World Bank Document

Document of The World Bank

Public Disclosure Authorized Report No. 46446-PE

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

Public Disclosure Authorized FROM THE

GLOBAL ENVIRONMENT FACILITY TRUST FUND

IN THE AMOUNT OF US$8.891 MILLION TO

THE PERUVIAN TRUST FUND FOR NATIONAL PARKS AND PROTECTED AREAS (PROFONANPE)

FOR A Public Disclosure Authorized STRENGTHENING BIODIVERSITY CONSERVATION THROUGH THE NATIONAL PROTECTED AREAS PROGRAM

April 7, 2010

Sustainable Development Department Bolivia, Chile, Ecuador, Peru and Venezuela Country Management Unit Latin America and the Caribbean 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.

REPUBLIC OF PERU FISCAL YEAR January 1–December 31

CURRENCY EQUIVALENTS (Exchange Rate Effective: March 24, 2010) Currency Unit = Nuevos Soles 2.83 Nuevos Soles = US$ 1

WEIGHTS AND MEASURES Metric System

ABBREVIATIONS AND ACRONYMS

APECO Peruvian Association for the Conservation of Nature CBD Convention on Biological Diversity CIMA Center for Conservation, Research and Management of Protected Areas CONAM National Environmental Council COP Conference of the Parties of the CBD DPL Development Policy Loan ENV DPL Series of Programmatic Environmantal Developmnet Loans GEF Global Environment Facility GoP Government of Peru GPAN Participatory Management of Protected Areas Project IANP Bureau of Natural Protected Areas IBRD International Bank for Reconstruction and Development INRENA National Institute for Natural Resources LAC Latin America and Caribbean MEF Ministry of Economy and Finance METT Management Effectiveness Tracking Tool MINAM Ministry of Environment MPA Municipal Protected Areas NCI Nature and Culture International NCSA National Capacity Self-Assessment OPI Public Investment Office PA Protected Area PCM National Cabinet Presidency PDRS Rural Sustainable Development Program PIMA Indigenous Management of Protected Areas in the Peruvian Amazon PIP Public Investment Projects PN National Park [IUCN Cat. II] PPA Private Protected Area PROCREL Loreto Region Conservation Program PROFONANPE Peruvian Trust Fund for National Parks and Protected Areas PRONANP Strengthening Biodiversity Conservation through the National Protected Areas Program Project (The Proposed Project) PRONATURALEZA Peruvian Foundation for Nature Conservation RENACAL National Network of Regional and Local Protected Areas RN National Reserve [IUCN Cat. VI] RNSIIPG National Reserve System of Guano Islands, Islets and Capes RPA Regional Protected Areas

ii RP Landscape Reserve [IUCN Cat. V] SERNANP National Natural Protected Areas Service SINANPE National System of Natural Areas Protected by the State SN National Sanctuary [IUCN Cat. III] SNIP National System of Public Investment SPDA Peruvian Environmental Law Society TNC The Nature Conservancy UICN World Conservation Union UNEP United Nations Environment Program UNPD United Nations Development Program WWF World Wildlife Fund/World Wide Fund for Nature ZR Reserved Zone

Note: all figures in the document are expressed in US Dollars

Vice President: Pamela Cox Country Manager/Director: Carlos Felipe Jaramillo Sector Director: Laura Tuck Sector Manager: Karin Kemper Task Team Leader: Gabriela Arcos

iii PERU STRENGTHENING BIODIVERSITY CONSERVATION THROUGH THE NATIONAL PROTECTED AREAS PROGRAM

Contents Page I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A. Country and sector issues ...... 1 B. Rationale for Bank involvement ...... 3 C. Higher level objectives to which the project contributes ...... 5

II. PROJECT DESCRIPTION ...... 5 A. Lending instrument...... 5 B. Project development objective and key indicators ...... 5 C. Project Components ...... 7 D. Lessons learned and reflected in project design ...... 10 E. Alternatives considered and reasons for rejection ...... 12

III. IMPLEMENTATION ...... 13 A. Partnership arrangements ...... 13 B. Institutional and implementation arrangements ...... 14 C. Monitoring and evaluation of outcomes...... 15 D. Sustainability and replicability ...... 16 E. Critical risks and possible controversial aspects ...... 17 F. Grant conditions and covenants ...... 19

IV. APPRAISAL SUMMARY ...... 20 A. Economic and financial analyses ...... 21 B. Technical ...... 23 C. Fiduciary ...... 23 D. Social ...... 24 E. Environment ...... 25 F. Safeguard policies ...... 25 G. Policy exceptions and readiness ...... 27

ANNEXES Annex 1: Country and Sector or Program Background ...... 29 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 39 Annex 3: Results Framework and Monitoring ...... 44 Annex 4: Detailed Project Description ...... 53 Annex 5: Project Costs ...... 63 Annex 6: Implementation Arrangements ...... 63 Annex 7: Financial Management and Disbursement Arrangements ...... 69 Annex 8: Procurement Arrangements ...... 82 Annex 9: Economic and Financial Analysis ...... 87 Annex 10: Safeguard Policy Issues ...... 92 Annex 11: Project Preparation and Supervision ...... 105 Annex 12: Documents in the Project File ...... 106 Annex 13: Statement of Loans and Credits ...... 108 Annex 14: Country at a Glance ...... 110 Annex 15: Incremental Cost Analysis ...... 112 Annex 16: Ecological Corridors Approach ...... 119 Annex 17: Maps ...... 125

v PERU

Strengthening Biodiversity Conservation through the National Protected Areas Program

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSEN

Date: April 7, 2010 Team Leader: Gabriela Arcos Country Director: Carlos Felipe Jaramillo Sectors: Sub-national government Sector Manager/Director: Karin Kemper administration (50%); General public administration sector (25%);General agriculture, fishing and forestry sector (25%) Project ID: P095424 Environmental category: B Lending Instrument: GEF Grant

Project Financing Data [ ] Loan [ ] Credit [ X] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Global Environment Facility: $ 8.891 million Total Bank financing (US$m.): $ 0.0 million Proposed terms: N/A Financing Plan (US$m) Source Local Foreign Total Government of Perú (SERNANP) 0.599 0.00 0.599 Global Environment Facility 8.891 0.00 8.891 GERMANY: KREDITANSTALT FUR 8.225 0.00 8.225 WIEDERAUFBAU (KfW) Private Sector 3.0 0.00 3.0 Total 20.175 0.00 20.175

Recipient: Fondo Nacional para Areas Naturales Protegidas por el Estado-PROFONANPE Av. Javier Prado Oeste 2378, San Isidro (Lima 27) Perú Phone: (511) 218-1097 Fax: (511) 218-1049 [email protected]

Responsible Agency: PROFONANPE

vi Estimated disbursements (Bank FY/US$m) FY 11 12 13 14 15 16 Annual 3.3 0.89 1.8 1.8 0.8 0.301 Cumulative 3.3 4.19 5.99 7.79 8.59 8.891 Project implementation period: 5 years Expected effectiveness date: June 15, 2010 Expected closing date: May 31, 2015

Does the project depart from the CAS in content or other significant respects? [ ]Yes [ X]No PAD I.B Does the project require any exceptions from Bank policies? PAD IV. G [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [ X] No Does the project include any critical risks rated “substantial” or “high”? [X]Yes [ ] No PAD III.E Does the project meet the Regional criteria for readiness for implementation? [X]Yes [ ] No PAD IV.G

Project development objective PAD II.B The project’s Global Environmental Objective is to contribute to the long-term ecological sustainability of the Peru’s Protected Areas by expanding the ecological representativeness of the country’s Protected Areas System and implementing conservation activities at various levels (national, regional, and private) within ecological corridors.

Project description PAD II.C

The project will have four components: (i) Institutional and policy program at the national level, (ii) Ecological corridors program, (iii) Financial sustainability of protected areas within selected ecological corridors, and (iv) Project management.

Component 1: this component will support the development of policy guidelines, regulations and procedures for the integrated management of the Peru’s national protected areas system and the design and implementation of a training and environmental awareness program.

Component 2: will support the establishment and operation of selected ecological corridors, the development and implementation of alternative management models for Project Protected Areas in three selected corridors and the implementation of natural resources management subprojects in three selected corridors to mitigate acute pressure or threats to Project Protected Areas.

Component 3: will support the capitalization of the protected areas trust fund in order to finance recurrent costs of the Project Protected Areas, located within three corridors.

Component 4: this component will strengthen PROFONANPE’s capacity to carry out the administrative, financial and technical management of the project.

Which safeguard policies are triggered, if any? PAD IV.F

vii O.P. 4.01 - Environmental Assessment, O.P. 4.04 - Natural Habitats, OP/BP 4.12-Involuntary Resettlement, OP 4.10-Indigenous Peoples, OP 4.36- Forests.

Significant, non-standard conditions, if any, for:

Grant effectiveness:

a) The execution and delivery of the Grant Agreement on behalf of the Recipient have been duly authorized or ratified by all necessary corporate actions; b) The SERNANP Agreement has been executed on behalf of the Recipient and SERNANP.

Grant disbursement:

 No disbursement shall be made for Subprojects under Component B.3 of the Project unless the Recipient shall have adopted the Subprojects Manual.

 No disbursement shall be made for capital endowments under Component C of the Project unless: (i) the account to receive the Capital Endowment has been established in a manner satisfactory to the World Bank; (ii) the Asset Management Agreement shall have been executed and delivered on behalf of the parties thereto, and is legally binding upon them in accordance with its terms; and (iii) the contribution of Plus Petrol has been made to said Capital Endowment account in the amount of $3,000,000.

Covenants applicable to project implementation:

 Not later than 30 days after the Effective Date, the Recipient shall create and thereafter maintain an Administration Council with functions and responsibilities satisfactory to the World Bank.

 Not later than one year after the Effective Date, the Recipient shall create and thereafter maintain a Consultative Committee with functions and responsibilities satisfactory to the World Bank.

 The Recipient shall enter into an agreement with SERNANP, to define SERNANP’s role and responsibilities in the implementation of the Project.

 Before the carrying out of any Project activities in a Project Protected Area, the Recipient shall enter into agreements with the Member Country’s regional government which has jurisdiction over the relevant Project Protected Area (Regional Agreements).

 The Recipient shall: (a) establish and thereafter maintain and supervise until completion of the Project, a technical team responsible for the management, coordination, supervision, monitoring and evaluation of the Project (Technical Team); and (b) hire the key staff referred to in Component D (a) of the Project. Said team shall have a structure, responsibilities and

viii key staff with functions, experience, responsibilities and qualifications acceptable to the World Bank.

 The Recipient shall carry out the Project in accordance with: (i) the Environmental Framework; (ii) the Process Framework; (iii) the Indigenous Peoples Planning Framework; (iv) the Operational Manual; (v) the Project Implementation Plan; and (vi) the applicable Project’s Annual Operational Plan.

 For the purposes of managing the proceeds of the Grant allocated to Component C of the Project, in accordance with the Investment Strategy, at all times during the execution of the Project, the Recipient shall: (a) retain the services of a recognized asset manager of experience and qualifications acceptable to the World Bank, operating under terms of reference satisfactory to the World Bank; and (b) ensure that the agreement with the Asset Manager (Asset Manager Agreement) contains terms and conditions satisfactory to the World Bank.

 The Recipient shall carry out of Component B.3 of the Project in accordance with a Subprojects manual satisfactory to the World Bank.

 With regard to Component B.3 of the Project, the Recipient shall enter into agreements with each Beneficiary, under the terms and conditions specified in the Subprojects Manual.

 The investment income deriving from the proceeds of the Grant allocated to Component C of the Project (and any portion of the capital, in case such use of a portion of the capital has been approved by the World Bank) shall be used exclusively for financing of the Project Protected Areas.

 If any of the events specified in the GEF Grant Agreement shall occur within fifteen (15) years of the date of the GEF Grant Agreement, upon notice from the World Bank, the Recipient shall promptly refund (or cause the Asset Manager to refund) to the World Bank, for deposit into the Grant Account, the amount of the Grant allocated to Component C of the Project, in whole or in part, at the World Bank’s option.

ix I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues 1. Despite the global economic crisis Peru’s economy has maintained a relatively strong performance supported by sound macroeconomic policies. Real GDP grew steadily by over 5 percent per year on average in 2002–2006 and to a remarkable 9 percent in 2007 and 2008. In contrast to previous upswing episodes, growth was well balanced between primary and nonprimary sectors, as well as between domestic and external demand. Following the onset the international economic crisis, economic growth slowed down sharply as private investment plummeted. Still, the economy posted a positive rate of growth in 2009, 0.9 percent, supported by public investment and consumption as well as by net exports - which contributed positively to GDP growth as the drop in imports was much more severe than in exports in 2009. GDP growth is projected at over 6 percent in 2010, led by private investment and consumption and supported by the continued implementation of the economic stimulus plan.

2. The natural wealth residing in Peru’s ecosystems has direct linkages to economic productivity: 99% of fisheries rely on wild hydro-biological resources, 95% of livestock grazes on wild native grasslands, 99% of forestry activities rely on native forests and 65% of agricultural production revolves around native genetic resources. The conservation of natural resources and habitats allows Peru to generate global benefits in terms of biodiversity use, watershed management and carbon sequestration. Ranked among the top countries in endemic species, ranked second in bird species, ranked third in amphibian and mammal species, and endowed with thousands of fish and other species, Peru is considered a “mega-diverse” country. However, this natural wealth is threatened by habitat degradation/destruction and overexploitation of natural resources primarily due to prevailing unsustainable production models and to policy and institutional constraints.

3. The extraction and export of Peru’s natural resources (e.g., guano, minerals, agricultural products, hydrocarbons, rubber, fisheries and wood) have been central at different times in Peru’s economic history and have influenced the country’s socioeconomic structure. International export markets will continue to be a focus of the Government of Peru’s (GoP) plan for sustained growth. The approval of free trade agreements (FTA) with the United States and Canada will help further diversify the country’s exports base away from commodities and provide an anchor for a positive investment environment.

4. The approval of FTA has prompted several reforms. The Ministry of Environment (MINAM) and the National Natural Protected Areas Service (Servicio Nacional de Áreas Naturales Protegidas–SERNANP) were established in May, 2008. Complementary to these improvements, the Bank-supported series of Programmatic Environmental Development Policy Loans, were instrumental in prompting as a priority the issuance of regulations establishing functions of the National Service of Protected AreasSERNANP.

1 5. These legal and institutional reforms are yet to be fully enforced and implemented; thus, pressures on the environment continue through conversion and overexploitation of natural resources. As reported in the Peru Country Environmental Analysis (2006), degradation of the environment and depletion of natural resources cost more than 3.9% of the country’s GDP per year as a result of increased morbidity and mortality and decreased economic productivity. This cost estimate excludes the reduction in ecosystem services and biodiversity caused by habitat destruction.

6. To conserve its biological diversity and reduce threats, the GoP has implemented a series of notable actions at the legal, institutional and financial levels over the past 10 years (more details are provided in Annex 1).

7. The creation of the National Natural Protected Areas System (Sistema Nacional de Áreas Naturales Protegidas por el Estado–SINANPE) in 1990 was an important milestone for the conservation of globally significant biodiversity. SINANPE covers over 18.04 million ha or 14.04% of the national territory in 63 protected areas at the national level. In addition, regional protected areas established by subnational governments (Gobiernos Regionales) were enabled by this and the 1997 Biodiversity Law, with 3 such regional protected areas are now in existence.1 The Bureau of Protected Areas (IANP) of the National Institute of Natural Resources (INRENA) was established in 1997 under the Ministry of Agriculture (MINAG) and was the public institution responsible for SINANPE’s management. INRENA was in charge of strategic planning, policy making, data collection and information dissemination, as well as the monitoring and evaluation of SINANPE. The first National Strategy for Protected Areas was approved in 1999. The main goal of the strategy is to secure the adequate representation of critical ecosystems in order to achieve habitat connectivity and the welfare of important species. A new strategy is currently being prepared.

8. To provide long-term financing for PA management, the GoP established the Peruvian Trust Fund for National Parks and Protected Areas (Fondo Nacional de Áreas Naturales Protegidas–PROFONANPE) in 1992. PROFONANPE’s establishment was one of the key milestones for PA management and was supported by the first GEF project in Peru. To date, PROFONANPE has built a portfolio of $108.5 million composed of an endowment and sinking funds. The endowment fund has increased from $5.2 million (from the initial GEF grant in 1995) to $29 million, thus ensuring a steady and predictable flow of funds and financial sustainability. GEF financing (endowment and sinking funds) currently represents about 28% of the total funds channeled through PROFONANPE and has become a catalyst for generating additional resources and for devising alternative management models for PAs. GEF support has contributed to enhance the management effectiveness of twenty national PAs through three projects.

9. SINANPE’s financing sources over the past 14 years show that 12% of funds aimed at PAs come from government budgetary allocation, 18% from funds collected directly

1 The three regional PAs are: i) Cordillera Escalera in San Martín; ii) Humedales de Ventanilla in Lima; and iii) Albúfera del Nuevo Mundo in Lima.

2 by PAs, 64% from PROFONANPE (mainly international multilateral and bilateral donors, and some private companies such as Plus Petrol) and 6% from other sources (See Table A2–Annex 1).

10. Two additional GEF operations have been implemented: (a) the Indigenous Management of Protected Areas in the Peruvian Amazon Project (PIMA), launched in 2002, and (b) the Participatory Management of Protected Areas Project (GPAN), launched in 2003. These GEF-supported initiatives have provided a sound backing for operations within Peru’s PA system and have contributed to the evolution of its management. For instance, the PIMA project has helped to increase the sustainability of biodiversity conservation in five PAs in the Amazon Region by involving indigenous communities in the PA management. Likewise, GPAN has developed participatory models for the management of five PAs by involving civil society, the private sector and local community organizations in PA management. In particular, GPAN has piloted administration contracts and management practices resulting in financial leveraging of PA management.

11. Despite these commendable achievements, challenges remain. Specific issues in the GoP’s conservation efforts that further require attention include:  Legal and regulatory bottlenecks that constrain biodiversity conservation at the local level and by a variety of actors;  SINANPE does not cover all the ecological systems in the country and therefore lacks representativeness of habitats and biodiversity in Peru (see Annex 16).  Financial gaps in effective management of protected areas.

B. Rationale for Bank involvement

12. The Bank has supported SINANPE through three previous projects financed by the GEF. The first one consisted of the establishment of PROFONANPE as an instrument to improve the funding of PAs in the country. Two key elements for the sustainability of Peru’s protected areas were addressed by the two subsequent projects: (a) the need for an intercultural management initiative of PA in the Amazon with the full participation of indigenous people (PIMA); and (b) a more active involvement of local people (indigenous or not), the private sector and society as a whole, making use of the modern instruments for public participation and co-management provided by the Protected Areas Law (and piloted under GPAN).

13. The Bank has also supported the GoP with the series of Programmatic Environmental Development Policy Loans, comprising the first $330 million Environmental Development Policy Loan (ENV DPL, Report No. 44351-PE, approved in February, 2009), the second $50 million Programmatic Environmental Development Policy Loan (ENV DPL2, Report No. 49545-PE, approved in December, 2009) and the Third Programmatic Environmental Development Policy Loan (under preparation). The objective of the series of loans is to support the government’s efforts to: (a) improve the efficiency and effectiveness of environmental governance and institutions in Peru; and

3 (b) mainstream environmental sustainability into the development agenda of key sectors (mining, urban transport, and fisheries).

14. The series of Programmatic Environmental Development Policy Loans have supported reforms that provide an enabling environment for the implementation of this project. For instance, they have supported policy reforms which contribute to the improvement in the overall financial strategy and position of SINANPE. Specific reforms include: (a) issuance of regulations establishing SERNANP’s functions; (b) MINAM’s approval of an Action Plan for the Protected Areas System (Plan Director)2 and (c) approval and implementation of SINANPE’s Sustainable Financial Strategy.

15. The key policies recommended in the Action Plan are aimed at expanding the protected areas system to cover ecosystems that are not yet represented. It includes the identification of 133 areas with underrepresented habitat and ecosystems (see Annexes 1 and 16 for more details). The initial implementation of the Sustainable Financing Strategy has increased funding from various sources (including the private sector) by at least $3.15 million (baseline for 2009: resource allocation from various sources to SINANPE amounts to $14.2 million; as of September 2009 it increased to $17.35 million). SERNANP will also develop regulatory measures to promote private sector financing and management of national, subnational and private PAs and would implement incentives for private sector financing and management of national PAs.

16. The proposed “Strengthening Biodiversity Conservation through the National Protected Areas Program” Project–PRONANP would provide technical assistance to SERNANP and PROFONANPE to implement the Action Plan and SINANPE’s Sustainable Financial Strategy. Specifically, Component 1 would support the studies and consultations needed to prepare and approve regulations aimed at removing barriers that limit the integrated financing and management of regional, local and privately owned PAs and would support a campaign and training program to increase the value of PAs. Component 2 would adopt an ecological corridor approach3 to increase ecosystem representativeness, would support the establishment and integrated management of PAs at the national, subnational and local levels to enhance effectiveness, efficiency and connectivity, and would support the development of new administration and other conservation management models with a variety of partners.

2 The Action Plan for the Protected Areas System (Plan Director) was approved in September, 2009. It covers protected areas within SINANPE as well as subnational and private protected areas. 3 Ecological corridor is defined in this project as a space where various categories of protected areas and their complementary landscapes (private or community-based) are managed through strategic alliances to enhance ecological connectivity, reduce threats more effectively and contribute to climate change mitigation and adaptation. The ecological corridor approach not only helps to reduce the ecosystem gaps and ensures ecological functionality, but also complements the integrity of biodiversity conservation at the landscape/seascape level. New protected areas can be established where these gaps exist and within selected corridors in order to contribute to enhanced connectivity and habitat integrity.

C. Higher level objectives to which the project contributes

17. The Project is consistent with the principles of the Convention on Biological Diversity (CBD) to which Peru is a signatory, since it will promote the conservation and sustainable use of biodiversity and the maintenance of environmental services.

18. The Project fits with the GEF’s Strategic Objective 1: “To Catalyze Sustainability of Protected Area Systems.” The Project’s focus is at the systems level because it expects to: (a) improve the financial sustainability of SINANPE and the complementary regional, local and private PAs; (b) enhance key ecosystems’ connectivity through the establishment of corridors, and (c) build capacity at the national and local levels to facilitate the integrated management of PAs.

19. The Project is also aligned with: (a) Biodiversity Focal Area Strategic Priority (BD- SP) 1 “Sustainable Financing of Protected Areas Systems at the National Level” because it contributes to reduce SINANPE’s current financing gap; and (b) BD-SP 3, “Strengthening Terrestrial Protected Area Networks” because it will increase the area of key ecosystems under protection through the establishment of ecological corridors.

20. The Project is fully aligned with the World Bank Group’s 2006–2011 Country Partnership Strategy (CPS) for Peru (Report No. 37913-PE), discussed by the Executive Directors on December 19, 2006, which includes management of biodiversity conservation under the pillar of “making growth sustainable.” The Project contributes to the CPS’s pillar one by supporting the increase of financing for protected areas to improve its management and the area under conservation.

II. PROJECT DESCRIPTION

A. Grant instrument 21. The Project is financed through a $8.891 million grant from the Global Environment Facility. B. Project development objective and key indicators 22. The Project’s Global Environment Objective (GEO) is to contribute to the long- term ecological sustainability of the Peru’s Protected Areas by expanding the ecological representativeness of the country’s Protected Areas System and implementing conservation activities at various levels (national, regional, and private) within ecological corridors. The Project would concentrate interventions on four ecological corridors (with five to ten PAs located within these corridors) and would contribute to their financing on a sustainable basis. The Project will seek the integrated management of PAs through the establishment of these ecological corridors, following a landscape approach, as a strategy to effectively manage diverse categories of protected areas (described below) and

5 harmonize land uses in the rural production landscape to better address threats to protected areas and enhance connectivity among these areas (see details in Annex 16).

23. Studies were conducted during the preparation phase to determine the location of these corridors. A total of nine corridors was identified as areas holding ecosystems of global importance4 (see description in Annex 16).

24. The Project supports activities in four corridors at different levels. Planning, capacity building and other design activities will be supported in all four corridors. Considering the complexity of the corridor program and available funding, the Project will support three corridors in priority management activities, including implementation of administration contracts, economic development subprojects, and basic recurrent costs of PAs. The experience gained in operational and financing mechanisms is expected to help the GoP replicate the integrated/corridor approach in other corridors in the post- project phase.

25. The Project will be financed through a $8.891 million GEF Grant managed by PROFONANPE through the creation of a sinking fund and an endowment fund, as follows: i) Sinking fund ($5.71 million) will finance the technical assistance and investment activities contemplated under Components 1, 2 and 4; and ii) Endowment fund ($3.18 million) will finance the activities contemplated under Component 3. The Project will be cofinanced through contributions from KfW, SERNANP and Plus Petrol (a private oil company). The total cofinancing for the Project is $21.84 million (see budget table in Annex 4).

26. The key performance indicators to measure progress toward the Project’s global environmental objective will be the following:

 250,000 hectares of newly created PAs and/or expanded PAs established, of which 125,000 ha are marine-coastal ecosystems.

 Conservation and sustainable management initiatives and programs in three corridors encompassing between 2 to 3 million ha have improved by 40 % compared to baseline as measured with the GEF SP2 Mainstream biodiversity METT. 5

4 For the Internor Region, these potential corridors are: Amazonas, San Martín, Río Marañón, Amotapes, Dry and Montane Forests, Dry Forests and Illescas Virrilá corridors. For the Southern Region, the potential corridor is the Southern corridor. 5 The GEF SP2 tracking tool will measure progress in achieving the impacts and outcomes of mainstreaming biodiversity conservation in production landscapes. The GEF portfolio impacts include among others: i) number of hectares in production landscapes/seascapes under sustainable management but not yet certified; ii) number of hectares/production systems under certified production practices that meet sustainability and biodiversity standards; iii) the degree to which polices and regulations governing sectoral activities include measures to conserve and sustainably use biodiversity; iv) number and extent (coverage: hectares, payments generated) of new payments for environmental service schemes created. As soon as the three first corridors have completed their corridor strategy, the GEF SP2 tracking tool will be measured to establish the baseline and will continue to be measured every year until the end of the project to track changes in mainstreaming biodiversity at the corridor level.

6  Ensure leveraging ratio of local sources (subnational governments and private sector) for three ecological corridors to be at least the baseline of 2:1 to finance the implementation of administration contracts and subprojects and to cover basic recurrent costs6 of the selected PAs within the corridors.

C. Project Components 27. The Project will have four components: i) Institutional and policy program at the national level, ii) Ecological corridors program, iii) Financial sustainability of protected areas within selected ecological corridors, and iv) Project Management.

Component 1: Institutional and Policy Program at the National Level (Total $1.849 million; of which GEF: $1.093 million, KfW: $0.3 million; SERNANP: $0.456 million).

28. Subcomponent 1.1. Development of policy guidelines, regulations and procedures for the integrated management of the Peru’s national protected areas system, through:

a) the development of specific regulations to: (i) standardize the methodology to prepare protected areas Master Plans at the national level; (ii) define overall subnational government management procedures in the context of the Protected Areas Law; (iii) establish institutional mechanisms, assigning roles and responsibilities to subnational governments and the private sector to manage protected areas under an integrated approach; (iv) establish procedures for the zoning of subnational protected areas; and (v) establish the procedures for the implementation of administration contracts with subnational governments;

b) the improvement of technical regulations and guidelines for protected areas Master Plans, management plans, and other similar instruments based on recent experiences by the national authority, aimed at simplifying their preparation and implementation;

c) the improvement of the management information system for SINANPE and its application in selected Project Protected Areas, including the completion at the national level of Peru’secologic map; and

d) the development of a standardized methodology for the design of planning, monitoring and evaluation instruments.

29. Subcomponent 1.2. Design and implementation of a training and environmental awareness program through:

a) the strengthening of SERNANP’s capacity to develop innovative financial mechanisms as part of Perú’s protected areas financial strategy;

6 PA staff salaries, basic operational and maintenance costs.

7 b) the design of a training program, including the development of curriculums for each course, taking into account the needs of each target group;

c) the conduction of the training program through academic and private organizations;

d) the design of a strategy to raise awareness at the national level on the importance of the corridor strategy;

e) the preparation and distribution of information materials to be provided to newspapers, radio and television;

f) the development of activities in schools and local institutions, making use of various regional and local contests and seeking to integrate protected areas with regional and local festivities, ceremonies and cultural activities;

g) the organization of guided visits to the Project Protected Areas; and

h) the conduction of training of communicators, teachers and promoters to make the environmental awareness program a permanent activity.

Component 2: Ecological Corridors Program (Total $7.481 million, of which, GEF: $3.729 million, KfW: $3.735 million; SERNANP: $0.017 million).

30. Subcomponent 2.1. Establishment and operation of selected ecological corridors, including:

(a) in four corridors: (i) the design and strategic planning, and (ii) the development of studies and consultation processes for the establishment of new protected areas; and

(b) in three corridors: (i) the preparation and approval of Master Plans for at least five Project Protected Areas following a participatory approach; (ii) the provision of basic infrastructure and equipment for at least five Project Protected Areas; (iii) the provision of technical assistance for the operation of at least three environmental management units of the regional governments with jurisdiction over the Project Protected Areas; (iv) the establishment and operation of Project Protected Areas Management Committees; and (v) the preparation of the emergency, conservation and repopulation plan for the Guano Islands and Capes Reserve.

31. Subcomponent 2.2. Development and implementation of alternative management models for Project Protected Areas in three selected corridors, through:

(a) the financing and monitoring of management services contracts and other administrative mechanisms in the selected Project Protected Areas;

(b) the systemization of management experiences; and

(c) the development of complementary management mechanisms such as the facilitation and promotion of conservation initiatives in private and communal lands, especially in critical habitats.

32. Subcomponent 2.3. Carrying out of natural resources management subprojects in three selected corridors to mitigate acute pressure or threats to Project Protected Areas, including:

(a) the design and implementation of a sustainable economic activities program, including, if necessary, the updating or development of Master Plans of Project Protected Areas under Component 2.1(b) above;

(b) the identification of economic sectors with activities representing a threat to the Project Protected Areas to mitigate damages or convert activities to alternative nondegradable environmental activities;

(c) the identification of threatened conservation focal objects of the Project Protected Areas and the identification of proposed mitigation measures to be included in the Master Plans;

(d) the conduction of social assessments of the main actors and communities around the Project Protected Areas and their interaction with the biodiversity objectives;

(e) the development of environmental analyses to assess the potential impacts and process frameworks for types of subprojects; and

(f) the conduction of capacity building of the local organizations that would be organized in groups around the environmental management of the Project Protected Areas and their surrounding area.

Component 3: Financial Sustainability of Protected Areas within Selected Ecological Corridors. (Total $9.18 million, of which, GEF: $3.18 million, KfW: $3.0 million; PlusPetrol: $3.0 million). This component will finance:

a) Capitalization of PROFONANPE’s protected areas trust fund in order to generate sufficient income to finance recurrent costs of the Project Protected Areas, located within three corridors, to be selected under the Project and to assist in financing activities under Components 2.2 and 2.3 of the Project.

b) Monitoring and evaluation of the Asset Manager’s financial strategy and portfolio management.

Component 4: Project Management. (Total $2.205 million, of which, GEF: $0.88 million, KfW: $1.19 million; SERNANP: $0.126 million.). This component will strengthen PROFONANPE’s capacity to carry out the administrative, financial and technical management of the project through:

a) the financing of goods, consulting services, staff, equipment, travel, operating expenses and incremental costs needed for project management, including the hiring of the Technical Team (including the project coordinator, the procurement specialist and the administrative assistant), the carrying out of external audits, as well as the financing of the costs of meetings by the Administration Council and Consultative Committee; and

b) the design and implementation of a monitoring and evaluation system in order to have available a technical guide on Project progress, including the provision of technical assistance, goods and carrying out of training.

D. Lessons learned and reflected in project design

33. Lessons have been incorporated to the Project’s design from a number of Bank- financed projects that have shared the goal of strengthening protected areas through the use of a regional and landscape approach. Other lessons have been taken from projects that worked in rural productive areas to strengthen biodiversity conservation.

34. The Indigenous Management of Protected Areas in the Peruvian Amazon–PIMA project provides some important lessons:

 Constructing a model for participatory conservation of protected areas was a new experience for the Government of Peru. In fact, the Project helped to change the prevailing conservation paradigm based mainly on the establishment of national parks and sanctuaries with reduced or no human intervention. The inclusion of indigenous peoples incorporated traditional knowledge in conservation efforts, providing important lessons that enriched INRENA’s capacity to interact with indigenous peoples in the management of protected areas.

 The Project proved that communities’ participation is positive for biodiversity conservation. Indeed, communities were a driving force during project execution through a participation process that encouraged co-responsibility and intercultural dialogue. This bottom-up approach built on local capacity, promoted community empowerment and established a social network that supervised and controlled results.

 The Project demonstrated that combining the sustainable use of natural resources with the enhancement of community livelihood generated a positive synergy with conservation that results in positive environmental impacts. The use of consultation

10 processes helped to select options that incorporated local knowledge and ensured adaptation to community’s needs. The Project provided in situ technical assistance and training to enable indigenous organizations to directly implement the Project.

 The struggle over conservation of natural resources and land rights in protected areas found in communal reserves an alternative acceptable to indigenous peoples and the government. Indigenous communities directly managed their communal reserves through Administration Contracts to implement Master Plans approved by the community assembly. This management process has been legally approved by the government.

35. The Participatory Management of Protected Areas–GPAN, currently under implementation, has been instrumental in consolidating the participatory approach and social inclusiveness for PA management. The implementation of administration contracts has allowed the active integration of the private sector, leveraging matching financial and material resources and developing financial incentives to engage them in this mechanism, including outsourcing practices and the development of managerial, monitoring and information systems.

36. The Colombia: Conservation and Sustainable Use of Biodiversity in the High Andes Region Project also provides important lessons that have been considered in the Project design:

 The development of institutional alliances and engagement in addition to community- based ownership, bringing institutional commitment to project objectives and results, is critical for sustainability. Enough time should be invested in building alliances with management and technical staff in key partner institutions, through their active involvement in preparation and execution and the provision of sufficient training.

 The linkage of biodiversity knowledge production with conservation and sustainable use practices requires a phased approach in order to increase biodiversity knowledge. Initial stages should focus on generating knowledge to design and pilot tools aimed at enhancing public and private conservation and sustainable use practices. Knowledge gained in the first phases would provide solid M&E evidence for a scaling-up phase.

 The building of community-based ownership, documenting processes throughout project implementation, helps increase continuity under changing institutional conditions. However, the information gathered must be disseminated in forms comprehensible to different audiences in order to build an understanding of the Project’s objectives and expected outcomes. However, since dissemination is not enough to warrant adoption and use, field training and visits to successful sites are key to ensure community-based ownership. This strategy proved successful in turning local actors into advocates of land management tools and conservation incentives, once their benefits were evident.

11 37. The Mesoamerican Barrier Reef System and the Brazil Ecological Corridors jointly provided additional lessons for the ecological corridor strategy:

 Development of a strategic policy framework. It is important to develop a strategic approach that defines key priorities, coordinates actions among different government agencies, encourages greater participation by civil society and combines policy regulations with incentives. Developing strategic goals, objectives and principles, based upon sound technical studies, is an integral part of the Project, which aims to channel conservation efforts in specific geographic areas (corridors) that harbor exceptional concentrations of biodiversity.  Flexibility is needed in designing and allocating budgets to project activities in order to accommodate unanticipated externalities (such as climate change), to respond to new opportunities, and to meet changes in client needs during implementation.  Appropriate design: The multiple objectives of managing natural habitats require measures that are carefully designed early in the project design, such as: defining an appropriate scale for project activities; reinforcing connections to various habitat types; and recruiting qualified, multidisciplinary teams that work in close collaboration with local governments and populations.  Alternative livelihoods must be introduced in tandem with restrictions on former resource use and closures on new entrants to the sector to reduce pressure on targeted resources. Training in alternative livelihoods must be accompanied by marketing and incubation of new lines of business.  The private sector must be involved in setting codes of conduct for sustainable activities such as tourism and in generating investments in greener operations, but to engage the industry effectively, regulatory policies must be aligned with economic incentives.  Balance between piloting and implementation: Separation of the Project into knowledge generation (i.e., design and pilot tools) and knowledge application (consolidation of a solid monitoring and evaluation framework) phases promotes active on-the-ground learning and implementation, and allows for greater impact and sustainability.  Sustainability strategies built into project design: These strategies should include buiilding community-based ownership of the Project through field training and clear project process documentation as well as the development of institutional alliances and engagement.

E. Alternatives considered and reasons for rejection

38. The Project builds upon the successful Peru Participatory Management of Protected Areas Project, under implementation since 2004. The expansion of the program could have been achieved by continuing to strengthen SINANPE’s PAs only; however, this alternative would not have taken advantage of the opportunities and challenges to strategically expand biodiversity conservation in Peru by incorporating subnational governments and private landowners under an integrated management of PAs at different levels. In particular, the alternative chosen would: i) strengthen SERNANP, the new

12 institution in charge of SINANPE’s management; ii) address the institutional and financial challenges involved in the consolidation and management of PAs, especially due to the new challenges involved in the integrated management of PAs; and iii) fill several conservation gaps since many critical ecosystems fall outside SINANPE.

39. The most costly alternative considered involved financial support to existing national PAs under continued centralized management and the creation of PAs and coordinating units at the subnational level, with a focus on maximizing the number of hectares protected. This alternative would foster scattered pockets of conserved biodiversity without an overall strategic framework to ensure long-term sustainability. Instead, this project has been designed to maximize the benefits and to leverage as many financial resources as possible.

40. Ecological corridors build upon existing social and institutional arrangements in order to ensure the fulfillment of conservation and local benefit objectives. Work within ecological corridors emphasizes the need to complement national protected areas with other management and conservation strategies (regional and municipal protected areas), while promoting the sustainable use of biodiversity and local development through benefit sharing and use agreements with local communities and private owners.

III. MPLEMENTATION A. Partnership arrangements

41. The proposed GEF operation would build on the ongoing GEF biodiversity conservation project7, by supporting the creation of a new mechanism to scale up the consolidation of PAs complementary to the SINANPE.

42. The Project will be cofinanced through a $8.225 million contribution from KfW, $3.0 million from Plus Petrol and $0.59 from SERNANP, aimed at capitalizing PROFONANPE’s endowment and supporting planning activities, investments (works, equipment), training and subgrants for economic productive activities in the selected corridors. The Project would support the Government’s initial efforts to establish a marine-coastal PA—the National Reserve System of Guano Islands, Islets and Capes.

43. The Project will coordinate with other ongoing initiatives to enhance synergeis and to avoid duplication. Some of thse projects include Humboldt Current Ecosystem Management Project under preparation by TNC and UNDP,

 Humboldt Current Ecosystem Management Project under preparation by TNC and UNDP, will contribute to the preparation of the Action Plan for Guano Islands and Capes Conservation and Repopulation (Law 28793). It will act in support of three pilot sites and the entire National Reserve System of Guano Islands, Isles and Capes.

7 The Participatory Management of PAs (GPAN).

13  The Project will establish close collaboration with PDRS regarding the following aspects: training for PA personnel and other actors; decentralized and multilevel management of the national system of PAs; linking PA systems and corridors with the existing land use planning and financial strategies for PA systems.

B. Institutional and implementation arrangements Operational Level

44. PROFONANPE will be the recipient of the GEF Grant. The World Bank, acting as the implementing agency of the GEF, will sign a Grant Agreement with PROFONANPE for the implementation of the Project. PROFONANPE will also be the recipient of the funds provided by KfW as cofinancing for the Project. For this purpose, PROFONANPE and KfW will sign an Agreement and a Financial Contribution Contract.

45. PROFONANPE will be responsible for the overall implementation of the Project, including financial management and procurement according to the Project’s Operational Manual and Procurement Plan.

46. Project Administration Council (PAC). PROFONANPE’s internal procedures require the creation of this Council to oversee implementation of each project. In the case of the Project, it will be composed of a representative of SERNANP; a representative of PROFONANPE’s Management Council; one representative for all the regional governments involved in the Project who will be rotated annually; and the Executive Director of PROFONANPE who will act as the technical secretary.

47. SERNANP is the national authority in charge of SINANPE’s management. Therefore it will be responsible for the implementation, supervision and monitoring of Project activities in SINANPE’s selected PAs. PROFONANPE will sign an agreement with SERNANP to detail the agreed activities, the financial plan, and the roles and responsibilities of each party. Among other duties, SERNANP will prepare the terms of reference for technical studies and will carry out and supervise field activities in SINANPE’s PAs through its Protected Areas Management Units (Jefaturas de Areas Protegidas) and the territorial focal points.8

48. Regional and municipal government, and organizations of the private sector involved in the Project will be responsible for the implementation, supervision and monitoring of the Project activities in, regional, municipal and private PAs, respectively, in coordination with PROFONANPE, SERNANP and the Project’s technical team. Regional governments will be responsible for preparing the regional territorial plans and operational plans, where the establishment and operation of the selected corridors will be included. For the implementation of Project activities in regional PAs, PROFONANPE, SERNANP and regional governments will jointly sign agreements to detail the agreed

8 Territorial focal points are PA managers in charge of providing overall technical assistance to a designated group of national PAs though their Protected Areas Management Units.

14 activities, the financial plan, and the technical assistance that SERNANP should provide to regional governments for the creation and management of regional PAs and to oversee the application of national policies as established in the Protected Areas Law. Similar agreements will be signed for the creation and operation of municipal and private PAs with the corresponding parties.

49. A Project Technical Team (PTT) will be contracted by the Project to carry out the implementation of Project activities in coordination with PROFONANPE, SERNANP, regional and municipal governments and private sector organizations. This team will comprise a general coordinator, a monitoring and evaluation specialist, and a specialist to supervise the implementation of administration contracts and sustainable economic activities. These team members will work in SERNANP and provide overall assistance for Project implementation. In addition, the Project will contract three PA management specialists to support the territorial focal points in the three selected corridors for direct Project intervention, who will be working in the PA Management Units. The Project will also hire a procurement specialist and an administrative assistant.

Advisory Level

50. The Project will establish a Consultative Committee (CC) to provide overall technical assistance for Project implementation. This Committee will be composed of a representative of SERNANP; the head of PROFONANPE’s Project Administration Council; a representative of each regional government involved in the Project; a representative of the municipal governments involved in the Project; a representative of the PA Management Committees; a representative of PROFONANPE; and the Project Coordinator. The Committee will meet twice a year to ensure that field experience is taken into consideration in work plans and to overcome operational and technical issues.

51. Protected Areas Management Committees (PAMC) will be established in each PA covered by the Project. Their establishment and composition will follow the same guidelines applied under the ongoing GEF project. The members of these committees will be trained in several aspects of PA management to be able to participate in the consultation process for the preparation of management plans and other PA planning tools.

C. Monitoring and evaluation of outcomes

52. The complexity of the Project makes inevitable the adoption of an adaptive and participatory management approach. The results of this Project will be closely monitored and evaluated throughout Project implementation and the results will be used to refine program strategies and activities.

Under Component 1, SERNANP will appoint one staff member in charge of developing SINANPE’s information management system and ensuring its continued operation. Under Component 2, several monitoring activities will be conducted at the corridor level, for the PAs within corridors and for the administration contracts and natural resources

15 management subprojects. As part of the monitoring of Component 3, PROFONANPE will provide an annual report of the financial status of the endowment fund, particularly with respect to the Project’s goals of raising the asset fund by $9 million. As part of Component 4, the Project monitoring specialist will gather data from the results of the different components to assess the fulfillment of the indicators included in Annex 3.

D. Sustainability and replicability Sustainability

53. Environmental sustainability will be achieved by ensuring that the system includes national, regional and privately protected areas, as well as ecological corridors with adequate characteristics to maintain ecological processes and connectivity and secure the sustainable use of natural resources and biodiversity. During the preparation phase, the Project helped to identify gaps in ecosystem representativeness and proposed mechanisms to cover them within the system’s capacity. Environmental sustainability would also be achieved through the replication of successful experiences in natural resources management and in biodiversity conservation through proven capacity-building methods developed under the GPAN Project.

54. Financial sustainability will be achieved in the long term by expanding cost recovery and other financing mechanisms that complement the GoP’s budgetary allocations for protected area management (including SINANPE’s investment and operational costs). It will strengthen the operation of PROFONANPE and bring additional funds to the protected areas endowment to cover operational costs of the protected areas targeted by the Project.

55. In addition, the Project will strengthen PROFONANPE’s capacity to develop new financial mechanisms to be developed in PAs to complement the administration contracts currently under implementation in three national protected areas. The Project will also help to operationalize SINANPE’s financial strategy by identifying potential organizations from the private sector with potential to participate in PA management and implement other mechanisms contemplated under the Protected Areas Law.

56. The long-term operation of the ecological corridors to be supported by the Project will be a joint effort by SERNANP, regional governments and the private sector. Because the integrated management of PAs falls under the mandates of the Action Plan (Plan Director), SERNANP will secure the financing of recurrent costs and will maintain the necessary staff to manage the national PAs located in the corridors. It will also enter into new administration contracts with the private sector and will continue developing natural resources management subprojects in the buffer zones. Regional governments will allocate resources to regional PAs through regional plans and participatory budgets.

57. Institutional sustainability will be achieved through the full institutionalization of SERNANP. This involves ensuring SERNANP’s autonomy and mandate through an appropriate legal framework, building strong management capacity at the national and

16 local levels and building partnerships with civil society and other national and international institutions.

Replicability

58. The Project will pilot the establishment and operation of ecological corridors in selected regions, combined with an incentive package to get local beneficiaries involved in improved land use practices. Ecological corridors will be linked to local development plans under a landscape approach, facilitating replication in other regions.

E. Critical risks and possible controversial aspects

59. The Project’s overall risk rating is Moderate.

Residual Risk Risks Risk Mitigation Measures Rating External pressures on the The Ministry of the Environment and SERNANP have begun S protected areas’ natural an active NPA enforcement campaign (including physical resources increase. removal of illicit settlers) and are implementing the promotion of sustainable activities in and around NPAs. Lack of commitment/ The Project has carried out consultation workshops with S interest by key regions, regional governments, allowing an initial assessment of their local governments and level of commitment and capacity including progress toward private sector in creation and/or management of PAs. This commitment will be participating in the confirmed before the final selection of corridors and PAs and Project. additional institutional and financial sustainability capacity will be developed. Weak coordination The Project will provide support to SERNANP to coordinate M among regional the planning and operational aspects with the regional governments, SERNANP governments. The Project technical team will implement the and PROFONANPE. Project in direct coordination with SERNANP’s technical units and with regional governments’ environmental units. In addition, based on already existing ongoing projects and agreements, PROFONANPE will sign project-specific agreements with SERNANP and regional governments to define roles and responsibilities for the implementation of the Project. Concern by local The Project will help to minimize this perception because it M communities due to the seeks to improve protection of natural areas and key perceived risk of over- ecosystems. exploitation of natural resources. In the final selection of the ecological corridors, potential conflict sites will be avoided.

Investment returns of The financial crisis, which is outside the Project’s control, can M PROFONANPE’s affect endowment performance. Nonetheless, an investment endowment fund are less strategy has been designed to ensure a constant funding level, than projected. which includes using only 70% of annual revenues to finance PAs’ recurrent costs over a period of 3–4 years, so that the remaining 30% will be available in periods when revenues are lower than expected.

17 Insufficient project PROFONANPE has years of experience in implementing M financial management GEF/Bank projects and has developed the skills to successfully capacity within administer FM tasks. In addition, it will secure qualified PROFONANPE. personnel in the Project’s coordination team and will continue to seek training to remain updated.

Insufficient project PROFONANPE is qualified to carry out procurement for the M procurement capacity Project given its past experience in managing GEF projects with within PROFONANPE. the Bank. The Project will secure qualified personnel in the Project’s coordination team and will continue to seek required training. Additional mechanisms will be developed (as reflected in the Project’s Operational Manual) to secure good practices with the subnational governments.

Natural resources The design of these subprojects will include mechanisms to M management subprojects secure their profitability and competitiveness beyond the to be developed within Project’s contribution, through their linkage with productive PAs and buffer zones chains, the main local economic activities, development plans will not generate the and local participatory budgets. expected economic benefits in order to be adopted by beneficiaries.

Low capacity at the Capacity building at all levels of management will be secured M regional level to carry through the implementation of a training program. Additional out project activities. and permanent technical assistance will be provided by the Project’s technical team to secure the adequate implementation of project activities.

Overall Risk M

H = High (greater than 75% probability that the outcome/result will not be achieved). S = Substantial (50% to 75% probability that the outcome/result will not be achieved). M = Modest (25% to 50% probability that the outcome/result will not be achieved). N = Low or negligible (probability of less than 25% that the outcome/result will not be achieved).

18 F. Grant Conditions and Covenants

Conditions of Effectiveness.

 The execution and delivery of the GEF Grant Agreement on behalf of the Recipient have been duly authorized or ratified by all necessary corporate actions.

 The SERNANP Agreement has been executed on behalf of the Recipient and SERNANP.

Conditions of Disbursement

 No disbursement shall be made for Subprojects under Component B.3 of the Project unless the Recipient shall have adopted the Subprojects Manual.

Covenants

 Not later than 30 days after the Effective Date, the Recipient shall create and thereafter maintain an Administration Council with functions and responsibilities satisfactory to the World Bank.

 Not later than one year after the Effective Date, the Recipient shall create and thereafter maintain a Consultative Committee with functions and responsibilities satisfactory to the World Bank.

 The Recipient shall enter into an agreement with SERNANP, to define SERNANP’s role and responsibilities in the implementation of the Project.

19 team shall have a structure, responsibilities and key staff with functions, experience, responsibilities and qualifications acceptable to the World Bank.

 The Recipient shall carry out of Component B.3 of the Project in accordance with a Subprojects manual satisfactory to the World Bank.

 With regard to Component B.3 of the Project, the Recipient shall enter into agreements with each Beneficiary, under the terms and conditions specified in the Subprojects Manual.

20 IV. APPRAISAL SUMMARY

A. Economic and financial analyses

60. Economic Analysis. The economic valuation of biodiversity conservation is difficult to measure in monetary terms. It is even more difficult to measure the monetary value of conservation policies, which have an indirect and dispersed impact over a long period of time. Thus, the evaluation must rely on proxies for biodiversity conservation, including deforestation rate; soil, water, and air conservation; and changes in indicator species. A recent study9 provides some highlights of the considerable economic value this patrimony represents: the value of sixteen national protected areas is estimated at US $81 million, because they provide water for approximately 2.7 million of inhabitants; 61% of hydropower is generated from water that originates in PAs and is valued at $320 million per year; the annual value of irrigated agricultural production whose water originates in PAs is estimated at $514 million; tourism, another important contributor to local economies, generated an estimated $1.7 million in entrance fees in 2005; the value of nontimber forest products is conservatively estimated to potentially generate $6.5 million. The economic analysis for the ecological corridors and PAs addressed under the Project will be developed once the final selection takes place and the detailed project contribution is defined under the corridor planning process and design.

61. Cost-effectiveness analysis. Over the past 15 years, the Government of Peru has progressively and sequentially increased the number of national PAs, instituted a sound institutional, policy and legal framework, established longterm financial mechanisms, and developed the necessary participatory mechanisms to include key stakeholders in PA management. However, it recognizes that in order to secure ecological representativeness, it is necessary to go beyond the centralized management model and incorporate subnational and private PAs.

62. The costliest alternative considered involved financially supporting existing national PAs under continued centralized management and creating PAs and coordinating units at the subnational level, with a focus on maximizing the number of hectares protected. This alternative would foster scattered pockets of conserved biodiversity without an overall strategic framework to ensure long-term sustainability.

63. Instead, this project has been designed to maximize the benefits and to leverage as many financial resources as possible. First, the Project will be strategically linked to the IBRD’s Environmental Development Policy Loan (DPL) to maximize cost-effectiveness and benefit from shared costs through a combination of investment, technical assistance, and policy actions at the national and regional levels. Second, the Project’s approach for the establishment of ecological corridors to integrate various levels of PAs has been assessed during the preparation phase and found to be the most cost-effective way of conserving biodiversity and improving natural resources management.

9 León M., Fernando. 2007. El Aporte de las Áreas Naturales Protegidas a la Economía Nacional. INRENA. Lima, Perú.

21 64. Financial Analysis. The National System of PAs in Peru has made progress in increasing financing sources (as described in Annex 1 and documented in Table A.1.2) to support recurrent costs, but it is far from securing the scale of transfers that are necessary to enlarge the area under protection and support a fuller set of management expenses. The Project aims at departing from a purely centralized financial model with transfers mainly deriving from the national government and its donors to expand the financial participation of local and regional governments, private actors and communities, drawing from existing experience in Peru.

65. The financial gap study developed by SERNANP establishes that the PAs existing in the four potential corridors, have an average annual cost estimated at $3.4 million (about $17.2 million in five years). The Project’s financial contribution to the potential PAs and corridors over five years has been estimated at $20,535,000, based on the cost of the activities planned in each component. This amount considers the earnings of the endowment only from PY3 to PY5. However, the selected PAs will continue receiving this fund beyond the Project’s implementation period.

66. The Project’s contribution indicated above does not currently reflect the potential leverage of resources that the implementation of the corridor approach will generate, because the Project’s specific participants have not yet been identified. The Project will help to develop the financial and institutional mechanisms in order to allow a sustained contribution from subnational governments and the private sector. Following the trends observed under the GPAN project, the Project will potentially generate important leverage: a) the Project’s natural resources management subprojects are expected to be at least matched at a 1:1 ratio.; b) regional and local governments will be matching at a 2:1 ratio; and c) the protected areas administration contracts have generated a 2.5:1 leveraging ratio, due to the extra investments made by those administering the protected area, sending a clear signal that this is a worthwhile undertaking.

67. Fiscal Impact. Although the Project will certainly have a positive fiscal impact, it is not possible to ascertain what that will be without knowing ex ante what areas will be targeted. The Project will therefore undertake a thorough fiscal analysis as part of the screening process, using the results to finalize the decision on which corridors will be chosen.

68. Incremental Cost Analysis. Under the Baseline Scenario, it is unlikely that the corridor approach to conservation would be implemented to secure an integrated management of PAs. The total costs of the baseline scenario will be $21.824 million. Under the GEF Alternative, the Project will develop the policy and legal framework and will provide capacity building at the national and subnational levels to secure an integrated management of PAs. It will also help to reduce SINANPE’s existing financial gap. The total incremental cost for achieving these global environmental benefits is the GEF contribution of $8.891 million.

22 B. Technical

69. The technical evaluation has focused on the biological priorities in Peru to establish new subnational and local PAs. A detailed study was conducted by the Conservation Data Center in Peru and was later discussed with diverse actors at the local level to ensure that the priorities were not merely determined by a group of researchers in Lima but that they were validated locally. A preliminary result of the study indicates that the methodology and quality of the priority-setting exercise follow international standards. The final report is currently being finalized.

70. Another important technical aspect is the government’s willingness to participate in the Project at the subnational and local levels as well as the institutional capacities at those levels. Several studies were conducted during preparation: (a) assessment of the willingness of departmental and municipal governments to establish, manage and finance subnational and local PAs; (b) assessment of the local institutional capacities to participate in the Project; (c) design of a program to strengthen institutional capacities to manage PAs at the subnational level; and (d) a legal study to identify the regulations needed to support regional and local PAs.

C. Fiduciary Financial Management 71. As part of the preparation process of the Strengthening Biodiversity Conservation through the National Protected Areas Project, a financial management assessment has been undertaken in accordance with OP/BP 10.02 and the FM Manual “Financial Management Practices in World Bank Financed Investment Operations” dated November 3, 2005. Key findings are included in the Annex 7 of this report.

72. PROFONANPE will be the responsible entity for the management of the project, including fiduciary responsibilities. PROFONANPE is a continuity entity that has developed experience in working with World Bank funded projects and has maintained a satisfactory record during the current implementation of the GEF Participatory Management of Protected Areas Project (P068250) and other Trust Funds. PROFONANPE has implemented a series of internal control procedures to have a sound financial management system and has proved to be a solid institution, having gained the trust of both donors and project implementing agents. The new project would benefit from current arrangements which have proved to be acceptable. However, taking into account, the lessons learned and some new challenges of the operation, (the two source of financing -World Bank GEF and the KfW Grant- managed by PROFONANPE; the contribution of the Regional/Local Government and private entities to finance certain activities; and the implementation of sub-projects), PROFONANPE has strengthened its FM arrangements to ensure that associated risk are adequately addressed and the implementing entity will be able to provide the Bank and other interested parties with accurate and timely information regarding the project resources, expenditures, and activities. Therefore, the project inherent and control risk are rated moderate (M). (Detail

23 risk analysis is presented on Annex7). Thus, PROFONANPE has worked on agreed actions and progress has been made, including the update and adoption of the Sub-project manual, which the Bank found satisfactory. However, as of the date of this assessment, PROFONANPE is still working on the validation of the enhanced information system (reporting module and statement of expenses (SOEs) module).

73. On the basis of the review performed to the current operation and progress achieved so far the financial management team concludes that the proposed arrangements can be considered acceptable to the Bank, subject to the effective and successful implementation of the remaining actions.

Procurement

74. Procurement for the Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, as amended in October 2006, “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, as amended in October 2006, and the provisions stipulated in the Legal Agreement. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank’s project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

75. The Project will be managed by PROFONANPE, which will be responsible for fiduciary aspects (financial management and procurement) of the Project. PROFONANPE will coordinate the Project implementation activities with SERNANP and with regional and local governments.

76. An assessment of the implementation agency’s capacity to implement procurement actions for the Project was completed on February 6, 2009. The Capacity Assessment Report is part of the Project files. The assessment looked into PROFONANPE’s (a) organizational structure, (b) facilities and support capacity, (c) qualifications and experience of the staff who will work in procurement, (d) recordkeeping and filing systems, (e) procurement planning and monitoring/control systems used, and (f) capacity to meet the Bank’s procurement contract reporting requirements. It also reviewed the procurement arrangements proposed in the Procurement Plan.

77. The proposed corrective measures are: a) adjustment of the Procurement Plan based on adjusted cost estimates, identifying all contracts with their source of financing to determine the specific procedures that will apply; and b) training for PROFONANPE procurement staff. The overall project risk for procurement is moderate.

D. Social 78. Two social safeguard policies are expected to be triggered by the Project: OP 4.10 Indigenous Peoples, and OP 4.12 Involuntary Resettlement. The Project will not cause

24 involuntary resettlement because the Peruvian legal framework recognizes the rights of local populations that were settled before the creation of conservation areas. However, the Project may trigger the latter policy because of restricted access to certain natural resources. The specific Project sites, including corridors, RPA, MPA and private PAs, will be selected during the implementation phase based on the criteria described in other sections of the PAD. The only site that has been identified for Project support during the preparation phase is the marine-coastal PA—the National Reserve System of Guano Islands, Islets and Capes (RNSIIPG).

79. Some of the most notable positive impacts of project implementation will be the restricted access of unauthorized third parties to the islands and capes, thus reducing pressure on resources; the possibility of regulating and directing the development of fishing and aquaculture, tourism and research through the use of sustainability concepts, as well as the promotion of employment for fishermen’s families and incentives for the organization and formalization of fishermen’s associations. The most important negative impacts identified are the conflicts that arise among users due to restrictions on access and the right to resources which underly the Reserve’s creation. Furthermore, there are currently ocean areas granted by PRODUCE that are located within the two-mile protection zone of the islands and capes system. Conflicts may also arise between fishermen’s organizations and businessmen. The restriction on resources will also be reflected in the decreased income of fishermen, for which mitigation measures are proposed, such as sustainable alternative economic activities.

E. Environment

80. This Project is expected to have a highly positive environmental impact. If implemented as planned, the Project would have no significant adverse environmental effects. It would also comply with all applicable World Bank safeguard policies, as explained below. The implementation of natural resources management strategies in selected sites will help to reduce existing pressures on natural resources, help to some extent to restore degraded ecosystems, and favor biological connectivity between various vulnerable areas, taking into account local economic and social needs. The procedures and mitigation measures outlined in the RNSIIPG’s Management Plan and the Environmental Framework (Annex 10) would address any environmental impacts arising as a result of project execution.

F. Safeguard policies Environment

81. Environmental Assessment (OP 4.01). The Project is classified overall as Category B. The specific project sites, including corridors and PAs, will be selected during the implementation phase based on the criteria described in Annex 16. The only site that has been identified for project support during the preparation phase is the marine-coastal PA—the National Reserve System of Guano Islands, Islets and Capes

25 (RNSIIPG). Therefore, given the overall Category B recommended for the Project, a Partial Assessment or Environmental Analysis (EA) has been prepared. An Environmental Framework (EF) has been prepared for the potential PAs. The results of the EA and EF were posted on SERNANP’s and PROFONANPE’s website in March 31, 2009 and published in the Bank’s InfoShop in April 15, 2009.

82. The Project will result in improved conservation of biodiversity contained in the National Reserve System of Guano Islands, Islets and Capes, as well as in other critical national PAs, corridors, RPAs, MPAs and private PAs. The Project is aimed at reducing the trends of degradation and biodiversity loss in the above-indicated sites and at supporting environmental conservation and improving capabilities in SERNANP and regional and local governments for improved management of PAs.

83. Although the Project could result in minor environmental impacts associated with specific investments (construction of small-scale infrastructure, sustainable economic activities and other activities consistent with the management plans), such impacts will be managed through a process that includes the environmental assessment of such investments, including screening procedures to minimize potential impacts.

84. Natural Habitats (OP 4.04). The Project is fully consistent with the Bank’s Natural Habitats policy. It would not cause or facilitate any significant loss or degradation of forests or other natural habitats. Instead, the Project is intended to reduce the current levels of biodiversity and natural vegetation cover degradation by improving the protection and management of natural habitats and forests within the Project’s sites and restoring ecological connectivity through the establishment of ecological corridors. All activities and investments supported through the Project will be screened to ensure that they do not result in unintended environmental impacts to natural habitats based on the Environmental Framework.

85. Forests (OP/BP 4.36). The Project is expected to promote conservation and recovery of natural habitats within selected PAs and incorporate natural resources management subprojects in order to reduce the impact of the advance of the agricultural frontier and other threats to fragile ecosystems. The protection of natural habitats could include reforestation subprojects in selected sites with native species, in some cases combined with sustainable production systems. Social

86. The two social safeguard policies are expected to be triggered by the Project; OP 4.10 Indigenous Peoples, and OP 4.12 Involuntary Resettlement. The Project will not cause involuntary resettlement because the creation of conservation areas in Peru legally recognizes pre-existing property rights. However, the Project may trigger the latter policy because of restricted access to certain natural resources. (Annex 10 contains a detailed summary of the four social instruments.)

87. The final locations for the implementation of these conservation areas are not known. For this reason the Borrower has prepared the following social safeguard tools:

 A social assessment for the National Reserve System of Guano Islands and Capes to have a clear picture of the economic activities being developed in these areas, assess the potential impacts the Project might bring about and define the possible mitigation measures.  A Process Framework for the National Reserve System of Guano Islands and Capes that will guide the participatory process aimed at preparing the Emergency Plan.  An Indigenous Peoples Planning Framework (IPPF) for the potential candidate zones (InterNor and Southern Zone) where Indigenous Peoples and Afro-Peruvian rural communities are present. Since the specific sites for creating new conservation areas are not known at appraisal, this is the right safeguard policy instrument to have before appraisal. It will be used as the framework for the preparation of Indigenous Peoples Plans, if needed, once the sites for the creation of conservation areas are defined.  A Process Framework for the potential candidate zones (InterNor and Southern Zone) where Indigenous Peoples are not present. Since the specific sites for creating new conservation areas are not known at appraisal, this is the right safeguard policy instrument to prepare. It will provide guidelines and define a process by which local people who might be affected by the Project will participate in the Project and will benefit from it.

88. These documents were published on PROFONANPE’s and SERNANP’s websites in March 31, 2009 and in the Bank’s InfoShop in April 15, 2009.

Safeguard Policies Triggered by the PROJECT Yes No

Environmental Assessment (OP/BP/GP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [X] [ ] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources ( OP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Indigenous Peoples (OP/BP 4.10) [X] [ ] Forests (OP/BP 4.36) [X] [ ] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP/GP 7.60)* [ ] [X] Projects on International Waterways (OP/BP/GP 7.50) [ ] [X]

G. Policy exceptions and readiness 89. The Project meets the Regional criteria for readiness for implementation. No policy exceptions are sought. Specifically, the Project has complied with the following:

 Financial Management and Procurement arrangements are in place;

* By supporting PRONANP, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas

27  Draft terms of reference for the Project’s technical team have been developed and reviewed by the Bank during appraisal;  Disclosure requirements have been met, including the safeguard documents and authorizations by the client to disclose the PAD;  Cofinancing for the Project by KFW was formally confirmed to the Ministry of Foreign Affairs of Peru on May 15, 2009;  Monitoring, institutional arrangements and obligations by PROFONANPE have been agreed, since the Project will primarily follow the procedures developed under the ongoing G-PAN project;  The operational manual has been reviewed and approved before Negotiations. As part of the baseline collection data, the protected areas effectiveness tracking tool has been applied and reports have been issued for seven PAs located within the eight potential corridors.

28 Annex 1: Country and Sector or Program Background PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Country and sector issues:

Country issues:

1. Despite the global economic crisis Peru’s economy has maintained a relatively strong performance supported by sound macroeconomic policies. Real GDP grew steadily by over 5 percent per year on average in 2002–2006 and to a remarkable 9 percent in 2007 and 2008. In contrast to previous upswing episodes, growth was well balanced between primary and nonprimary sectors, as well as between domestic and external demand. Following the onset the international economic crisis, economic growth slowed down sharply as private investment plummeted. Still, the economy posted a positive rate of growth in 2009, 0.9 percent, supported by public investment and consumption as well as by net exports - which contributed positively to GDP growth as the drop in imports was much more severe than in exports in 2009. GDP growth is projected at over 6 percent in 2010, led by private investment and consumption and supported by the continued implementation of the economic stimulus plan.

2. The extraction and export of its natural resources (e.g., guano, minerals, agricultural products, hydrocarbons, rubber, fisheries and wood) have been central at different times in Peru's economic history and have influenced its socioeconomic structure. International export markets will continue to be a focus of the Government of Peru’s (GoP) plan for sustained growth. The approval of free trade agreements (FTA) with the United States and Canada will help further diversify the country’s exports base away from commodities and provide an anchor for a positive investment environment.

3. The approval of FTA has prompted several reforms. In May 2008, the Ministry of Environment (MINAM) was established to elevate the hierarchy of the country’s environmental authority, and consolidate roles and responsibilities. Within MINAM, the National Protected Areas Service (Servicio Nacional de Áreas Naturales Protegidas– SERNANP) was created. The SERNANP replaced the former Bureau of Protected Areas (IANP), and in doing so was a strong step toward strengthening the government’s organizational structure for the improved management of to support the management of the National Natural Protected Areas System (SINANPE). Within the government, SERNANP represents a higher authority than the former IANP, and it has both administrative and technical autonomy. Complementary to these improvements, the issuance of the regulation establishing functions of the National Service for Natural Protected Areas (SERNANP) in November 2008 was instrumental to consolidate the institutional framework.

4. These legal and institutional reforms are yet to be fully enforced and implemented; thus, pressures on the environment continue through conversion and overexploitation of natural resources. As reported in the Peru Country Environmental Analysis (2006),

29 environmental degradation and depletion of natural resources cost more than 3.9% to the country’s GDP per year as a result of increased morbidity and mortality and decreased economic productivity. This cost estimate excludes the reduction in ecosystems services and biodiversity caused by habitat destruction.

Sector issues:

5. Peru is considered a “mega-diverse” country with nearly 10% of the world’s species of flora, 2,000 species of fish, 1,736 species of birds (ranking second in the world), 332 species of amphibians (ranking third in the world in diversity), 460 species of mammals (third in the world in ranking) and 365 species of reptiles (fifth in the world in ranking). It is also one of the most important countries in terms of the number of endemic species (at least 6,288, of which 5,528 are flora and 760 are fauna species).

6. The natural wealth residing in Peru ecosystems have direct linkages to economic productivity: 99% of fisheries rely on wild hydro-biological resources, 95% of livestock graze on wild native grasslands, 99% of forestry activities rely on native forests and 65% of agricultural production revolves around native genetic resources. The conservation of natural resources and habitats allows Peru to generate global benefits in terms of use of biodiversity, watershed management, and carbon sequestration.

7. Key threats to the Biological Diversity: Key threats to the country’s biodiversity are habitat degradation/destruction and over exploitation of the natural resources primarily due to:

Prevailing unsustainable production models

 The prevailing model of infrastructure development, including hydropower and road development, have caused severe habitat fragmentation and provided access to areas that were previously untouched and that hold ecosystems critical for conservation. Ecosystems in the Amazon region, have been mostly affected by this process;  The expansion of agricultural frontier is another important cause for habitat degradation, currently causing 81 percent of deforestation in Peru, mainly due to migratory slash-and-burn farming. Highland ecosystems are severely affected given the prevalence of slash-and-burn agriculture, extraction for lumber and overgrazing;  In marine-coastal areas, over-fishing is one of the main aspects that pose a serious risk to the integrity of marine species populations, therefore requiring urgent attention.

Weak enforcement of existing policy and regulations

8. Although Peru has several regulations to protect its natural heritage, including those developed in preparation to the signing of FTA, the enforcement of these policies has been weak primarily due to institutional capacity constraints and low level of awareness. For example, mining activities lacking proper environmental safeguards have threatened critical ecosystems including rivers and streams. To address these threats the government has introduced laws and regulations, made key institutional reforms, and implemented programs and projects as detailed below.

9. To conserve its biological diversity and reduce the threats, the GoP has implemented a series of actions at the legal, institutional and financial levels over the past 10 years worth mentioning.

Legal and Institutional Development

 A National Code of the Environment and Natural Resources was approved in 1990 which provided a framework for establishing protected areas at the national, regional (subnational) or local levels. It had the provision for creating regional protected areas (RPAs) through a regional resolution and municipal protected areas (MPAs) through a municipal council resolution.

 The creation of the National Natural Protected Areas System (Sistema Nacional de Áreas Naturales Protegidas por el Estado, SINANPE) in 1990 was an important milestone for the conservation of globally significant biodiversity. The SINANPE covers over 18.04 million ha or 14.04% of the national territory in 63 protected areas at the national level. In addition, regional protected areas established by subnational governments (Gobiernos Regionales) were enabled by this and the 1997 Biodiversity 10 Law, with 3 such regional protected areas now in existence .

 The Biodiversity Law (Ley sobre la Conservación y Aprovechamiento de la Diversidad Biológica, Ley No. 26839) and the Protected Areas Law (Ley de Áreas Naturales Protegidas, Ley No.26834) were approved in 1997. The Protected Areas Law reconfirmed that SINANPE comprises only natural PAs managed by the central government and that RPAs and private PAs are complementary. Although RPAs and private PAs are not managed by the central government, they must also conform to the Protected Areas Law. This law, however, does not regulate the creation of MPAs.

 The Bureau of Protected Areas (IANP) of the National Institute of Natural Resources (INRENA) was established in 1997 under the Ministry of Agriculture (MINAG) and it was the public institution responsible for the SINANPE’s management. INRENA was in charge of strategic planning, policy making, data collection and information dissemination, as well as the monitoring and evaluation of the SINANPE. Coordination between INRENA and the National Environmental Council (CONAM), the former national environmental authority, was weak, thus, impeding high level decision-making processes.

 The GoP prepared and submitted its first National Report on Biological Diversity to CBD in 1998 which took stock of the country’s biodiversity. It was one of the first comprehensive reports on the country’s rich biodiversity. The National Report also listed the GoP’s activities and plans for conservation. The GoP updated its National

10 The three regional PAs are: i) Cordillera Escalera in San Martín; ii) Humedales de Ventanilla in Lima; and iii) Albúfera del Nuevo Mundo in Lima.

31 Report in July 2001 and again in February 200911 further refining the country’s understanding of its ecological systems, habitats and threats.

 The first National Strategy for Protected Areas was approved in 1999. The main goal of the strategy is to secure the adequate representation of critical ecosystems in order to achieve habitat connectivity and the welfare of important species. To achieve this goal, the Government of Peru has progressively and sequentially increased the number of national PAs, provided sound institutional, policy and legal framework, developed long term financial mechanisms, and the necessary participatory mechanisms to include key stakeholders in PAs management. A new Strategy is currently being prepared.

Decentralization process and PA management

 The Decentralization Law regulates Peru’s administrative structure and organization in three levels: National Government, Regional Governments and Local Governments. It also establishes the regulations for administrative, economic, productive, financial, tributary and fiscal decentralization.

 The Decentralization Law (Ley de Bases de la Decentralización-Ley No. 27783), as well as the Regional Governments Law (Ley Orgánica de Gobiernos Regionales-Ley No. 2786, November 2002), stipulate that the transfer of specific competencies from the national government should only take place once the regional governments are qualified and certified to assume such competencies and the associated responsibilities.

 The Protected Areas Law regulates the establishment of national, regional and private protected areas. For the time being, the administration of national PAs is exclusively under the central government and competencies for its management have not been transferred to subnational governments, who are currently entitled only to create and manage regional and municipal PAs. While regional governments have to strictly follow the procedures established in the Protected Areas Law for the creation of new regional PAs, the central government (SERNANP) provides technical guidance and assistance for the preparation of master plans and the development of other management tools. Regional governments can designate core staff for regional PAs, and through delegation by the national government, can sign administrative contracts, service concessions and implement other administrative mechanisms with the private sector contemplated under the Protected Areas Law.

Protected Areas Financial Sustainability

 In 1992, the GoP established a Peruvian Trust Fund for National Parks and Protected Areas (Fondo Nacional de Áreas Naturales Protegidas, PROFONANPE. See Box 1

11 National Reports are available at http://www.cbd.int/doc/world/pe/pe-nr-01-en.pdf; http://www.cbd.int/doc/world/pe/pe-nr-02-es.pdf; http://www.cbd.int/doc/world/pe/pe-nr-03-es.pdf; and National Biodiversity Strategy and Action Plan is available at http://www.cbd.int/doc/world/pe/pe-nbsap- 01-es.pdf.

32 below) in 1992. PROFONANPE became one of the key milestones for PA management, as it provided a mechanism for gradually financing recurrent costs of protected areas in SINANPE. To date PROFONANPE has built a portfolio of $108.5 million composed of an endowment fund and sinking funds. The endowment fund has increased from $5.2 million (from the initial GEF grant in 1995) to $29 million, thus ensuring a steady and predictable flow of funds to PA management.

Annex 1 - Box 1: Background information of PROFONANPE On December 29, 1992, PROFONANPE was established by legal decree, as a private nonprofit organization. Its statutes provide for a long-term grant making program and the creation of independent subaccounts, in coordination with different donors, to finance the country’s protected areas.

The highest governing body is the Directive Council (Consejo Directivo), with seven members: (1) three representatives of the public sector: Ministry of Economy and Finance, INRENA (now SERNANP), and the Presidency of the Council of Ministers, (2) three representatives of the private sector selected from the Peru Environmental Network (RAP); and (3) one representative of international donor agencies (currently the UN Development Program, UNDP). The presidency of the Council is held by one of the government representatives (SERNANP), although the government actually is a minority in the Council, its responsibilities include definition of institutional policies, approval of annual plans and budgets, and selecting the executive based on a competition of merits.

Currently PROFONANPE supports 26 protected areas, financing activities such as management plans, recurrent costs, preparation and implementation of management plans and establishment and management of buffer zones. The institutional development of PROFONANPE has had two phases. In the first phase, the institution dedicated itself to financing basic operational costs of protected areas, and in the second, beginning in 2001, the central theme is financing activities that strengthen the participation of diverse actors in protected area management to leverage resources. To date PROFONANPE has built a portfolio worth over $108.5 million in operation for protected areas and includes both sinking and endowment funds.

In reviewing the history of PROFONANPE’s capitalization, it is necessary to emphasize the Fund’s capacity to generate additional resources, and to have a multiplier effect with new resources that otherwise would not have been directed to biodiversity conservation. It began operations in 1993 with financing from GTZ/Germany – sinking funds for three pilot projects. In 1995, PROFONANPE received seed funding of $5.2 million from GEF/World Bank, as an endowment to cover the costs of the institution and to finance protected area activities. Since 1996, PROFONANPE has concluded six debt swaps with Germany, Finland and the United States for a total of $34.6 million. PROFONANPE was also recipient of the GEF/World Bank Participatory Management of Protected Areas project (GPAN) of $14.8 million, plus $4.4 million in counterpart funding from the Government of the Netherlands for participatory management in five protected areas, covering their recurrent operating costs and financing natural resources management subprojects for communities in buffer zones. Additionally, the German government has approved the request from PROFONANPE to expand the Natural Protected Areas Program in 2004 with $9 million. Moreover, PROFONANPE is going through a negotiation process with the Fond Français pour l’Environnement Mondial (the French GEF version) to protect 2 Ramsar sites.

Due to administrative reasons (i.e., generating reports to donors and monitoring annual revenues); these funds require to be managed in separate special accounts, and however all of them are managed under a single investment portfolio, following the same investment strategy and operational guidelines.

 The GEF has continued to support the GoP’s conservation effort (see Table A1.2). GEF financing currently represents about 28% of the total funds channeled through PROFONANPE and has become a catalyst for generating additional resources and for devising alternative management models for PAs. GEF support has contributed to

33 enhance the management effectiveness of 20 national PAs through three projects. These projects have contributed to the SINANPE’s strategy through: (a) capacity building of the PAs national authority; (b) developing legal and policy framework; (c) establishing and operating the protected areas trust fund and its consecutive capitalizations; (d) the financing of the recurrent costs of 15 PAs; and (e) the development of planning tools, participatory mechanisms and piloting of alternative management models such as administration contracts in 10 PAs. Table A1.1 Protected Areas Supported through World Bank – GEF Projects PROFONANPE I PROFONANPE II Proposed Project GEF Grant ($ million) 5.0 14.8 8.891 Co-financing ($ million) 1.5 18.0 21.824 GEF Grant toward the Endowment Fund ($ million) 5.0 3.0 3.0 Total Financing in the Endowment Fund ($ million) 5.0 6.0 9.0 Income from the Endowment 0.36 million (1.08 million Fund ($ million/year) 0.27 (1.361 for 5 years) 0.55 (2.75 for 5 years) for 5 years) Number and area of PAs 5 to 10 existing or new supported through Endowment PAs ( at least 250, 000 Income (recurrent cost only) 10 PAs and 2.3 million ha. 5 and 1.96 million ha ha. GEF Grant toward sinking fund 5.71 to finance initial cost of PA establishment 0 11.8 Four (4-5 million ha.)

Number and area of PAs and/or 5 to 10 existing or new corridors supported through PAs ( at least 250, 000 sinking fund 0 5 PAs and 1,964,000 ha ha.) Note: The total number of PAs in SINANPE as of Dec. 2008 is 63 covering 18 million ha, which is about 14% of the country’s territory.

10. The financing sources of SINANPE over the past 14 years show that 12% of funds destined to PAs come from government budgetary allocation, 18% come from funds collected directly by PAs, 64% come from PROFONANPE (mainly international multilateral and bilateral donors, and some private companies like Plus Petrol) and 6% from other sources. However, it is important to highlight that the resources channeled through PROFONANPE include the revenues of $ 44.3 million from debt swaps for conservation that have been negotiated jointly by SERNANP, the Ministry of the Environment and PROFONANPE with Germany and other bilateral donors.

34 Table A1.2-Annual Allocations to SINANPE from different sources

GoP SINANPE’s PROFONANPE Budgetary self revenues YEAR (a) Allocations (b) OTHERS (c) TOTAL 1995 300,000 100,000 232,000 n.d 632,000 1996 389,369 100,000 359,855 n.d 849,224 1997 1,533,994 176,000 440,000 n.d 2,149,994 1998 1,966,829 347,910 195,846 n.d 2,510,585 1999 1,764,450 383,559 298,609 660,016 3,106,634 2000 1,799,542 317,269 663,740 127,665 2,908,216 2001 2,458,291 439,317 722,502 243,812 3,863,922 2002 4,547,867 676,326 731,932 319,229 6,275,354 2003 4,745,293 689,967 1,487,363 308,206 7,230,829 2004 4,912,374 703,149 1,807,665 9,851 7,433,039 2005 7,076,784 1,130,134 1,823,973 306,897 10,337,788 2006 7,008,045 1,314,606 1,585,074 2,841,446 12,749,170 2007 5,152,506 1,144,390 2,021,044 234,866 8,552,807 2008 4,527,088 1,222,789 1,652,414 151,897 7,554,188 2009 (d) 8,593,493 2,105,667 2,164,333 140,333 13,003,826 TOTAL 56,775,925 10,851,083 16,186,350 5,344,218 89,157,576 Percentage 64% 12% 18% 6% 100% Note: The figures exclude contributions derived from regional governments and local private sector. (a) Includes the revenues of $ 44.3 million from debt swaps for conservation; (b) Includes tourism fees (c) Contributions from other donors for specific PAs programs; (d) Estimated budget of 2009. Source: SERNANP/PROFONANPE

Proposed Project

11. Despite the GoP’s commendable achievements as described in the previous sections, challenges remain and conditions in the country change. At the time when the two previous GEF projects (PIMA/GPAN) were approved, the government had not approved the FTA, the environmental reforms (establishment of the new Ministry and SERNANP, Paragraph 3, Annex1) had not taken place. The expectation of increased development programs in areas with high biodiversity, the environmental reforms and the implementation of the Series of Programmatic Environmental Development Loans present new challenges and opportunities to improve the management of protected areas in Peru.

12. The specific issues in the GoP’s conservation efforts that further require attention include:  Legal and regulatory bottlenecks that constrain biodiversity conservation at the regional and local levels and by a variety of actors;  SINANPE does not cover all the ecological systems in the country, and therefore, lacks representativeness of habitats and biodiversity in Peru (see Annex 16).  Financial gaps in effective management of protected areas.

Series of Programmatic Environmental Development Policy Loans context for the Project

13. The Bank has also supported the GoP with the series of Programmatic Environmental Development Policy Loans, comprising the first $330 million Environmental Development Policy Loan (ENV DPL, Report No. 44351-PE, approved in February, 2009), the second $50 million Programmatic Environmental Development Policy Loan (ENV DPL2, Report No. 49545-PE, approved in December, 2009) and a third operation (under preparation). The objective of the series of loans is to support the government’s efforts to: (a) improve the efficiency and effectiveness of environmental governance and institutions in Peru; and (b) mainstream environmental sustainability into the development agenda of key sectors (mining, urban transport, and fisheries).

14. The series of Programmatic Environmental Development Policy Loans have supported reforms that provide an enabling environment for the implementation of this project. For instance, they have supported policy reforms which contribute to the improvement in the overall financial strategy and position of SINANPE. Specific reforms include: (a) issuance of regulations establishing SERNANP’s functions; (b) MINAM’s approval of an Action Plan for the Protected Areas System (Plan Director)12 and (c) approval and implementation of SINANPE’s Sustainable Financial Strategy.

SERNANP Action Plan for Protected Areas System

15. SERNANP Action Plan for Protected Areas System was approved by the Ministry of Environment (MINAM) in September 2009 (Decreto Supremo No. 016-2009- MINAM).. The key policies recommended are to expand the protected areas system to cover ecosystems that are not yet represented. The report includes the identification of 133 areas with habitat and ecosystems underrepresented. A crucial step in securing ecological representativeness is the incorporation of subnational (RPAs and MPAs) and private PAs. The strategy contemplates the integration of these levels of PAs to SINANPE as well as strengthening capacity and coordination mechanisms at the national and subnational levels for an integrated management of PAs.

16. The proposed GEF project will adopt an ecological corridor approach13 to increase the ecosystem representativeness and will integrate management of PAs at a broader landscape level including supporting activities in buffer zones and supporting selected subnational protected areas to enhance effectiveness, efficiency and connectivity, and to protect habitat integrity.

12 The Action Plan for the Protected Areas System (Plan Director) was approved in September, 2009. 13 Ecological corridor is defined in this project as a space where various categories of protected areas and their complementary landscapes (private or community-based) are managed through strategic alliances to enhance ecological connectivity, reduce threats more effectively and contribute to climate change mitigation and adaptation. The ecological corridor approach not only helps to reduce the ecosystem gaps and ensures ecological functionality, but also complements the integrity of biodiversity conservation at the landscape/seascape level. New protected areas can be established where these gaps exist and within selected corridors in order to contribute to enhanced connectivity and habitat integrity.

Sustainable Financial Strategy of SINANPE

17. SERNANP and PROFONANPE have been coordinating the preparation of SINANPE’s Sustainable Financial Strategy. The first phase of the Strategy has pointed out to a few key conclusions:

 The fact that only 12% of resources that go to PAs come from the government is a low figure, compared to other countries, and needs to be increased. The great contribution of PROFONANPE to PAs management is recognized and valued, but the document points out that additional resources generated for PAs should come from other sources.  As shown in Table A.1.2., the financial support to the National System of PAs (SINANPE) has grown steadily with a slight decline in 2007 and 2008. However, figures in 2009 indicate that $13 million will be allocated to PA management. A recent study14 indicates that these allocations are sufficient to cover salaries and other recurrent costs (basic operational and maintenance costs) of PAs in the system. The same study estimates that a doubling of resources would be needed to also include financing of other expenses, such as development of strategic plans and management plans, communications plans, and investments in equipment and other infrastructure and maintenance.  The clear need to raise funds for PAs resulted in 5 principles that will guide the final phase of the Financial Strategy. These 5 principles are: i) Develop programs that increase the value that other sectors give to Protected Areas; ii) Modernize the administrative management of SINANPE as the other government institutions have been modernized; iii) Develop schemes for Payment for Environmental Services; iv) Create new programs to generate economic activities such as ecotourism and other natural resources management in PAs and v) drawing on existing experience in Peru, develop institutional innovations in order to raise funds from regional governments and the private sector (e.g., the GEF supported GPAN demonstrated contributions in the order of 2.5 to 1 from private and community participants). These new sources will complement the financing provided by PROFONANPE, the national government, and the other existing sources. 18. SERNANP approved the financial strategy of SINANPE in July 2009 and increase funding from various sources (including private sector) by at least $3.15 million per year (Baseline for 2009: resource allocation from various sources to SINANPE amount $14.2 million; as of September 2009 it increased to $17.35 million). SERNANP is expected to identify and approve regulatory measures to promote private sector financing and management of national PAs and would implement incentives for private sector financing and management of national PAs.

14 León Morales, Fernando. El Aporte de las Areas Naturales Protegidas a la Economía Nacional. Lima: INRENA, 2007.

19. The proposed GEF project will provide technical assistance to SERNANP and PROFONANPE to operationalize this strategy. Specifically, component 1 would support the studies and consultations needed to prepare and approve regulations to remove barriers that limit the integrated financing and management of regional, local and privately owned PAs and would support a campaign and training program to increase the value of PAs. Component 2, by working at the corridor level and with a variety of partners and also supporting the development of new administration and other conservation management models, would develop some of the institutional innovations of the guiding principles.

20. The Programmatic ENV DPL also supported policy and legal reforms that allow addressing threats to biodiversity conservation, such as definition of roles and responsibilities of MINAM in the evaluation of EIAs for large projects and key sectors that have potential impacts on the environment and country’s natural resource base, helping to improve the overall management of PAs. Finally, it also helped to support a post-license monitoring system and measures for transparency, accountability and public participation.

21. The proposed GEF project will address some of these key remaining threats and gaps. The Project will provide technical and operational support to address representativeness, some of the financial gaps and institutional capacity constraints at specific locations (corridors). Specifically, the GEF project will seek to: (a) increase the area of ecosystems under protection to improve habitat connectivity and the PAs network; (b) strengthen the policy and regulatory framework at the national and subnational level for an integrated management of PAs; (c) promote sustainable financing of the PA system; and (d) mainstream biodiversity conservation and sustainable use into production sectors that impact biodiversity by engaging the private sector in conservation efforts.

38 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

1. This new GEF operation would build on the two concurrent GEF-Biodiversity conservation projects in Peru, namely GPAN and PIMA, by supporting the creation of a new strategic mechanism to scale-up the consolidation and management of PAs complementary to the SINANPE through increased capacity to manage PAs at the regional and local levels.

2. All previous GEF-supported initiatives have provided a sound backing for operations within Peru’s PA system, and have contributed to the evolution of its management. For instance, the PIMA project has helped to increase the sustainability of biodiversity conservation in 5 PAs in the Amazon Region by involving indigenous communities in the PA management. Likewise, GPAN is also promoting biodiversity conservation in 5 PAs by involving civil society, the private sector and local community organizations in PA management.

Cooperation and Coordination with the Sustainable Rural Development Program – PDRS/GTZ 3. The Sustainable Rural Development Program–PDRS–is a German Technical Assistance (GTZ) program whose key objective is to raise the living standards of the poor population in selected rural areas of northern Peru through sustainable management of natural resources. The conceptual basis of PDRS/GTZ lies in the strategy of the priority area “Rural Development, including the conservation and management of natural resources,” which was prepared in a participatory manner and agreed by Peruvian and German entities in 2004.

4. PDRS works in three components: 1) Risk Management for Rural Development, 2) Sustainable Value Chains, and 3) Conservation of Natural Resources. PDRS has an expected duration of 12 years until 2015 and is currently in its second phase of implementation from 2007 to 2010. The spheres of actions are the Departments of Piura, Cajamarca and San Martín, as well as complementary activities at national and international levels.

Possible Cooperation. Subjects of mutual interest and progress achieved include: i) Strengthening of capacities for the management of PAs;; ii) Regional conservation systems/Regional biodiversity strategies; iii) Public investment and management of PAs; iv) Communication and Environmental Education and v) Bio-commerce–value chains that favor PAs and ecotourism.

39 Coordination with the UNDP Humboldt Current Project

5. During the final preparation stage of the proposed GEF Project, coordination efforts were developed with the GEF/UNDP Humboldt Project (Toward Ecosystem Management of the Humboldt Current Large Marine Ecosystem), including staff of both GEF agencies, the World Bank and UNDP, and Peruvian institutions responsible for both projects, SERNANP in the case of the Project, and IMARPE in the case of the Humboldt Project, as well as with other collaborating agencies and organizations.

6. The Project will support the preparation of the Emergency, Conservation and Repopulation Action Plan, as mandated by Law N° 28793, that will be closely articulated to the Master Plan for the RNSIIPG that will be developed under the Humboldt Project as indicated below.

7. The Humboldt Project deals with guano islands and capes under the framework of the design of a binational Strategic Action Program, carrying out three pilot operations in Peru under the concept of a multiple-use protected marine area, seeking linkage with various activities as well as inter-sectoral coordination with the participation of various actors to promote management with an ecosystem focus. The table below illustrates the main aspects to be developed under each project.

40 Table 1-Annex 2- Projects and programs on Protected Areas in Peru financed by the World Bank and other agencies.

Project Sector Issues Latest Supervision Ratings IP DO Indigenous Management of Protected Areas in the Strengthen participatory Management, S S Peruvian Amazon (PIMA) provision for training in indigenous communities in participatory mechanisms and sustainable methods for PAs management. Participatory Management of Protected Areas Consolidate PAs management. S S (GPAN) Increase PROFONANPE’s trust fund, design and implement the financial strategy of SINANPE. Series of Programmatic Environmental Development Reforms to improve efficiency and S S Policy Loans- Report No. 44351-PE/ Report No. 49545-PE effectiveness of environmental governance.

41 Project Scope Status Main objectives National Trust Fund for PA. National Under  Establish a Trust Fund. PROFONANPE implementation  Strengthen INRENA’s capacity for conservation and PAs management.  Develop institutional mechanisms for debt swap from nature. Participatory Management Tumbes, Piura, Lambayeque Closed  Promote needed conditions for participatory Management of Northwestern of Northwestern Biosphere Biosphere Reserve. Reserve Participatory Conservation 3 pre-selected protected areas Closed  Achieve consensus on limits and uses of established protected areas in the and Sustainable area of Vilcabamba. Development Program with  Carry out participatory Management plans for two community reserves. Indigenous Communities in  Implement pilot economic sustainable activities. Vilcabamba  Implement programs on education and training on sustainable development and conservation. Biodiversity Conservation 1 pre-selected protected area Closed  Contribute to conservation and sustainable use of biodiversity on Nanay and Community Natural River Watershed. Resource Management  Participatory management and monitoring of natural resources. Project in the Nanay River  Evaluate and validate alternative practices in sustainable management (NRB) (NRB)  Monitoring and evaluation techniques of natural resources by local communities. Indigenous Management of ZR Alto Purús, ZR, Santiago Under  Protected Areas in the Comaina and Gueppi; Pacaya implementation Peruvian Amazon (PIMA) Samiria National Reserva and El Sira Community Reserve. Strengthened National Under  Assist Peruvian institutions to continue developing and précising national Environmental Management implementation policies on environmental management, and prove, validate and to address priority issues - demonstrate applications to the systems on environmental management. STEM Tropical Forests Loreto, Apurimac, Cusco, Under  Contribute to conservation of tropical forest in Peru. Conservation Agreement Madre de Dios, San Martin, implementation  Promote social equity. Piura, Tumbes and  Incentive national governance for conservation. Lambayeque  Strengthen system’s Management. Zoning and Sustainable Use Morona and Pastaza Rivers Under  Prioritize sustainable Management of natural resources and conservation of of Natural Resources in watersheds implementation BD for communities and local actors benefit. Watersheds  Institutional strengthening for promotion of management and participation for management and conservation of Natural resources.

42 Project Scope Status Main objectives Biodiversity conservation Junín Closed  and sustainable development in land of Ashaninka indigenous people in central jungle. Protection of Natural Areas Piura, San Martin, Ancash, Under  Implementation and equipment of PAs (information centers and controls PAN II Pasco, Cusco, Tumbes, implementation posts, Communications equipment, control and surveillance equipment for Cajamarca, Junín rangers)  Support to elaboration of documents on management. Conservation and Resources Loreto Under Management of Pastaza implementation River Delta Biodiversity Conservation in Cajamarca Under  Seek conservation alternatives in moorlands through execution of key North and Central Andes implementation activities that result from a training process of people linked to the Moorlands ecosystem. Dry Forest Tumbes, Piura y Lambayeque Under  Management of Conservation Areas prioritized in the Ecoregion of implementation Equatorial Dry Forest by regional and local governments.

43 Annex 3: Results Framework and Monitoring PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Results Framework

GEO Project Outcome Indicators Use of Project Outcome Information To contribute to the long-term 250,000 hectares of newly created Global Use: Contributes to compliance with ecological sustainability of Peru's PAs and/or expanded PAs established, PoW on CDB protected areas and will protected areas by expanding the of which 125,000 ha are marine- provide guidance on the development of ecological representativeness of the coastal ecosystems. similar processes and projects in other bio- PA system and implementing diverse countries. Lessons learned may be conservation activities at various Conservation and sustainable shared at regional scale–OTCA and CAN. levels (national, regional, and management initiatives and programs private) within ecological in three corridors encompassing Policies on PAs: Contribute to strengthening corridors. The Project would between 2 to 3 million ha have the position of PAs under the framework of concentrate interventions in four improved by 40 % compared to the country’s development policies, in a ecological corridors (with 5 to 10 baseline as measured with the GEF context of decentralization, overcoming PAs located within these corridors) SP2 Mainstream biodiversity METT. poverty, demands on caring for the and would contribute to their 15 environment. financing on a sustainable basis. Ensure leveraging ratio of local Review of targets: At the end of Year 1, sources (subnational governments and having identified the corridors and prepared private sector) for three ecological the baseline, the proposed targets for the corridors to be at least the baseline of reduction of unsustainable activities will be 2:1 to finance the implementation of adjusted. administration contracts and subprojects and to cover basic National Communications to the CDB: Will recurrent costs16 of the selected PAs compile Project progress and lessons within the corridors. learned.

Intermediate Outcomes Intermediate Outcomes Use of Intermediate Outcome Monitoring Indicators Component 1: Institutional and 8 regulations to allow the integrated Updating of information on the protected Policy program at the national management of national, regional, areas system: communications to the CDB level. local and private PAs approved. and others.

This component will support the 3 Methodologies and guidelines Results and lessons learned incorporated in planning process, formulation of prepared for the development of policies for the management of Peru’s PA policy framework, regulations, planning tools appropriate for each system, including improvements to technical guidelines, incentives and level of PAs guidelines for planning areas and systems. procedures, and information system, for the integrated Information system of SINANPE Information shared in national forums on

15 The GEF SP2 tracking tool will measure progress in achieving the impacts and outcomes of mainstreaming biodiversity conservation in production landscapes. The GEF portfolio impacts include among others: i) number of hectares in production landscapes/seascapes under sustainable management but not yet certified; ii) number of hectares/production systems under certified production practices that meet sustainability and biodiversity standards; iii) the degree to which polices and regulations governing sectoral activities include measures to conserve and sustainably use biodiversity; iv) number and extent (coverage: hectares, payments generated) of new payments for environmental service schemes created. As soon as the three first corridors have completed their corridor strategy, the GEF SP2 tracking tool will be measured to establish the baseline and will continue to be measured every year until the end of the project to track changes in mainstreaming biodiversity at the corridor level. 16 PA staff salaries, basic operational and maintenance costs.

44 Intermediate Outcomes Intermediate Outcomes Use of Intermediate Outcome Monitoring Indicators management of PAs at the national, updated and operational. protected areas. regional, municipal and private levels. Public Awareness Strategy designed Experience shared with all regional and implemented. governments in order to incorporate more regions in the model, increasing the protected land area and collaboration between authorities and stakeholders at all levels. Component 2: Four ecological corridors are Experience shared with all regional Ecological Corridors Program identified in a collaborative and governments in order to incorporate more integrated manner and have developed regions in the model, increasing the protected This component will support the a corridor strategy. land area and collaboration between preparation of studies, the design authorities and stakeholders at all levels. and establishment of four selected At least 3 regional environmental corridors and the basic operation units operate and monitor efficiently Results and lessons learned incorporated in and implementation of priority the implementation of the corridor participatory management policies and management actions in 5 to 10 PAs program. instruments. in three of the four selected corridors. At least 1 million hectares of key Development of best-practices guidelines on ecosystems within three priority compatible economic activities in protected corridors improve management areas and buffer zones, and their effectiveness by 40% compared to dissemination nationwide. baseline as measured by SP1 METT17. Adjustments to the Project. 5-10 management plans prepared and approved. Contribution to activities aimed at raising public awareness of protected areas. Emergency Plan for the Guano Islands and Capes Reserve prepared.

At least five administration contracts and other conservation management models operating in selected PAs.

At least 40 natural resources management subprojects implemented to improve people’s lives and promote conservation (i.e., ecotourism, sustainable forestry, aquaculture, management of non-timber forest resources, payment for environmental services, etc.) within selected corridors. Component 3: Asset Fund of at least $9 million Experience systemized for inputting in the Financial Sustainability of implemented to cover recurring costs Financial Plan of the national system, of

17 The purpose of this tool is to help track and monitor progress in the achievement of the World Bank/WWF Alliance worldwide protected area management effectiveness target. It is aimed at reporting progress on management effectiveness, and has been developed to provide a quick overview of progress in improving the effectiveness of management in individual protected areas. Eight potential corridors have been identified at PPG stage. The national protected areas within these 8 corridors have submitted their tracking tools at CEO endorsement to serve as baseline for this indicator. Once the final selection of PAs is done, the tracking tools will be applied only for these PAs.

45 Intermediate Outcomes Intermediate Outcomes Use of Intermediate Outcome Monitoring Indicators Protected Areas within Selected of national, regional and local regional systems, and of specific Project Ecological Corridors. protected areas, within three of the areas. four selected corridors. This component will help to further capitalize the protected areas trust Regional, local and private funds fund to finance the recurrent costs allocated at a ratio of 1:1 to of 5 to 10 PAs located within three complement contributions from the of the four selected corridors. Asset Fund for recurring costs.

Financial and institutional mechanisms developed to allow a sustained contribution from subnational governments and the private sector to national and regional PAs, securing the financing of at least 50% of the management costs of the national PAs and regional PAs located within the selected corridors.

Component 4: Project Administration Council and Information for Project management levels in Project Management Consultative Committee established order to make the necessary adjustments. and in operation, with various This component will support the stakeholders. Guidelines for SERNANP on the design and administrative, financial and organization of the management of projects technical management of the Internal Project mechanisms are cooperating with Peru’s PA System. Project. coordinated; timely, adequate reports are available.

Internal evaluations are carried out as part of a monitoring system.

46 Arrangements for Results Monitoring

Target Values Data Collection and Reporting

Baseline YR1 YR2 YR3 YR4 YR5 Frequency and Data Collection Responsibility for Project Outcome Indicators Reports Instruments Data Collection

10% 30% 60% 100% of Annual progress Decrees SERNANP 250,000 hectares of newly created PAs None target report Maps produced by CDC/UNALM and/or expanded PAs established, of which CDC or others, 125,000 ha are marine-coastal ecosystems. SINANPE’s monitoring system;

Conservation and sustainable management The SP2 40% of 50% of 67% of Annual progress SP2 METT report at SERNANP initiatives and programs in three corridors METT will target target target report the corridor level Regional encompassing between 2 to 3 million ha be applied Other corridor maps Environment unit have improved by 40 % compared to for each and strategy report Monitoring Unit baseline as measured with the GEF SP2 corridor as CDC/UNALM Mainstream biodiversity METT. soon as the corridor strategy is completed Ensure leveraging ratio of local sources None 0.5:1 1:1 1.5:1 2:1 Annual progress SINANPE’s SERNANP (subnational governments and private report monitoring system Regional sector) for the three ecological corridors to Environment unit be at least the baseline of 2:1 to finance the Monitoring Unit implementation of administration contracts CDC/UNALM and subprojects and to cover basic recurrent costs of the selected PAs within the corridors.

Intermediate Outcome Indicators

Component 1: Institutional and Policy program at the national level

8 Regulations to allow the integrated None 2 4 6 8 Consultants’reports and Decrees for the PROFONANPE management of national, regional, local publication of publication of SERNANP and and private PAs approved. regulations and regulations Regional Governments guidelines by SERNANP and regional governments

3 Methodologies and guidelines prepared Not available 1 1 2 3 for the development of planning tools Project Annual progress Guidelines issued and PROFONANPE appropriate for each level of PAs report published by SERNANP and SERNANP and Regional Governments Regional Givernments

A basic Designed Information system of SINANPE updated Functioning Functioning Functioning Maps and M&E SERNANP and database exists and operational. For 4 PAs For 8 PAs For 12 PAs Reports Regional Governments

Public Awareness Strategy designed and GPAN designed implemented Dissemination PROFONANPE implemented. communication materials distributed SERNANP and is baseline among national Regional Governments stakeholders

Component 2: Ecological corridors Program

Annual progress report SERNANP and SERNANP Four ecological corridors are identified in Regional Regional a collaborative and integrated manner and None 2 4 Environmental Goivernments’ Governments Environmental Units have developed a corridor strategy. authorities Reports and territorial plans.

At least 3 regional environmental units None 1 2 3 Mid-term Review and Regional operate and monitor efficiently the Project M&E reports. Governments implementation of the corridor program.

At least, 1 million hectares of key ecosystems within three priority corridors SP1 METT tracking improve management effectiveness by The PA SP1 20% 40% tools and other PA SERNANP and management reports; Regional 40% compared to baseline as measured by has been Governments. SP1 METT. applied to the PAs located within the Pre- identified

corridors.

5-10 management plans prepared and 1 SP2 METT tracking None approved. 2 3 4 5 tools at the level of SERNANP and

corridor Regional Governments. Emergency Plan for the Guano Islands and Emergency Plan Capes Reserve prepared. None PA plan approved and SERNANP Completed published

At least five administration contracts and 1 Reports issued by One other conservation management models 2 3 4 5 contract SERNANP operating in selected PAs. Regional administrators Governments and contract administrators

At least 40 natural resources management Reports from subprojects implemented to improve None PROFONANPE 5 15 40 subprojects people’s lives and promote conservation specialist SERNANP (i.e., ecotourism, sustainable forestry, Regional aquaculture, management of non-timber Governments forest resources, payment for environmental services, etc.) within selected corridors.

Component 3: Financial Sustainability of Protected Areas within Selected Ecological Corridors

Asset Fund of at least $9 million 0 50% 50% Annual progress report PROFONANPE PROFONANPE implemented to cover recurring costs of Annual Report SERNANP national, regional and local protected Regional areas, within three of the five selected SERNANP & Governments Regional

49 corridors. Environmental Governments Regional, local and private funds allocated authorities at a ratio of 1:1 to complement 0 100% Annual Reports. contributions from the Asset Fund for Project’s M&E reports recurring costs.

Financial and institutional mechanisms 0 100% developed to allow a sustained contribution from subnational governments and the private sector to national and regional PAs, securing the financing of at least 50% of the management costs of the national PAs and regional PAs located within the selected corridors.

Component 4: Project Management

Project Administration Council and None specific Established 100% 100% 100% 100% Annual progress report PROFONANPE PRONANP Consultative Committee established and in to this Project Annual Report SERNANP operation, with various stakeholders. SERNANP & Regional Internal Project mechanisms are None 100% 100% 100% 100% 100% Environmental coordinated; timely, adequate reports are Governments available. authorities Annual Reports. Internal evaluations are carried out as part of a monitoring plan. None 50% 100% 100% 100% 100% Data reviewed by periodic World Bank supervision missions

Mid-Term Review and Project M&E strategy

50 Arrangements for results monitoring.

1. The complexity of the Project makes it inevitable to adopt an adaptive and participatory management approach. The results of this Project will be closely monitored and evaluated throughout Project implementation and the results will be used to refine program strategies and activities. As is fitting for a Project of this complexity, monitoring will take place on several levels as described below.

2. Under Component 1, SERNANP will appoint one staff in charge of developing the information management system of SINANPE and ensuring its continued operation. This system aims at systematically gathering information about the status of protected areas, their annual operational plans, resources allocations and management effectiveness. This SERNANP staff will be assisted by the monitoring specialist contracted under the Project.

3. Under Component 2, several monitoring activities for the corridor level, for the PAs within corridors and for the administration contracts and natural resources management subprojects will be developed. These tasks are expected to be carried out by the SERNANP monitoring staff and the Project monitoring specialist in coordination with the PAs managers at different levels and the regional environmental units within the corridors. To monitor the implementation at the corridor level and the improved management effectiveness of PAs, the Project will use the 2 GEF METT tracking tools (SP1 and SP2) and any other reports and maps produced during Project implementation that are part of other government planning tools. The GEF1 tracking tools for 7 PAs have been submitted at CEO endorsement. These 7 PAs are located within the 8 potential corridors. Once the final corridors are selected, the GEF SP1 METT will be filled out at mid-term and final points for the PAs within the selected corridors that are part of the 7 baseline PAs. The baseline of the GEF 2 tracking tool for each corridor will be done as soon as the corridors are selected and then applied again at mid-term and final stage. All the monitoring data will be reported in the annual progress reports.

4. To monitor the implementation of the administration contracts and sustainable development subprojects, the methodology applied by the previous project GPAN will be applied. This methodology consists of developing a radar screen for each PA that includes an assessment within and around the PAs of the social conditions and participatory mechanisms. This methodology allows for measuring the degree of involvement and quality of participation in Project activities by local stakeholders, as well as their perception of the environmental authority performance in relation to PAs management. This information is used to design the activities and to measure social and participation improvements against the baseline. Biological monitoring will be conducted in 3 to 5 PAs as part of the administration contracts supported under component 2 and will follow the model of the GPAN project18. The GPAN experience includes monitoring of key biological indicators. Before the administration contracts are selected, key endangered indicator species are been identified and SERNANP requires as part of the responsibility of the Administration Contracts that conservation and monitoring of these key

18 Biological monitoring comprises high technical skills, technology and cost, therefore it is not feasible for SERNANP or subnational governments to undertake it. Private organizations (NGOs and academic institutions) not only have the required skills and financing, but also are capable of resources leveraging and of establishing strong commitments to secure a sustained operation of monitoring systems.

51 endangered species be included. Once the Administration Contracts are put in place, the baseline information of the species will be provided as part of the Project’s annual progress reports.

5. As part of the monitoring of component 3, PROFONANPE will provide an annual report of the financial status of the endowment fund, particularly with respect to the Project’s goals of raising the asset fund by $9 million. SERNANP, together with PROFONANPE will provide information on the increased financing of SINANPE. PROFONANPE will also forward to the Bank the asset manager report on an annual basis.

6. As part of component 4, the Project monitoring specialist will gather data from the results of the different components to assess the fulfillment of the indicators included in Annex 3. The financial reporting aspects are detailed in Annex 7.

7. Based on all the above information, Project progress reports will be produced regularly and sent to the Bank for review before supervision missions. In addition to these annual reports, PROFONANPE and SERNANP will be required to produce a mid-term and a final review report.

Annex 4: Detailed Project Description PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

1. The project’s Global Environment Objective (GEO) is to contribute to the long-term ecological sustainability of the Peru’s Protected Areas by expanding the ecological representativeness of the country’s Protected Areas System and implementing conservation activities at various levels (national, regional, and private) within ecological corridors. The Project would concentrate interventions on four ecological corridors (with 5 to 10 PAs located within these corridors) and would contribute to their financing on a sustainable basis. The Project will seek the integrated management of PAs, through the establishment of these ecological corridors19 following a landscape approach, as a strategy to effectively manage diverse categories of protected areas (described below) and harmonize land uses in the rural production landscape to better address protected areas threats and enhance connectivity among them (details in Annex 16).

2. Studies were conducted during the preparation phase to determine the location of these corridors. A total of nine corridors were preliminarily identified for holding ecosystems of global importance (see description in Annex 16). The Project will concentrate interventions only in four corridors as explained below.

3. The Project supports activities in four corridors at different levels. Planning, capacity building and other design activities will be supported in all four corridors. Considering the complexity of the corridor program and available funding, the Project supports only three corridors in priority management activities, including implementation of administration contracts, economic development subprojects, and PA basic recurrent costs. The experience gained in operational and financing mechanisms is expected to help the GoP replicate the integrated/corridor approach in other corridors in the post-Project phase.

4. The Project will be financed through a $8.891 million GEF Grant and additional $21.82 million from KFW, SERNANP and Plus Petrol (see cost table at the end of this Annex). The GEF grant will be managed by PROFONANPE in both sinking and an endowment fund as follows:

 Sinking funds ($5.71 million): will finance the technical assistance and investments activities contemplated under Components 1, 2 and 4.

19 Ecological corridor is defined in this project as a space where various categories of protected areas and their complementary landscapes (private or community-based) are managed through strategic alliances to enhance ecological connectivity, reduce threats more effectively and contribute to climate change mitigation and adaptation. The ecological corridor approach not only helps to reduce the ecosystem gaps and ensures ecological functionality, but also complements the integrity of biodiversity conservation at the landscape/seascape level. New protected areas can be established where these gaps exist and within selected corridors in order to contribute to enhanced connectivity and habitat integrity.

53  Endowment fund ($3.18 million): will finance the activities contemplated under Component 3. The interest earned on this fund will finance to perpetuity the basic recurrent costs of 5 to 10 national, regional or private selected PAs within three priority corridors.

5. To secure the integrated management of conservation areas within the corridors, the following types of protected areas have been considered under the Project:

 National Natural Protected Areas are administered by the central government (SERNANP) and are currently part of the National System of Natural Areas Protected by the State (SINANPE). Its establishment and management is regulated by the Protected Areas Law. These PAs are grouped in nine different categories according to their management objectives.  Regional Protected Areas are administered by the regional governments, are complementary to the SINANPE’s PAs and do not have differentiated categories. Their establishment and management are regulated by the Protected Areas Law.  Municipal Protected Areas are administered by municipal governments, are complementary to SINANPE, however the legal framework for their creation and management has not been issued.  Private Protected Areas are administered by private organizations or individuals, are complementary to SINANPE and their establishment and management are regulated by the Protected Areas Law.

6. The Project has four components: i) Institutional and Policy program at the national level, ii) Ecological Corridors Program, iii) Financial Sustainability of selected PAs, and iv) Project Management.

Component 1: Institutional and Policy program at the national level (Total $1.849 million; of which GEF: $1.093 million, KfW: $0.3 million; SERNANP: $0.456 million).

7. This component will support the planning process, formulation of policy framework, regulations, technical guidelines, incentives and procedures, and information system, for the integrated management of PAs at the national, regional, municipal and private levels. It will also support the implementation of a training program focused on ecosystem management approaches and integrated management of PAs. Finally, this component will also promote the development of effective public awareness campaigns and programs to disseminate the strategy and results of the Project.

8. Expected Outcomes: i) 8 regulations to allow the integrated management of national, regional, local and private PAs approved; ii) 3 Methodologies and guidelines prepared for the development of planning tools appropriate for each level of Pas; iii) Information system of SINANPE updated and operational; iv) Public Awareness Strategy designed and implemented.

Subcomponent 1.1. Development of policy guidelines, regulations and procedures for the integrated management of Peru’s NPA system (Total $1.155 million, of which, GEF: $0.571 million; KfW: $0.2 million; SERNANP: $0. 384 million).

Activities. This subcomponent will provide financial and technical assistance to:

 Development of specific regulations: i) to standardize the methodology to prepare PAs master plans at the national level (based on Executive Decree 008 issued on April, 2009); ii) to define overall management procedures by subnational governments in the context of the PAs Law; iii) to establish institutional mechanisms assigning roles and responsibilities to subnational governments and private sector to manage PAs under an integrated approach; iv) to establish procedures for the zoning of subnational PAs; and v) to establish the procedures for the implementation of the administration contracts with subnational governments.  improvement of technical regulations and guidelines of PAs master plans, management plans, and other similar instruments based on recent experiences by the national authority, aimed at simplifying their preparation and implementation;  improvement of the management information system for SINANPE and its application in selected Project areas, including the completion at the national level of the Perú Ecologic Map; and  development of a standardized methodology for the design of planning, monitoring and evaluation instruments.

9. PROFONANPE will hire specialized consultants to coordinate with SERNANP, regional, local governments and the private sector within the selected corridors the development of instruments that will improve the legal and institutional framework required for the integrated management of the protected areas. This subcomponent will incorporate a broad range of experiences existing in the country for working in collaboration with private conservation organizations, academia and management committees and will follow participatory processes.

10. PROFONANPE will contract the completion of the map of Peru’s ecological systems directly with the Conservation Data Center of La Molina National Agricultural University, which has already performed 70% of the work.

Subcomponent 1.2. Training and Environmental Awareness Program (Total $0.694 million, of which, GEF: $0.522 million, KfW: $0.1; SERNANP: $0.072 million).

11. Activities: This subcomponent will provide financial and technical assistance to:

 Strengthen PROFONANPE’s capacity to develop innovative financial mechanisms, as part of the Financial Strategy.  the design of a training program, including the development of curriculums for each course, taking into account the needs of each target group;  develop curriculums for each course, taking into account the needs at each target group;  execute the training program through academic and private organizations;

55  design of the strategy to raise awareness at the national level on the importance of the corridor strategy;  prepare and distribute information materials that will be provided to newspapers, radio and television;  develop activities in schools and local institutions, making use of various regional and local contests and seeking to integrate PAs with the festivities, ceremonies and cultural activities;  organize guided visits to selected protected areas; and  training of communicators, teachers and promoters to make this a permanent activity.

12. PROFONANPE will hire consultants to carry out the design of the training program and will contract academic institutions to carry out the implementation. SERNANP will also enter into cooperation agreements with technical cooperation agencies to co-finance the ongoing training programs. Some organizations already working at the regional level using a node scheme20 and with which PROFONANPE may work are: the Frankfurt Zoological Society in the Southern Node, Nature and Culture International (NCI) in the Northern Node, and the Center for Research and Management of Natural Areas (CIMA) in the Northeastern Node, and universities such as UNA, La Molina and the Universidad Católica del Perú. PROFONANPE will hire a consultant (training coordinator) that will be working in SERNANP, to coordinate the implementation of the program with the beneficiaries and the organizations that will be providing the training.

13. PROFONANPE will hire consultants to design the Public Awareness Strategy and will contract non-consultant services to design and produce the dissemination materials. SERNANP and PROFONANPE will enter into agreements with media agencies to secure the dissemination of the awareness materials.

Component 2: Ecological Corridors Program (Total $7.481 million, of which, GEF: $3.729 million, KfW: $3.735 million; SERNANP: $0.017 million).

14. This component will support the preparation of studies, the design establishment, operation and selection of four selected corridors and the basic operation and the implementation of priority actions contemplated under the management plans in 5 to 10 PAs in three of the four selected corridors. These PAs could include existing national PAs not previously supported by GEF or new created PAs by regional governments or the private sector. Furthermore, it will implement an incentive system, based on the activities planned under sub-components 2.2 and 2.3 for the regional and municipal governments and the private sector within the selected corridors, to support the creation and management of subnational PAs and to improve land use in the rural landscape connecting these PAs. This component will be strategically complemented with the financing of basic recurrent costs for selected PAs through Component 3.

15. Expected Outcomes: i) Four ecological corridors are identified in a collaborative and integrated manner and have developed a corridor strategy; ii) At least 3 regional environmental

20 Nodes: For the proposed Project, the following three nodes will participate on training activities: Southern Node (encompassing Moquegua, Tacna, Arequipa, and others), Northern Node (including Tumbes, Piura, Lambayeque, and others), and Northeastern Node (encompassing San Martín and Amazonas)..

56 units operate and monitor efficiently the implementation of the corridor program; iii) At least 1 million hectares of key ecosystems within three priority corridors improve management effectiveness by 40% compared to baseline as measured by SP1 METT; iv) 5-10 management plans prepared and approved; v) Emergency Plan for the Guano Islands and Capes Reserve prepared; vi) At least five administration contracts and other conservation management models operating in selected Pas; vii) At least 40 natural resources management subprojects implemented to improve people’s lives and promote conservation (i.e., ecotourism, sustainable forestry, aquaculture, management of non-timber forest resources, payment for environmental services, etc.) within selected corridors.

Subcomponent 2.1 Establishment and operation of selected ecological corridors. (Total $4.326 million, of which, GEF: $1.374 million, KfW: $2.93 million; SERNANP: $0.017 million).

16. Activities: This subcomponent will provide financial and technical assistance to the following:

In four corridors:  design and carry out strategic planning for all four ecological corridors;  prepare studies and consultation processes required for the establishment of new protected areas.

In three corridors:  prepare management plans for 5-10 selected PAs following a participatory approach;  provision of basic infrastructure and equipment for 5-10 selected PAs;  technical assistance for the efficient operation of at least 3 regional environmental management units (corresponding to the three priority corridors);  establishment and operation of PAs management committees to support the development of the participatory processes and the implementation of Project activities.

In the Guano Islands and Capes Reserve:  preparation of the Emergency, Conservation and Repopulation Plan.

17. PROFONANPE will hire consultants to carry out the necessary studies and coordinate with SERNANP and subnational governments the strategic planning for the design of corridors, selection of the priority PAs and the preparation of the PAs management plans and will hire three consultants to provide technical assistance to the SERNANP’s focal points (explained in Annex 6) and coordinate the implementation of the Project with the subnational governments and the private sector. It will also contract civil works for PAs infrastructure and will purchase equipment.

18. SERNANP will support PROFONANPE in the development of coordination mechanisms with the regional and municipal governments and private sector for the overall PAs planning, establishment and development of Project activities.

57 Subcomponent 2.2 Development and implementation of alternative management models of protected areas (Total $1.835 million, of which, GEF: $1.61 million, KfW: $0.225 million)

19. Activities: This subcomponent will support:  financing and monitoring of administration contracts and other administration mechanisms in the selected protected areas;  systemization of management experiences;  development of complementary management mechanisms21 such as facilitating and promoting conservation initiatives in private and communal lands, especially in critical habitats.

20. PROFONANPE, in coordination and consultation with the regional and municipal governments and organizations from the private sector (selected PAs administrators); will select on a competitive basis the service providers (usually NGOs and academic institutions) to implement the full or partial administration contracts. The PAs administrators will contract the selected service providers and PROFONANPE will make the payments of contracts. PROFONANPE will sign agreements with the PAs administrators to oversee and monitor the implementation of these contracts. The implementation of other administration mechanisms stipulated in the Protected Areas Law will follow the same procedure.

Subcomponent 2.3 Development of natural resources management subprojects in selected corridors. (Total $1.32 million, of which, GEF: $0.745 million, KfW: $0.575 million).

21. The Participatory Management of Protected Areas Project (GPAN) piloted new management models in 5 PAs that involved civil society, the private sector and local community organizations in PA management. One of the sub-components of GPAN included the implementation of natural resources management subprojects around the 5 PAs. These subprojects were developed to promote local initiatives that can address the threats identified at the PA level and ensure that the subprojects are part of a mitigation strategy of these threats. These subprojects have proven to meet some of the best practice requirements for designing and managing natural resources within conservation projects.

22. Activities:

 Design and implement a sustainable economic activities program; including, if necessary, the updating or development of management plans of PAs under sub-component 2.1  Identify economic sectors with activities representing a threat to the PAs to mitigate damages or reconvert activities toward alternative non-degradable environmental activities.  The threatened conservation focal objects of the PA (species, habitats, etc) and proposed mitigation and/or management plans will be identified.  Social assessments of the main actors and communities around the PAs and their interaction with the biodiversity objectives of the PA will be carried out.

21 The Protected Areas Law contemplates at least five additional administration mechanisms complementary to the administration contracts.

58  Environmental analysis to assess the potential impacts and process frameworks for types of subprojects will be developed.  Capacity building will be developed under sub-component 1.2 to the local organizations that would be organized in groups around the environmental management of the PA and its surrounding area (Grupos de Autoaprendizaje para el Desarrollo Ambiental, GADAS).

23. PROFONANPE will coordinate the financing of these subprojects with regional and municipal governments and private sector organizations. PROFONANPE will contract a specialized agency to adapt the already existing operating manual and to implement the program in cooperation with regional and local governments. A 1:1 co-financing will be required from the beneficiaries for the implementation of the selected subprojects.

24. The local GADAS, the Park managers and PROFONANPE’s technical staff would be involved in calling for proposals based on the criteria set beforehand and selecting the subprojects that best address the PA’s problems and at the same time support local communities’ needs. Financial feasibility and assessment of potential environmental and social impacts of the subprojects will be developed. All these procedures are detailed in the operational manual that has been developed under the GPAN project and that will be part of the Project’s updated operational manual. Monitoring and evaluation will be carried as described in Annex 3. Although the type of subprojects cannot be known at this time, based on the GPAN experience it is likely that it could include: agro-forestry, ecotourism, grassland or natural resources management, management of endangered species, apiculture, agricultural crops and reforestation.

Component 3: Financial Sustainability of Protected Areas within Selected Ecological Corridors. (Total $9.18 million, of which, GEF: $3.18 million, KfW: $3.0 million; PlusPetrol: $3.0 million).

25. This component will help to further capitalize the protected areas trust fund to finance the recurrent costs of PAs that will be selected under the Project. The endowment will become one of the mechanisms supporting the financing of PAs and will strategically complement the investments and additional leverage of funds that will take place under sub-components 2.2. and 2.3.

26. This endowment will comprise the following contributions: $3.185 million from GEF, $3 million from KfW and $3 million from PlusPetrol (private gas company), the latter is earmarked to the Paracas National Reserve, which is one of the national PAs of the National Reserve System of Guano Islands, Islets and Capes.

27. Expected Outcomes: i) Asset Fund of at least $9 million implemented to cover recurring costs of national, regional and local protected areas, within three of the four selected corridors; ii) Regional, local and private funds allocated at a ratio of 1:1 to complement contributions from the Asset Fund for recurring costs; iii) Financial and institutional mechanisms developed to allow a sustained contribution from subnational governments and the private sector to national

59 and regional PAs, securing the financing of at least 50% of the management costs of the national PAs and regional PAs located within the selected corridors.

28. Activities:

 Capitalization of the Recipient’s protected areas trust fund so as to generate sufficient income to finance recurrent costs of the Project Protected Areas, located within three corridors, to be selected under the Project and to assist in financing activities under Components 2.2 and 2.3.  Monitoring and evaluation of the Asset Manager’s financial strategy and portfolio management.

29. The Asset Manager services would be hired by PROFONANPE to manage the trust fund portfolio, among the three top ranking banks as established by the National Banking Superintendency. After the Asset Manager is selected, a “Trusteeship Contract” (Contrato de Comisión de Confianza) would be signed, whereby the Asset Manager makes the Project endowment investment decisions on behalf of PROFONANPE. The Asset Manager should record and keep separate accounts for portfolio transactions and yields. A Financial Advisor will also be contracted to supervise and carry out portfolio monitoring.

30. The selected Asset Manager will open a temporary special account, which will be used exclusively to transfer the endowment fund from the World Bank. From this account, the Asset Manager will structure the investment portfolio. PROFONANPE will open another special account where the earning of the endowment will be transferred and channeled to SERNAP and subnational governments to finance PAs recurrent cost.

31. PROFONANPE will establish a Special Account, for the financing of the recurring costs of national, regional and local PAs located in three selected corridors. This account will operate with the contributions of $3 million from GEF, $3 million from KfW and $3 million from PlusPetrol to the Paracas Fund. PROFONANPE Monitoring and evaluation to the Asset Manager’s financial strategy and portfolio management is included ($0.18)

Component 4: Project Management. (Total $2.205 million, of which, GEF: $0.88 million, KfW: $1.19 million; SERNANP: $0.126 million.)

32. This component will support the administrative, financial and technical management of the Project and the design and implementation of a monitoring, evaluation and systemization system.

33. Expected Outcomes: i) Project Administration Council and Consultative Committee established and in operation, with various stakeholders; ii) Internal Project mechanisms are coordinated; timely, adequate reports are available; iii) Internal evaluations are carried out as part of a monitoring system.

60 Subcomponent 4.1 Project management and administration. (Total $2.08 million, of which, GEF: $0.864 million, KfW: $1.13 million; SERNANP: $0.086 million.)

34. This subcomponent will focus on supporting the management and administration of the Project by PROFONANPE and SERNANP. The funds will be used to finance goods, consulting services, travel, operating expenses and incremental costs needed for Project management. It will finance the Project coordinator, the procurement specialist, the administrative assistant and external audits, as well as the costs of meetings by the Project’s Administration Council and Consultative Committee. It will also cover PROFONANPE’s indirect costs, staff, equipment and operating costs.

Subcomponent 4.2 Monitoring, evaluation and systematization. (Total $0.125 million, of which, GEF: $0.025 million; KfW: $0.06 million; SERNANP: $0.04 million)

35. It will deal with the design and implementation of a monitoring, evaluation and systemization system in order to have available a technical guide on Project progress, identify needs for adjustment, and systematize the experience for learning purposes. It will finance a part- time consultant in this subject who will technically support the Project’s various components, including training activities and advising participating institutions.

In US $ Thousands

Components/Expenditure Accounts GEF KFW SERNANP PlusPetrol TOTAL Component 1 1,093 300 456 0 1,849

1.1 Development of policy guidelines, regulations and procedures for the integrated management of Peru’s NPA system 571 200 384 0 1,155

1.2 Training and Environmental Awareness Program 522 100 72 0 694 Component 2 3,729 3,735 17 0 7,481

2.1 Establishment and operation of selected ecological corridors 1,374 2,935 17 0 4,326

2.2 Alternative models for protected areas management 1,610 225 0 0 1,835

2.3 Natural resources management subprojects in selected corridors 745 575 0 0 1,320 Component 3 3,180 3,000 0 3,000 9,180 3.1 Design and establish an endowment fund for protected areas. 3,180 3,000 0 3,000 9,180 Component 4 889 1,190 126 0 2,205

4.1 Project management and administration 864 1,130 86 0 2,080

4.2 Monitoring, evaluation and systemization 25 60 40 0 125 TOTAL 8,891 8,225 599 3,000 20,715

62 Annex 5: Project Costs Peru: Strengthening Biodiversity Conservation through the National Protected Areas Program

Components/Subcomponents Local ($m) Foreign Total ($m) Component 1

1.1 Policy guidelines and technical criteria, regulations, procedures, for an integrated 1,097 management of PAs. 1,097

1.2 Training and Public Awareness Program 660 660

Subtotal Component 1 1,757 1,757 Component 2

2.1 Establishment and operation of selected 4,100 4,100 ecological corridors

2.2 Alternative models for protected areas 1,753 1,753 management

2.3 Natural resources management subprojects in selected corridors 1,254 1,254

Subtotal Component 2 7,107 7,107 Component 3

3.1 Design and establish an endowment 8,721 8,721 fund for protected areas. Subtotal Component 3 8,721 8,721 Component 4

4.1 Project management and 1,976 1,976 administration 119 119 4.2 Monitoring, evaluation and systematization Subtotal Component 4 2,095 2,095 Total BASELINE COST 19,680 19,680 Physical Contingencies 621 621 Price Contingencies 414 414 TOTAL PROJECT COSTS 20,715 20,715

63 Annex 6: Implementation Arrangements PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Operational Level

1. PROFONANPE will be the recipient of the GEF Grant. The World Bank, acting as the implementing agency of the GEF, will sign a Grant Agreement with PROFONANPE for the implementation of the Project. PROFONANPE will also be the recipient of the funds provided by KfW as co-financing for the Project. For this purpose, PROFONANPE and KfW will sign an Agreement and a Financial Contribution Contract.

2. PROFONANPE will be responsible for: i) the overall implementation of the Project; ii) carry out the financial management and procurement according to the Project’s Operational Manual and Procurement Plan; iii) submit to the World Bank and KfW the Project’s semi-annual progress reports; iv) request no-objections from donors, when required, for the execution of Project activities; v) prepare and submit to the World Bank, KfW and the Project’s Administration Council the annual operational plans (POA), procurement plans (PA), semi- annual progress reports and any other documentation required by donors and the Project’s Administration Council; vi) carry out the necessary coordination with SERNANP, regional and local governments and other executors to carry out the implementation and monitoring of the Project; vii) annually contract auditing firm and issue reports to the World Bank and KfW.

3. A Project’s Administration Council (PAC). PROFONANPE’s internal procedures require the creation of this Council for each project to oversee implementation. In the case of the Project, it will be composed of a representative of SERNANP; a representative of PROFONANPE’s Management Council; a representative of the regional governments involved in the Project who will be rotated annually; and the Executive Director of PROFONANPE, who will act as the technical secretary. The Council will meet twice a year to review Project progress and approve annual work plans, progress reports, annual procurement plans and audits. If necessary, the PAC will have additional meetings for example to review modifications to the procurement plans.

4. SERNANP is the national authority in charge of SINANPE’s management, therefore it will be responsible for the implementation, supervision and monitoring of the Project activities in SINANPE’s selected PAs. PROFONANPE will sign an agreement with SERNANP to detail the agreed activities, the financial plan, and the roles and responsibilities of each party. Specifically, SERNANP will: i) prepare the terms of reference for technical studies of and conduct the quality control of these studies in coordination with the Project’s Technical Team (PTT); ii) in coordination with PROFONANPE, participate in the selection and contract the management of PAs with the private sector, including administration contracts (specific procedures are detailed in Annex 8, section A); iii) request to PROFONANPE the payments for the contracted NGOs or other private entities; iv) monitor and supervise the services contracted for SINANPE’s PAs and their buffer zones; v) in coordination with PROFONANPE, participate in the selection and contract PAs staff; vi) prepare the POAs and the progress reports that may be required by the Project’s Administration Council or by PROFONANPE in coordination with the PTT; vii) carry out the technical studies and approve the creation of regional and private PAs; vii) conduct the

64 necessary coordination and communications with PROFONANPE, regional and municipal governments and private sector; viii) approve management plans for regional and private PAs.

5. SERNANP will carry out and supervise field activities in the SINANPE’s PAs through its Protected Areas Management Units (Jefaturas de Areas Protegidas) and the territorial focal points22

6. Regional and municipal governments, and organizations of the private sector involved in the Project will be responsible for the implementation, supervision and monitoring of the Project’s activities in, regional, municipal and private PAs respectively, in coordination with PROFONANPE, and the Project’s technical team. Regional governments will be responsible for preparing the regional territorial plans and annual operational plans, where the establishment and operation of the selected corridors will be included. For the implementation of Project’s activities in regional PAs, PROFONANPE, and Regional Governments will jointly sign agreements to detail the agreed activities, the financial plan, and the technical assistance that SERNANP should provide to regional governments for the creation and management of regional PAs and to oversee the application of national policies as established in the Protected Areas Law. Similar agreements will be signed for the creation and operation of municipal and private PAs with the corresponding parties.

7. Specifically, subnational governments and the private sector will: i) conduct the programmatic and technical execution of the activities under their responsibility, in accordance with the approved annual operational plans and in coordination with PROFONANPE and the PTT; ii) prepare POAs and progress reports that are requested by the PAC or PROFONANPE; iii) present to SERNANP the proposals for the establishment of regional, municipal and private PAs, based on the technical studies and consultations developed under the Project; iv) provide to PROFONANPE and SERNANP the assistance required to comply with monitoring and supervision activities; v) in coordination with the PTT, prepare terms of reference for Project’s activities; vi) allow PROFONANPE or independent auditors to periodically review documentation related to the Project; vii) conduct the necessary coordination and communications with PROFONANPE and SERNANP; vii) in coordination with PROFONANPE, participate in the selection and contract the management of PAs with the private sector (applies only to regional and municipal government, details in Annex 8-section A); viii) request to PROFONANPE the payments for the contracted NGOs or other private entities; ix) carry out the selection and contracting of PAs staff. Regional governments will implement the Project’s activities through their Regional Environmental Units (Gerencias de Recursos Naturales y Gestión del Medio Ambiente).

8. A Project Technical Team (PTT) will be contracted by the Project to carry out the implementation of Project’s activities in coordination with PROFONANPE, SERNANP, regional and municipal governments and organizations of the private sector. This team will comprise a general coordinator, a monitoring and evaluation specialist, a specialist to supervise the implementation of administration contracts and the economic sustainable activities, who will

22 Territorial focal points are PAs managers in charge of providing overall technical assistance to a designated group of national PAs though their Protected Areas Management Units.

65 work in PROFONANPE and provide overall assistance for Project implementation. In addition, the Project will contract three PAs management specialists to support the territorial focal points in the implementation of Project’s activities.

9. The Project will also hire a procurement specialist and an administrative assistant. The PTT will; i) implement the Project according to the Grant Agreement, Project Implementation Plan (PIP), Annual Operating Plan (AOP) and Procurement Plan (PP); ii) prepare the PIP, AOP and PP; iii) carry out the monitoring of objectives and targets outlined by the Project; iii ) provide overall assistance to SERNANP, regional and municipal governments and organizations of the private sector for the implementation of the Project; iv) prepare and submit to the Project’s Administration Council the operating plans, management reports, both semi-annual and annual; v) prepare the technical documents, terms of reference and other relevant documentation required to carry out the procurement and contracting of goods and services; vi) organize meetings with the Project’s Consultative Committee to obtain technical assistance.

Advisory Level

10. The Project will establish a Consultative Committee (CC) to provide overall technical assistance for the implementation of the Project. This Committee will be composed of a representative of SERNANP; the head of PROFONANPE’s project Administration Council; a representative of each regional government involved in the Project; a representative of the municipal governments involved in the Project; a representative of the PAs Management Committees; a representative of PROFONANPE and the Project Coordinator. The Committee will meet twice a year to ensure that field experience is taken into consideration in work plans and to overcome operational difficulties.

11. Protected Areas Management Committees (PAMC) will be established in each PA covered by the Project. Their establishment and composition will follow the same guidelines applied under the ongoing GEF project. The members of these committees will be trained in several aspects of PAs management as to be able to participate in the consultation process for the preparation of management plans and other PAs planning tools. They will also help SERNANP and regional governments to oversee the implementation of administration contracts and natural resources management subprojects. In national PAs, they will directly support the PAs Management Units (jefaturas), in regional PAs they will work directly with the Regional Environmental Units. Within the ecological corridors, PAMCs at the different levels will develop coordination mechanisms as to facilitate the implementation of the Project’s activities and to secure their long-term operation.

66 Other Specific Arrangements Arrangements to manage the trust fund and channel the revenues of the endowment to PAs (applied to all levels of PAs) 12. Following the same arrangements of the Bank’s Participatory Management of Protected Areas under implementation, PROFONANPE will process advance of funds to the PAs to cover recurrent costs to be paid back over a 30-day period and based on the activities planned and agreed in the annual operational plans. SERNANP, the regional and municipal governments and organizations of the private sector will be responsible for documenting the expenses following the procedures described in the Project’s Operational Manual. 13. The funds channeled to the selected regional, municipal and private PAs will follow the priorities of the PAs management plans and the Project’s annual operational plans. PROFONANPE will finance recurrent costs under two possible modalities that will be adopted according to the financial capacity of the regional and municipal governments: a) 1:1 matching over the life of the Project; b) Decreasing financing by PROFONANPE as follows: Y1: 50:50; Y2 40:60; Y3: 30:70; Y4: 20:80; and Y5: 10: 90. After the completion of the Project, the PAs administrators will finance 100% of the agreed activities. 14. In both cases, the financing provided by the regional and municipal governments and the private sector could include cash and in kind contributions. In cash contributions will be directly administered by subnational governments and the private sector, under their own administrative procedures.

67 Graph 1-Annex 6: Project Implementation Arrangements

WB KfW

SERNANP PROFONANPE PROFONANPE’S Administrative Council

Project’s Project Technical Consultive Team Committee

National PAs Regional Municipal Private Land Management Governments governments owners and local Offices Environmental communities Units

Implementation

Flow of funds from the Endowment

Technical Advisory level

68 Annex 7: Financial Management and Disbursement Arrangements PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Executive Summary of Financial Management Assessment

1. As part of the preparation process of the Strengthening Biodiversity Conservation through the National Protected Areas Project, a financial management assessment has been undertaken in accordance with OP/BP 10.02 and the FM Manual “Financial Management Practices in World Bank Financed Investment Operations” dated November 3, 2005. The assessment included interviews with key staff of the entity Fondo Nacional para Areas Protegidas por el Estado (PROFONAPE), between November 2008, and follow-up visits up to March 2010 to determine the adequacy of the entity’s capacity to properly manage and account for all project proceeds and to produce timely, accurate and reliable financial information for general and Bank special purposes.

2. PROFONANPE will be the responsible entity for the management of the project, including fiduciary responsibilities. PROFONANPE, in coordination with The Servicio Nacional de Areas Naturales Protegidas (SERNANP), the Regional Governments (RG), and Local Governments (LG) will carry out the planning of activities, the selection and contracting of non- profit or civil society entities to manage the Protected Areas (PAs), and the monitoring of the project technical execution. PROFONANPE has developed expertise in working with Donor funds and has maintained a satisfactory record during the implementation of the GEF Participatory Management of Protected Areas Project (P068250) and also during implementation of the TF Indigenous Management of Protected Areas in the Peruvian Amazon Project (P065200). PROFONANPE has implemented a series of internal control procedures to have a sound financial management system. Overall, it has proved to be a solid institution, having gained the trust of both donors and project implementing agents.

3. The new project would benefit from those arrangements which have proved to be acceptable. However, taking into account, the lessons learned and some new challenges of the operation, (the two source of financing -World Bank GEF and the KfW Grant- managed by PROFONANPE; the contribution of the Regional/Local Government and private entities to finance certain activities; and the implementation of sub-projects), PROFONANPE has strengthened its FM arrangements including the enhancement of the information system (reporting module and statement of expenses-SOEs module); up-date the operational manual to reflect specific financial management arrangements for the new project (including processes and procedures to control different source of financing); design of the new chart of accounts; design of financial reports reflecting all source of financing; and customized SOEs; so as to ensure that associated risk are adequately addressed and the implementing entity will be able to provide the Bank and other interested parties with accurate and timely information regarding the project resources, expenditures, and activities. In addition, PROFONANPE has updated and adopted the subproject manual, which the Bank found satisfactory. However, as of the date of this

69 assessment, PROFONANPE is still working on the validation of the enhanced information system (reporting module and statement of expenses (SOEs) module).

4. The project inherent and control risk are rated moderate (M). Consequently, the project overall FM residual risk is also moderate (M). Downgrading this rating will highly depend on the successful implementation of the action plan, which compliance will be evaluated towards Negotiation and project implementation.

5. On the basis of the review performed to the current operation and progress achieved so far the financial management team concludes that the proposed arrangements can be considered acceptable to the Bank, subject to the effective and successful implementation of the remaining actions.

SUMMARY OF FINANCIAL MANAGEMENT ASSESSMENT

Country Issues

6. The administration of funds of the project will be under the responsibility of PROFONANPE, which is an entity subject to the private sector regulation. Therefore, there are not major country issues that could affect the financial management of funds of the project. However, the communication and coordination between central government authorities with subnationals are very low and to a certain point, could affect the project implementation causing unnecessary delays. To minimize this risk, Inter-institutional agreements among participant entities will be signed on to reflect their respective roles and responsibilities.

Risk assessment and mitigation

7. The risk assessment presented below constitutes a summary of the issues related to the project as a whole, as of the date of this document. On such basis, the project FM inherent risk is considered Moderate (M), the FM control risk is also considered Moderate (M) as some aspects of financial management, including mitigating measures still need to be implemented in order to adequately support the new project implementation. On such basis, the overall FM risk rating is Moderate (M) at this time.

Risk Risk Risk Mitigating Measures Incorporated Condition of Negotiations/Board or Rating into Project Design Effectiveness (Y/N)? Inherent Risk Country Level M Project design is straightforward and Draft Inter-institutional Agreements Low level of activities to be implemented by different have been reviewed and approved by coordination participating entities (Servicio Nacional de the Bank between Central Areas Naturales Protegidas del Estado - entities and SERNANP- and Regional or Local Complied/completed before Regional/Local Governments and Protected Areas), are Negotiation ( Y) Governments could clearly identified. cause delays in the process of project Respective inter-institutional agreements implementation. reflecting roles and responsibilities will be

70 signed.

PROFONANPE has developed some expertise in interacting and coordinating with entities from different levels of government. Entity Level L PROFONANPE is a solid entity which has developed experience managing other GEF financed project and other external source of funds project, and will keep similar Unit Organization, as currently to manage the FM aspects of the project.

Project Level M Implementation arrangements are similar Draft Inter-institutional Agreements Project design calls to the ones followed in the former project, have been reviewed and approved by for the coordination which proved to be adequate. the Bank. among several PROFONANPE will be the sole entities – responsible entity for managing the Bank Complied/completed before PROFONANPE, funds of the project. Negotiation ( Y) SERNANP, Specific arrangements/processes and Regional and Local procedures are being set to ensure smooth Governments which coordination among different entities. may difficult project implementation causing delays.

Additional financing Signed agreements between SERNANP by other entities may and PROFONANPE and the various difficult opportune Regional and Local Government, availability of establishing the roles and responsibilities resources of each institution and establishing the arrangements to make resources available

The use of two To the extent possible common procedures Operational Manual has been sources of financing will be used to manage those funds . The updated reflecting the new managed by Annual Operational Program and budget arrangements PROFONANPE will identify the source of financing for may pose some each activity. Complied/completed in Appraisal additional (Y) difficulties. Update the Operational Manual to reflect the mechanism to control and record different resources by PROFONANPE

Sub-projects will be PROFONANPE has updated the The Subproject Manual was updated implemented by Subproject Manual to reflect the and adopted by PROFONANPE with small mechanisms to control the funds to the the approval of The Bank. entities/communities subprojects. . with low Training will be provided to beneficiaries. management Complied by Negotiation / capacity ( category Withdrawal Condition under 6) category 6 – (Y)

Overall Inherent Risk M

Control risk Budgeting, Accounting, L Internal Control The POA/budget will clearly identify the source of financing of each activity. Chart of Account has been defined PROFONANPE will for the project and approved by the manage two sources A chart of account considering the source Bank of financing for one of financing and the functional single project. This classification of the project by will require that component/subcomponent of project adequate expenses has been developed. Complied/completed in Appraisal arrangements be in (Y) place.

Current information system (SIGA) will be PROFONANPE already informed updated/enhanced, to allow among other the Bank about the time frame for the automatic issuance of financial reports. the system update

Complied in Appraisal (Y)

Funds Flow M PROFONANPE will be the responsible The Bank approved the FM PROFONANPE will entity to manage the Designated Account arrangements which have been manage two source of the Bank funds and will submit reflected in a specific section of the of financing for a withdrawal applications to the Bank. In Operational Manual. single project. addition they will maintain records by source of financing. Complied/completed in Appraisal (Y) Specific processes and procedures for the provision, control and recording of each source of funds have been reflected in the Operational Manual

The financial information system has the capacity to record and report by different source of funds.

Advance of funds to PROFONANPE has established adequate PAs to pay operating mechanisms (reflected in the Operational cost may pose the Manual) to control the advances in risk in documenting pending accounts until the PAs document illegible expenses. the expenses.

Low capacity of PROFONANPE has updated the The Subproject Manual was up-dated small entities to Subproject Manual to reflect the and adopted by PROFONANPE with manage subprojects mechanisms to control the funds to the the approval of The Bank. may pose the risk of subprojects. incurring in Customized SOE has been designed for

72 ineligible expenses. disbursement purposes. Complied by negotiation / Withdrawal Condition under category 6 (Y)

Financial M PROFONANPE will be responsible for Agreed format and content of IFRs Reporting, presenting to the Bank the financial have been reviewed and approved by Reporting Financial reports. Core content of IFRs has been the Bank. Statement by defined reflecting all sources of funds. different source of Complied/completed before financing including The integrated information system – Negotiation contribution from currently used by PROFONANPE allow RG, LG and private the issue of a Trial Balance to prepare the entities IFRs and SOEs using excel, which has proved to be reliable.

The Operational Manual reflects the arrangements to control the contribution from RG, LG and private entities to the project ( auxiliary records / order accounts) to record and control those contributions in the financial reports.

The information PROFONANPE has put in place adequate system does not procedures –including internal controls- to provide ensure the integrity of the information automatically the presented in the IFRs and SOEs, which are IFRs and SOEs of prepared using the Trial Balance the project information provided by the system.

Auditing L Financial audit for the implementing Audit ToRs agreed with the Bank entity, for the project, and for the Endowment Fund will be contracted for Complied before Negotiations (Y) each Fiscal Year. An acceptable audit firm selected within six month after effectiveness.

Overall control risk M Overall FM Risk M

WEAKNESSES AND ACTION PLAN

8. As of the date of this document, PROFONANPE has been able to make significant progress in the implementation of the actions agreed to strengthen the FM arrangements required to adequately support project implementation. The following actions remain pending and have been discussed and agreed with PROFONANPE.

Actions Responsible Target Date Information System implementation PROFONANPE April 26, 2010 (according to the time frame of contract with the firm)

73 Auditing: Contract for Annual Audit PROFONANPE Six months after the effectiveness date

Implementing Entity, Organizational Arrangements and Staffing

9. The Strengthening Biodiversity Conservation through the National Protected Areas Project will be executed by the entity PROFONANPE, which is a non-profit entity created by Law. To execute the project, PROFONANPE will coordinate very closely with: (i) the Servicio Nacional de Areas Naturales Protegidas del Estado (SERNANP) under the Ministry of Environmental (MINAM), (ii) Regional Governments (RG), and (iii) Local Governments (LG). According to the design of the project, it has been contemplated that SERNANP, Regional and Local Government would contract non-profit or civil society entities to manage the Protected Areas. In addition, the Regional/ Local Governments and other private entities will finance certain activities of the project in the Protected Areas (PAs) making in cash and in in-kind contributions. However, PROFONANPE will be the sole responsible entity to manage the funds of the two grant of the project, including the Endowment Fund’s revenues. A framework agreement between PROFONANPE and SERNANP, as well as among PROFONANPE, SERNANP, and Regional or Local Governments will be established to reflect roles and responsibilities of each entity.

10. The Direction of Administration of PROFONANPE will be responsible for the fiduciary aspects of the project. Therefore, it will be accountable for all financial and investment activities of the project, funded by the GEF Grant and the KfW Grant. Although the Direction of Administration of PROFONANPE is familiarized with Bank-financed projects and has developed expertise in project implementation, it is important to mention that the design of the new project includes some additional complexities (e.g. multiple sources of financing – GEF- Trust Fund, KfW funds, RG funds and LG funds, and private entity funds) that require some adjustments in the FM arrangements for the project. The

11. Direction of Administration is supported by the following areas: Control Office (1 staff), Administration Office (6 staff), Operations Office (1 staff), Accounting Office (3 staff), Treasury Office (2 staff), Filing Office (1 staff), and Procurement Office (3 staff).

12. The operational manual has been adjusted to incorporate an adequate mechanism to control all source of funds of the project including the cash and the in-kind contribution (from the RG/LG).

74 Partnership arrangements

13. As section III.B of this PAD mentions, the proposed project financed by KfW and WB GEF Grant will be managed by a single management team, and will use a standard procedure for planning, monitoring, and evaluation. In terms of financial management, it is also expected that, to the extent possible, common arrangements are followed. Although separate accounts will be used, budgeting, and accounting policies and procedures, internal controls will be the same. PROFONANPE has worked in the definition of the financial reports of the project which will identify all source of financing and use of funds. A single term of reference for auditing the project will be prepared. Both financiers have agreed but not limited themselves to local joint supervision of the project once it is approved.

Programming and budget

14. The budgeting processes would follow the same processes currently in place for planning project activities. Within PROFONANPE, the preparation of the annual budget is under the responsibility of the Operations Specialist in coordination with the Direction of Administration and Direction of Supervision. The annual budget is based on the Annual Operational Plan (POA) which includes sufficient details to provide meaningful information to monitor the performance and analyze the variances.

15. The preparation of the project Annual Operational Plan (POA) will require the coordination with SERNANP, and Regional and Local Governments, as it relates to the specific activities to the carried out of the project. However, ultimate responsibility for the preparation and follow-up of project annual program and budget remains with PROFONANPE. The POA, annual budget, and budget modification are approved by the Administration Council.

16. Since the project is financed by different sources -GEF Grant and KfW- and other institutions funds, it has been agreed that the POA and the budget, clearly identify the source of financing to be used for each activity. The Integrated System for Financial Management (SIGA in Spanish) includes the module for budget preparation and reporting, including all sources of financing and following the functional classification of the project.

17. The budgetary control will consist of: i) timely preparation and approval of annual programs, budget and procurement plans, establishing a clear relation among them; ii) proper recording of the approved budget in the financial management system; and iii) timely recording of commitments and payments as needed to allow an adequate budget monitoring, and also to provide accurate information on project commitments for programming purposes.

75 Accounting Policies and Procedures

18. The main FM regulatory framework for the project will consist of: (i) Peru’s laws of governing budget and financial management for the private sector, and (ii) the entity’s operating manuals and norms.

19. The accounting records are kept in SIGA system following international accounting standards. PROFONANPE’s financial statements are prepared following the accrual basis of accounting and it uses the standard Chart of Accounts accepted in Peru. The information system (SIGA) allow the recording of project transaction by source of financing, project component/subcomponent, including reconciling items such as advances to the Protected Areas(PAs). The annual financial statements and IFRs will be prepared using Excel Spreadsheets (only at the beginning of the project implementation) following the cash basis of accounting, and using the Trial Balance sheet information –issued by SIGA.

20. PROFONANPE has been able to define and establish adequate accounting policies and procedures – in accordance with acceptable accounting standards- for the recording of: (i) advance of funds to the PAs, for which advances, which will be accounted as pending advances until they are fully documented; (ii) transference of funds to sub-projects, which will be accounted as expenses upon transference of fund occur; and (iii) transference of endowment fund’s revenues, which will be accounted as pending advance until they are documented. Additional contributions from the RG/LG would not be managed by PROFONANPE; however PROFONANPE will keep auxiliary records or order accounts” to control those contributions and be part of the financial statements.

21. The accounting policies and procedures mentioned above have been reflected in the administrative and financial section of the Operational Manual including the PROFONANPE’s responsibility to manage the endowment funds’ revenues.

Information System

22. PROFONANPE has in place a tailored made financial information system (SIGA) which includes the basic standard modules: budget, accounting, and treasury. As described above, the information system provides the data to prepare the entity and project financial statements and it is therefore expected that the proposed project will continue using SIGA. However, PROFONANPE has decided to enhance and modernize the financial information system so as to permit the preparation of : (i) the financial statements; and (ii) the preparation of Statement of Expenses (SOEs). The estimated timeframe for the enhancement of the SIGA is February 2010, including final validation of reports issued by the system.

Procedures and Internal Controls

23. In general, the processes, procedures, and internal controls implemented by PROFONANPE, which are being used by the current GEF project, have proved to be acceptable. However, the entity has updated the Operational Manual with the main purpose of duly

76 reflecting the arrangement in place, and also to reflect any specific requirement of the new project.

24. Those processes and procedures for payment requisition made from the Grant funds and the endowment revenues, duly approved by a designated officer from other entities (e.g. SERNANP, NGOs, etc.) will include: (i) the procedures established to control the advance of funds to the Protected Areas, which consist of recording the advances as pending account until they are fully documented over a 30-day period and based of the activities planned; (ii) the procedures to control the transference of funds to the sub-projects, which consist of recording them as expenses upon they occur; (iii) the procedures to control the contributions by the RG, LG, and private entities, which will consist of receiving copies of the supporting documents of payments, value certifications of in-kind contributions before PROFONANPE processes respective co-finance payments. These processes have been reflected in a specific section of the Operation Manual of PROFONANPE.

25. In addition, PROFONANPE will update the sub-project manual to guide the beneficiaries in the management of the resources under category 6 of the project.

26. PROFONANPE does not have an Internal Audit Department. However, PROFONANPE has a Control Specialist to review most of the ex-ante transactions.

Financial Reports

27. As described in the accounting section, only at the beginning of this project, the project financial reports will be prepared manually on Excel spreadsheets. PROFONANPE has put in place the required internal control mechanisms to ensure the quality and reliability of those reports. Upon completing the enhancement of SIGA, it is expected that the financial reports are prepared automatically from the information system.

28. On a semester basis, it has been agreed with the Bank that PROFONANPE will prepare unaudited interim financial reports (IFRs) containing at least: (i) a statement of all sources, including the contribution from RG, LG and private entities (in cash and in-kind contributions), and uses of funds and cash balances (with expenditures classified by subcomponent; (ii) a statement of budget execution with expenditures classified by the major project components and subcomponents that allow comparison with estimated amounts; and (iii) a reconciliation item to reflect pending advances to the PAs. The financial reports should include all sources of financing and a reconciliation item to show outstanding advances as of the date of the report. Specific format and contents of IFRs have already been defined and agreed with the Bank taking into consideration the accounting policies and procedures established for the project. PROFONANPE will be responsible for submitting the interim reports to the Bank not later than 45 days after the end of each semester.

29. On an annual basis, PROFONANPE will prepare the project financial statements including cumulative figures for the year and as of the end of that year of the financial statements cited in the previous paragraph. The project financial statements will also include explanatory

77 notes in accordance with the Cash Basis of Accounting, and the entity’s assertion that Grant funds were used in accordance with the intended purposes as specified in the Grant Agreement.

30. Working papers for the preparation of the semester and annual financial statements will be maintained in the Unit’s premises, and be made easily accessible to WB supervision missions and to external auditors.

Auditing arrangements

External Audit

31. PROFONAPE will prepare the annual financial statements of the project and the financial statements of the Endowment Fund, which will be audited following International Standards on Auditing (ISA) by an independent firm, in accordance with terms of reference (TORs), both acceptable to the Bank. Hence, the audit opinion covering project financial statements will contain a reference to the eligibility of expenditures. Additionally, the audit scope will include a review of the eligibility of sub-project expenditures. An audit firm will be hired by PROFONANPE, which will perform the audit of the project and provide the audit report. The audit terms of reference of the project and of the endowment fund would require a report on the adequacy of the entity’s internal control system in relation to the project. Those audit terms of reference require the Bank’s no-objection. PROFONANPE will submit the audit report to the Bank no later than 6 months after the end of each fiscal year.

32. The audit work of the project and of the Endowment Fund described above can be financed with Grant proceeds. PROFONANPE will request the contracting of the first external audit within six months after Grant Effectiveness.

33. In addition to the audit report of the project and of the endowment fund, PROFONAPE will submit to the Bank the annual audited financial reports of the entity and will require a copy of the audited financial statements of the entity responsible of the management of the endowment fund, for further submission to the Bank.

Audit Report Due Date 1) Continue Entity financial statements June 30 2) Project specific financial statements June 30 3) Special opinions June 30 4) Endowment Fund financial statements June 30 5) Endowment Fund Entity financial June 30 statements

78 Flow of funds and Disbursement Arrangements

34. Considering the results of the assessment and that PROFONANPE is familiar with World Bank disbursements processes and procedures, the following disbursement methods may be used to withdraw funds from the Grant: (a) reimbursement, (b) advance, and (c) direct payment.

35. Under the advance method mentioned above and to facilitate project implementation, PROFONANPE will have access to a segregated Designated Account (DA) in US dollars which will be opened and maintained in the commercial bank of Banco de Credito del Peru in the name of the project. The account would be managed by the PROFONANPE. Therefore, they will have direct access to funds advanced by the Bank to these DA. Funds deposited into the DA as advances, would follow Bank’s disbursement policies and procedures, as described in the Disbursement Letter and Disbursement Guidelines.

36. During the first year of project implementation, the ceiling for advances to be made into the DA would be USD500,000. After the first year of project implementation, the ceiling for advances into the DA will be increased to USD1,000,000. The reporting period to document eligible expenditures paid out of the DA is expected to be on a quarterly basis.

37. Supporting documentation for documenting project expenditures under advances and reimbursement methods would be records evidencing eligible expenditures (e.g. copies of receipts, invoices) for payments of consultant services against contracts valued at USD75,000 or more for firms, and USD35,000 or more for individuals; for payments of goods against contracts valued at USD150,000 or more, and for payments of civil work against contract value at USD150,000 or more. For all other expenditures below these thresholds and operating cost and non-consultant services, supporting documentation for documenting project expenditures will be Statements of Expenditures (SOEs).

38. All consolidated SOEs documentation will be maintained for post-review and audit purposes for up to one year after the final withdrawal from the Grant account.

39. Direct Payments supporting documentation will consist of records (e.g.: copies of receipts, supplier/ contractors invoices). The minimum value of applications for direct payments and reimbursements will be USD100,000.

Advance of funds to the Protected Areas (PAs).

40. Following the arrangements of the current project, PROFONANPE may process advance of funds to the PAs to cover certain operating expenses to be paid during a 30 days period of time and based on the activities planned and agreed. The advances made to PAs will not be included in a withdrawal application until they are fully documented. The mechanism to document the expenses will be described in the Operational Manual and in the Guidance to the PAs.

Disbursement for Management Services contracts under Category 4 – Part B.2(a) of the project.

79 41. Following the arrangements of the current project, the financing and monitoring of management services contracts, in three selected project protected areas, will be financed under this category. Therefore, PROFONANPE may process payments, according to the payment scheduled of the contracts and according to the planning of the activities to be implemented. For Bank disbursement purposes, those expenses will be documented using a customized Statement of Expenditures (SOE) following the instructions included in the disbursement letter.

Transference of funds to the sub-projects under Category 6 of the project.

42. Similar to the arrangements of the current project, PROFONANPE may process transference of funds, on a grant basis, to the selected subprojects to cover agreed activities. To this end, PROFONANPE will process the transference upon verification of the conditions specified on the signed agreements. The transferences of funds processed to the sub-projects may be included as expenses in a customized SOE following the instructions included in the disbursement letter. However, PROFONANPE has the responsibility to make the due diligence to verify that expenses have been incurred for the intended purpose of the project. PROFONANPE has updated the sub-project manual to reflect the mechanism to manage the resources for sub-projects under the new arrangements and considering all the participants. Therefore, the Bank reviewed the sub-project manual and found it satisfactory. Each sub-project should maintain appropriate documentation filing for audit and review purposes.

Endowment Fund

43. According to the component 3 of the project cost, the Bank, KfW, and PlusPetro Company will make a disbursement contribution into the endowment fund. The amount of USD3,000,000 will be disbursed by the Bank, as a single Direct Payment to an endowment fund account in a single tranche upon PROFONANPE provides evidence of the establishment of the endowment fund account in a manner satisfactory to the Bank and provides proof that the contribution of Plus Petrol is available in the amount of USD3,000,000.

Retroactive financing.

44. The Bank has agreed to finance retroactive eligible expenditures for a maximum of USD1,600,000 for expenses made one year prior to the Agreement date but on or after January 1, 2010.

Table of Grant Proceeds

Category Amount of the Percentage of Expenditures to be Financed Grant Allocated (inclusive of Taxes) (expressed in USD)

(1) Works (except as 100,000 100% covered in Category 6 below)

(2) Goods (except as 325,000 100% covered in Category 6 below)

(3) Consultants’ services, 2,607,000 100% including audits (except as covered in Category 6 below)

(4) Management services 1,500,000 100% under Part B.2(i) of the Project

(5) Training 370,000 100%

(6) Subgrants 550,000 100%

(7) Incremental Operating 439,000 100% Costs

(8) Capital Endowment 3,000,000 100%

TOTAL AMOUNT 8,891,000

45. WB FM Supervision Plan. A WB FM Specialist will follow up with PROFONANPE team to ensure compliance of action plan towards project effectiveness. After effectiveness is attained, and based on the assessed risk, an FM Specialist will perform the review of the annual audit reports and IFRs, including two on-site visits to PROFONANPE, at least during the first two years of implementation to verify the continuing adequacy and effective operation of the arrangements proposed. Subsequent FM supervision strategy would be adjusted accordingly.

81 Annex 8: Procurement Arrangements PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

A. General

1. Procurement for the Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004, as amended in October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, as amended in October 2006, and the provisions stipulated in the Legal Agreement. The general description of various items under different expenditure category is described below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank Project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. 2. The Grant includes a $3 million amount to be deposited into an Endowment Fund, which would be invested to produce interest earnings. 3. Procurement of Works: Works procured under this Project, would include different infrastructure investments for the Protected Areas. The Procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB (not envisioned) and sample SBDs for National Competitive Bidding, agreed with or satisfactory to the Bank. Shopping procedures will be used for contracts below $250,000, on the basis of comparison of at least 3 quotations from qualified contractors in response to a written invitation, which will include a detailed scope of work, specifications and relevant drawings as well as a form of agreement acceptable to the Bank. 4. Procurement of Goods: Goods procured under this Project would include: computers, peripherals, software, office equipment, furniture, communications equipment, vehicles, boats, engines and field equipment. To the extent possible, contracts for these goods will be grouped in bidding packages of more than $250,000 equivalent and procured following ICB procedures. Contracts with estimated values below this threshold per contract may be procured using NCB procedures and standard bidding documents agreed with and satisfactory to the Bank. Contracts for goods which cannot be grouped into larger bidding packages and estimated to cost less than $50,000 per contract may be procured using Shopping (national/international) procedures based on a model request for quotations satisfactory to the Bank. The procurement will be done using Bank’s SBD for all ICB and National SBD agreed with (or satisfactory to) the Bank in the operational manual. 5. Procurement of nonconsulting services: Procurement of non-consulting services will consist of printing, materials reproduction, publication and dissemination, as included in the Procurement Plan. The procurement will be done using SBD agreed with (or satisfactory to) the Bank.

82 6. Selection of Consultants: Consultants services under this Project will include: PA management, capacity building, public awareness campaigns, participatory planning, training, biodiversity conservation activities, technical assistance, legal advisory, advisory services for community processes and financial management. Short lists of consultants for services estimated to cost less than $350,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Selection of Consultant Guidelines. Where firms are not required, individual consultants will be hired according to Section V of the Guidelines, to provide technical advisory and supervision and support services. 7. Protected Areas Management Services. According to Peruvian Law, PA management can be delegated by SERNANP to non-profit organizations. Therefore SERNANP and PROFONANPE will select a non-profit organization following QCBS procedures. SERNANP will sign a management service agreement with the non-profit organization selected. Subsequently, a contract will be signed between PROFONANPE and the selected non-profit organization to finance the management services, of which the SERNANP agreement will be integral part. A Request for Proposal suitable for this type of services was prepared in the implementation of PO68250 – Participatory Management of Protected Areas Project, and will be used for this new Project. In addition to service fees, the contracts will include disbursements to be made by PROFONANPE to the management services provider to contract works, goods and services. These works, goods and services would be contracted following the World Bank Guidelines. The contract between PROFONANPE and the non-profit organization will include an annex with the procurement aspects. PROFONANPE will be responsible for ensuring procurement compliance and will authorize sole-sourcing. A similar figure will be design for the Regional and Local PA. 8. Asset Manager. The Grant includes a $3 million amount to be deposited into an Endowment Fund, which would be invested to produce interest earnings. This Fund will be managed by an Asset Manager which will be selected according to the Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, as amended in October 2006. 9. Training: The Project will finance all cost associated with training and workshops for the implementation of the Project. 10. Operational Costs: Operational costs under this Project will include incremental and reasonable expenditures that would not have been incurred by PROFONANPE without the Project, such as office supplies, communications (including internet connectivity), travel expenses, per diems, insurances and, vehicle and equipment operations and maintenance. 11. Subprojects: . The Project would finance the development of natural resources management subprojects in prioritized NPA, corridors. Works, Goods and services financed under the sub grants would follow Shopping procedures. Eligibility, requirements and other aspects, along with specific procurement and financial procedures are detailed in the Subprojects Operation Manual.

B. Assessment of Capacity and Risk to Implement Procurement 12. The Project will be managed by PROFONANPE, which will be responsible for fiduciary aspects (financial management and procurement) of the Project. PROFONANPE will coordinate the Project implementation activities with SERNANP and Regional and Local Governments.

83 13. An assessment of the implementation agency’s capacity to implement procurement actions for the Project was finished on February 6, 2009; the Capacity Assessment Report is part of the Project files. The assessment looked into PROFONANPE: (a) organizational structure, (b) facilities and support capacity, (c) qualifications and experience of the staff that will work in procurement, (d) record-keeping and filing systems, (e) procurement planning and monitoring/control systems used, and (f) capacity to meet the Bank’s procurement contract reporting requirements. It also reviewed the procurement arrangements proposed in the Procurement Plan. 14. The proposed corrective measures are: a) adjustment of the Procurement Plan based on adjusted cost estimates, identifying all contracts with their source of financing to determine the specific procedures that will apply and; b) training for PROFONANPE procurement staff. Risk Assessment: The overall Project risk for procurement is Moderate. 15. The level of risk for this Project will be reassessed and revised according to the recommendations of procurement reviews conducted by Bank staff.

C. Procurement Plan 16. The Recipient, at appraisal, developed a Procurement Plan for Project implementation which provides the basis for the procurement methods. This plan has been agreed between PROFONANPE and the Project Team. It will be available in the Project’s database and in SEPA (Sistema de Ejecución de Planes de Adquisiciones). The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision Missions 17. In addition to the prior review supervision to be carried out from the Bank, the capacity assessment of the Implementing Agency has recommended an annual supervision mission. The supervision plan will be revised and the number of yearly supervision mission updated according to the risk rating identified, during the first year of Project implementation.

E. Thresholds for Procurement Methods and Prior Review 18. Thresholds recommended for the use of the procurement methods specified in the Project procurement plan are identified in the table below.

84 Thresholds for procurement methods (000 US$)

Expenditure Contract Value (Thresholds) $ Contracts Subject to Category thousands Procurement Method Prior Review 1. Works >3.000 ICB All (not envisioned) 250 – 3,000 NCB First <250 3 Quotes First Regardless of value DC All 2. Goods >250 ICB All 50 - 250 NCB First <50 Shopping First Regardless of value SSS All 3. Consulting Services 3.a Firms >200 QCBS, QBS, FBS, LCS All <200 QCBS, QBS, FBS, LCS, CQS TORs Only Regardless of value SSS All 3.b Individuals According to Chapter V of the Guidelines TORs only

ICB = International Competitive Bidding NCB = National Competitive Bidding DC = Direct Contracting QCBS = Quality- and Cost-Based Selection QBS = Quality-Based Selection Note: FBS = Fixed Budget Selection LCS = Least-Cost Selection CQS = Selection Based on Consultants' Qualifications SSS: Single Source Selection

85 Attachment 1

Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, and Non-Consulting Services

(a) List of contract packages to be procured following ICB and direct contracting:

1 2 3 4 5 6 7 8 9 Ref. Contract Estimated Procurement P-Q Domestic Review by Expected Comments No. (Description) Cost Method Preference Bank Bid-Opening (yes/no) (Prior/Post) Date

(b) All ICB contracts for works and goods will be subject to prior review by the Bank. The first NCB contract for goods and the first contract for Shopping for works and goods will be subject to prior review by the Bank. All direct contracting will be subject to prior review by the Bank.

2. Consulting Services

(a) List of consulting assignments with short-list of international firms.

1 2 3 4 5 6 7 Ref. Description of Estimated Selection Review by Expected Comments No. Assignment Cost (USD) Method Bank Proposals (Prior/Post) Submission Date 1 Total or partial 1,500,000 QCBS Prior 2010 3 Protected Areas Management administration Services are expected contracts (3)

(b) Consultancy services (firms) costing above $200,000 will be subject to prior review by the Bank. Consultant services (individuals) costing above $100,000 will be subject to prior review by the Bank. All single-source selections of consultants will be subject to prior review by the Bank.

(c) Short lists composed entirely of national consultants: Services estimated to cost less than $350,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

86 Annex 9: Economic and Financial Analysis PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

1. The Project’s Global Environment Objective (GEO) is to contribute to the long-term ecological sustainability of Peru's protected Areas by expanding the ecological representativeness of the country’s Protected Areas System and implementing conservation activities at various levels (national, regional, and private) within ecological corridors. The Project would concentrate interventions on four ecological corridors (with 5 to 10 PAs located within these corridors) and would contribute to their financing on a sustainable basis.

2. Different tested and innovative approaches to biodiversity conservation—including those of past GEF projects—would be applied in this Project with the active participation of regional, local and private stakeholders. This will be accomplished through a collaborative effort among national and subnational government (i.e., regional, local) civil society organizations, the private sector and bilateral organizations to consolidate a National Program for Protected Areas as outlined in the Law of Natural Protected Areas.

3. A clear lesson that has emerged over the past 13 years of protected area management in Peru is that in order to reduce park costs it is essential to bring all stakeholders into the process. This includes inter alia local communities, civil society organizations, and local, regional and national government institutions. Protected areas cannot be conceived of as islands, isolated from their surroundings. This was the model in which the protected area would have a Director supported by a cadre of park guards and some professionals (e.g., biologists, forest engineers). This model turns out to be extremely expensive and financially unsustainable.

4. Global biodiversity conservation value of Peru’s protected areas is indisputable. The economic valuation of biodiversity conservation is difficult to measure in monetary terms. It is even more difficult to measure the monetary value of conservation policies, which have an indirect and dispersed impact over a long period of time. Thus the evaluation must rely on proxies for biodiversity conservation, including deforestation rate; soil, water, and air conservation; and changes in indicator species. A recent study23 provides some highlights of the considerable economic value this patrimony represents: the value of sixteen national protected areas is estimated at US $81 million, because they provide water for approximately 2.7 million inhabitants; 61% of Peruvian hydro power is generated from water that originates in Pas and is valued at an annual $320 million; the annual value of irrigated agriculture production whose water originates in PAs is estimated at $514 million; tourism is another important contributor to local economies having generated an estimated $1.7 million in entrance fees in 2005; the value of non timber forest products is conservatively estimated to potentially generate $6.5 million. The economic analysis for the ecological corridors and PAs addressed under the Project will be developed once the final selection takes place and the detailed Project contribution is defined under the corridor planning process and design.

23 León M., Fernando. 2007. El Aporte de las Áreas Naturales Protegidas a la Economía Nacional. INRENA. Lima, Perú.

Cost-effectiveness analysis

5. The Government of Peru, over the past 15 years, has progressively and sequentially increased the number of national PAs, instituted a sound institutional, policy and legal framework, established long term financial mechanisms, and developed the necessary participatory mechanisms to include key stakeholders in PAs management. However, it recognizes that in order to secure ecological representativeness, it is necessary to go beyond the centralized management model and incorporate subnational and private PAs.

6. The most costly alternative considered involved financially supporting existing national PAs under a continued centralized management and creating PAs and coordinating units at the subnational level, with a focus on maximizing the number of hectares protected. This alternative would foster scattered pockets of conserved biodiversity without an overall strategic framework to ensure long-term sustainability.

7. Instead, this Project has been designed to maximize the benefits and to leverage as much financial resources as possible. First, the Project will be strategically linked to the IBRD’s Environmental Development Policy Loan (DPL) to maximize cost-effectiveness and benefit from shared costs through a combination of investment, technical assistance, and policy actions at the national and regional levels. Second, the Project’s approach to establish ecological corridors to integrate various levels of PAs, has been assessed during the preparation phase and found to be the most cost-effective way of conserving biodiversity and improving natural resources management.

8. The ecological corridors proposed under the Project are spaces where various categories of protected areas and their complementary landscapes (private or community-based) are managed through strategic alliances to enhance ecological connectivity, reduce threats more effectively and contribute to climate change mitigation and adaptation. Ecological corridors build upon existing social and institutional arrangements in order to ensure the fulfillment of conservation and local benefit objectives. Working within ecological corridors emphasizes the need to complement national parks with other management and conservation strategies (regional and municipal protected areas), while promoting the sustainable use of biodiversity and local development through benefit sharing and use agreements with local communities and private owners. The ecological corridors approach as opposed to strict protection national parks allows among other things to: i) fill ecosystem gaps and ecological functionality, complementing the integrity of biodiversity conservation at the landscape/seascape level; ii) manage populations of endangered species located within rural productive landscape.

9. The type of interventions the Project will support, have also been carefully selected to maximize impact while minimizing cost. A strong focus has been placed on influencing policy and practice guidelines, which affect a broad number of sectoral actors while costing relatively little. Based on the successful experience of the GPAN project, the Project has also chosen to work with organization of the private sector through the implementation of administration contracts and with local communities and organizations through subprojects that test proposed

88 solutions to identified problems. The lessons learned through their application under GPAN, and the successful approach they validate, have established a strong basis to upscale these initiatives at the corridor level. The experience obtained through the Project over the next five years, will then help to replicate them at other corridors at a much lower risk and making their extensive application more attractive. This approach both minimizes Project costs and, in the long term, risks, while increasing impact.

10. The Project has also sought to reduce administrative costs by executing the Project through PROFONANPE, with extensive experience executing GEF projects. PROFONANPE has staff specifically trained to administer and monitor GEF projects; specialists experienced in procuring goods, services, and works under the Bank’s guidelines; and systems in place to accurately track and manage grant funds.

Financial Analysis

11. The Government of Peru, over the past 15 years, has progressively and sequentially increased the number of national PAs, instituted a sound institutional, policy and legal framework, established long term financial mechanisms, and developed the necessary participatory mechanisms to include key stakeholders in PAs management. However, it recognizes that in order to secure ecological representativeness, it is necessary to go beyond the centralized management model and incorporate subnational and private PAs.

12. The Government of Peru, over the past 15 years, has progressively and sequentially increased the number of national PAs, instituted a sound institutional, policy and legal framework, established long term financial mechanisms, and developed the necessary participatory mechanisms to include key stakeholders in PAs management. However, it recognizes that in order to secure ecological representativeness, it is necessary to go beyond the centralized management model and incorporate subnational and private PAs.

The Government of Peru, over the past 15 years, has progressively and sequentially increased the number of national PAs, instituted a sound institutional, policy and legal framework, established long term financial mechanisms, and developed the necessary participatory mechanisms to include key stakeholders in PAs management. However, it recognizes that in order to secure ecological representativeness, it is necessary to go beyond the centralized management model and incorporate subnational and private Pas.

The National System of PAs in Peru has made progress in increasing financing sources (as described in Annex 1 and documented in Table A.1.2) to support recurrent costs, but it is far from securing the scale of transfers that are necessary to enlarge the area under protection and support a fuller set of management expenses. The Project aims at departing from a purely centralized financing model with transfers mainly deriving from the national government and its donors to expand the financing participation of local and regional governments, private actors and communities drawing from existing experience in Peru as described below.

13. The clear need to raise funds for PAs resulted in the development of the SINANPE’s Financial Strategy based on the following principles: i) Develop programs that increase the value

89 that other sectors give to Protected Areas; ii) Modernize the administrative management of SINANPE as the other government institutions have been modernized; iii) Develop schemes for Payment for Environmental Services; iv) Create new programs to generate economic activities such as ecotourism and other natural resources management in PAs and v) drawing on the existing experience in Perú, including the development of institutional innovations to raise fund from regional governments and the private sector.

14. Under the GPAN Project, the implementation of the administration contracts and natural resources management subprojects have leveraged funds as follows: subprojects beneficiaries have provided $0.65 million, while GPAN provided about $0.70 million (1:1 ratio), administration contracts’managers (NGOs) have provided a co-financing of $8.2 million, while the Project has allocated $ 3.3 million (2.5:1 ratio). These new sources will complement the financing provided by PROFONANPE, the central government and other existing sources.

15. The financial gap study developed by SERNANP establishes that the PAs existing in the four potential corridors, have an average annual cost estimated at $3.4 million (about $17.2 million in five years). The Project’s financial contribution to the potential PAs and corridors over five years has been estimated at $20,535,000, based on the cost of the activities planned in each component. This amount considers the earnings of the endowment only from PY3 to PY5. However, the selected PAs will continue receiving this fund beyond the Project’s implementation period.

16. Component 1 seeks to support the planning process, formulation of policy framework, regulations, technical guidelines, incentives and procedures, and information system, for the integrated management of PAs at the national, regional, municipal and private levels. The Project’s direct financial contribution is estimated at $ 11,849,000.

17. Component 2 focuses on the establishment and operation of the selected corridors and the new PAs within them as well as the implementation of priority actions contemplated under the PAs management plans and the adoption of PAs management mechanisms through the implementation of administration contracts and natural resources management subprojects by the private sector and local communities. The Project’s direct financial contribution is estimated at $7,481,000.

18. The natural resources management subprojects developed under GPAN will continue to be implemented under the Project and relate to the participation of local communities who have adopted Project activities and invested their own time and resources. Regional governments have expressed interest in being involved in protected area management given the potential income generation and the multiplier effect on their economies. Some of the activities that will be pursued include sustainable agro-ecological production, forest management, wildlife management for tourism development and use and commercialization of medicinal, ornamentals, nourishing species.

19. Component 3 seeks to finance de basic recurrent costs (PA staff salaries, PAs basic operational costs, and basic maintenance) of 5 to 10 PAs located within the Project’s selected corridors. The $ 9 million endowment funds comprising the contributions from the GEF, KfW

90 and PlusPetrol24, could annually generate $360,000 , based on a conservative 4% return on the endowment. The endowment will only start seeing a return in year 3 allowing for the investment to mature, therefore, by the end of the Project, the endowment will have generated about $1,080,000.

20. Under Component 4, the Project will provide additional $125,000 to the continued operation of the PAs M & E system.

21. This contribution is not currently reflecting the potential leverage of resources that the implementation of the corridor approach will generate, because the Project’s specific participants have not been identified yet. The Project will help to develop the financial and institutional mechanisms to allow a sustained contribution from subnational governments and the private sector. Following the trends observed under the GPAN project, the Project will potentially generate important leverage: a) the Project’s natural resources management subprojects are expected to be at least matched at a 1:1 ratio.; b) regional and local governments will be matching at a 2:1 ratio; and c) the protected areas administration contracts have generated a 2.5:1 leveraging ratio, due to the extra investments made by those administering the protected area, sending a clear signal that this is a worthwhile undertaking.

24 This analysis is based on an income stream from investing the $ 6 million provided by GEF and KFW and the returns on the $ 3 million from Plus Petrol that will be allocated exclusively to the Paracas National Reserve.

91 Annex 10: Safeguard Policy Issues PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Environment

1. Environmental Assessment (OP 4.01). The Project is classified overall as Category B. The specific Project sites, including corridors, RPA, MPA and private PAs, will be selected during the implementation phase based on the criteria described in other sections of the PAD. The only site that has been identified for Project support during the preparation phase is the marine-coastal PA—the National Reserve System of Guano Islands, Islets and Capes (RNSIIPG). Therefore, given the overall Category B recommended for the Project, a Partial Assessment or Environmental Analysis (EA) has been prepared. An Environmental Framework (EF) has been prepared for the potential PAs. The EA for the National Reserve System of Guano Islands, Islets and Capes and the EF for the potential Pas were been posted in SERNANP’s and PROFONANPE’s web sites in March 31, 2009 and published by the Bank’s Infoshop in April 15, 2009. 2. The Project will result in improved conservation of biodiversity contained in critical national PAs, corridors, RPAs, MPAs and private PAs. The Project is aimed at reversing trends of degradation and biodiversity loss in the above-indicated sites and at supporting environmental conservation and improving capabilities in SERNANP and regional and local governments for improved management of PAs. 3. Although the Project could result in minor environmental impacts associated with specific investments (construction of small-scale infrastructure, sustainable economic activities and other activities consistent with the management plans), such impacts will be managed through a process that includes environmental assessment of such investments, including screening procedures to minimize potential impacts.

Summary of the Environmental Analysis of the National Reserve System of Guano Islands, Islets and Capes.

4. The potential impacts were identified in the EA according to the Project’s activities. However, the main impacts were identified for activities related to infrastructure and equipment25, for which the mitigation measures and monitoring mechanisms have been developed under the Project’s Environmental Framework.

5. The infrastructure will be constructed based on the zoning and guidelines stated in the Reserve’s Master Plan. No Project resources will be spent on works that are incompatible with activities allowed for each zone, as stated in said plan. The Project will support small- and medium-scale infrastructure, in most cases only the rehabilitation of pre-existing facilities. The specific activities and potential impacts and mitigation measures have been identified as follows:

25 During the GEF processing, additional financing for the RNSIIPG was not approved, therefore, the activities described under paragraphs 7 and 8 above will not be financed under the project.

Type of work or Potential Impacts Mitigation measures infrastructure Rehabilitation and Visual impact, accumulation 1. Adequate planning for the use of construction of of construction materials and safe materials and construction administrative buildings organic waste, introduction of techniques; domestic animals 2. Include specific regulations for construction materials and other waste disposal for contractors; 3. Use of visual-isolation screens, such as native trees or bushes; these must be planted as live fences around the facilities. Rehabilitation and Impact on soil stability, 4. Adequate planning for the use of construction of park guard accumulation of construction safe materials and construction and surveillance stations materials and organic waste techniques; 5. Include specific regulations for construction materials and other waste disposal for contractors; 6. Use of visual-isolation screens, such as native trees or bushes; these must be planted as live fences around the facilities. Installation of electric Noise, gas emissions and risk As far as possible, use solar or wind generators of hydrocarbon leakage systems to avoid the use of fossil fuels. Installation of desalinization Inadequate disposal of Identification of sites for disposal of plants saltwater residues saltwater to avoid impacts on soil and water and restrict this equipment only to those sites where it is absolutely necessary. Construction of access roads Disruption of birds’ and other In cases where roads or trails interfere and pedestrian trails animals’ ecological routes, with wildlife movement, adequate nesting and reproduction sites signage should be provided; if the flow of vehicles could pose a significant danger to animal populations or represent a barrier to their movements, solutions such as fencing and bypasses should be sought. Basic sanitation facilities Inadequate disposal of Preferably use dry solar or portable (latrines and sewage) organic and other dangerous latrines wastes.

Environmental Framework

6. This will be a national-, regional- and local-scale Project that is expected to be largely positive for biodiversity conservation and sustainable natural resource use, for several reasons. First, the Project will not promote the development of large-scale facilities or infrastructure generating environmental impact and bringing additional threats to fragile ecosystems. Second,

93 the application of sustainable natural resources management subproject strategies inside the selected sites will help to reduce existing pressures on natural resources, help to some extent to restore degraded ecosystems, and favor biological connectivity among various vulnerable areas, taking into account local economic and social needs. The procedures and mitigation measures outlined below would address any environmental impacts arising as a result of Project execution.

7. The following preventive, corrective and compensatory measures will be adopted to manage the impacts identified above, adapted to the specific conditions of each project site. These measures will be incorporated in the Project’s Operational Manual. Construction of Buildings and Infrastructure  The Protected Area master plans will provide information on land-use diagnostics in which threatened places are identified and mapped. The zoning of the PAs will identify the various areas for restricted use and their management schemes.  The principal campsites, visitor welcome centers and interpretation centers must be located in strategic places where they do not damage vegetation, fauna, water and soils. Moreover, their location must be determined in relation to the visual resource. The size of the facilities must be proportional to the type of work and the Protected Area’s carrying capacity.  The infrastructure to be built must follow adapted architectural guidelines and relate to the location’s environmental conditions and socio-anthropological reality, as expressed in the local inhabitants’ culture.  The construction of works must use local supplies and labor, if possible. If technology is used, this must use clean energy sources, such as solar, wind or hydraulic energy.  If necessary, sewage systems and peripheral drainage ditches must be built for proper water channeling in order to protect the park rangers’ homes and the main campsite. These will avoid floods.  If the works produce visual impacts, some visual-isolation screens, such as native trees or bushes, must be planted as live fences around the facilities, so as to blend with the surrounding landscape. Color contrast must be avoided so that the infrastructure does not stand out in the scenery.  The facilities must have restrooms, water disposal systems and controlled waste or residue deposits.  Plant protection plans and programs must be established to keep the facilities from becoming a source of forest fires.  If already built structures cause negative environmental effects, these will be minimized through modifications to adapt them to their surroundings, or if this is not possible, they will be relocated.  Electrical or telephone wiring that causes visual impact in visited areas should be buried.  In cases where the impacts from construction are irreversible, or where environmental elements are difficult to protect, compensatory measures could be adopted, such as: spreading the earth or fertile soil extracted from the infrastructure site in other places;

94 landscaping with native trees, shrubs, or pasture planting; restoration of degraded habitats and ecosystems. Road and Trail Maintenance  The improvement of roads and ecological trails must use light equipment (tractors, motor graders, backhoes, etc.) to avoid further damage to vegetation and soil. Where possible, restoration works should be conducted with local labor.  Earth movement and side slope cutting must be done without going out of the right of way, trying to affect natural vegetation, river courses, and organic soil as little as possible.  If an existing road or trail is significantly affecting a specific ecosystem, a less impacting variant or detour could be built.  In areas where trail repairs have caused damage to natural vegetation, re-vegetation through planting or sowing in bare patches of land must be carried out.  In cases where trails interfere with wildlife movement, adequate signage should be provided; if the flow of vehicles could pose a significant danger to animal populations or represent a barrier to their movements, solutions such as fencing and bypasses should be sought. Sustainable Economic Activities

 The Project will try to avoid to the extent possible severe limitation to access or use of natural resources by local communities related to the implementation of Project activities. To observe this principle, the practices of the resident or user communities of the Project sites must be studied in order to identify the type of relationship existing between the natural and social environments.  In the event that a determined ecosystem is severely exposed, whether as a result of its fragility, limited capacity to receive human activities, or when the system is particularly important for its preservation, the possibility of limiting access to the ecosystem or to the use of its resources must be analyzed.  As far as possible, the production alternatives must be identified so that the population affected may replace the use of or access to said resources and re-establish or improve initial socioeconomic conditions.

Ecotourism

 There must be control and registration for visitors to the different protected area ecosystems. Visitors should be informed of the PA regulations, such as prohibitions on collecting plants and animals, waste disposal, areas of restricted access, etc.  Critical places in the protected areas must be off-limits to tourists. This must be enforced by permanent surveillance and control in particularly vulnerable areas or ecosystems.  Orientation signs, commercial signs and billboards within the PAs should comply with the regulations established in master plans.

95 Natural Habitats (OP 4.04). The Project is fully consistent with the Bank’s Natural Habitats policy. It would not cause or facilitate any significant loss or degradation of forests or other natural habitats. Instead, the Project is intended to halt current levels of biodiversity and natural vegetation cover degradation by improving the protection and management of natural habitats and forests within the Project sites and restoring ecological connectivity through the establishment of corridors. All activities and investments supported under the Project will be screened to ensure that they do not result in unintended environmental impacts to natural habitats based on the Environmental Framework. 8. Forests (OP/BP 4.36). The Project is expected to promote the conservation and recovery of natural habitats within selected PAs and incorporate natural resources management subprojects in order to reduce the impact of the advance of the agricultural frontier and other threats to fragile ecosystems. The protection of natural habitats could include subprojects for reforesting selected sites with native species, in some cases combined with sustainable production systems.

Social

9. Some of the most notable positive impacts of project implementation will be the restricted access of unauthorized third parties to the islands and capes, thus reducing pressure on resources; the possibility of regulating and directing the development of fishing and aquaculture, tourism and research through the use of sustainability concepts, as well as the promotion of employment for fishermen’s families and incentives for the organization and formalization of fishermen’s associations. The negative impacts are related to the restrictions on the use of resources generated by the establishment of PAs to meet their objectives. Two social safeguard policies are expected to be triggered by the Project: OP 4.10 Indigenous Peoples, and OP 4.12 Involuntary Resettlement.

10. The Project will not cause involuntary resettlement because the Peruvian legal framework recognizes the rights of local populstosn thst were settled before the creation of conservation areas. However, the Project may trigger the latter policy because of restricted access to certain natural resources. As indicated before, the specific Project sites, including corridors, RPA, MPA and private PAs, will be selected during the implementation phase based on the criteria described in other sections of the PAD. The only site that has been identified for Project support during the preparation phase is the marine-coastal PA—the National Reserve System of Guano Islands, Islets and Capes (RNSIIPG), therefore, the following social safeguard tools have been developed: 11. National Reserve System of Guano Islands and Capes (the only PA identified during the preparation phase): (i) a Social Assessment to have a clear picture of the economic activities being developed in these areas, assess the potential impacts the Project may bring about and define possible mitigating measures; ii) a Process Framework to guide the participatory process aimed at preparing the Emergency Plan.

96 12. Potential Candidate Sites: i) an Indigenous Peoples Planning Framework (IPPF) for the potential candidate zones (InterNor and Southern Zone) where indigenous peoples and Afroperuvian rural communities are present. It will be used as the framework for the preparation of Indigenous Peoples Plans, if needed, for the selected sites; ii) a Process Framework for the potential candidate zones (InterNor and Southern Zone) where indigenous peoples are not present. It will provide guidelines and define a process by which local people who may be affected by the Project will participate in the Project and benefit from it. 13. The Process Frameworks and the IPPF were posted in PROFONANPE’s and SERNANP’s websites in March 31, 2009 and published by the Bank’s Infoshop in April 15, 2009.

Summary of the Social Assessment for the NPA of Islands and Capes

14. The Social Assessment conducted during the Project formulation phase is aimed at defining criteria for establishing the political and economic contexts and socio-cultural dynamics that characterize the set of islands and capes, identifying actors especially in the direct sphere of influence, and proposing adequate strategies for Project implementation in order to mitigate potential negative effects as well as direct the design of the Participation Strategy needed for guiding Project execution. The latter point is addressed in the Process Framework summary.

15. The analysis was conducted in consultation with main stakeholders. The following information was reviewed: documents generated by the Project, rules and regulations of the Protected Natural Areas (ANP) system, World Bank standards and available complementary information. Consultations and individual discussions were held with Project staff and key informants, in order to more specifically identify problems for conservation and management on islands and capes, which constitutes the Reserve’s core areas. Several interviews were conducted with qualified informants from small-scale fishermen’s trade associations in order to obtain references about the current interaction that the various groups have with the islands and capes, an aspect only scarcely reported in the available reports.

16. The Social Assessment consists of analyzing each component of the Project in which safeguards are applicable, according to the identification exercise practiced in the Environmental Assessment. This approach includes the following aspects:

 Identify the most important activities and social dynamics in the marine environment near RNSIIPG units.  Characterize stakeholders in general and the analysis of the socioeconomic, cultural and institutional conditions of local communities and organizations.  Evaluate the potential positive and negative social effects of the key components of the Project on stakeholders.  Analyze the vulnerability of affected social groups in terms of available information.  Identify adequate mitigation measures to minimize unwanted potential impacts and maximize positive impacts.

97 Main Features of the SA

17. The strategic ecosystems that form the islands and capes are used by a relatively small number of small-scale fishermen and shellfish extractors, although concessions are increasingly being granted for various forms of managing mollusk and crustacean species within the two miles surrounding several islands and capes; these zones have been assigned the status of National Reserve.

18. A visit to many of these units requires boats and trips, lasting several hours in the case of the islands. The capes have historically been protected and safeguarded with concrete walls that in certain cases have collapsed, making it easier to reach them. Guano extraction, a State monopoly (through PROABONOS), has for decades been the only activity allowed on the islands and, to reduce human interference in bird populations, two nautical miles were designated as an area in which commercial and small-scale fishing are excluded.

19. Many of these areas coincide with zones of subsistence-level economic activity or low productivity and income, since an express prohibition excludes commercial fishing activities within the two miles and, in the case of industrial fishing, five nautical miles, although these measures are not always respected and their control and effective enforcement are costly. Since the mid-1980s, a mollusk extraction activity has been underway, aimed at export markets, and the number of concessions and available areas for these activities is steadily increasing; zones with identified natural banks are the most sought after, and many of them are located within the two-mile zone of several islands where they prosper.

20. The interaction of the abovementioned activities with the units that form the National Reserve’s system of islands and capes also varies, and in some of them universities have research facilities. PROABONOS also facilitates the development of research activities in the units where it has staff. The RNSIIPG units are not used for purposes of tourism on a recurring basis. With regard to marine resources, the principal users are small-scale fishermen who are spread along the entire coastline; their fleet is estimated at 9,667 boats (IMARPE 2005).

21. This SA presents an initial estimate of the number of small-scale fishermen who frequent the islands and capes; where interaction is more intense during the warm months of the Southern Hemisphere summer. With regard to this interaction, it is estimated that the largest concentration of the small-scale fishing fleet operates in Piura, where some 220 boats were active during this season (interviews with grassroots leaders and FIUPAP, 2008).

22. The SA evaluates the potential positive and negative effects of each of the Project’s components for the RNSIIPG, aimed at the various stakeholders, proposes mitigation measures and recommends several considerations for the implementation strategy. (A full version of this SA is available in Project files).

23. Some of the most notable positive impacts of Project implementation will be the restricted access of unauthorized third parties to the islands and capes, thus reducing pressure on resources; the possibility of regulating and directing the development of fishing and aquaculture,

98 tourism and research through the use of sustainability concepts, as well as the promotion of employment for fishermen’s families and incentives for the organization and formalization of fishermen’s associations.

24. The most important negative impacts identified are the conflicts that arise among users due to restrictions to access and the right to resources which underlies the Reserve’s creation. Furthermore, there are currently ocean areas granted by PRODUCE that are located within the 2- mile protection zone of the islands and capes system. Conflicts may also arise between fishermen’s organizations and businessmen. The restriction on resources will also be reflected in the decreased income of fishermen, for which mitigation measures are proposed, such as sustainable alternative economic activities.

Summary of the Process Framework for the NPA of Islands and Capes

25. The development of the Project and its contribution to the implementation of the National Reserve System of Guano Islands, Islets and Capes will, in various ways, affect the stakeholders directly and indirectly involved in the area. To achieve the effective involvement of these users in the process of implementing the Project, this document describes the consultation processes to be conducted with them in order to precisely identify the impacts and mitigation measures that should be applied to minimize the effects of the Project’s actions.

26. The consultation processes are conducted in accordance with various legal regulations, including the General Law of the Environment (Law 28611), which states that the affected population has the right to information, participation in decision making, and access to environmental justice. Moreover, any project financed with World Bank resources must comply with certain Bank policies and safeguards, so that such project is carried out in line with the Bank’s objectives of reducing poverty and caring for the environment.

27. Several of these safeguards and policies serve as the basis for the participation of the affected population in making decisions on the projects that are carried out. In the case of the population of the RNSIIPG, the safeguards contain criteria that may be applied to this group of persons, in order to ensure their participation in the design, execution, supervision and measures necessary to avoid the Project’s adverse effects.

28. For the preparation of the Process Framework, an input used was the results obtained from the Environmental Assessment and the Social Assessment. This input helped in designing mitigation measures for the negative impacts generated, which are focused on the use of administrative measures, measures for managing resources, implementation of human and organizational development programs, and creation of natural resources management initiatives. This latter one, through a Project’s subcomponent aimed at carrying out these activities in accordance with the objectives of the Reserve as a means of compensating the population for restricting access to resources. The use of safety and hygiene measures for the rehabilitation and/or construction of walls on capes and the administrative centers and housing in the system’s units were also identified.

29. With this information, the process framework is mainly focused on explaining how the Project would address consultations with the key groups affected, which should previously be characterized according to their level of organization, representation, and level of conflicts, in order to subsequently evaluate the implications and possibilities generated by the National Reserve’s consolidation in terms of their economic and survival activities, including sustainability options for these groups. Consultations with the population should be planned and conducted in line with the Project’s different stages of execution and taking into account the cultural features of the affected group.

30. The principal objectives of the consultation process should be to identify and understand the interests and concerns of the groups most affected and their contribution to the objectives of creating the Reserve. Likewise, the aim is to improve the understanding of existing problems and conflicts, institutional support and the support of organizations involved. Finally, it is important to establish the foundations and agreements with interested parties in order to enable a strategy of linkage and participation by potentially affected groups.

Procedure for the formulation of a Process Framework for New Protected Areas

31. This document expresses the Project’s commitment that its execution will be in accordance with World Bank OP 4.12. The present design phase proposes the methodology and scope for the free, prior and informed consultations that the Project will conduct in those zones where new protected natural areas (PAs) are created (activity 1.2) or where natural resources management subprojects are generated (activity 2.3). These two activities of the Project may have a positive or negative effect on the economy of local populations and where World Bank guidelines are triggered.

32. The participatory process is designed with the objectives of (a) avoiding the Project’s potential negative effects on local populations, and (b) where these cannot be avoided, minimizing them, mitigating them or compensating for such effects. The design addresses the need for the Project’s social and economic benefits to be culturally appropriate and inclusive in terms of gender issues and inter-generational relationships. The design of this process follows the guidelines of Peruvian legislation and legal regulations, provided that these coincide with the Bank’s OP 4.10 and OP 4.12.

33. Natural resources management subprojects may help to improve linkages with the market economy and also improve the quality of life of local residents, and they may also help to resolve environmental problems. The use of the biological corridor or mosaic concept as a means of achieving better, coordinated management among different management levels of the PAs system implies new forms of management and forums for participation.

34. The restrictions on the use of resources generated by the PAs that are created are all legal restrictions motivated by the need for conservation areas to meet their objectives: (a) areas under the categories of indirect use do not allow the commercial use of resources, only subsistence use; (b) the use of forests for logging is not permitted except for special use by local populations; (c)

100 the area’s internal zoning may affect the use of certain resources; (d) no new settlements are permitted after the area is created; and (e) controls on entry to and exit from the area may create the psychological impression that the legitimate use of certain resources by local populations is being limited.

35. In ANPs of direct use, subsistence uses by local populations are recognized by the management office (jefatura) and authorized as minor activities by “management groups.” Larger-scale commercial activities will be carried out under a resource extraction contract with SERNANP. In areas of indirect use, indirect commercial use such as tourism is permitted, together with the use of resources for subsistence. There is also a possibility for compensation, that is, participation in the area’s co-management through the signing of different types of administration contracts. The Project, with its 40 subprojects, also has a flexible instrument to support necessary contributions, thus helping to boost local economies.

36. Because the Peruvian ANP Law recognizes the preexisting rights of the local population, the Project will proceed to identify all those local stakeholders who may have such preexisting rights in the zones where ecological corridors are proposed. The objective is to strengthen local stakeholders and avoid overlapping or unoccupied spaces between settlements and new conservation areas when these are created. Part of these land-use planning efforts will also be strategic planning activities that interconnect the different management levels found in environmental corridors: national, regional and municipal.

37. The participatory process is designed as a constructive process and one of joint negotiation, in which opinions and consultations are taken into consideration and incorporated into the decision-making process that culminates in the proposal for categorization, the area’s perimeter, and the management model. The process should be decentralized for each of the ecological corridors and specifically for each ANP to be established, as well as for the design, execution, monitoring and evaluation of subprojects. The process should be wide ranging, inclusive, transparent and informed, and should take into account the difficulties of understanding languages and the different types of cultural decision making, addressing inter- generational participation and gender issues.

38. Persons eligible to receive compensation are those residents whose subsistence depends on the use of natural resources affected by Project activities. The concept of local residents includes those living along rivers (ribereños) in the Amazon region and mestizo (mixed-race) communities in the highlands. Since this is a methodological issue, it is preferable that natural resources management subprojects be generated on the basis of local proposals, so that the commitment to objectives ensures execution and sustainability. But subprojects should also meet criteria that act as filters: social viability (capacity for communal execution), cultural viability (compatibility with symbolic cultural processes), economic and environmental viability. Sustainability should be considered and calculated from the very beginning. Therefore, an economic monitoring of the Projects and the measurement of future impacts will be conducted.

101 39. The Project will appoint in a timely manner the person responsible for signing agreements with the heads of local settlements for the execution of natural resources management subprojects. This is stated in the Subproject Operational Manual.

40. In its negotiations with regional and local governments, the Project will include relevant aspects of land-use planning as well as the contributions that these institutions can make to the execution of natural resources management subprojects in the zone of the corridors to be created.

41. The Project will inform and coordinate with PETT or COFROPI regarding land-use planning efforts and will reach agreements to facilitate pending field work in the Project’s areas of operation. The Project will inform and maintain constant communication with the Office of the Ombudsman in Lima and with its regional representatives.

42. The Projectwill also determine which contributions will be considered counterpart payments by regional governments, municipalities and local residents.

43. The Project already has certain monitoring tools such as a logical framework. However, it still needs to design a system for monitoring and reporting experiences, and evaluations. The Project will prepare a plan to monitor improvements in living standards and measures to compensate for the Project’s impacts, taking into account the experiences of previous GEF projects and the options presented in this Process Framework.

Summary of Indigenous Peoples Planning Framework

44. The implementation of the Project will take place in accordance with World Bank OP 4.10, proposing a planning framework for Indigenous Peoples who also include rural Afro- Peruvian communities. The design of the process will address the need for the Project’s social and economic benefits to be culturally appropriate and inclusive in terms of gender issues and inter-generational relationships.

45. Peasant and native communities in Peru are constitutionally recognized. Peru is signatory of ILO Convention 169. The laws of native communities in the Amazon region and of peasant communities in the Andean and coastal zones implement ILO Convention 169 dealing with land rights and community rights. The ANP Law and its regulation consider the legal possibility for indigenous communities to remain within a protected natural area, provided that these communities give their formal approval with full knowledge of the facts. This also applies in conservation areas of indirect use, based on stakeholder’s mutual agreement, negotiated locally, on the subsistence uses that are permitted in all area categories.

46. The Project will develop natural resources management subprojects, with a strong capacity for replication, guided by the GPAN project model, with the objective of mitigating the risks that affect ANPs. These subprojects will be selected by ANP management committees with the participation of Area Managers. The subprojects must also meet certain requisites, such as being socially sustainable and having the capacity for communal or local organization, being compatible with indigenous or local cultures, and being sustainable from an economic and environmental standpoint. Types of production envisaged include ecotourism, sustainable uses of

102 flora and fauna, and reforestation. Thus, the Project will invest in the identification of projects and in pre-investment activities. The Project will address means of linking indigenous communities to the market economy to ensure that the subprojects and enterprises that result from this Project maintain the indigenous and local values that have contributed to conservation.

47. It is hoped that the biological corridor or mosaic model will be perceived and evaluated by local stakeholders in terms of its relevance for their interest in management. Therefore, it will be necessary to generate a social and institutional network that makes ecological corridors viable, adapting such corridors to local needs.

48. The Indigenous Peoples Plan will contain the local conditions for the negotiation of natural resources management subprojects, decision-making processes, and forums for participation decided locally by the Project to generate the natural resources management subprojects that the Project may establish to address claims and complaints in both processes. It will also contain a list of the environmental and social problems that affect the ANP and proposals to address them with the aim of solving them, as well as the natural resources management subprojects management model, with a complete description of the Project cycle as a key point. The plan will also explain the participatory processes in which indigenous organizations should participate, since these are legal or administrative issues that affect or concern them as indigenous peoples. The plan will also include a report on the progress of negotiations with regional and local governments on productive interaction with the Project’s subprojects and a proposal to monitor the implementation of the Indigenous Peoples Plan and the reports that should be prepared.

49. To the extent possible, subprojects should be based on the indigenous peoples’ own potential: on their knowledge about using resources and managing the environment, on working groups based on their system of kinship relations, and on respect for their cultural forms of organizing labor. In parallel, environmental and market potential should also be taken into consideration. In many projects, traditional technology is complemented by modern technology. Economic sustainability requires a new outlook by more traditional indigenous executors, since they are generally unaware of market economy concepts and practices. Although communities have a certain level of freedom in managing their communal areas, SERNANP expects projects to be carried out with natural resources management plans. This is a requirement if the subprojects are carried out in an ANP.

50. The principal negative impacts are (i) the suspension of commercial logging in ANPs, and (ii) restrictions on the use of certain resources that may have effects on the community’s economy. Natural resources management subprojects have risks that may imply losses for the communities, for which reason monitoring and technical assistance are crucial for success. The process may experience new forms of association such as producers’ committees and collective negotiation of a product, which can only be done on the basis of a certain volume of production.

51. The Indigenous Peoples Plan should include the process of identifying valid stakeholders and the procedures to identify preexisting rights. The Plan should indicate those activities that may be limited or potentially affected by the Project, and the land-use planning efforts that are required in order to avoid the overlapping of rights or gaps between ANPs and communities.

103 This information can be used to design negotiations and identify the compensation needed to mitigate the negative effects of Project activities.

52. The Project will take into account the fact that each indigenous group has its own systems for forming opinions and making decisions, and time and space must be allowed so that these can take place. This deepening of the democratic process will be useful to ensure greater gender equity in participation in communal decision making and greater interaction among generations, as required by the World Bank’s Operational Policy.

53. The Project will prepare its own Indigenous Peoples Plans to guide the processes of consultation, participation and interaction of the Project with indigenous peoples and other peoples who may be assimilated under the “indigenous” concept, such as rural Afro-Peruvian communities. The institution that is heading the process and is responsible for the consultation process is SERNANP, which conducts it directly through the Area Manager. The Project acts as a facilitator of the process, but SERNANP makes policy decisions through its representatives. MIMDES’s National Bureau of Original and Afro-Peruvian Peoples must be informed in order to operate in a coordinated inter-institutional manner, as well as the Office of the Ombudsman (Defensoría del Pueblo), PETT and COFROPI in order to coordinate land-use planning efforts.

54. The Project will generate its own system of Project progress reports. In its role as facilitator, the Project will also produce reports on the participation and consultation processes, which are necessary inputs for the document in which new conservation areas are categorized.

55. The Indigenous Peoples Plans that are prepared in accordance with the guidelines of this Framework should be disseminated to key actors: to the regional governments and municipalities involved, to local indigenous organizations, and to the extent that they participate, to regional and national indigenous organizations. These plans should also be submitted to MIMDES’s National Bureau of Original and Afro-Peruvian Peoples, as well as to the Office of the Ombudsman, so that they can conduct their respective monitoring of the plans’ implementation.

104 Annex 11: Project Preparation and Supervision PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Planned Actual PCN review 02/14/2005 02/14/2005 Initial PID to PIC 10/29/2008 Initial ISDS to PIC Appraisal 05/04/2009 05/14/2009 Negotiations 03/15/2010 03/29/2010 Board/RVP approval 04/16/2010 Planned date of effectiveness 05/16/2010 Planned date of midterm review 05/16/2012 Planned closing date 05/30/2015

Key institutions responsible for preparation of the Project: PROFONANPE, INRENA

Bank staff and consultants who worked on the Project included: Gabriela Arcos Task Team Leader/Environmental Specialist LCSEN Renán Poveda Sr. Environmental Specialist LCSEN Claudia Sobrevila Sr. Biodiversity Specialist ENV Alonso Zarzar Sr. Social Development Specialist LCSSO Andrea Semaan Consultant LCSEN Dinesh Aryal Sr. Operations Officer LCSEN Xiomara Morel Sr. Financial Management Specialist LCSFM Nelly Ikeda Financial Management Analyst LCSFM Francisco Rodriguez Procurement Specialist LCSPT Gunars Platais Sr. Environmental Economist LCSEN Patricia Hoyes Sr. Finance Officer CTRFC Brenna Vredeveld Junior Professional Associate LCSEN

Bank funds expended to date on project preparation: $250,201.79

105 Annex 12: Documents in the Project File PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Studies:

I. On Institutional Development:

i. Assessment of Institutional Capacity (Evaluación de capacidades institucionales). ii. Draft of regulation proposals for regional and local conservation areas (Borrador de propuestas de regulaciones para las áreas de conservación regional y local). iii. Proposal of Organization Manual for the National Service of Natural PRotected Areas (Propuesta de Manual de Organización y Funciones para el Servicio Nacional de Áreas Naturales Protegidas–SERNANP). iv. Development strategy of capacity and institutional strengthening for participating actors (Estrategia de desarrollo de capacidades y fortalecimiento institucional para los actores participantes). v. Identification of required capacities for the management of the proposed National Reserve Systed of Islands, Isles and Guano Points from the national protected areas authority (Identificación de capacidades requeridas para la gestión de la propuesta Reserva Nacional Sistema de Islas, Islotes y Puntas Guaneras por parte de la autoridad nacional de áreas naturales protegidas). vi. Analysis of the relation between natural protected areas and extractive industries (Análisis de la relación de áreas naturales protegidas y las industrias extractivas).

II. On Establishment of Alliances with Key Actors for Subnational and Private Natural Protected Areas:

i. Preliminar identification of priority zones as potential subnational protected areas (Identificación preliminar de zonas prioritarias adecuadas como potenciales áreas protegidas subnacionales). ii. Identify opportunities of subnational fund-raising with the objective of increasing financing for biodiversity conservation (Identificar oportunidades de obtención de fondos de gobiernos subnacionales a fin de incrementar el financiamiento efectivo para la conservación de biodiversidad). iii. Design of a basic module of required investments by protected area, regional or local, adjusted to location, size, accesibility and threats to the proposed area. (Diseño de un módulo básico de inversiones requeridas por área protegida, regional o local, ajustado a la ubicación, tamaño, accesibilidad y amenazas del área propuesta).

III. On Sustainability of the Peruvian System of Protected Areas:

106 i. Design of a fiduciary fund for the asset management strategy of the System of PA (Diseño de un fondo fiduciario para la estrategia de manejo de activos para el Sistema).

IV. On Project Design:

i. Design of the institutional arrangements of the Project (Diseño de los arreglos institucionales del proyecto). ii. Elaboration of the Project’s budget (Elaboración del Presupuesto del Proyecto). iii. Planning framework on indigenous peoples and social analysis (Marco de planificación sobre pueblos indígenas y análisis social). iv. Environmental and social assessment, and process framework for the proposed National Reserve System of Islands and Guano Points (Evaluación ambiental y social y marco de procesos para la propuesta de Reserva Nacional Sistema de Islas y Puntas Guaneras). v. Grupo Meta Analysis (Análisis de Grupo Meta).

107 Annex 13: Statement of Loans and Credits PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P116929 2010 PE Safe and Sustainable Transport 150.00 0.00 0.00 0.00 0.00 150.00 0.00 0.00 P107666 2010 PE Water Resources Mgmt. 10.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 P101590 2009 PE 2nd Prg Fiscal Mgmt & Comp. 700.00 0.00 0.00 0.00 0.00 530.00 -170.00 0.00 DPL/DDO P101471 2009 PE First Prog. Environ DPL/DDO 330.00 0.00 0.00 0.00 0.00 310.00 -20.00 0.00 P101177 2009 PE-2nd Results & 330.00 0.00 0.00 0.00 0.00 310.00 -20.00 0.00 Accnt.(REACT)DPL/DDO P095563 2009 PE- (APL2) Health Reform Program 15.00 0.00 0.00 0.00 0.00 15.00 2.33 0.00 P079165 2007 PE Sierra Rural Development Project 20.00 0.00 0.00 0.00 0.00 17.00 10.10 0.00 P095570 2007 PE Decentralized Rural Transport Project 50.00 0.00 0.00 0.00 0.00 15.70 -2.64 0.00 P090116 2006 PE Rural Electrification 50.00 0.00 0.00 0.00 0.00 15.57 -6.09 0.00 P078894 2006 PE Real Property Rights II 25.00 0.00 0.00 0.00 0.00 12.47 10.13 0.00 P078813 2006 PE Regional Transport Decentralization 50.00 0.00 0.00 0.00 0.00 41.25 35.19 0.00 P088809 2005 PE Inst. Capacity for Decent. TAL 8.80 0.00 0.00 0.00 2.16 1.09 3.25 0.11 P082625 2005 PE Vilcanota Valley Rehab & Mgmt 4.98 0.00 0.00 0.00 0.00 2.72 2.72 0.00 Project P082588 2005 PE (APL2)Agric Research and Extension 25.00 0.00 0.00 0.00 0.00 2.35 2.35 0.00 P073438 2004 PE Justice Services Improvement 12.00 0.00 0.00 0.00 0.00 0.02 0.02 0.00 P035740 2004 PE LIMA TRANSPORT PROJECT 45.00 0.00 0.00 0.00 0.00 4.26 4.26 0.00 P065256 2003 PE NATIONAL RURAL WATER 50.00 0.00 0.00 0.00 0.00 19.96 19.96 5.18 SUPPLY AND Total: 1,875.78 0.00 0.00 0.00 2.16 1,457.39 - 5.29 128.42

PERU STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2006 Agrokasa 15.00 0.00 0.00 0.00 11.00 0.00 0.00 0.00 1999 Alicorp 0.00 0.00 20.00 0.00 0.00 0.00 20.00 0.00 2005 Corp. Drokasa 6.41 0.00 0.00 0.00 6.41 0.00 0.00 0.00 2004 EDYFICAR 1.92 0.00 1.00 0.00 1.92 0.00 1.00 0.00 2002 FTSA 5.89 0.00 1.50 0.00 5.89 0.00 1.50 0.00 2002 Gloria 23.64 0.00 0.00 0.00 17.64 0.00 0.00 0.00 2002 ISA Peru, SA 15.28 0.00 0.00 5.59 15.28 0.00 0.00 5.59 2003 ISA Peru, SA 0.20 0.00 0.00 0.00 0.12 0.00 0.00 0.00 2001 Inka Terra 4.75 0.00 0.00 0.00 4.75 0.00 0.00 0.00

108 2004 Interbank-Peru 40.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Interseguro 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 2003 Interseguro 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 2005 Interseguro 0.00 0.60 0.00 0.00 0.00 0.00 0.00 0.00 2000 Laredo 4.29 0.00 5.00 0.00 4.29 0.00 5.00 0.00 2004 Laredo 0.30 0.00 0.00 0.00 0.08 0.00 0.00 0.00 1998 Latino Leasing 0.83 0.00 0.00 0.00 0.83 0.00 0.00 0.00 2002 MIBANCO 0.33 0.00 0.00 0.00 0.33 0.00 0.00 0.00 2006 MIBANCO 29.08 0.00 0.00 0.00 29.08 0.00 0.00 0.00 1999 Milkito 5.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00 2005 Miraflores 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2003 Norvial S.A. 18.00 0.00 0.00 0.00 5.90 0.00 0.00 0.00 1998 Paramonga 10.26 0.00 0.00 8.66 10.26 0.00 0.00 8.66 2001 Peru OEH 5.50 0.00 3.00 0.00 1.50 0.00 3.00 0.00 1993 Quellaveco 0.00 4.67 0.00 0.00 0.00 4.67 0.00 0.00 1996 Quellaveco 0.00 3.98 0.00 0.00 0.00 3.98 0.00 0.00 2000 Quellaveco 0.00 0.45 0.00 0.00 0.00 0.45 0.00 0.00 2001 Quellaveco 0.00 0.57 0.00 0.00 0.00 0.54 0.00 0.00 1999 RANSA 4.38 0.00 0.00 0.00 4.38 0.00 0.00 0.00 2005 RANSA 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2001 Tecnofil S.A. 3.15 2.00 0.00 0.00 3.15 2.00 0.00 0.00 2005 USMP 9.00 0.00 0.00 0.00 4.50 0.00 0.00 0.00 1993 Yanacocha 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00 Total portfolio: 223.71 17.19 30.50 14.25 150.81 16.56 30.50 14.25

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2004 UPC II 0.00 0.00 0.00 0.00 2005 Drokasa PCG 0.00 0.00 0.00 0.00 2004 CMAC Arequipa 0.01 0.00 0.00 0.00 Total pending commitment: 0.01 0.00 0.00 0.00

109 Annex 14: Country at a Glance PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Peru at a glance 12/9/09

Latin Upper- POVERTY and SOCIAL America middle- Development diamond* P eru & Carib. income 2008 Population, mid-year (millions) 28.8 565 949 Life expectancy GNI per capita (Atlas method, US$) 3,990 6,781 7,878 GNI (Atlas method, US$ billions) 115.1 3,833 7,472

Average annual growth, 2002-08 Population (%) 1. 2 1. 2 0 . 8 Labor force (%) 2.6 2.2 1.7 GNI Gross per primary M ost recent estimate (latest year available, 2002-08) capita enrollment Poverty (% of population below national poverty line) 53 .. .. Urban population (% of total population) 71 79 75 Life expectancy at birth (years) 73 73 71 Infant mortality (per 1,000 live births) 22 22 21 Child malnutrition (% of children under 5) 55.. Access to improved water source Access to an improved water source (% of population) 84 91 94 Literacy (% of population age 15+) 90 91 94 Gross primary enrollment (% of school-age population) 113 117 110 Peru M a l e 113 119 112 Upper-middle-income group F e m a l e 112 115 10 8

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1988 1998 2007 2008 Economic ratios* GDP (US$ billions) 12.4 56.8 107.5 129.1 Gross capital formation/GDP 33.6 23.6 22.9 26.3 Expo rts o f go o ds and services/GDP 18.8 13.1 28.8 27.1 Trade Gross domestic savings/GDP 29.8 18.2 29.4 26.9 Gross national savings/GDP 20.0 17.9 23.7 22.6 Current account balance/GDP -14.8 -5.9 1.1 -3.2 Interest payments/GDP 1.8 2.4 2.0 1.3 Domestic Capital savings formation Total debt/GDP 147.3 53.7 26.9 22.1 Total debt service/exports 9.5 26.1 24.7 11.7 Present value of debt/GDP .. .. 33.4 21.8 Present value of debt/exports .. .. 102.5 66.8 Indebtedness 1988-98 1998-08 2007 2008 2008-12 (average annual growth) GDP 3.4 5.0 8.9 9.8 3.2 Peru GDP per capita 1.4 3.6 7.6 8.5 1.1 Upper-middle-income group Exports of goods and services 8.2 8.4 6.2 8.2 1.8

STRUCTURE of the ECONOMY 1988 1998 2007 2008 Growth of capital and GDP (%) (% of GDP) 30 Agriculture 10.3 9.0 7.0 7.2 25 Industry 33.4 29.7 37.0 36.2 20 M anufacturing 28.8 15.7 15.9 15.9 15 10 Services 56.3 61.3 56.0 56.6 5 0 Household final consumption expenditure 59.8 71.4 61.5 64.2 03 04 05 06 07 08 General gov't final consumption expenditure 10.4 10.4 9.1 8.9 GCF GDP Imports of goods and services 22.6 18.5 22.4 26.5

1988-98 1998-08 2007 2008 Growth of exports and imports (%) (average annual growth) A griculture 3.2 4.3 3.5 7.2 25 Industry 4.6 5.7 10.1 10.1 20 M anufacturing 3.0 5.8 11.1 9.1 15 Services 2.6 4.8 9.6 9.6 10 5 Household final consumption expenditure 2.7 4.4 8.4 8.7 0 General gov't final consumption expenditure 4.5 3.9 4.5 4.0 03 04 05 06 07 08 Gross capital formation 8.5 6.7 26.1 24.8 Exports Imports Imports of goods and services 11.7 7.3 21.3 19.9

Note: 2008 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

110 Peru

PRICES and GOVERNM ENT FINANCE 1988 1998 2007 2008 Inflation (%) Domestic prices (% change) 8 Consumer prices .. .. 0.4 5.3 6 Implicit GDP deflator 372.5 6.3 2.2 2.3 4 Government finance 2 (% of GDP, includes current grants) 0 Current revenue 14,216.8 15.8 18.1 18.0 03 04 05 06 07 08 Current budget balance -4,486.8 1.9 3.9 4.4 GDP deflator CPI Overall surplus/deficit -6,538.9 -1.1 1.8 2.2

TRADE 1988 1998 2007 2008 Export and import levels (US$ mill.) (US$ millions)

Total exports (fob) 2,720 5,757 27,956 33,771 40,000 Copper 619 779 7,241 .. Fishmeal 3 928 4,157 .. 30,000 M anufactures 777 2,045 6,463 7,807 Total imports (cif) 2,865 8,219 19,599 29,542 20,000 Food .. 787 1,203 .. 10,000 Fuel and energy 252 582 3,623 .. Capital goods 727 2,562 5,885 8,871 0 Export price index (2000=100) .. 105 240 263 02 03 04 05 06 07 08 Import price index (2000=100) .. 95 152 185 Exports Imports Terms of trade (2000=100) .. 111 158 142

BALANCE of PAYMENTS 1988 1998 2007 2008 Current account balance to GDP (%) (US$ millions) Exports of goods and services 3,551 7,531 31,041 35,166 4 Imports of goods and services 4,029 10,650 23,942 34,005 Resource balance -478 -3,119 7,099 1,161 2

Net income -1,515 -1,204 -8,374 -8,144 0 Net current transfers ...... 02 03 04 05 06 07 08 Current account balance -1,830 -3,336 1,220 -4,180 -2

Financing items (net) 1,240 2,330 8,435 7,348 -4 Changes in net reserves 590 1,006 -9,654 -3,169

Memo: Reserves including gold (US$ millions) 1,125 9,982 27,720 37,297 Conversion rate (DEC, local/US$) 2.50E-4 2.9 3.1 2.9

EXTERNAL DEBT and RESOURCE FLOWS 1988 1998 2007 2008 Composition of 2008 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 18,231 30,486 28,884 28,555 IBRD 1,103 2,128 2,649 2,712 IDA 0 0 0 0 A: 2,712 G: 6,147 Total debt service 348 2,174 8,651 4,924 IB RD 2 184 391 366 D: 5,227 IDA 0 0 0 0 Composition of net resource flows Official grants 119 240 366 333 Official creditors 139 64 -2,337 -110 Private creditors 27 946 2,026 -1,572 E: 4,336 Foreign direct investment (net inflows) 26 1,644 5,343 4,079 F: 10,133 Portfolio equity (net inflows) 0 -346 814 180

World Bank program Commitments 0 38 250 540 Disbursements 2 271 256 294 A - IBRD E - Bilateral Principal repayments 0 64 241 230 B - IDA D - Other multilateral F - Private C - IMF G - Short-term Net flows 2 207 15 63 Interest payments 2 120 150 136 Net transfers 0 87 -135 -73

Note: This table was produced from the Development Economics LDB database. 12/9/09

111

Annex 15: Incremental Cost Analysis PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

Overview

1. Costs were estimated over the five years of the Project. Only recently completed, ongoing and planned protection-relevant activities in PAs and their respective buffer zones constitute the baseline.

2. The total Project costs of the GEF Alternative represent the sum of the baseline and incremental costs associated with proposed additional actions required to secure biodiversity conservation objectives of global importance within the selected PAs and corridors, the prospective PAs and corridors, as well as central and regional governments’ interventions. The scope of the analysis captures existing and proposed interventions broken down into the proposed Alternative’s four components: (i) Institutional and Policy Program at the national level, (ii) Ecological Corridors Program, (iii) Financial Sustainability of Selected PAs, and (iv) Project Management.

Global Environmental Objectives

3. The Project’s Global Environment Objective (GEO) is to contribute to the long-term ecological sustainability of Peru’s protected areas by expanding the ecological representativeness of the country’s Protected Areas System and implementing conservation activities at various levels (national, regional and private) within ecological corridors. The Project would concentrate interventions on four ecological corridors (with five to ten PAs located within these corridors) and would contribute to their financing on a sustainable basis.

4. The Project would concentrate interventions in four ecological corridors26 as a strategy to effectively manage diverse protected areas categories and harmonize land uses in the rural production landscape to better address protected areas threats and enhance connectivity among them.

Baseline Scenario

5. Without the GEF’s support, it is unlikely that a corridor approach to conservation would be piloted to address the hotspots of biological diversity in the country (which are currently without protection and under high stress). Likewise, an active involvement of the private sector

26 Ecological corridors are constituted by a set of protected areas of various categories and under different administrative authorities, and by the buffer zones between them, including other compatible land-use management modalities such as concessions for conservation or ecotourism. All these areas participate under the common and nonbureaucratic framework to assist them in land use planning and to integrate their planning into regional and local development processes. This coordinated planning and management is carried out to increase the impact of conservation while sharing the use of technical resources and lessons learned.

112 in conservation efforts would be unlikely to happen. Furthermore, innovative approaches (i.e., comanagement agreements, sustainable economic activities) led by the people closest to the ecological corridors (regional, municipal and private entities) would be limited without the Project. The total cost of the baseline scenario is estimated at $ 21.824 million, based on the costributions to each component, as follows:

Component 1: Institutional and Policy Program at the National Level

6. Under this component, the baseline scenario will not obtain the necessary support to carry out the planning process required for the consolidation and integrated management of NPAs at national, regional, municipal and private levels. It will be possible to develop some activities related to the formulation of policy proposals, regulations and technical guidelines. However, other aspects such as the actual establishment and operation of ecological corridors as well as capacity building and development of information systems are not likely to take place in the absence of GEF funding. 7. The estimated investment by SERNANP in the development of policy guidelines and technical criteria and planning for integrated management of PAs over the next five years will not exceed $0.456 million. KfW will provide an additional $0.3 million, limiting the planning process and operation of regional and local PAs to highly targeted sites within the country. Regional governments will not be able to invest in basic planning. 8. Reforms supported by the IBRD’s series of Programmatic Environmental Development Policy Loans will include, among others: i) improved efficiency and effectiveness of environmental governance and institutions through policy and legal reforms; ii) implementation of SINANPE’s Financial Strategy to contribute to its financial sustainability; iii) mainstreaming of principles of sustainable development in key sectors, in particular the mining and fisheries sectors. As such, a conservative estimate of the cost of these reforms was $10 million. 9. The total costs of the baseline scenario under this component that would go toward building the institutional framework for the implementation of national, decentralized management of NPAs will be $10.756 million.

Component 2: Ecological Corridors Program

10. Under the baseline scenario, this component will provide limited support to the integrated management of NPAs at national, regional, local and private levels that constitute ecological corridors identified in prioritized regions. It will be possible to design a general strategy for the integrated management of protected areas at all levels of administration within Project corridors. However, because cofinancing from regional or local governments and from private sources will be made available to the extent that SERNANP also commits resources, the implementation of the strategy will only take place in those PAs for which financing has been secured.

11. Models or alternative approaches for the management of protected areas that may include full or partial administration contracts and special management schemes for communal reserves, will also be possible in a few PAs and subject to the availability of funds from SERNANP and other donors.

113 12. SERNANP will be able to provide $0.017 million to implement the strategy for integrated management of PAs at a basic level, but it will not be able to implement alternative management approaches. KfW will provide $3.735 millio, to support the design of the strategy; for its partial implementation, it will also support the development of natural resources management subprojects in targeted PAs.

13. The total costs of the baseline scenario under this component that would go toward the improved management of decentralized PAs will be $3.752 million.

Component 3: Financial Sustainability of selected ecological corridors

14. Because this component will focus on designing and establishing a long-term financial instrument for the Project’s selected PAs, expanding the coverage and magnitude of resources currently held as a permanent fund in PROFONANPE, in order to reduce the financial gap of the protected areas system, the lack of funds provided by this Project may not allow enough resources to be allocated to cover the recurrent costs of national and subnational protected areas within the selected corridors. This may also result in a reduced cofinancing contribution from public or private sources or from any financial instruments that regional governments may establish.

15. KfW will allocate $3.0 million to the capital endowment administered by PROFONANPE. An additional $3.0 million will be provided by Plus Petrol. Therefore, the total costs of the baseline scenario under this component that would go toward the consolidation of the long-term financing strategy of SINANPE will be $6.0 million.

Component 4: Project Management

16. The baseline costs and activities of this component are estimated at $1.316 million, since KfW will allocate $1.19 million for the overall administration of the Project as well as for monitoring and evaluation, and SERNANP and regional governments will provide an additional $0.126 million to carry out basic monitoring of activities under the regular budget.

The Scope and Benefits of the GEF Alternative Scenario 17. The Project will seek the integrated management of PAs through the establishment of ecological corridors following a landscape approach. Ecological corridor is defined in this Project as a space where various categories of protected areas (described below) and their complementary landscapes are managed through strategic alliances to enhance ecological connectivity, reduce threats more effectively and contribute to climate change mitigation and adaptation (details in Annex 16).

18. Eight ecological corridors covering key ecosystems for conservation have been pre- identified, four of which will be targeted in the Project. The Project will support overall planning and capacity building in all four corridors and will pilot management experiences adapted to the local conditions in three corridors. Between five and ten PAs will be selected within the three corridors for direct support, including planning, capacity building, equipment, alternative

114 administration mechanisms and financing of recurrent costs. The final selection of these corridors covered by the Project will take place during the first year of implementation.

19. An additional incremental value of the Project is that PROFONANPE’s existing endowment (which covers recurrent costs) would be increased to cover newly established regional and local PAs (on a matching basis) as well as some key investments. In summary, the GEF’s incremental support would assist the government in consolidating the PA system under the new integrated framework, working at the central, regional and local levels.

Component 1: Institutional and Policy Program at the National Level

During the lifetime of the Project, the cost of activities under the GEF Alternative Scenario that contribute to the achievement of Component 1 objectives will be $11.849 million. The GEF Alternative Scenario includes the following activities: (i) regulations to allow the integrated management of regional, local and privately owned areas not currently existing under the Protected Areas Law; ii) improvement of technical regulations and guidelines of PA master plans, management plans and other similar instruments based on recent experiences by the national authority, aimed at simplifying their preparation and implementation; iii) improvement of the management information system for SINANPE and its application in selected Project areas, including the completion at the national level of the Peru Ecological Map; iv) development of a standardized methodology for the design of planning, monitoring and evaluation instruments; v) design of the training program for the Project under the framework of the “Training Strategy of Peru’s Natural Protected Areas System: 2005–2014; vi) implementation of a training program through academic and private organizations; and vii) design and implementation of a strategy to raise awareness at the national level on the importance of the corridor strategy.

Component 2: Ecological Corridors Program

During the lifetime of the Project, the cost of activities under the GEF Alternative Scenario that contribute to the achievement of Component 2 objectives will be $7.481 million. The GEF Alternative Scenario includes the following activities: i) strategic planning for five ecological corridors prioritized by the Project; ii) studies and consultation processes required for the establishment of new protected areas within the five ecological corridors; iii) master plans for the selected PAs; iv) basic infrastructure and equipment for selected PAs; v) support for the operation of three technical corridor units in SERNANP; v) establishment and operation of management committees to support the development of the participatory processes and the implementation of Project activities; vi) establishment and operation of regional councils for the four corridors led by regional authorities; vii) preparation of the Emergency, Conservation and Repopulation Plan for the Guano Islands and Capes Reserve; vii) financing and monitoring of administration contracts and other administrative mechanisms in the selected protected areas; viii) systemization of management experiences; ix) development of complementary management mechanisms such as the facilitation and promotion of conservation initiatives in private and communal lands, especially in critical habitats; and x) a sustainable economic activities program, including the identification of activities, planning and market studies.

115 Component 3: Financial Sustainability of the Selected Ecological Corridors

During the lifetime of the Project, the cost of activities under the GEF Alternative Scenario that contribute to the achievement of Component 3 objectives will be $9.18 million. It will include the following activities: (i) establishment of a sub-account within the trust fund operated by PROFONANPE; ii) updating of the operational manual to define the use and allocation of the resources generated by the fund; iii) monitoring and evaluation of the Asset Manager’s financial strategy and portfolio management; and iv) transfer of funds to PAs within three selected corridors based on the annual operating plans agreed with SERNANP, regional and local governments to cover recurrent costs.

Component 4: Project Management

20. During the lifetime of the Project, the cost of activities under the GEF Alternative Scenario will be $2.205 million.

21. This subcomponent will focus on supporting the management and administration of the Project by PROFONANPE and SERNANP. The funds will be used to finance goods, consulting services, travel, operating expenses and incremental costs needed for Project management. It will finance the Project coordinator, the procurement specialist, the administrative assistant and external audits, as well as the costs of meetings by the Project’s Administration Council and Consultative Committee. It will also cover PROFONANPE’s indirect costs, staff, equipment and operating costs. It will also deal with the design and implementation of a monitoring and evaluation system and in order to have available a technical guide on Project progress, identify needs for adjustment, and systemize the experience for learning purposes. It will finance a part- time consultant in this subject who will technically support the Project’s various components, including training activities and advising participating institutions.

Incremental Costs 22. The total incremental cost for achieving global environmental benefits the amount beyond the baseline that would be guaranteed to be spent under the GEF Alternative would be $8.891 million. The following matrix summarizes the incremental costs and benefits over the Project’s five-year period.

116 Table 1. Incremental Cost Matrix for GEF Funding $ Cost Category Domestic Benefit Global Benefit Million

Component 1: Baseline 10,756 It will not be possible to carry out the planning Improved conservation of Institutional and process required for the consolidation and National Protected Areas Policy program at integrated management of PAs at national, (under the administration of the national level regional, municipal and private levels. It will SERNANP). be possible to develop some activities related to the formulation of policy proposals, regulations and technical guidelines. However, other aspects, such as the actual establishment and operation of decentralized PAs as well as capacity building and development of the information system, are not likely to take place in the absence of GEF funding.

GEF 11,849 Preparation of regulatory proposals that At least 250,000 additional ha Alternative contribute to strengthening the management of under improved conservation regional, municipal, and privately owned and 5 ecological corridors areas; improvement of technical regulations established entailing the and guidelines of master plans, management participation of regional and plans and other similar instruments based on local governments and the recent experiences and strengthening of the private sector. management information system for Peru’s Natural Protected Areas System and its application in selected Project areas.

Incremental 0,093

Component 2: Baseline 3,752 Limited support to the integrated management Improved management of PAs Ecological of NPAs at national, regional, municipal and supported by the GEF/WB Corridors private levels that constitute ecological Participatory Management of Program corridors identified in prioritized regions. It PAs Project–GPAN. will be possible to design a strategy for the integrated management of protected areas. However, the implementation of the strategy will only take place in those PAs for which financing from SERNANP and cofinancing have been secured.

7,481 GEF The full or partial cofinancing of Improved management of 5– Alternative administration contracts in selected protected 10 national protected areas (in areas within the Project’s corridors and addition to those areas complementary natural resources management supported by GPAN), ensuring subprojects to consolidate connectivity. These the conservation of globally may include facilitating and promoting important biodiversity. conservation initiatives on private and communal lands that contribute to expanding the protected area, especially critical habitats, and improving connectivity between national and regional protected areas.

Incremental 3,729 Component 3: 6,000 Reduced allocation of PROFONANPE’s fund Asset fund with the $6.0 Financial Baseline will not make it possible to fully address the million from KFW and Sustainability of existing financial gap of the protected areas PlusPetrol and limited the Selected system; the lack of funds provided by this allocations from regional Ecological Project might not make it possible to allocate governments.

117 Table 1. Incremental Cost Matrix for GEF Funding $ Cost Category Domestic Benefit Global Benefit Million Corridors enough resources to cover the recurrent costs of nationally and subnationally administered protected areas within the selected corridors.

9,180 Additional allocations from the GEF will Asset fund of at least $9 GEF substantially reduce the financial gap of the million implemented to cover Alternative PA system. The design of the fund will allow recurring costs of national, private contributions, which will be promoted regional and local protected in the regions in order to access the areas within selected corridors. contributions of extractive industries and others.

Incremental 3,180 Component 4: Project Baseline 1.316 Management

GEF 2,205 Improved management and administration of Alternative the Project by PROFONANPE and SERNANP. It will also secure the operation of the Project’s Administration Council and Consultative Committee. It will also deal with the design and implementation of a monitoring and evaluation system to secure adequate implementation of the Project.

Incremental 0,889 21,824 TOTAL Baseline

GEF 30,715 Alternative

Incremental 8.891

118 Annex 16: Ecological Corridors Approach PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program

1. SINANPE currently includes 63 national PAs that encompass 18.4 million hectares (14.4% of Peruvian territory). The Protected Areas Law requires that the National System Plan include an analysis of the ecological representativeness in the National Natural Protected Areas System (SINANPE). In the mid-1990s when the first National System Plan was prepared, the ecoregion map originally proposed by Dinerstein et al. (1995) was used. In 2006, the GoP started the process to update the National System Plan. As part of this process, an analysis of the ecological coverage of SINANPE was prepared by the Conservation Data Center of Peru. The GEF Project Preparation Grant (PPG) supported this analysis of the ecological representativeness of SINANPE and also provided the preliminary identification of ecological corridors as a strategy to prioritize where to establish new areas to fill the ecosystem gap. The analysis of representativeness worked with different ecological units (biomes, ecoregions, ecological systems and sites).

2. Peru includes 20 terrestrial ecoregions and one freshwater ecoregion grouped in seven biomes. Of the 20 ecoregions, 12 ecoregions are represented in SINANPE, while 8 are not yet under legal protection. The biomes that are currently best represented in SINANPE are the tropical and subtropical moist broadleaf forests (62% of the nation is covered with this biome and 16.5 million hectares of PAs have been established within it) and the natural pastures and savannas. The remaining 4 biomes are not well covered under SINANPE. These are the dry broadleaf forests, deserts and xeric shrublands, lakes and montane grasslands and shrublands. The 2006 National PA Strategy (Plan Director) has identified 133 priority sites for conservation located within the seven biomes.

Landscape approach

3. The term ecological corridor is defined in this Project as a space where various categories of protected areas and their complementary landscapes (private or community-based) are managed through strategic alliances to enhance ecological connectivity, reduce threats more effectively and contribute to climate change mitigation and adaptation.

4. Ecological corridors build upon existing social and institutional arrangements in order to ensure the fulfillment of conservation and local benefit objectives. Work within ecological corridors emphasizes the need to complement national parks with other management and conservation strategies (regional and municipal protected areas) while promoting the sustainable use of biodiversity and local development through benefit sharing and use agreements with local communities and private owners.

5. The purposes of using the ecological corridors approach in this Project are to:

119 i) complement biodiversity conservation at the landscape scale, following conservation science dictates (conservation biology and landscape ecology), through the maintenance or restoration of landscape biological connectivity and ecological integrity; ii) strengthen the management capacities of public institutions, based upon the role given by law to the new Ministry regarding decentralized conservation efforts; and iii) implement PA systems through the use of a wide array of protected areas management categories (IUCN) including diverse conservation management regimes and governance, and the use of conservation tools developed for sustainable productive systems in rural landscapes.

6. The ecological corridors approach, as opposed to strict protection national parks, makes it possible to: i) fill ecosystem gaps and ecological functionality, complementing the integrity of biodiversity conservation at the landscape/seascape level. New protected areas can be established where these gaps exist and within the corridor in order to contribute to better connectivity; ii) manage populations of endangered species located within rural productive landscapes; iii) contribute to global efforts to combat climate change and reduce deforestation and degradation. Recent studies show that significant reductions in GHG emissions can be achieved from deforestation and degradation using parks, reserves, indigenous lands, community forests, buffer zones and restored areas; iv) dampen climate change impacts by allowing species migration in case of extreme climate events such as drought or floods, and the stabilization of forest stocks; and v) design new protected areas, taking into account human settlements. Many protected areas in Peru were declared after human settlements, presenting design failures as seen from modern conservation sciences and reflected in inadequate sizes, forms, boundary definition, the types of ecosystem and limited long-term persistence. From a human standpoint, these design deficiencies contribute to current unresolved social conflicts between conservation policies and the perceptions and interests of local actors.

Selection Criteria

7. The Project aims to protect a diverse variety of ecosystems, all of which will include globally significant biodiversity. Selection criteria used to identify the key ecosystems and potential Project sites include the following:

 Intrinsic value of eligible sites for corridors (including representation and status of biological diversity, status of ecosystems and the singularity of their biological content);  Potential for conservation (size of area, potential for connectivity with other PAs and ecological corridors, gaps in biodiversity data, type of threats);  Level of commitment and capacity of the regional and local governments, including advances regarding PA creation and/or management;  Likelihood for institutional and financial sustainability of PAs (through participation of private sector, local and regional governments).

8. These criteria will be further refined in preparation for the final selection of corridors and PAs. Regional governments will further need to follow the procedures established under the

120 National Public Investment System (SNIP). They must: (i) demonstrate their viability as public projects, accredited by the regional Office of Investment Projects (OPI), and (ii) have been considered and prioritized under the Participatory Budget process.

Description of Potential Corridors

9. The Project aims at supporting the conservation of key ecosystems of global significance by expanding and consolidating the PAs. Studies were conducted during the preparation phase to determine the location of the ecological corridors. A total of nine corridors were preliminarily identified for holding ecosystems of global importance. The Project will concentrate interventions only in four corridors. For the final selection of the remaining four corridors, more specific planning activities and consultation workshops will be carried out during the initial stage of Project implementation. The pre-identified corridors as described below.

I. InterNor Region

Amazonas Corridor

10. It encompasses an area of 1,453,446.59 ha and includes the departments of Amazonas, Cajamarca and San Martín. Within its boundaries, it contains four ecoregions: the Ucayali humid forests, montane forests of the Cordillera Real Oriental, and dry forests of the Marañón and Peruvian Yungas. The conservation objectives are to protect cloud forests and valuable flora and fauna, most of which are endemic and endangered species. It forms part of the Aguaruna people’s ancestral hunting grounds and is of great importance for the survival of cultural aspects of resource use by 11 native communities.The corridor’s threatened fauna species include: the yellow-tailed woolly monkey (Lagotrix flavicauda), the oilbird (Steatornis caripensis), the spectacled bear (Tremarctos ornatus), the Andean cock-of-the-rock or gallito de las rocas (Rupícola peruviana) and the long-whiskered owlet or lechucita bigotona (Xenoglaux loweryi).

San Martín Corridor.

11. This corridor has an extension of 1,340,598.06 ha. It contains three ecoregions: humid forests of Ucayali, páramos (moorlands) and the Peruvian Yungas. Its objective is to protect a representative sample of high jungle cloud forests with endemic zones in the Río Huallaga area. Important species for conservation include the yellow-tailed woolly monkey (Lagothrix flavicauda), the spectacled bear (Tremarctos ornatus), the North Andean deer (Hippocamelus antisensis), the jaguar (Pantera onca), and the long-haired spider monkey (Ateles belzebuth). On hillside lands there are very large trees such as Ficus sp., the Brazilian rubber tree (Hevea brasiliensis), cedar (Cederla sp.); notable orchids include the genera Stelis, Epidendrum and Masdevallia; the fern group is represented by the genera Elaphoglossum and Grammitis, which are the most diverse. It also contains high Andes communities of small, thick trees and shrubs associated with thickets, high mountain forests, high Andes stubble, among others.

Río Marañón Corridor

121 12. This proposed area is located on the upper part of the Río Marañón basin and measures 698,962.71 ha. Fifty-five percent of it is formed by the Marañón dry forests ecoregion holding important bird species. It also contains the páramos (moorlands) ecoregion, a mountain ecosystem holding shrub-like vegetation very important for the storage of water, followed by the western montane forests of the Andes and the Peruvian Yungas.

Amotapes Corridor

13. This corridor encompasses 454,190.56 ha in the departments of Piura and Tumbes, conserving the dry forests ecoregion of Piura and Tumbes and representing 100% of the corridor’s composition. Important flora species for conservation include: the ceibo (Ceiba trischistandra), golden trumpet tree or guayacán (Tabebuia chrysantha), algarrobo (Prosopis pallida) and palo santo (Bursera graveolens). These species are threatened due to intensive use for firewood, parquet flooring and handicrafts. The most notable fauna species include: the howler monkey or mono coto de Tumbes (Alouatta palliata), the boa or macanche (Boa constrictor), Jordan’s casque-headed tree frog (Trachycephalus jordani), the vested anteater (Tamandua mexicana), the white-tailed deer (Odoleicus virginianus), the Guayaquil squirrel (Sciurus stramineus), the pale-legged hornero (Furnarius leucopus), the grey-backed hawk (Leucopternis occidentalis), the Sechuran fox (Pseudalopex sechurae), the puma (Puma concolor), the collared peccary (Tayassu tajacu), the green iguana (Iguana iguana), and the Andean condor (Vultur gryphus). Threatened species include: the bronze-winged parrot or loro alas bronceadas (Pionus chalcopterus), the neotropical otter or nutria del noroeste (Lutra longicaudis), the jaguar (Felis concolor), the ocelot or huamburushu (Leopardos wiedii), the red- masked parakeet or loro cabeza roja (Aratinga erythrogenys), the American crocodile (Crocodylus acutus) and the neotropical otter (Lutra longicaudis).

Dry and Montane Forests Corridor

14. The proposed corridor measures 1,248,222 ha in the departments of Piura, Lambayeque and Cajamarca. This proposed corridor has the largest number of ecoregions, distributed as follows: (a) the dry forests of Piura and Tumbes, which represent 43% of the total corridor; (b) the western montane forests of the Northern Andes (39%); (c) dry forests of Marañón (7%); (d) Páramos (Moorlands) (5%); (e) montane forests of the Cordillera Real Oriental (3%); and (f) Sechura desert. It contains27 a representative sample of montane dry forest and the habitat of critically threatened species such as the white-winged guan (Penelope albipennis), the spectacled bear (Tremarctos ornatus), the mountain tapir or tapir de altura (Tapirus pinchaque), the spectacled bear or oso andino (Tremarctos ornatos), the grey-bellied shrew opossum or ratón marsupial de vientre gris (Caenolestes caniventer); birds include the neblina metaltail or colibrí de neblina (Metallura odomae); the orange-banded flycatcher or mosquerito franjinaranja (Myiophobus lintoni); and the Piura chat tyrant or pitajo de Piura (Ochthoeca piurae).

27 Supreme Decree No. 045-2006–AG.

122 15. The white-winged guan is an endemic species of Peru; it is representative of the area and catalogued as a critically threatened species due to hunting and loss of habitat. A population of at least 22 individuals of this species was reported in 2006.28

Dry Forest Corridor.

16. The proposed corridor measures 579,761.26 ha. Within its boundaries it contains the Piura and Tumes dry forests ecoregion. It holds the Pómac forest and has a predominance of plant species such as algarrobo (Prosopis pallida), sapote (Capparis angulata), angolo (Pithecollobium multiflorum), long-spine acacia or faique (Acacia macracantha), Jerusalem thorn or látigo de cristo (Parkinsonia aculeate), and bichayo or vichayo (Capparis ovalifolia). It is the habitat of species in a vulnerable status, such as the collared anteater or oso hormiguero (Tamandua mexicana), the Sechuran fox or zorro sechurano (Dusicyon sechurae), and the Guayaquil squirrel or ardilla nuca blanca (Sciurus stramineus). More than 70 bird species are reported, 22 of them endemic, such as the Peruvian plantcutter or cortarrama peruana (Phytotoma raimondii), or endangered, such as the Tumbes swallow or golondrina de Tumbes (Tachycineta stolzmanni) and the black-faced ibis or bandurria (Theristicus melanopis). Reptiles and amphibian species include the green iguana or pacaso (Iguana iguana) and the boa (Boa constrictor).

Illescas Virrilá Corridor

17. The proposed corridor measures 392,528.22 ha. It includes the Piura and Tumbes dry forests ecoregion, which represents 27% of the total corridor, and the Sechura desert ecoregion, which represents 73% of the proposed area. The Illescas peninsula reflects evidence of the existence of an ancient branch of the Andes called the Coastal Cordillera. Because this is where both the El Niño and the Peruvian currents meet, it has a wide diversity of marine resources. In addition, the height of Cerro Illescas allows the establishment of vegetation similar to that of coastal hills as well as of species typical of the dry forest. Fauna occurs mainly on beaches and rocky slopes; this group includes bird species such as the Andean condor or cóndor andino (Vultur grhyphus), which nests in this zone. It is also the reproduction site of the Humboldt penguin or pingüino de Humboldt (Sphenicus humboldti).29

II. Southern Region

Southern Corridor

18. The proposed corridor has a total area of 2,107,596.65 ha, covering three ecoregions: (a) Sechura desert, (b) Central Andes and (c) Punas of the Central Andes. Its objective is to protect flora and fauna and the ecological processes of a representative sampling of Southern Peru’s dry puna. Six vegetation units have been identified: (i) desert matorral (scrub vegetation), (ii) pajonal de puna or high Andes pasture, (iii) tolar, (iv) bofedal, (v) yaretal and (vi) queñual. Fauna is typical of the dry puna: South American camelid species such as the llama, the guanaco

28 Angulo F. 2008. Current status and conservation of wild and reintroduced White-Winged Guan (Penelope albipennis) populations. 29 CDC UNALM.1992. Estado de Conservación de la Diversidad Natural de la Región Noroeste del Perú.

123 (Lama guanicoe) and the vicuña (Vicugna vicugna); also the North Andean deer or taruca (Hippocamelus antisensis) and Northern viscachas or vizcachas (Lagidium peruanum), among others. Large carnivores include the puma (Puma concolor), the Andean mountain cat or gato andino (Oreailurus jacobita), the Pampas cat or osjollo (Oncifelis colocolo), and the Andean fox or zorro andino (Pseudalopex culpaeus). Resident birds include the Andean goose or huallata (Chloephaga melanoptera), the Andean flamingo or parihuana andina (Phoenicoparrus andinus), and the silvery grebe or zambullidor (Podiceps occipitalis), among others.

19. Two species of flora are reported as endangered: Krameria lappacea and Polylepis tomentella. The most notable fauna species include Darwin’s rhea or suri, a critically endangered species; the Andean condor or cóndor de los Andes (Vultur gryphus), the Andean flamingo or flamenco andino (Phoenicoparrus andinus), and the black-faced ibis or bandurria (Theristicus melanopis). Some of the mammals reported in the area include the Andean mountain cat or gato andino (Oreailurus jacobita), the guanaco (Lama guanicoe), the vicuña (Vicugna vicugna), the puma (Puma concolor), the Pampas cat or gato montés (Oncifelis colocolo), the Andean fox or zorro andino (Pseudalopex culpaeus), the hog-nosed skunk or zorrillo (Conepatus chinga) and the Northern viscacha (Lagidium peruanum), among others.

III. Marine-Coastal Corridor

National Reserve System of Guano Islands, Islets and Capes (RNSIIGP)

20. This Reserve encompasses sixteen islands, islets and groups of guano islands, and eleven guano islands with a land and marine area of 125,550.97 ha. Although the system of guano- producing (organic fertilizer produced by marine birds and broadly used in agriculture) islands and capes (called “las guaneras” in Spanish) has been under the official protection of the Peruvian Government since the early 20th century, its management has been focused on the extraction of guano. Additional efforts are necessary to secure the welfare of several species of marine birds and their habitats and to regulate fishing of species such as the “anchoveta” currently under strong pressure due to overfishing.

124 Annex 17: Maps PERU: Strengthening Biodiversity Conservation through the National Protected Areas Program Map 1. Peru Natural Protected Areas

125 Map 2. Potential Corridors

126