Tanzania - Supplemental Project to the Lake Victoria Environmental Management Project

Report No. PID10719 Project Name Tanzania-Lake Victoria Environmental ... Management Region Africa Sector Agriculture and Environment Project ID TZPE46837 Project Supplemental Credit TZPE76093 Funding Source IDA Implementing Agency United Republic of Tanzania Office of the Vice President LVEMP National/Regional Secretariat P.O. Box 78089 Dar es Salaam, Tanzania EA Category B PID Transmittal Date October 5, 2001, (May 4, 1995 for LVEMP) Projected Appraisal Date Not Needed Projected Board Date December 4, 2001 1. Country and Sector Background: Tanzania is one of the poorest countries of the world. Per capita income is estimated at about $250 per year. Covering an area of 945,000 square kilometers, it has a population of about 33 million growing at about 3 percent a year. The economy is heavily dependent on agriculture (primarily, coffee, cotton, tea, cashew nuts, sisal, maize, rice, wheat, cassava, and tobacco), which accounts for about 50 percent of GDP, provides 85 percent of exports, and is by far the largest employer. Topography and climatic conditions, however, limit cultivated crops to only a small fraction of the land area. Industry accounts for some 15 percent of GDP and is mainly limited to processing agricultural products and light consumer goods. The mining sector has good potential, but has yet to be fully developed. 2. A Country Assistance Strategy (CAS) for Tanzania was approved by the Bank's Board on June 15, 2000. Building on the stable macroeconomic framework to address poverty, strengthen sources of growth for improved per capita income and enhanced social services delivery, are now central to Tanzania's development agenda. Reflecting this, the focus of the CAS is on higher economic growth, poverty reduction and institutional reforms to improve governance. It conforms with Government's main strategic directions - adherence to macro stability, increased private sector participation in the economy, a renewed emphasis on rural development and improved delivery of social services. It also supports the Government's desire to enter into new relationships with partners, based on the phased switching from projects to programs for a more effective and efficient use of aid resources. In supporting these objectives, the CAS suggests a lending program which will be increasingly geared towards operations with a direct bearing on poverty and strengthening of social sector programs, in a shift from the earlier emphasis  on infrastructure development. Specifically, paragraph 46 of the CAS lists the four agreed areas for lending and non-lending interventions of strategic importance. These are: Private sector and infrastructure development, to support the Government's objective of making private sector the engine of growth; Sustainable rural development, to improve the livelihood of the majority of the poor who live in rural areas; Improved social infrastructure, to improve social indicators and enhance access for the poor to essential public services; and Public sector reform and institution building, to increase the effectiveness of public service delivery and improve governance. 3. Most of the rural poor rely on direct, subsistence, use of natural resources. Long-term environmentally and socially sustainability use of these natural resources depend on an understanding of the parameters that define sustainability. These include the ability to identify consumptive uses, on-site and off-site impacts of existing and potential natural resource utilization strategies, and the location, status and value of biodiversity and environmentally sensitive areas (such as wetlands, forest reserves, satellite lakes, etc.) of the Lake and its catchment. The LVEMP (and supported by the Supplemental credit) has been designed to obtain (at the very least) the minimum amount of information needed by GOT managers to make rational judgments about what is environmentally and socially sustainable. These judgments, in turn, will define interventions needed by the GOT, and its donors. 4. This PID outlines the scope of the Supplemental Credit for the Lake Victoria Environmental Management Project (LVEMP). As such the PID presents a description of the LVEMP and its implementation history, as revealed by IDA/GEF supervision missions over the last 4 years. The PID then provides details about the scope and use of the additional funds. However, the Supplemental Credit will only continue the financing of existing LVEMP activities. No major additions or changes in either objectives or workplan are contemplated. Lake Victoria Environnemental Management Project 5. Project Background: Lake Victoria is the second largest freshwater lake in the world. It also holds the worlds largest freshwater fishery, largely based on the introduced Nile perch, which supports an economically and socially important export fishery for the riparian countries around the Lake. The Lake has experienced a serious decline in water quality since the 1960's. Phosphorus concentrations have risen by a factor of two, algal biomasses have increased by a factor of 8 to 10, the deep waters of the lake are more depleted in oxygen for longer periods of time each year, and filamentous and colonial blue-green algae now dominate the algal community. Most recently water hyacinth has invaded the lake and, up until recently, had reduced the efficiency of operation of the Owen Falls hydroelectric plant and blocked access to ports, fish landings and watering points. These changes are evidence for a profound eutrophication of this African Great Lake which may still be accelerating. This is a cause for concern for the many domestic, agricultural and industrial uses of the lake. While ecosystemic changes are well documented, the causes for these changes are uncertain. 6. Basic data have not been acquired over time on: (a) the quantity and quality of waters entering the Lake from rivers and the atmosphere; - 2 -  (b) the lakewide concentrations of nutrients; (c) the internal circulation of waters and the exchange of nutrients between different water layers and across the water:sediment interface; (d) the factors which may be limiting algal growth; and (e) the relative importance of different human activities in causing these changes. 7. The three riparian countries around Lake Victoria (Kenya , Uganda and (Tanzania), initiated regional cooperation through a tripartite agreement to work together to solve the problems of the Lake. This led to a joint request by the three governments for funding assistance from the Global Environmental Facility and the International Development Agency. The three governments reiterated this request in 2000, stressing the need for long term commitment to resolving environmental and social issues in the Lake Basin by both the riparian countries and their donors. 8. LVEMP Project Objectives: The LVEMP is a regional project with Tanzania being identified and empowered by the other riparian countries of the Lake as the "Regional Coordinator" of the LVEMP. The Executive Secretariat in Tanzania has successfully coordinated all national and Basin-wide activities supported by the Project 9. The LVEMP/Tanzania is a comprehensive program aimed at rehabilitation of the Lake ecosystem for the benefit of the people who live in the catchment, the national economies of which they are a part, and the global community. The program objectives are to: (a) maximize the sustainable benefits to riparian communities from using resources within the basin to generate food, employment and income, supply safe water, and sustain a disease-free environment; and (b) conserve biodiversity and genetic resources for the benefit of the riparian communities and the global community. In order to address the tradeoffs among these objectives which cut across national boundaries, a further project objective is to harmonize national management programs in order to achieve, to the maximum extent possible, the reversal of increasing environmental degradation. 10. Technically, the Project consists of ten components, including fisheries management, fisheries research, wetlands management, soil conservation, catchment afforestation, water quality and ecosystem management, water hyacinth control, industrial and municipal waste management, university capacity building, and microprojects with local communities. There is also a significant effort to develop both institutional and staff skills. Natural resource management laws and regulations have been strengthened and harmonized between the riparian countries and over 30 staff have been supported by the project to undertake MSc and PhD degree programs. 11. LVEMP Implementation History: Although the initial implementation of the LVEMP was somewhat problematic, the Project is now seen as being "highly successful" and could become a model project for the Africa Region. The implementation difficulties initially experienced are best illustrated in the time it took to begin full-scale activities, and how quickly and efficiently the Project in Tanzania has turned around and been implemented once these problems were overcome. At the time of the Midterm Review of this 5-year project, less than 10t of Project funds had been disbursed. Yet today, 2.5 years after the Midterm Review, the Tanzania LVEMP is about 90 disbursed. 12. Because of the slow start of the current LVEMP, significant refocusing of effort had to be undertaken during the Project Midterm Review. The rational for the refocusing effort was as follows: The LVEMP was not intended, nor could it ever be, the "savior" of Lake Victoria.It took decades for the problems of the Lake and its catchment to -3 -  become apparent, and it will take as long or longer for these problems to be addressed; The LVEMP should actually be seen as the first step in a long process that leads to a clearly identifiable improvement in sustainable use (including in some specific instances, limited and non-use) of the natural resources of the Lake. From this perspective, the LVEMP has the objective of issue identification and prioritization, and presents an opportunity to pilot potential solutions to any identified problems; The LVEMP will result in an improved ability in the riparian governments to embark on a long-term program of resource management and environmental improvement (through equipment purchase and training). If this newly found capacity is not used for the purpose for which it was procured (i.e. management of the Lake and its catchment), then it will quickly be "lost" through staff and equipment reassignment, lack of use, etc.; For solutions to be found to the problems of the Lake area, the riparian governments and their bilateral/multilateral donors need to make a long term commitment to addressing these problems... initially, for at least 10-15 years. Monitorable indicators of progress towards a clearly identifiable goal should become the measure of progress. 13. Based on the above, each component of the LVEMP was asked to identify priority activities and/or geographic areas in which they intended to concentrate the remaining time and resources available under the LVEMP. The GOT agreed that the LVEMP is a pilot to develop procedures to be used in onward activities in the Lake and its catchment. Which funding agency (including self funding) participates/assists with work in the future is seen as essentially irrelevant, since the Government will hold the vision of what is to be achieved and when goals are expected to be reached. The LVEMP is designed (and this has been reinforced during the Midterm Reviews) to provide the baseline data upon which the success or failure of follow-on, more aggressive, interventions to manage the natural resources of the basin can be based. 14. The LVEMP is now in its last year of implementation and all components are performing well. The Project was also able to address environmental, social and economic issues that were totally unforeseen when work started in 1997. In fact, the Tanzania LVEMP has moved from an Unsatisfactory supervision rating at the Midterm review to a Highly Satisfactory rating today. Achievements are many, but the most notable are as follows: Establishing and supporting fisheries "co-management units" with local fishing beach communities in over 500 sites around Lake Victoria; Obtaining an estimated 80t reduction in surface coverage of Water Hyacinths in the Lake through central and village-level biological agent rearing and release centers, and by manual means; Identifying habitats and faunal assemblages in Satellite Lakes to Lake Victoria that reflect the biodiversity of Lake Victoria before onset of eutrophication and introduction of the Nile Perch. This includes initiation of management and protection strategies for these important areas; Undertaking the first "whole Lake" fishing pressure survey ever undertaken on Lake Victoria; Undertaking the first harmonized "whole Lake" water quality/limnology survey of Lake Victoria; Undertaking an ambitious multisectoral management pilots of an important micro-catchments in the Lake Victoria Basin. This involved the soil conservation, catchment afforestation, wetlands management,micro-projects and water quality components of the Project working together to improve - 4 -  river/Lake water quality through a program of socially beneficial and economically positive interventions related to soil loss management, soil fertility enhancement and water use management in the micro-catchments; Assisting the GOT to meet European Union requirements for improving fish landing-beach sanitation and export certification of fish shipped to European Markets (in response to an EU ban on export of fish to Europe that had a devastating impact on the local economy and social well-being of people living in the Basin; Obtaining vital data on runoff and erosion potential in the Basin, and how this might be managed in the following phase of the Project to maintain/improve water quality in the Lake; Undertaking what is recognized as one of the most successful "microproject" activities in East Africa (community identified, implemented and co-financed activities); Identifying, locating and characterizing all major point-source pollution in the Lake Victoria Basin; Maintaining and expanding, through new gauging and weather stations, the hydrological monitoring program begun by the now close UNFAO-managed Water Resource Assessment Project. 15. The remarkable turn-around in the LVEMP in Tanzania is directly attributable to 100% ownership by the GOT, and specifically the Government scientists and managers implementing the Project. Description of the Supplemental Credit for the LVEMP 16. Rationale for the Supplemental Credit: Operational Policy 13.20 establish six criteria for validating requests for Supplemental Credit to an existing investment. These are presented below, with relevant information describing compliance within the implementation history of the LVEMP. a) Cost Overrun Due to Exceptional Circumstances Beyond the Borrower's Control 17. The LVEMP is one of the largest regional investment operations ever undertaken in Africa and as such, it was always going to be difficult and risky to implement. Direct cost overruns resulting from circumstances beyond the borrowers control can be attributable to the following major events: There are a number of inter-related natural resource management projects that exist (or existed) in the Basin that were intimately tied to the LVEMP through data sharing. Early closures and harmonization of activities with these projects (which were funded by other donors) required the LVEMP to assume financial and managerial control over significant parts of their activities in the Lake Victoria Basin. ; There was a need to reallocate significant Project funds to address constraints to fish exports from Lake Victoria to the European Union. This came in response to the EU closing its markets to fish exports from the region, which represented both a regional and national economic calamity; There have been steep increases in costs for such things as university tuition; Expanding the sampling program to include a number of "satellite lakes" in the basin when they were discovered, during routine Project evaluation, to be the main havens of aquatic biodiversity; Unexpected costs associated with the need to develop a stronger and safer deep- water monitoring capacity in the Lake. 18. The total direct cost overruns outlined above are approximately - 5 -  US$4.7 million.There were also indirect cost overruns that are related to the success of the Project and its developing importance as the de facto natural resource manager of Lake Victoria. This has placed an ever increasing demand on the Project Secretariat. The Tanzania LVEMP is significantly effected as it has been assigned the role of Regional Project Coordinator. Both national and regional project management/coordination roles are expanding. Indirect cost overruns have accrued for the following reasons: Increased demand on the Project's Regional Policy and Steering Committee to act as regional managers of the Lake (this Committee is composed of the Permanent Secretaries from Ministries implementing the LVEMP in Tanzania, Uganda and Kenya), and on the Tanzania LVEMP to coordinate the meetings, and take action on behalf, of this regional management group; Increased demand on the LVEMP Regional Secretariat to act as a regional coordinator of the managerial and scientific program operating in the Lake and its catchment (Project and non-project activities); Increased demand by the GOT on the Project Secretariat to service unexpected demands for information, and to provide management recommendations related to environmental and social issues effecting the Lake Victoria Basin. 19. The total estimated indirect cost overruns are approximately US$1.5 million. The supplemental financing avoids the risk of disruption and loss of momentum in the management of natural resources of the Lake. Lack of this extra finance would significantly impact on the ability of IDA/GEF and the GOT to prepare the proposed follow-on project scheduled to go to the Board in FY 2003/2004. b) The Loan is being Implemented in Compliance with Covenants 20. The LVEMP is being implemented in compliance with all covenants set forth in the Project's Development Credit and GEF Grant Agreements. The Project Supervision Reports support that the LVEMP has, over the last 2.5 years, gone from marginally satisfactory to fully satisfactory, and finally to highly satisfactory. The LVEMP has also been the object of a QAG review and two evaluations by independent GEF teams. All reviews have found the Project to be performing well. c) It is Impossible to Reduce the Scope of the Project to Fit the Available Resources 21. It is impossible to reduce the scope of the LVEMP to fit the available resources (about US$ 2 million when annual disbursements are historically US$4 million) without significantly impairing the project's economic viability or capacity to achieve its objectives, because: The Development and Global Objectives of the LVEMP could not be achieved without additional baseline monitoring, which requires additional funds. The Project envisaged at least 4 full years of seasonal data collection. Without Supplemental Finance, it may be difficult to complete the Long Rains sampling program in 2002. It is also important that both countries get at least a third year of seasonal sampling done to verify the results from previous years. The Project is therefore only assured of a single full year (i.e. a short rains, long rains and dry season cycle) contiguous sampling in Tanzania (1.5 years, total sampling); The LVEMP is providing the information necessary to prepare and implement the second phase of the LVEMP. Without the information to come from the LVEMP- 1, the risk of failure of the proposed follow-on project will be substantially greater (perhaps prohibitively so); d) The Borrower is Unable to Finance the Additional Costs and to Obtain Additional Funds from Other Lenders on Reasonable Terms or in Reasonable - 6 -  Time 22. The GOT continues to operate under difficult and restrictive macroeconomic constraints. Local finance is severely limited. The only other possible source of finance would be from bilateral donors, and most of those likely to contribute would find it difficult to do so because they are already providing substantial assistance to preparation of the second phase of the LVEMP or because they would not be able to mobilize the comparatively large amount needed. Even should sufficient funds be available, the time required to organize the funds (given the time needed to complete the identification/commitment schedule) would be far too long. It appears unlikely,because of financial constraints, that the LVEMP will have sufficient funds to complete the monitoring program for the upcoming "long rains" period beginning in March 2002, giving only 5 months to find and transfer additional funds. e) The Time Available is too Short to Process a Further Freestanding Bank Loan 23. The total time to process a freestanding Bank Loan to continue LVEMP activities would take significantly longer to prepare and be made "Effective" than would a Supplemental Credit for the existing Project. Where speed is of the essence,and the GOT suggests that its own processing time for a new investment would be somewhat longer than for a Supplemental Credit to extend the LVEMP (which has significant support both in the Government and the Parliament), the optimum option is a Supplemental Credit. f) The Borrower is Committed to the Project, and the Implementing Agencies have Demonstrated Competence in Carrying it out 24. Letters from all three countries committing to a long-term approach to resolving the problems of the Lake and its catchment, and seeking IDA/GEF assistance, have been received and are in the Project File. Preparation for the second phase of the LVEMP in Tanzania has begun with an expected Board Date in fiscal year 2003/2004. 25. Supplemental Credit Finance: The total project cost, net of taxes and duties, is estimated at US$5.23 million equivalent, of which an IDA Supplemental Credit of US$5.0 million equivalent is proposed. The Government contribution is estimated at US$230,000 equivalent, representing about 5% of the total project cost.Management of the Supplemental Credit will be through the existing National Project Secretariat for the LVEMP. 26. The LVEMP National Secretariat has established an acceptable accounting and reporting system for the Project, which will continue for the Supplemental Credit. Independent auditors acceptable to IDA will audit the use of all funds available under the Supplemental Credit, including the Special Account and the statements of expenditures. Audit reports will be submitted to IDA no later than six months after the end of the fiscal year. The format and the frequency of periodic reporting will be maintained as defined in the project implementation manual. An Implementation Completion Report (ICR) will be prepared within six months after Credit closing. 27. As part of this request for a supplemental credit, a concomitant extension of the closing date from December 31, 2002 to June 30, 2004 is proposed. The additional funding will support Project activities from February 2002 to the Project closing date of December 2002, and for an additional 18 months after this closing date. Without such extension of the closing date, the project would close at the end of December 2002, which would make it impossible to continue implementation of the scientific monitoring program of activities to be financed by the Supplemental Credit. 28. The additional time would allow the Project to continue collecting seasonal baseline data on water quality and quantity, soil/nutrient loss, - 7-  weather data and wet/dry deposition of macronutrients into the Lake, and allow pilot activities to be completed and data analyzed. These data are essential for achievement of Project objectives and for input into the preparation of the proposed follow-on project. Accordingly, as part of the amendment of the legal documentation for the supplemental financing, the Credit Agreement will be amended to reflect the proposed new Closing Date. 29. Benefits of the Supplemental Credit: Rehabilitation under the proposed Supplemental Credit will help ensure realization of the expected benefits of preserving biodiversity and promoting environmentally and socially sustainable use of the natural resources of the Lake and its catchment. The main economic benefits of the overall LVEMP derive from avoiding the losses that can be anticipated if effective action is not taken. Successful implementation of the Project is expected to lead to the: Avoidance of a decline in the overall fishery as a result of both overfishing and deterioration of Lake water quality; Reduction of the extent and severity of water hyacinth infestation; Maintenance of raw water supply from the Lake of a quality suitable for domestic water supply and animal watering; Arresting of continued degradation of the wetlands; Reduced loss of unique fish fauna and other important terrestrial and aquatic biodiversity. 30. The benefits of the LVEMP and the proposed Supplemental Credit would be the avoidance of incremental cost that would otherwise eventuate through a failure minimize/prevent the environmental problems described above. In addition, there would be other benefits, such as speeding the identification, justification and implementation of other environmental and social interventions in the Basin that could be in themselves economically justified, but for which insufficient scientific data exist to justify the cost. Without the knowledge to be obtained through continued LVEMP activities as supported by the Supplemental Credit, it will be very difficult for the GOT to make rational decisions about where and how to spend its limited development budget. 31. Environmental and Social Aspects: As part of preparation and design of the Project in 1995-1996, an Environmental and Social Analysis was conducted, the conclusion of which was that the LVEMP was an environmentally positive activity and was not expected to generate any significant environmental or social impacts.Large-scale control of water hyacinth in Tanzanian waters has been limited to biological and manual control methods, which have proven effective and environmentally benign. An ISDS has been completed for the Supplemental Credit. The Supplemental Credit maintains the original category "B" and has been assigned a safeguard classification of "Sf. - Financial intermediary projects, social development funds, community driven development or similar projects which require a safeguard framework or programmatic approach to address safeguard issues". The ISDS has been reviewed and the Supplemental Credit cleared by ASPEN. 11. Contact Point: Task Team Leader - 8-  William Lane, The World Bank MSN J 6-600 1818 H Street, NW Washington D.C. 20433 Telephone: 202 473 7325 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. It was not possible to undertake a formal estimate of Economic Rate of Return in the Project SAR. Rather, a conservative estimate of the main quantifiable benefits of undertaking the Project, and costs should the Project not be undertaken, were made. These include direct positive effect on sustainable fisheries exploitation, and the costs of the water hyacinth infestation assuming no action, and further deterioration of water quality. The benefits to the fishery accruing through proper management were estimated to be $600 million at a discount rate of 12t of present value of the revenue stream for total exports. The costs of not managing the water hyacinth infestation of the Lake were estimated to be US$6-10 million/year, while likely costs attributable to costs associated with additional treatment of domestic water supply alone from the Lake in general at a minimum of US$3.5 million/year. These estimates of cost and benefit fully justify, alone, the LVEMP cost of US$25 million in Tanzania. Contact Point: Task Manager William Lane The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 202 473 7325 For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax:(202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may -9-  not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending October 19, 2001. - 10 -