1 The Amazon Fund’s Annual Report 2010 The Amazon Fund’s ANNUAL REPORT 2010 Brazil protects it. The world supports it. Everybody wins. ANNUAL REPORT 2010 Contents Message from the Minister of the Environment .............................................................. 6 Message from the President of the BNDES ...................................................................... 8 Introduction .....................................................................................................................10 Main factors for deforestation .......................................................................................... 12 Prospects and challenges ............................................................................................ 17 The Amazon Fund experience − 2009-2010 ............................................................... 20 Amazon Fund objectives .................................................................................................... 29 Funding and Governance ...............................................................................................36 Rules for funding .................................................................................................................. 37 Data on deforestation and carbon emissions in 2010 ...................................................... 40 Formalized donations ........................................................................................................... 43 Governance of the Amazon Fund ....................................................................................... 45 Committees established by the Amazon Fund’s Guidance Committee in 2010 ............ 51 Guidelines and criteria 2010 ................................................................................................ 53 The BNDES Amazon Fund .............................................................................................. 64 Who we are ........................................................................................................................... 65 Institutional articulation and technical cooperation .................................................... 69 Communication and other activities ......................................................................... 70 Communication .................................................................................................................... 75 Operating Performance ..................................................................................................78 Project portfolio .................................................................................................................... 79 Financial performance .......................................................................................................... 86 Audits ..................................................................................................................................... 88 Information and Monitoring Transparency .................................................................. 90 Eligibility and project analysis criteria .......................................................................... 91 Legal course of projects at the BNDES ................................................................................ 92 Flowchart x operational stages of the BNDES ................................................................... 94 Logical framework of the Amazon Fund ........................................................................... 95 Description of approved projects in 2009-2010 ............................................................... 100 Annexes ....................................................................................................................... 162 Annex 1: Decree Nº 6,527, of August 1, 2008 .......................................................... 163 Annex 2: COFA’s composition in 2010 ...................................................................... 167 Annex 3: BNDES/Amazon Fund team ....................................................................... 169 Annex 4: Independent auditor’s report ..................................................................... 170 Annex 5: Limited assurance report ........................................................................... 180 Message from the Minister of the Environment 6 Readers will find in this report, put together by the BNDES’ team, a record of the progress made up to December 2010 by the Amazon Fund since its launch with the signing of Decree Nº. 6,527, in August 2008. The Fund, as shown in this document, is an initiative of the government and Brazilian society, dedicated to complementing national efforts to reduce deforestation in the world’s largest rainforest. The decrease in forest clear-cutting has not been a simple task although it has been successful in recent years. We are talking about an area of more than five million km² (larger than many European countries put together), with a population close to 25 million people with legitimate demands for access to The Amazon Fund’s Annual Report 2010 The Amazon Fund’s development policies. It is, therefore, necessary to rely on the cooperation of those who understand that the forest is a fundamental heritage of the Brazilian people. And, for this reason, the Fund is open to receive donations from countries, people, or organizations. Norway, in synch with our government, was the first to believe in this new form of cooperation and committed significant donations – and has continued to do so. And, in 2010, the Fund also started to receive donations from the German government, a traditional and vigorous cooperator with Brazil, particularly in the task of protecting our forests. The Fund’s slogan properly sums up its purpose: “Brazil protects it. The world supports it. Everybody wins”. This is also its challenge. With the raising of new funds, based on the results of reduced deforestation achieved by the government with its own resources, the central task now is to disburse them into structuring initiatives and projects that, effectively and in keeping with the national policy, combat illegal logging of forests. Izabella Teixeira If the Fund’s initial years were devoted to preparing its structure, the time has come 7 to accelerate procedures, increase their scope, and guarantee that good projects, Annual Report 2010 The Amazon Fund’s whether they are they small, medium, or large, have the necessary support. And society must be a partner in this, participating and exerting social control both in the Fund’s own governance and in each of the contracted projects. Every penny invested must signify less deforestation, more conservation, and a better standard of living. And the transactional costs must be subordinated to this guideline. That is what we all expect. The Ministry of the Environment and all members of the Fund’s Guidance Committee have been working together with the BNDES to further the progress of this innovative initiative. I hope you enjoy the report. Brasília, October 2011. Izabella Teixeira MINISTER OF THE ENVIRONMENT President of the Guidance Committee of the Amazon Fund Message from the President of the BNDES 8 Created by the decree issued by the Brazilian President on August 1, 2008, under the leadership and coordination of the Ministry of the Environment, the Amazon Fund was designed with the objective to diligently work towards continuous voluntary reductions in greenhouse gas emissions caused by deforestation and degradation of Brazilian forests and specifically of the Amazon Biome. The BNDES took on the honorable task of managing these resources, supporting sustainable projects that create employment and income alternatives as well as foster the conservation of forest and river basins. Our premise is the guidance provided by the Ministry of the Environment, which understands that development of the region will not be possible without conservation The Amazon Fund’s Annual Report 2010 The Amazon Fund’s of the forest. Besides this, it also establishes that the wealth of the environment – embodied in the extraordinary genetic diversity – will only be preserved if the Brazilians living there are able to make a living from the sustainable management of rivers and forests in the region. A pioneer project, the Amazon Fund is one of the first REDD mechanisms (Reduction of Emissions from Deforestation and Degradation) in the world. It has an inclusive governance structure, which hosts representatives of the federal government, the government of the Legal Amazon states in Brazil that are involved in combating deforestation, civil society, and the scientific community. The year 2009 was marked by the successful efforts to make the Amazon Fund operational. The important incentive came in the form of the first donation received from the Norwegian government, a demonstration of confidence in the work Brazil is to carry out. The first activity report has records on the structuring of the Bank’s Management Department of the Amazon Fund, the full operation of its Technical and Guidance Committees, the donation contract with the Norwegian government, and the first five Luciano Coutinho projects approved, totaling R$ 70.3 million. This amount will be disbursed throughout 9 the period these projects are implemented, ranging from three to five years. Annual Report 2010 The Amazon Fund’s If in 2009 the challenge was to make the Fund an effective operational mechanism, the Fund received an even greater responsibility: