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PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB748 RURAL ENVIRONMENT AZ Project Name Region EUROPE AND CENTRAL ASIA Sector General agriculture, fishing and forestry sector (50%); Forestry (20%); Animal production (10%); Crops (10%); Renewable energy (10%) Project ID P066199 GEF Focal Area B-Biodiversity Global Supplemental ID P077031 Borrower(s) AZERBAIJAN REPUBLIC Implementing Agency Ministry of Ecology and Natural Resources Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S1 [X] S2 [ ] S3 [ ] SF [ ] TBD (to be determined) Date PID Prepared February 3, 2005 Date of Appraisal TBD Authorization Date of Board Approval TBD 1. Country and Sector Background Azerbaijan is a mountainous country of 86,600 km2 and a population of about 8 million people. It lies on the western coast of the Caspian Sea among the mountain ranges of the Greater and Lesser Caucasus and the Talish mountains. Mountains cover about 44% of the territory, and forests cover about 11%. Azerbaijan is facing many of the same challenges as other CIS transition economies, including a daunting agenda of policy and institutional reforms needed to redefine the role of the state and create essential underpinnings of a market economy. One of the six strategic pillars of the State Program on Poverty Reduction and Economic Development (SPPRED) is an enabling environment for income-generating opportunities. While the overall economy is improving as a result of oil development, this is not reflected in the mountain areas, where most people fall under the poverty line of US$ 24 per month (average income is $16 per month in villages above 2000 meters). With the end of reliable, highly subsidized gas and electricity following independence, many rural households have turned to wood from State forests for their energy needs. This is resulting in rapid deforestation as demand for wood fuel exceeds sustainable annual fuel wood yields by up to a factor of ten in some areas. ENVIRONMENTAL MANAGEMENT AND NATURE PROTECTION Environmental management is recognized as an important right and obligation in the Constitution of the Azerbaijan Republic (1995). The National Environmental Action Plan (NEAP), completed in 1998, identifies priorities relating to reducing pollution damage from oil extraction and industry; halting the decline of sturgeon populations and water quality in the Caspian Sea; protecting biodiversity and improving the management of forests, pastures and agricultural lands; preserving cultural heritage; addressing ecological problems with regional or global impacts; and improving the institutional and policy framework for environmental management. The Ministry of Ecology and Natural Resources (MENR) was created in 2001 to integrate all aspects of environmental protection and management, including environmental assessment and monitoring (including reporting on the state of the environment), management of forests and wildlife resources, and of specially protected natural areas1. A National Strategy and Action Plan on Biodiversity Conservation (NSAPBS), currently under preparation, stresses the preservation of key ecosystems and natural habitats through a well managed system of Protected Areas (PA), by enhancing and efficient management of protected areas, and sustainable usage of biodiversity to contribute to economic and social objectives. Currently PAs cover about 7% of the country2, but is small, fragmented and incomplete. The Government of Azerbaijan (GOA) signed the Convention on Biological Diversity in 2001, and has made a major commitment to protecting biodiversity, including maintaining and substantially expanding the nation’s PA system to include under-represented ecosystems. Creation of the Shah Dag National Park (SDNP) and expansion of the Ordubad National Park (ONP) are among the highest strategic priorities. At the same time, management of existing PAs remains inadequate, due to factors such as institutional weakness and inadequate human and financial resources, and poverty and pressure for economic development in rural areas. The Law on Specially Protected Natural Areas and Objects (2000) includes provisions for taking into consideration social and economic factors and interests of local people, and for participation of the population and social organizations in preserving Protected Areas (PAs). However, the prevailing model for PAs in Azerbaijan, as in much of the CIS, is based on centrally controlled Strict Nature Reserves (Zapovedniks). The GOA has begun to diversify the national PA system, by creating the country’s first four National Parks (NP) in 2003-2004. These NPs are similar in status to Zapovedniks, except that they include zones for limited economic activity (primarily tourism), and make no special provisions for benefits to local communities. The multi-purpose, multi-stakeholder approach proposed for the SDNP and ONP represents an important further step in moving towards a more inclusive approach. NATURAL RESOURCE MANAGEMENT Forests: Almost all natural forest in Azerbaijan is designated as Forest Fund land. After many years during which forest inventory and management were controlled from Moscow and Tbilisi, a Forestry Development Department and Forest Protection and Rehabilitation Units (MENR) were established in Azerbaijan 2002. Its capacity is very weak due to lack of staff training and experience and resources. Since 2003, all forest cutting, for either commercial or sanitary purposes have been suspended by the MENR, and officially only forest residues are collected and sold. However, it is generally recognized that large quantities of standing trees continue to be cut illegally. Over the past ten years, forest coverage in Azerbaijan has been reduced from about 14% to 11% of the land area. A National Programme on the Rehabilitation and Extension 1 There is an independent Ministry of Environment and Natural Resources in the Nakhchivan Autonomous Republic, with similar responsibilities 2 Comprised of 38 PAs: 14 Strict Nature Reserves, 20 sanctuaries, 4 national parks of Forests (established by Presidential Decree in December, 2001) aims to restore 20,000 ha of existing forest and plant some 43,000 ha of new forest, mainly in lowland areas. Due to insufficient funding, only about 3,000 ha of planting were completed in 2003. Meadows/Grasslands/Pastures: All high elevation summer pastures and a large proportion of mid-elevation winter pastures belong to the State. Some small pasture areas and hayfields belong to, or are under the management of, local municipalities. Municipal pastures are free for use, while grazing rights on State pastures are leased by the State Land Committee, together with Rayon Executive Authorities, to individuals or companies on the basis of grazing permits, usually with a duration of 10-15 years. While grazing rights are in principle allotted on the basis of numbers of animals, there are no specific legal provisions in the grazing contracts, and no monitoring on the part of authorities, to ensure that the official stocking rates are followed. In the SDNP area, it is estimated that the actual stocking rates are as much as five times higher than the official norm (totaling 2.5 million animals, as opposed to 500,000). BIODIVERSITY SIGNIFICANCE AND THREATS Azerbaijan’s high biodiversity results from its location at the convergence of three biogeographic regions (Europe, Central Asia and Asia Minor). The Caucasus mountains area3, has been identified by the World Wide Fund for Nature (WWF) as a Global 200 Ecoregion, and by Conservation International as one of the world’s 25 biodiversity “hotspots” (the only one in the ECA region). It is believed to contain more than twice the animal diversity found in adjacent regions of Europe and Asia, and a flora which is notable for its large number of endemic and relict species and as one of the world’s richest gene banks of wild relatives of important agricultural and medicinal plants. 4500 of the more than 7,000 plant species of the Caucasus can be found in Azerbaijan, and sever percent of these are endemic to the country. A recently completed ecosystem profile and five year investment strategy for the Caucasus eco-region4 identified 10 key corridors, five of which were selected as top priority for conservation action. The five include the Greater Caucasus (which encompasses the proposed SDNP) and the East Lesser Caucasus (encompassing the ONP). Both the SDNP and ONP include elements of important transboundary migratory corridors. In addition to their significance as global, regional and national biodiversity assets, both the SDNP and ONP represent important economic assets, due to their rich natural resources and tourism potential. Shah Dag is Azerbaijan’s second highest mountain and serves as a watershed which provides much of the water for Baku and the Absheron Peninsula, which is home to nearly 30% of the country’s population. The proposed expanded ONP contains a large proportion of all high elevation pasture in the Nakchchivan Autonomous Republic. The Caucasus ecosystem profile identified deforestation, overgrazing and hunting as the three greatest direct threats to biodiversity. Underlying causes include poverty in rural areas, the end of importation of wood from other countries, the collapse of natural gas supply systems, political 3 Total area of 500,000 km2 , between the Black Sea and Caspian Sea, including parts of Georgia, Armenia, Azerbaijan, and small parts of Russia, Iran and Turkey. 4 By the Critical

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