Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 3 1975-AZ PROJECT APPRAISAL DOCUMENT ON A PROPOSED IDA CREDIT Public Disclosure Authorized IN THE AMOUNT OF SDR 5.4 MILLION (US$S.O MILLION EQUIVALENT) ANDA GLOBAL ENVIRONMENT FACILITY GRANT IN THE AMOUNT OF US$5.0 MILLION TO THE REPUBLIC OF AZERBAIJAN Public Disclosure Authorized FOR A RURAL ENVIRONMENT PROJECT May 12,2005 Environmentally and Socially Sustainable Development Unit South Caucasus Country Unit Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 3 1,2005)) Currency Unit = Special Drawing Rights SDR 1 = US$1.50803 US$1 = SDR0.66311 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AOP Annual Operational Plan (national parks) AREP Azerbaijan Rural Environment Project ARPF Access Restriction Process Framework AWP Annual Work Plan BAT Business Advisory Teams BTE Baku-Tbilisi-Erzerum CAS Country Assistance Strategy CBD Convention on Biological Diversity CENN Caucasus Environmental NGO Network CEPF Critical Ecosystem Partnership Fund CIS Commonwealth of Independent States DBCDSPNA Department of Biodiversity Conservation and Development of Specially Protected Natural Areas (within the Ministry of Ecology) EBRD European Bank for Reconstruction and Development ECA Europe and Central Asia ECC Ecological Coordinating Committee EL4 Environmental Impact Assessment EU European Union FA0 Food and Asculture Organization ofthe United Nations GEF Global Environment Facility GO Global Objective GOA Government ofthe Republic ofAzerbaijan ha hectare IUCN The World Conservation Union MENR Ministry ofEcology and Natural Resources METT Management Effectiveness Tracking Tool NEAP National Environmental Action Plan NGO Non-governmental organization NP National Park NSAPBC National Strategy and Action Plan on Biodiversity Conservation ONP Ordubad National Park ONPA Ordubad National Park Administration OPN Operational Policy Note OSCE Organization for Security and Cooperation in Europe PA Protected Area PAD Project Appraisal Document FOR OFFICIAL USE ONLY PDO Project Development Objective PHRD Japan Policy and Human Resources Development Fund PIM Project Implementation Manual PKJ Project Implementation Unit PCU Project Coordination Unit (field branch ofPIU) RECC Environmental Centre for the Caucasus SCAWM State Committee of Amelioration and Water Management SDNP Shah Dag National Park SDNPA Shah Dag National Park Administration SPNA Specially Protected Natural Area SDR Special Drawing Rights SME Small and Medium Enterprises SPPRED State Program on Poverty Reduction and Economic Development STAP Scientific and Technical Advisory Panel UNDP United Nations Development Programme USAID United States Agency for International Development vc Village Cluster WWF World Wide Fund for Nature Vice President: Shigeo Katsu Country Director: Donna Dowsett-Coirolo Sector Director: Laura Tuck Task Team Leader: Agnes Kiss This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. AZERBAIJAN Rural Environment Project CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE.............................................................................................. 1 I. County and sector issues ..................... ............................................... I 2. Rationale for Bank involvement ..................................................................................................................... 4 3. Higher level objectives to which theproject contributes ................................................................................ 5 B. PROJECT DESCRIPTION ............................................................................................................................. 6 1. Lending instrument ............................................................................................................ 2. Project development objective and key indicators ......................................................................................... 6 3. Project components .. ................................................................................................................................. 6 4. Lessons learned and reflected in the project design ... ....................................... 10 5. Alternatives considered and reasons for rejection ....................................................................................... I I C. IMPLEMENTATION..................................................................................................................................... 12 1. Partnership arrangements ($applicable) .................................................................................................... 12 2. Institutional and implementation arrangements.. ......................................................................................... 14 3. Monitoring and evaluation of outcomes/results ................. ........................ 15 4. Sustainability ................................................................................................................................................ 16 5. Critical risks and possible controversial aspects . ........................... ..................................... 16 6. Loadcredit conditions and covenants.. ........ ............................... .......................... 17 D. APPRAISAL SUMMARY.. ............................................................................................................................ 18 1. Economic andfinancial analyses ................................................................................................................. 18 2. Technical .......................................... ........... .................... 19 3. Fiduciary ...................................................................................................................................................... 21 4. Social ............................................................................................................................................................ 21 5. Environment ..................... 6. Safeguard policies ............ 7. Policy Exceptions and Readiness ........... ....................... Annex 1: Country and Sector or Program Background ....................................................................................... 26 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................................................ 31 Annex 3: Results Framework and Monitoring....................................................................................................... 32 Annex 4: Detailed Project Description.................................................................................................................... 39 Annex 5: Project Costs ............................................................................................................................................. 46 Annex 6: Implementation Arrangements ............................................................................................................... 48 Annex 7: Financial Management and Disbursement Arrangements ................................................................... 52 Annex 8: Procurement.............................................................................................................................................. 63 Annex 9: Economic and Financial Analysis ........................................................................................................... 68 Annex 10: Safeguard Policy Issues .......................................................................................................................... 71 Annex 11: Project Preparation and Supervision ................................................................................................... 76 Annex 12: Documents in the Project File................................................................................................................ 78 Annex 13: Statement of Loans and Credits ............................................................................................................ 80 Annex 14: Country at a Glance ............................................................................................................................... 82 Annex 15: Incremental Cost Analysis ..................................................................................................................... 84 Annex 16: List of Villages in Project Areas ............................................................................................................ 91 Annex 17: Maps of Project Area ............................................................................................................................ 95 IBRD 33924 and IBRD 33925 AZERBAIJAN RURAL ENVIRONMENT PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: May 13,2005 Team Leader: Agnes I.Kiss Country Director: D-M Dowsett-Coirolo Sectors: General agriculture, fishing and Sector Manager: Juergen Voegele forestry sector (5O%);Forestry (20Y0);Animal Project ID: PO66199 production (1 O%);Renewable energy Lending