarked. No planning or control accompanies the chaotic tourist industry operating in the reserve. Intrusions by outsiders, as well as the park's failure to establish good relations with indigenous populations, has meant that frictions between colonists or park staff and indigenous populations are mounting. Many volatile land tenure issues remain unresolved. - 21- ANNEX 4 4. Through time, as funds permit, income from the trust fund will help implement the biannual management plans, and fit them into the National Park Strategy. The park's administration and planning will be consolidated and streamlined to allow for both more coherent and efficient management of the park as well as a strong, united public front to defend the park from threats like energy, logging or agricultural interests. Park facilities and equipment for transportation and communication will be provided specifically to patrol the park, while at the same time making these resources available to researchers to the degree possible. The park's boundaries will be marked. With a regular, adequate budget, sufficient personnel may be (re)hired and provided with training if needed. A public relations/education campaign to make known the objectives and importance of the park will be undertaken in and around the area. Tourism to the area will be managed according to a coherent plan that assures its adherence to the park's objectives. Through local governments, NGOs and Universities, sustainable development efforts will be supported in areas inside and around the park according to the park's guidelines and Peruvian law. Scientific studies will be supported, both to study the ecosystems and species of Manu and to monitor the impacts of various interventions inside and outside the park. Noroeste Biosphere Reserve 5. Three contiguous protected areas in northwestern Peru--Cerros de Amotape National Park, the Tumbes National Forest and the El Angolo Hunting Reserve comprise the Noroeste Biosphere Reserve. Totaling over 233,000 hectares, the Reserve contains the best remnants of the once- extensive areas of western South American dry tropical forests, and harbors many endangered wildlife species. Additionally, a coastal mangrove forest is also part--albeit not contiguous--of the Reserve. The Manglares de Tumbes National Sanctuary protects a sample of the southernmost boundary of mangrove distribution in western South America. Like all mangrove ecosystems, the Tumbes Mangrove Sanctuary provides an important basis for the area's artisanal fisheries. In general, the tropical dry forests and coastal mangroves are two of the most threatened and rare natural ecosystems left in Latin America. This set of protected areas in Peru offers a unique opportunity to preserve representative examples of those communities and ecosystems, as well as to learn how to manage portions of them for direct harvesting of natural resources for the benefit of the local population. 6. The natural resources of Noroeste Reserve are subject to a number of pressures which have been notably increasing over the past few decades, particularly the last ten years. Those include: poaching and firewood extraction by the Peruvian Army and local artisans; extensive logging in one area of the park by parquet production companies; cattle grazing in several areas of the park during the dry season; illegal hunting of wildlife for the international pet trade; and fires that invade from surrounding agricultural zones. The Reserve's infrastructure and protection capacity are woefully inadequate in the face of these pressures. Additionally, an irrigation dam on the Rio Tumbes has been proposed and enjoys popular support. It would affect the Park and the National Forest and jeopardize several endangered species like the American crocodile and the river otter. The mangroves are particularly threatened by over 200 shrimp breeding farms, depletion of natural populations of shrimp larvae, over-exploitation of black scallops, and tree felling for fuelwood. In general, the habitat degradation is caused and exacerbated by outside special interest groups, not local people. Local communities are using the resources, in some cases only on a subsistence basis, at levels that could be withstood by the resources if properly managed. A lack of government involvement in the past has aggravated the pressures on the natural resource base in this region. 7. The trust's income would allow the Reserve to stabilize and strengthen its administrative and protection capacities through hiring more staff, providing training for all employees, constructing new guard posts and infrastructure, and equipping staff with adequate offices, supplies and means of - 22 - ANNEX 4 transportation and communication. The Reserve plans an intensive education and public relations campaign because the Reserve has been degraded by people who poorly understand its objectives and value. At the same time, sustainable development efforts have been promoted by environmental NGOs in the region since 1990. FONANPE would support efforts by these NGOs to take the lead in developing the region with environmentally sensitive activities. It would also try to generate local support for the Reserve to help discourage incompatible activities like dam-building. It will promote tourism and scientific inquiry. Rio Abiseo National Park 8. The Rio Abiseo National Park is one of the newest and most diverse protected areas in Peru. The park was established by the Peruvian government in 1983, primarily to protect a representative sample of cloud forest habitats. Hidden in the clouds much of the year, these forests harbor many unique species of plants and animals, including the endangered yellow-tailed woolly monkey. Found only in these forests, this animal has been chosen as the park's symbol. Rio Abiseo encompasses 274,000 hectares, enclosing the entire Abiseo River watershed. Within its boundaries the rivers descend abruptly from 14,000 feet above sea level to 1,000 feet. Ecologically this park contains at least five distinct life zones, ranging from the premontane tropical forests to the treeless paramo or frostland, and harbors exceptional biological diversity. In addition to its natural riches, it contains spectacular archaeological remains with great research and tourism potential. Maintenance of this area in its pristine state is essential in the protection of the Huallaga River Basin Watershed. 9. The Rio Abiseo National Park and buffer zones are relatively intact, but are at risk on several fronts. Peasant villages along the western border threaten the integrity of the highland ecosystems, especially in areas where park land has been burned for pasture. Seven families reportedly live within Park boundaries, and property rights are poorly defined along its western border. Luckily, however, relations between local populations and the park have been relatively good. Gold mines to the west have attracted settlers, many of whom wish to prospect inside the park. A road was proposed, cutting straight through the Park, which would inevitably bring in a wave of migratory farmers. Were tourism developed, peasants from the neighboring areas would be apt to relocate at the border of or inside the park to capture some of the wealth. Plundering of archaeological sites is increasing. No humans are known to live in the eastern portion of the Park, but the area has been considered for small-holder agriculture, logging and access roads to other areas. 10. Administrative and budgetary problems have plagued the park since its creation. At present, the government contributes almost nothing to its support. All resources come sporadically from private sources, and planning is difficult when the park must survive based on such scarce and unpredictable funding. Over half its guards quit in 1992, perhaps due to low morale and the higher salaries offered in the neighboring gold mines. This lack of on-the-ground supervision has resulted in a much higher incursion rate than in previous years. Neighboring communities perceive the park administration to have abandoned its protection efforts. A lack of infrastructure and equipment means that protection, transportation, access and communication are extremely difficult. 11. The trust fund annuity would support efforts to hire and train personnel, paying locally competitive salaries. It would support guard posts, infrastructure, means of transportation, radio communications and other equipment necessary to protect the Park, thereby dispelling the perception that the area is one of open access. As funding permits, it would construct education centers and promulgate the objectives of the park to neighboring communities. It would help maintain or establish open and friendly relations with neighboring populations. It would help develop a planned, controlled tourist industry, emphasizing preservation and study of the magnificent natural and cultural - 23 - ANNEX 4 resources of the park. It would support the sustainable development efforts of NGOs working in the area like the Asociaci6n Peruana para la Conservaci6n de la Naturaleza. This continued support would establish a consolidated, unified administration that will be effective not only in protecting and managing the park within its boundaries, but also in defending the park at a national level from threats such as mining, logging and road-building concessions. - 24 - ANNEX 5 Annex 5: Terms of Reference for the Technical Committee of PROFONANPE 1. Objectives: The Technical Committee of PROFONANPE (TC) will: (i) Provide technical assistance and advice on the allocation of funds to the Board of PROFONANPE as needed concerning the field and office operations of the program. Whereas it will have no voting power concerning how to allocate funds, Bank supervision missions will evaluate whether its suggestions have been adequately incorporated into programming. (ii) Develop guidelines for monitoring and evaluation for the program, and as needed, carry out specific monitoring and evaluation tasks. (iii) Conduct an annual evaluation of the performance of the asset manager. 2. Composition: The TC will be composed of specialists in various technical areas pertaining to the operations of PROFONANPE and program beneficiaries. Such specialists includes those with experience in the program's field work, such as ecologists, biologists (plant, marine, animal), wildlife specialists (ornithologists, primatologists, entomologists), foresters, park managers, anthropologists/rural sociologists, geographers, epidemiologists or doctors, pharmacologists and experts in rural development, education and gender issues. It should also contain advisors on office operations, such as specialists in business, finance, investments, accounting, organization/management, law, policy and institution-building. It should draw most of its membership domestically, but some members may be drawn internationally to benefit from new experience and thinking elsewhere in the world and to promote the program abroad. 3. Structure and Responsibilities: The TC will have an in-country core unit and a mixed domestic-international roster. The core unit will be responsible for advising on small issues as needed, as well as for the writing of reports and the monitoring and evaluation guidelines. Both the domestic unit and the international roster will review annual work plans, as well as conservation unit management plans and the monitoring and evaluation guidelines. The core unit may write reports (which the entire TC should review) if either it desires or if requested by the Board. The core units would meet once or twice a year to discuss annual work plans, and whenever a meeting is needed. For practical reasons, non-core members will not be required to attend meetings, but may do so at their own expense. The Board will devise procedures for the regular supervision of the program by the TC, and for TC approval of the reports and guidelines the TC generates. 4. Nomination and Selection: The core unit will be composed of 12 to 18 members selected for their expertise in areas of direct relevance to FONANPE's activities. The number of members would not be fixed, because experts with new skills may be required after its formation, whereas other specialists may not be needed subsequently. Based upon nominations received from the Board of PROFONANPE, INRENA, concerned NGOs, the World Bank/GEF and the GTZ, the Project Coordinator will present a proposal to the Board with a list of nominees to be invited to serve on the TC. 5. Financing: Members of the TC will assist PROFONANPE free of charge since members' responsibilities are small and FONANPE's funds are scarce and should be directed instead towards the conservation units themselves. If specific tasks arise requiring significant work, however, the Board and Project Coordinator may commission members of the TC to perform them at rates to be determined for each individual task. - 25 - ANNEX 6 Annex 6: Monitoring and Evaluation Introduction. 1. In keeping with the pilot nature of the first tranche of GEF projects, the Peru Trust Fund for Protected Areas will serve as a test of the effectiveness of trust funds as mechanisms for long term financing of biodiversity conservation. The project will provide an opportunity to address the design and management issues associated with financing the recurrent costs of biodiversity conservation. The ultimate goal of the trust fund itself, however, will be the preservation of biodiversity in Peru by providing a stable source of funding for conservation programs and activities. 2. Given the dual objectives of the project, the monitoring strategy will consist of two types of evaluation: (i) the monitoring and evaluation of the implementation of the GEF project per se; and (ii) the evaluation of how trust funds contribute to biodiversity conservation. The lessons learned in this second form of evaluation would contribute to the global body of knowledge of biodiversity conservation strategies. The sections below delineate the specific benchmarks for both project implementation success and the criteria for success of the trust fund as a mechanism for financing biodiversity conservation. Evaluation of Project Implementation 3. The following benchmarks will be used to evaluate the effectiveness of project implementation. Success in meeting the implementation benchmarks will also serve to determine at what point the Bank ceases supervision of the project. The benchmarks fall under three broad categories: institutional capacity, financial effectiveness, and the adequacy of the legal framework. INSTITUTIONAL CAPACITY * The Board of Directors has met at least twice each year and has carried out its responsibilities as established in PROFONANPE by-laws for three years in a row. O The project coordinating unit is functioning and staffed with qualified professionals. * The Technical Committee is functioning and has provided relevant technical input to the Board of Directors, including conducting an annual evaluation of the asset manager of the fund for 3 years in a row. * The selection of activities and projects is made in accordance with the Board's project eligibility and selection criteria, and following the agreed-upon participative and consultative process for three years in a row. * Satisfactory annual work programs are submitted to the Bank for review in a timely manner for three years in a row. A satisfactory work program would contain a clear statement of objectives and the proposed activities would be consistent with these objectives. * The disbursement of funds for the various activities and projects is made in a timely and efficient manner for three years in a row. * Satisfactory annual progress reports are submitted by the Board to the Bank in a timely basis for 3 years in a row. - 26 - ANNEX 6 * The fund has a clear written strategy for raising additional funds and is actively pursuing further donations. * Administrative costs are kept within agreed-upon limits, not exceeding a 5% increase per year. * Annual audits show satisfactory performance in funding approved work programs and competent record-keeping for three years in a row. * Procurement is made in accordance to Bank-approved procedures for three years in a row. FINANCIAL EFFECTIVENESS * Adherence to investment guidelines for three years in a row. * Adherence to disbursement guidelines, based on the "spending rule" for three years in a row. LEGAL FRAMEWORK ADEQUACY * All necessary legislation and other arrangements are in place to assure effective functioning of the fund, including protection from attachment and taxation. Evaluation of the Trust Fund as a Mechanism for Financing Biodiversity Conservation. 4. The impact of the trust fund will ultimately be measured by what is "bought' in terms of biodiversity protection. Such an evaluation, however, would not be feasible within the time frame of the GEF project; the evaluation of changes in natural systems takes decades and requires the extensive inventory of key species to obtain data on population sizes and distribution. The collection of such data is technically difficult, time consuming, and expensive. Moreover, what can be measured is often hard to interpret both due to inherent natural fluctuation in ecological processes as well as the difficulty of determining the counterfactual case, that is, what might have occurred in the absence of the project. For these reasons, project design and implementation are used as proxies for impact. 5. The success of the trust fund will depend on a series of factors, some of which are under the control of the project implementors and some of which are not. For example, the trust fund will require favorable market conditions to generate adequate investment returns, as well as successful fund raising yet both will depend largely on outside forces. Similarly, the effectiveness of conservation measures adopted will depend on the quality of their design as well as on national policies and socio-economic circumstances. 6. Taking these factors into consideration, the achievement of the benchmarks below will indicate the success of the trust fund as a mechanism for financing biodiversity conservation. * FUND RAISING SUCCESS: The fund has reached a minimum capital level of $40 million dollars (the goal is to reach this capitalization level within five years from the date of the grant). * FINANCIAL EFFECTIVENESS: The investments are providing reliable and adequate returns. This entails a minimum of 10% annual return of the investment so as to cover program needs (5%); provide annual reinvestment to maintain real value of seed capital; and afford a capital reserve to offset low-yield years. - 27 - ANNEX 6 * GOVERNMENT COMMITMENT: The government is committed to providing long-term financing for protected areas, as evidenced by their active participation in the activities of the Board of Directors of PROFONANPE and by supporting its fund raising efforts by facilitating debt-for-nature transactions and other contributions. Commitment is also reflected by the government's continued funding for the protected areas at the current level of budget allocation (in real terms), thus ensuring that the GEF funding is truly additional. * BIODIVERSITY IMPACT: The stable financing provided by the trust fund ensures that the protected areas receive adequate management, which in the long run results in decreased park encroachment, deforestation, poaching and biodiversity loss. The impact of the project on the protected areas will be evaluated against the baseline information collected during project preparation and summarized in the background paper on each of the selected areas titled: "Informe sobre las Areas Protegidas Seleccionadas para Apoyo por el GEF." Moreover, the impact of the project will also be evaluated as a function of how it has contributed towards the goals established in the management plan or operating plan of each protected area. * SOCIAL IMPACT: The trust fund's decision-making processes have fostered local and NGO participation in the management of the protected areas, as evidenced by their active involvement in decisions about the allocation of resources in each protected area and their understanding and commitment to the goals of park management. - 28 - ANNEX 7 Annex 7: Project Eligibility and Selection Criteria Project Eli2ibility Criteria The income generated by PROFONANPE's trust fund will be used to finance a variety of conservation activities in the selected areas and their buffer zones. The activities eligible for funding include: 1. Financing the recurrent costs of protected area management (such as facilities and infrastructure for park personnel, operational expenses of park administration, etc.). This funding should not replace regular government allocations. 2. Drafting, revising and implementing management plans 3. Establishing and managing buffer zones 4. Training professionals in park and wildlife management 5. Instituting environmental education and public awareness programs for communities associated with protected areas 6. Implementing projects that integrate conservation and development to benefit the communities living in the protected areas and buffer zones 7. Institutional support the strengthening of INRENA's General Directorate of Protected Areas and Wildlife (DGAPFS) 8. Administrative expenses of PROFONANPE The protected areas initially selected for financial support are: a) Northwest Biosphere Reserve (includes Parque Nacional Cerros de Amotape, Bosque Nacional de Tumbes, Coto de Caza El Angolo and their areas of influence). b) Parque Nacional Rio Abiseo and buffer zones. c) Manu Biosphere Reserve (includes Parque Nacional and Zona Reservada del Manu, as well as their areas of influence). As the trust fund grows, additional areas may be added to this list by the Board of Directors of PROFONANPE, based on the Master Plan for the National System of Natural Areas Protected by the State (SINANPE), currently under development. Initially, grants are not expected to exceed $50,000 per year per grant, although this level may be revised by PROFONANPE's Board of Directors at a later date. The specific allocation of funds generated by the trust's investments will be determined by PROFONANPE's Board of Directors, based on a draft work program prepared by the project Coordinator. This draft work program will be based on an analysis of the requirements and needs for each area, made jointly by INRENA and PROFONANPE's Coordinator. This analysis of needs will - 29 - ANNEX 7 be based on the Master Plan for SINANPE, and the management plan and/or operating plan of each conservation unit. Given the project's commitment to fostering a participatory approach to conservation, this analysis of needs will be made in close coordination with each protected area's administrative officer, local committees, (where they exist), park officers, local grassroots organizations and local communities. After this participatory and consultative process has taken place, PROFONANPE's Coordinator will present to the Board a proposal outlining the prioritized actions in each area, and a recommendation on which activities are suitable for being carried out directly by the DGAPFS and which are appropriate for allocation on the basis of an open contest process. The draft work program will include a statement of specific objectives to be pursued during the year and a description of the activities to be undertaken in order to achieve those objectives. PROFONANPE's coordinator will send this draft work program to the Technical Committee for written comments, and will prepare a memo to the Board summarizing the comments received and how these were taken into account in revising the work plan. The Board will send this program to the Bank for comment no later than November 15 of each year. Once the Work Program has been approved, PROFONANPE will issue the appropriate "Request for Proposals" for the prioritized activities to be awarded on the basis of an open contest. Eligibility Criteria for Participating in the Open Contest Proposals submitted on an annual open contest basis will be eligible under the following conditions: i. Proposals may be presented by each protected area administrative authority as well as by private institutions, universities and community-based organizations, or associations comprised of more than one of these entities. In the case of private institutions they should: a) Have at least two years of experience in natural resource conservation projects. An exception can be made in the case of cooperatives, agricultural credit unions and small producers associations, as long as the group can satisfactorily demonstrate experience in other communal projects. b) Have updated accounting procedures in accordance with accepted accounting practices. c) Have been legally established for at least one year prior to the date of launching of the public contest process. Organizations which have not been legally constituted, but whose activities relate to a specific protected area or represent the local populations, may apply for funds through sponsoring organizations which fulfill the above requirements. 2. Proposals must: a) Adhere to the priorities established by PROFONANPE in coordination with the DGAPFS, following the guidelines of the Master Plan for SINANPE. b) Be in keeping with other on-going efforts to further the appropriate management of the protected area. c) Be based on one-year work plans. - 30 - ANNEX 7 Procedures for Project Selection To evaluate the proposals presented, PROFONANPE will establish an evaluations committee. This committee will be comprised of: 1. One representative appointed by the Board of PROFONANPE. 2. One representative appointed by INRENA. 2. One representative of PROFONANPE's Technical Committee appointed by PROFONANPE's Coordinator, with the relevant professional qualification in keeping with the subject matter of the proposal. Announcement of the open contest process will be made in a national paper and through other suitable media in localities near the protected areas two months prior to the applications deadline. Announcements will be made as well through the managers of each protected area. It will be the responsibility of the Coordinator of PROFONANPE to ensure that the information regarding the request for proposals reach the local and grass-roots levels. Evaluation Criteria Proposals will be selected for funding according to the following criteria: 1. Relevance and adherence of the proposal to the Master Plan for SINANPE and to the Master Plan of the specific area under consideration (if available). 2. Clear definition of methodology and reasonable costs. 3. Likelihood that the activities are socially, environmentally and financially sustainable. 4. Relevance of the proposal to the priorities defined for the funding period. 5. Innovativeness and replicability of activities at the local level and at other natural protected areas. 6. Participation of local grassroots organizations and the affected population in identification of needs, as well as in the planning, implementation and evaluation of the results of the project. 7. Social viability insofar as the proposed activities address the needs identified by the affected populations. 8. Technical and administrative capacity of the sponsoring institution to execute the proposed project, based on the qualifications of its staff and its record with other projects. 9. Degree of commitment to the project, as demonstrated by the provision of financial or in-kind counterpart resources. - 31- ANNEX 8 Annex 8: PROFONANPE's Administrative Costs TABLE I PROFONANPE Administrative Costs (US$ '000) YEAR Year I Year 2 Year 3 Year 4 Year 5 TOTAL 1995 1996 1997 1998 1999 l PROFONANPE's 0 150 159 166 175 650 Administrative Costs l TABLE 2 PROFONANPE Annual Operating Costs (in 1995 US$) Personnel Costs 92,894 Coordinator 42,910 Administrator/Accountant 16,016 Secretary 11,550 Messenger, Office Assistant 7,084 Health Insurance 550 Social Security 14,784 Office Costs 29,560 Office Rent 10,560 Electricity and Office Maintenance 4,000 Fax, Telephone 6,000 Postage and Courier Service 1,000 Equipment Maintenance and Repair 2,000 Office Supplies/Photocopying 6,000 Financial Audit 5,000 Travel and Per diems 6,500 Transportation 8,700 Fuel, Repair and Maintenance 6,000 Parking, Local Transportation 1,500 Insurance 1,200 SUBTOTAL 142,654 Price Contingencies (5%) 7,133 TOTAL 149,787 - 32 - ANNEX 9 Annex 9: Selected Documents Available in Project File * The initial proposal from the Government of Peru to the GEF for the establishment of a Trust Fund for Parks and Protected Areas, March 1992. * A report of the investment opportunities in the United States titled: "Informe sobre la Eleccion de una firma financiera para la administracion de activos del fondo fideicomiso," by Mr. Francisco Tourreilles, May, 1992. * A report of the investment opportunities in Peru titled: "Informe para el consejo directivo del PROFONANPE sobre la seleccion de un banco nacional para la administracion de los fondos del FONANPE en el Peru," by Ms. Bernardita Zapata, August, 1994. * A report on the future perspectives of the Peruvian Economy, Business and the Lima Stock Market titled "Peru: Looking Ahead," by Intervalores, Peruvian Equity Research, May, 1994. * A background paper on the protected areas selected for support under this project titled: "Informe sobre las Areas Protegidas Seleccionadas para Apoyo por el GEF." * Copies of the following legal decrees: Decree Law No. 26154, establishing FONANPE and PROFONANPE Supreme Decree No. 024-93-AG, ratifying PROFONANPE's bylaws Supreme Decree No. 43-94-AG, modifying the composition of PROFONANPE's Board Legislative Decree No. 769, establishing the general law of banking institutions. * A paper on the conservation strategy for Peru titled: "Estrategia Nacional para la Conservacion," by the Nacional Commission to Develop a National Conservation Strategy, 1991. * 1993 Annual progress report of PROFONANPE, titled: "Memoria 1993." * 4A Manual of Norms and Procedures for PROFONANPE, January 1994. * A Manual of Organization, Functions and Policies for PROFONANPE. * A legal opinion on the risk of attachment of the trust fund in the U.S.A, issued by the firm of Baker and Hostetler, dated May 19, 1993. * Management Plans for Manu National Park, Rio Abiseo National Park and Noroeste Biosphere Reserve. 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Группа Всемирного банка · GEF Project Document
Peru - National Trust Fund for Protected Areas Project
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