Project Appraisal Document on a Proposed Carbon Finance Transaction

Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 114026-ZR

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROJECT APPRAISAL DOCUMENT ON A PROPOSED CARBON FINANCE TRANSACTION

Public Disclosure Authorized IN THE AMOUNT OF US$ 55 MILLION

TO THE

DEMOCRATIC REPUBLIC OF CONGO

FOR THE

Public Disclosure Authorized MAI-NDOMBE EMISSION REDUCTIONS PROGRAM (P160320)

14 SEPTEMBER 2018

Environment and Natural Resources Global Practice Africa 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.

FISCAL YEAR US$ January 1 - December 31

ABBREVIATIONS AND ACRONYMS B/C-Ratio Benefit Cost Ratio BSP Benefit sharing plan CAFI Central African Forest Initiative CART Agricultural Rural Management Council (Conseil Agricole Rural de Territoire) / Agricultural Rural Management Council CAS Country Assistance Strategy CFP Carbon Fund Participants CN-REDD National REDD+ Coordination

CO2eq Carbon dioxide equivalent COPIL Steering Committee of the National REDD+ Fund CPF Country Partnership Framework CTR Technical Committee for Reform Monitoring and Evaluation DIAF Department of Forest Inventory and Planning of the Ministry of Environment and Sustainable Development (Direction des Inventaires et des Aménagements Forestiers) DRC Democratic Republic of Congo ER Emission reduction ERPA Emission Reductions Payment Agreement ERPD Emission Reductions Program Document ER-Program Emission Reductions Program ESMF Environmental and Social Management Framework FAO United Nations Food and Agriculture Organization FAP World Bank Group’s Forest Action Plan FCPF Forest Carbon Partnership Facility FGRM Feedback and Grievance Redress Mechanism FIP Forest Investment Program FONAREDD National REDD+ Fund GCs General Conditions GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse gas GNI Gross National Income GTCR-R Working Group on Climate and REDD+ (Groupe de Travail Climat et REDD+ - Rénové) HFLD High forest cover and historically low deforestation IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation

IPs Indigenous Peoples KfW German Development Bank (Kreditanstalt fuer Wiederaufbau) LDC Local Development Committee LoI Letter of Intent MESD Ministry of Environment and Sustainable Development (Ministère de l'Environnement et Développement Durable) MPTF-O Multi-Partner Trust Fund Office of the United Nations MRV Measurement, Reporting and Verification NFMS National Forest Monitoring System NGO Non-governmental organization NRM Natural Resources Management OSFAC Satellite Observatory of Central African Forests (Observatoire Satellital des Forêts d'Afrique Centrale) PDO Project Development Objective PES Payments for Environmental Services PIREDD Integrated REDD+ Project (Projet Intégré REDD+) PMU Program Management Unit REDD+ Reducing emissions from deforestation and forest degradation in developing countries, including conservation, sustainable management and enhancement of forest carbon stocks REPALEF Network of Indigenous and Local Populations for the Sustainable Management of Forest Ecosystems (Réseau de populations autochtones pour la gestion durable des écosystèmes forestiers) RL Reference Emission Level SCD Systematic Country Diagnostics SDP Sustainable Development Plan SESA Strategic Environmental and Social Assessment SMP Simple Management Plan SODEFOR Forest Development Corporation (Société de Développement Forestier) SOGENAC Corporation for Ndama cattle farming in Central Africa (La Société des grands élevages de Ndama en Afrique centrale) SORT Systematic Operations Risk- rating Tool SWS Staff Weeks TTL Task Team Leader UNDP United Nations Development Programme UNESCO United Nations Educational, Scientific and Cultural Organization UNFCCC United Nations Framework Convention on Climate Change USAID United States Agency for International Development WBG World Bank Group WWC Wildlife Works Carbon WWF World Wildlife Fund

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Regional Vice President: Hafez M. H. Ghanem Country Director: Jean-Christophe Carret Senior Global Practice Director: Karin Kemper Practice Manager: Benoit Bosquet Task Team Leader: Laurent Valiergue

DEMOCRATIC REPUBLIC OF CONGO MAI-NDOMBE EMISSION REDUCTIONS PROGRAM (P160320)

Contents

I. STRATEGIC CONTEXT ...... 1 A. Country Context ...... 1 B. Sectoral and Institutional Context ...... 2 C. Higher Level Objectives to which the Project Contributes ...... 5 II. PROJECT DEVELOPMENT OBJECTIVES ...... 6 A. Project Development Objective (PDO) ...... 6 B. Project Beneficiaries ...... 6 C. PDO-Level Results Indicators ...... 7 III. PROJECT DESCRIPTION ...... 7 A. Project Components ...... 7 B. Project Cost and Financing ...... 9 C. Lessons Learned and Reflected in the Project Design ...... 11 IV. IMPLEMENTATION ...... 12 A. Institutional and Implementation Arrangements ...... 12 B. Results Monitoring and Evaluation ...... 13 C. Sustainability ...... 14 D. Role of Partners ...... 14 V. KEY RISKS ...... 15 A. Overall Risk Rating and Explanation of Key Risks ...... 15 VI. APPRAISAL SUMMARY ...... 18 A. Economic and Financial Analysis ...... 18 B. Technical ...... 20 C. Financial Management...... 20 D. Procurement ...... 21 E. Social (including Safeguards) ...... 21 F. Environment (including Safeguards) ...... 23 G. Other Safeguard Policies...... 23 H. World Bank Grievance Redress ...... 23 VII. RESULTS FRAMEWORK AND MONITORING ...... 24 ANNEX 1: DETAILED PROJECT DESCRIPTION ...... 26

ANNEX 2: IMPLEMENTATION ARRANGEMENTS ...... 33 ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...... 39 ANNEX 4: ERPA COMMERCIAL TERMS AS DERIVED FROM NEGOTIATIONS BETWEEN THE CFP AND DRC ...... 42 ANNEX 5: ADVANCED DRAFT BENEFIT SHARING PLAN FOR THE MAI-NDOMBE EMISSION REDUCTIONS PROGRAM IN THE DEMOCRATIC REPUBLIC OF CONGO ...... 50 Summary ...... 50 1. Introduction ...... 53 2. Nesting and crediting ...... 54 3. Legal framework for benefit sharing of REDD+ projects / programs in DRC ...... 55 4. Coordination of finance sources related to the ER Program ...... 55 5. Categories of potential beneficiaries ...... 56 6. Distribution of benefits ...... 57 6.1 Principles and criteria for the distribution of benefits...... 57 6.2 Category 1 of ERPA payments: Fixed operational costs ...... 58 6.3 Category 2 of ERPA payments: Payments against performance ...... 63 7. Process and timeline for the distribution of benefits ...... 64 7.1 Two-phased process to integrate eligible beneficiaries in the BSP ...... 64 7.2 Development of project proposals for and allocation of reference levels to sub-projects .... 65 7.3 ERPA payments to local communities and IPs (defined as “rural areas”) ...... 67 7.4 ERPA payments to private project owners ...... 67 7.5 Timeline for the distribution of benefits ...... 67 8. Monitoring provisions for the implementation of the benefit sharing plan ...... 68 9. Summary of the participatory process to develop the benefit-sharing plan ...... 68 Appendix 1: Criteria used for the allocation of a sub-reference level to the WWC conservation concession under the ER Program...... 69 Appendix 2: Example of a contract for Payments for Environmental Services (PES) from the PIREDD Plateau ...... 70 Appendix 3: Benefit sharing plan of the WWC conservation concession negotiated between the MESD, WWC and communities within the concession area ...... 79 Appendix 4: Cash flow model for ER Program under different performance scenarios ...... 91 Appendix 5: Examples of distribution of benefits according to different performance scenarios . 94 ANNEX 6: DETAILED ECONOMIC ANALYSIS ...... 97

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

BASIC INFORMATION

Is this a regionally tagged Country (ies) Lending Instrument project? No Democratic Republic of Congo Emission Reductions Payment Agreement (ERPA)

[ ] Situations of Urgent Need or Assistance/or Capacity Constraints [ ] Financial Intermediaries [ ] Series of Projects

Approval Date Closing Date Environmental Assessment Category

14-Sep-2018 31-Dec-2025 B – Partial Assessment

Bank/IFC Collaboration Joint Level

Proposed Development Objective(s)

The Project Development Objective is to make payments to the Recipient for measured, reported and verified Emission Reductions related to reduced deforestation, forest degradation and the enhancement of forest carbon stocks (ER payments) in the Mai-Ndombe province, and to distribute ER payments in accordance with the agreed Benefit Sharing Plan.

Components

Component Name Cost (USD Million) Comments

Component 1: fixed costs of running the ER 7.20 1.10 for rural communities Program, which are independent of 1.10 for Indigenous Peoples performance 3.00 for the Program Management Unit 2.00 for the Mai-Ndombe Province

Component 2: implementation of the Benefit 47.30 Performance-based payments Sharing Plan (BSP) to distribute payments against performance. ERPA payments 55.00

Organizations

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The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Borrower: Democratic Republic of Congo Ministry of Finance Implementing Agency: Mai-Ndombe province

PROJECT FINANCING DATA (IN USD MILLION)

[ ] Counterpart […] IBRD [ ] IDA Credit [ ] IDA Grant [✔] Trust Funds [ ] Funding Parallel [ ] Crisis Response [ ] Crisis Response Financing Window Window [ ] Regional Projects [ ] Regional Projects Window Window

Total Project Cost: Total Financing: US$ 55 million Financing Gap: US$ 55 million 0.00

Of Which Bank Financing (FCPF Carbon Fund): US$ 55 million

Financing (in USD Million)

Financing Source Amount

Borrower 0 Carbon Fund of the Forest Carbon Partnership Facility (FCPF) 55.00 Total 55.00

Expected Disbursements (in USD Million)

Fiscal Year 2019 2020 2021 2022 2023 2024 2025

Annual 1.06 8.13 1.06 29.23 1.06 0.00 14.46

Cumulative 1.06 9.19 10.25 39.48 40.54 40.54 55.00

INSTITUTIONAL DATA

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Practice Area (Lead) Environment and Natural Resources

Contributing Practice Areas Governance, Agriculture, Climate Change, Health, Nutrition & Population

Gender Tag

Does the project plan to undertake any of the following? No

Analysis to identify project-relevant gaps between males and females, especially in light of country gaps identified through the Systematic Country Diagnostic (SCD) and CPF

Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment

Include Indicators in results framework to monitor outcomes from actions identified in (b)

SYSTEMATIC OPERATIONS RISK- RATING TOOL (SORT)

Risk Category Rating 1. Political and Governance High 2. Macroeconomic High 3. Sector Strategies and Policies High 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary Substantial 7. Environment and Social Substantial 8. Stakeholders Substantial 9. Other 10. Overall High

COMPLIANCE

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✔] No

Does the project require any waivers of Bank policies? [ ] Yes [✔] No

Have these been approved by Bank management? [ ] Yes [ ] No

Is approval for any policy waiver sought from the Board? [ ] Yes [✔] No

Does the project meet the Regional criteria for readiness for implementation? [ ] Yes [ ] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants In addition to Section 5.01(b)(i) of the ERPA General Conditions (GCs), the Seller shall monitor and report to the Trustee on the implementation of the Safeguards Plans and Benefit Sharing Plan during Reporting Periods. The Seller shall monitor and report to the Trustee on the implementation of the Safeguards Plans annually after the date of the ERPA. The Seller shall first monitor and report to the Trustee on the implementation of the Benefit Sharing Plan (BSP) six (6) months after receipt of the first Periodic Payment and annually thereafter. The Seller may coordinate the annual monitoring and reporting of the Safeguards Plans and the Benefit Sharing Plan, provided that the Seller

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

notifies the Trustee and the Trustee accepts such coordinated timelines. The Trustee reserves the right to initiate a separate monitoring of the implementation of the Safeguards Plans and/or the Benefit Sharing Plan annually after the date of the ERPA by an independent Third-Party monitor.

The Seller shall submit a final Reversal Management Mechanism to the Buyer, in form and substance satisfactory to the Trustee, by the deadline provided in the Action Plan (see below; Conditions of Effectiveness No.3), but in any case, no later than the first ER Transfer. If no such final Reversal Management Mechanism is provided by that deadline, this shall constitute a material breach by the Seller (Event of Default) under Section 16.01(a)(vi) of the GCs.

Without prejudice to the displacement risk mitigation measures listed in the ER Program Document and required to be implemented by the Program Entity in accordance with Section 9.01(a) of the GCs, the Program Entity shall ensure compliance with the moratorium on the allocation of new industrial logging concessions imposed by Ministerial Order (n°CAB/MIN/AF.F-E.T./194/MAS/02) dated May 14, 2002 (“2002 Moratorium”), as confirmed and extended by Presidential Decree (n°05/116) dated October 24, 2005 and Presidential Decree (n°08/02) dated January 21, 2008 (“Presidential Decrees”) within the ER Program Accounting Area. If (1) the Program Entity fails to ensure such compliance or (2) a breach of the 2002 Moratorium and/or the Presidential Decrees has occurred outside the ER Program Accounting Area and evidence exists that such breach outside the ER Program Accounting Area is the consequence of related land use activities moving from inside the ER Program Accounting Area to outside the ER Program Accounting Area (displacement) or (3) the 2002 Moratorium is lifted without the conditions for lifting the 2002 Moratorium (as specified in the Presidential Decrees) being met in full, this shall constitute a material breach by the Program Entity (Event of Default) under Section 16.01(a)(vi) of the GCs.

The Seller shall select and contract, in form and substance satisfactory to the Trustee, an ER Program Management Unit tasked to manage the ER Program on behalf of the Seller by no later than 6 months from the date all Conditions of Effectiveness (see above) have been fulfilled. If no such ER Program Management Unit is selected and contracted by that deadline, this shall constitute a material breach by the Seller (Event of Default) under Section 16.01(a)(vi) of the GCs.

In the event of an ER Transfer Failure (as defined in the GCs) in any given Reporting Period and without prejudice to the exercise of any remedies provided for under the GCs, the Trustee, in its sole and absolute discretion and following consultations with the respective Participants, may choose to agree with the Seller in good faith on an action plan to remedy such ER Transfer Failure.

The Seller shall improve the accuracy of the activity data on deforestation, forest degradation and enhancement of forest carbon stocks in the reference period (2004-2014), provide information on the methodology applied and agree with the Trustee on an annex to the ERPD updating the relevant information before the end of Reporting Period 1. The reference level should be improved with the new activity data accordingly. If such improvements have not been made by that deadline, this shall constitute a material breach by the Seller (Event of Default) under Section 16.01(a)(vi) of the GCs.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Name Recurrent Due Date Frequency

Conditions

Type Description

Effectiveness Submission of a Letter of Approval

Effectiveness Submission of a final Benefit Sharing Plan which, based on the advance draft version of the Benefit Sharing Plan provided by the date of this Agreement, takes into account specific guidance to be provided by the Trustee, following consultations with the Carbon Fund Participants, on the outstanding issues that need further clarification in the final version of the Benefit Sharing Plan.

Effectiveness Submission of Action Plan which describes further steps and timelines to adopt a final Reversal Management Mechanism.

Effectiveness Submission of the final terms of reference for the selection of an ER Program Management Unit tasked to manage the ER Program on behalf of the Program Entity.

Effectiveness Submission of Action Plan which describes further steps and timelines for the Program Entity to demonstrate its ability to transfer Title to ERs, free of any interest, Encumbrance or claim of a Third Party, prior to any ER Transfer.

Effectiveness Provide evidence which demonstrates that the Program Entity has secured funding of USD 2,200,000 (through the Central African Forest Initiative (“CAFI”) or other sources of funding) to operationalize and improve the components and subcomponents listed in the guidance applying to the Readiness Package Assessment Framework (as specified in Annex I of FMT Note 2013-1 rev) required for ER Program implementation.

PROJECT TEAM Bank staff

Name Role Specialization Unit Team Leader (ADM Laurent Valiergue Forestry GEN07 Responsible) Pierre Guigon Team Member Environment GEN07

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The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Andres Bernabe Espejo Team Member Carbon Accounting GCCFM Minan Raymond Lumbuenamo Team Member Natural Resources Management GEN07 Lanssina Traore Procurement Specialist(ADM Procurement GGO07 Responsible) Francis Tasha Venayen Financial Management Financial Management GGO25 Specialist Richard Everett Safeguards Specialist Social Development GSU07 Douglas J. Graham Safeguards Specialist Environment GEN07 Joelle Mudi Nke Team Member Team Assistance AFCC2 Markus Pohlmann Counsel Legal LEGEN

Extended team Bank staff

Name Title Organization Location

Sara Kimweri Mbago Sr. Agriculture Economist GFA07 Hadia Nazem Samaha Sr. Operations Officer GHN07 Sr. Financial Management Saidou Diop GGO25 Specialist

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The World Bank Mai-Ndombe Emission Reductions Program (P160320)

I. STRATEGIC CONTEXT

A. Country Context

1. The Democratic Republic of Congo (DRC) is a country with huge development potential. It is the third most populous country in Africa with 78.7 million people, 57 percent of whom live in rural areas and 77.1 percent are below the poverty line by international standards1. With 80 million hectares of arable land, abundant mineral resources and hydroelectric potential, the DRC has the potential to be an engine for Africa’s economic growth. However, with a Gross National Income (GNI) per capita of US$ 450 per year in 20172, DRC is among the Least Developed Countries3 in the world.

2. The country faces enormous challenges during its transition from a country at war towards sustainable development. Since 2001, the country has been gradually recovering from a conflict that began in 1996. While the return to peace has opened the way to political and institutional reforms, the country remains a fragile state, vulnerable to exogenous shocks and with huge needs for reconstruction and economic growth in the context of fiscal constraints and weak institutions. In 2017, the country was ranked the 7th most fragile among 178 countries according to the Fragile States Index4.

3. Economic growth has been strong in the past few years but external headwinds and domestic difficulties are taking a toll on economic activities in the country. Real growth of Gross Domestic Product (GDP) was at an annual average rate of 7.7 percent over 2010-15. This performance was underpinned by prudent macroeconomic policies and structural reforms. In 2016, economic growth slowed down (to 2.4 percent) because of the end of the commodity price super cycle (e.g. copper, cobalt, oil) and the economic slowdown in China, DRC’s main trading partner. Growth started to bounce back in 2017 (to 3.4 percent) and is expected to be over 4.0 percent in 2018 but may not reach the levels observed in 2010-15 in the short term. Political instability and weak governance generally result in difficulty of doing business: In the 2016 Doing Business report, DRC ranked 184th out of 189 countries. The Logistics Performance Index, which indicates the country’s friendliness for trade operators, placed DRC at rank 127 among 160 countries in 2016.

4. The political environment is expected to remain unstable at least until the end of 2018, due to the postponed presidential elections. Since September 2016, more than 70 people were killed in Kinshasa in protests about the election process and many more opposition supporters were jailed, indicating the potential for more violence and political upheaval. Local and provincial elections that were planned for 2016 by the Independent National Election Commission were annulled due to lack of resources. The presidential elections, originally planned for November 2016, have been postponed until the end of December 2018. Since then, tensions have risen with an increasing number of protests across the country. In addition, community-based

1 Population and percentage of rural population are for 2016 from http://data.worldbank.org/country/congo-dem-rep. Poverty data is for 2012 from http://povertydata.worldbank.org/poverty/country/COD. The international standard for the poverty line is people living on less than US$ 1.90 a day. 2 http://povertydata.worldbank.org/poverty/country/COD 3 http://unctad.org/en/PublicationsLibrary/ldc2016_en.pdf 4 http://fundforpeace.org/fsi/2017/05/14/fragile-states-index-2017-annual-report/

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

violence and inter-ethnic clashes have spread from areas already affected by armed conflict, such as North and South Kivu provinces, to Tanganyika, the three Kasai provinces and Kongo Central.

5. The ongoing decentralization process is causing tensions between central and provincial authorities. The 2006 Constitution ordained the reorganization of the country into 26 provinces (from the previous 11) and assigned important responsibilities to them. In return, provinces were entitled to 40 percent of the fiscal revenues collected by the national authorities. The actual creation of new provinces started in 2016. However, the decentralization process has been under-resourced and ill-prepared. Moreover, the provinces have weak institutional capacity. Provincial revenues have consistently been below the constitutionally mandated share.

B. Sectoral and Institutional Context

6. The DRC has the second largest extent of rainforest in the world. The country’s 152 million hectares of forests (in 2015) account for most of the remaining rainforest in the Congo Basin and 67 percent of the national territory. This tremendous resource plays an important role for sustainable development. It serves as a basis for economic activity, livelihoods for the rural population, food security, energy consumption, and the provision of ecosystem services of global importance including carbon sequestration and biodiversity. Furthermore, the country ranks 5th in the world in terms of biological diversity and has five UNESCO World Heritage natural sites, more than the rest of Africa combined.

7. The country’s forests have an important role to play in addressing climate change globally. First, the forests are a huge carbon sink. Second, in 2013 DRC’s total greenhouse gas (GHG) emissions amounted to 208 5 million tons of CO2eq; 81 percent of these emissions stemmed from land use change and forestry . While the deforestation rate of 0.3 percent between 1990 and 2010 is relatively low compared to the global average, it is the highest in the region and the country is among the top ten worldwide in terms of forest cover loss in absolute terms. As a country that is characterized by high forest cover and historically low deforestation rates (HFLD), the DRC is at a critical juncture. Deforestation rates are expected to increase due to: (i) rapid population growth, estimated to be 3 percent per year, which translates into increasing demand for agricultural land and energy; (ii) commercial agriculture and large-scale plantations; and (iii) large-scale development projects, which will lead to increased accessibility to forests, including for legal and illegal logging.

8. Cognizant of global challenges and long-term domestic interests, the country is committed to a green growth development pathway. In September 2010, the Government adopted the Economic Governance Matrix to improve governance including transparency, accountability, and effectiveness in the management of natural resources, particularly in the forestry, mining, and petroleum industries. Protecting the environment and combatting climate change was defined as one of four pillars in the Growth and Poverty Reduction Strategy Paper for 2011-2015 and is now a main theme in the draft National Development Plan. In 2015, the country signed the Central African Forest Initiative (CAFI) Joint Declaration with a commitment to seek “transformational change to reduce emissions from deforestation and forest degradation and contribute to sustainable development”. In December 2017, it ratified the Paris Agreement. The DRC’s Nationally Determined Contribution (NDC) to the United Nation’s Framework Convention on Climate Change (UNFCCC) highlights the

5 http://www.wri.org/resources/data-sets/cait-historical-emissions-data-countries-us-states-unfccc

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

role of the land sector in mitigating climate change, including reducing deforestation, increasing reforestation and improving agricultural practices.

9. Since 2008, the DRC has been demonstrating strong political commitment on REDD+6 nationally as well as internationally in the context of the UNFCCC. The DRC established the national REDD+ infrastructure, led by the National REDD+ Coordination (CN-REDD), with support from the FCPF and the UN-REDD Programme. Significant progress in the preparation phase of REDD+ (phase 1: readiness) includes, among others: (i) national consensus on the drivers of deforestation and forest degradation in 2012; (ii) the adoption of the National REDD+ Strategy by the Council of Ministers in 2012; (iii) the establishment of the National REDD+ Fund (FONAREDD) and its initial capitalization based on a Letter of Intent (LoI) between the Government of DRC and CAFI signed in April 2016; (iv) the revision of the National REDD+ Investment Plan 2015-2020, which has become the basis for FONAREDD to allocate resources, and (v) the finalization of the REDD+ safeguard instruments, namely the Environmental and Social Management Framework (ESMF) and five sub-frameworks, in 2015. In May 2015, the DRC became the first country worldwide to present its REDD+ Readiness-Package7 to the FCPF, which was endorsed by the FCPF Participants Committee. The country is now in the implementation phase of REDD+ (phase 2: investments) and piloting its first results-based REDD+ program in Mai-Ndombe (phase 3: results-based payments).

10. The integration of REDD+ reforms into the Economic Governance Matrix in 2013 demonstrates a high- level commitment by the Government to engage on key reforms. The matrix is tracked by the Technical Committee for Reform Monitoring and Evaluation (CTR) under the oversight of the Ministry of Finance. Relevant reforms for REDD+ include land tenure, land-use planning and REDD+ standards for the hydrocarbon and mining sectors. In 2015, DRC integrated pending action on the REDD+ related reforms in the National REDD+ Investment Plan and in the milestones defined in the LoI with CAFI. Thus, it can be said that the REDD+ process was at the fore front for policy dialogue.

11. The implementation of the National REDD+ Investment Plan is coordinated by FONAREDD. The two main funding sources are the Forest Investment Program (FIP, US$ 60 million) and CAFI (US$ 200 million). The FIP is composed of two projects: i) the Improved Forested Landscape Management Project (World Bank, US$ 37.7 million), and ii) the Integrated REDD+ Project in the Mbuji-Mayi/Kananga and Kisangani Basins (African Development Bank, US$ 22.3 million). The following programs have been approved for funding from CAFI to support the national REDD+ approach:

- Finalization and operationalization of National Forest Monitoring System (NFMS) implemented by the United Nations Food and Agriculture Organization (FAO, US$ 10 million); - Support to civil society implemented by the United Nations Development Programme (UNDP, US$ 2 million); - Sustainable management of forests by Indigenous Peoples (IPs) implemented by the World Bank (US$ 2 million); - Support to tenure reform implemented by the United Nations Human Settlements Programme (UN Habitat, US$ 3 million);

6 Reducing emissions from deforestation and forest degradation in developing countries, including conservation, sustainable management and enhancement of forest carbon stocks 7 The Readiness-Package is a participatory self-assessment on the status of progress on REDD+ readiness at national level according to 34 standardized criteria developed by the FCPF. The DRC’s Readiness-Package is available at: https://www.forestcarbonpartnership.org/democratic-republic-congo.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

- Support to land use planning reform implemented by the UNDP (US$ 4 million); - Mai-Ndombe integrated program implemented by the World Bank (US$ 30 million); - Integrated REDD+ program for the provinces of Tshopo, Ituri et Bas Uele (Oriental) implemented by the UNDP (US$ 33 million); and - FONAREDD Secretariat implemented by the UNDP (US$ 6.75 million).

12. More projects will be submitted, by the World Bank and other agencies, for consideration by the FONAREDD. The readiness phase as well as the collective investment support through the FIP and CAFI have been important to improve the enabling environment for REDD+ implementation to the benefit of DRC’s people.

13. The DRC has selected the Mai-Ndombe province to pilot results-based payments for REDD+ on a large scale. The province covers an area of 12.3 million hectares, out of which 9.8 million hectares are forests. The most recent analysis of forest cover change in Mai-Ndombe indicates a deforestation rate of 0.67 percent per year and a degradation rate of 0.65 percent per year for the period 2004-2014. These rates are expected to increase in the future unless deliberate measures are adopted. The direct drivers of deforestation and forest degradation mirror those identified at the national level: slash-and burn agriculture, fuelwood production, uncontrolled bush fires, small-scale or artisanal logging and industrial logging. The underlying causes for these drivers are population growth, poverty, the absence of economic and technical alternatives, poor management of natural resources, and unregulated land tenure. The pressure on the forest in Mai-Ndombe is high because of the increasing demand for agricultural and wood products in Kinshasa. The DRC chose the Mai-Ndombe province to pilot results-based payments for REDD+ because it is a hotspot of deforestation in the country and the ER Program is fully aligned with the seven thematic pillars of the National REDD+ Strategy.

14. In April 2014, the country was one of the first to submit an Emission Reductions Program Idea Note and be selected into the pipeline of the FCPF Carbon Fund. Subsequently, the World Bank signed a LoI with the Government of DRC for the purchase of up to 10 million tons CO2eq from the Mai-Ndombe Emission Reductions Program (Mai-Ndombe ER Program). The Mai-Ndombe Emission Reductions Program Document (ERPD) has been developed over a period of two years in close and frequent consultation with local, national and international stakeholders, including civil society and IPs. In December 2016, the Mai-Ndombe ER Program became the first one to be selected into the portfolio of the FCPF Carbon Fund. The ERPD is available on the FCPF website8.

15. Finally, supporting the Mai-Ndombe ER Program allows the World Bank to translate its programmatic approach to forests as laid out in the Forest Action Plan (FAP) into practice. Building on readiness support at the national level through the FCPF Readiness Fund (US$ 8.8 million), the ER Program strategically bundles upfront investments from the FIP, CAFI and Global Environment Facility (GEF), amounting to more than US$ 50 million in the ER Program area (see Annex 1), as well as the proposed performance-based payments from the FCPF Carbon Fund (US$ 55 million) to support DRC’s efforts to address deforestation through the REDD+ mechanism in a coordinated and systematic manner. In addition, the World Bank also aligns International Development Association (IDA) funded projects in other sectors, notably on public administration and health, to support the provincial approach in Mai-Ndombe.

8 https://www.forestcarbonpartnership.org/sites/fcp/files/2016/Dec/20161108%20Revised%20ERPD_DRC.pdf

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

16. The scope of the project covered in this PAD is the carbon finance transaction. The project is about the results-based payments component of the Mai-Ndombe ER Program. The World Bank, as the Trustee of the FCPF Carbon Fund, will pay for GHG Emission Reductions (ERs) resulting from the implementation of the Mai- Ndombe ER Program. The ERPA General Conditions are non-negotiable and available on the FCPF website9. The ERPA Commercial Terms10 of the carbon finance transaction are negotiable. They are summarized in Annex 4 and are derived from a one-year negotiation period which ended on August 24, 2018. Also, the proposed project period for the ERPA is six years (July 2018 – June 2024), while the broader Mai-Ndombe ER Program as described in the ERPD has a longer-term perspective of at least 10 years.

C. Higher Level Objectives to which the Project Contributes

17. The project is fully in line with the Country Assistance Strategy (CAS) and the SCD. Under Outcome 1.2 of the CAS (FY13-16), the DRC’s subnational REDD+ program in Mai-Ndombe is identified as one of the key strategies to address the cross-cutting theme of climate change. The SCD (Report No. 112733-ZR, March 2018) recognizes the DRC’s political commitment to address climate change and reduce pressure on its forest through REDD+. It highlights REDD+ as an opportunity to promote forest-smart development and the role-model of the provincial-level Mai-Ndombe ER Program.

18. Furthermore, the project directly contributes to the action area “creating climate-resilient landscapes” in the World Bank’s Africa Climate Business Plan announced at the 21st annual session of the Conference of the Parties (COP21) in November 2015. The Government of DRC is a key partner for implementation. The business plan is to help client countries access climate finance opportunities that can act as incentives to shift towards more sustainable practices. To this end, the Bank is supporting countries’ efforts to improve governance systems, address drivers of deforestation, and engage communities in improving practices with better benefit sharing.

19. The Mai-Ndombe ER Program is in line with the World Bank Group’s Climate Change Action Plan and the FAP for FY16-20. The FAP confirms the World Bank’s commitment to deploy performance-based mechanisms to support client countries’ efforts towards a low-carbon development trajectory. DRC is identified as one of the key countries where REDD+ programs are likely to drive the World Bank’s portfolio. The FAP defines the programmatic approach as its operational centerpiece. It promotes a new business model that moves away from the instrument-driven approach of the past to combine various instruments (technical assistance, investments, and performance-based payments) supported by a mix of financing sources, such as International

9http://www.forestcarbonpartnership.org/sites/fcp/files/2014/october/FCPF%20ERPA_General%20Conditions_November%201 %202014.pdf 10http://www.forestcarbonpartnership.org/sites/fcp/files/2014/october/FCPF%20ERPA_Commercial%20Terms_October%2020 14_FINAL%20CLEAN%20VERSION.pdf

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Bank for Reconstruction and Development (IBRD)/IDA, trust funds and the International Finance Corporation (IFC), wherever possible.

II. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objective (PDO)

20. The Project Development Objective is to make payments to the Recipient for measured, reported and verified Emission Reductions related to reduced deforestation and forest degradation, and the enhancement of forest carbon stocks (ER payments) in the Mai-Ndombe province, and to distribute ER payments in accordance with the agreed Benefit Sharing Plan.

B. Project Beneficiaries

21. The project will cover all eight territories of the Mai- Ndombe province, comprising a population of 1.5 million people. The beneficiaries under the Benefit sharing plan (BSP) of the project need to contribute directly and voluntarily to the implementation of ER Program activities in the ER Program area. Eligible beneficiaries under the BSP include stakeholders with a direct influence on forests, i.e. the managers of natural resources and institutional stakeholders at different levels. Local communities will be particularly involved through mechanisms for Payments for Environmental Services (PES). Indigenous Peoples, who represent about 3 percent of the population in Mai-Ndombe, will receive special recognition by the project in respect of their historical role in forest protection.

22. More specifically, there are three classes of beneficiaries that can receive ERPA payments:

(a) Institutions involved in ER Program governance with associated fixed operational costs, such as the provincial government and the Program Management Unit (PMU), which will assist the provincial government; (b) Local communities and IPs to recognize their efforts in reducing emissions and/or their willingness to do so; (c) Private sector, including owners of logging and conservation concessions, sustainable charcoal producers and others for their verified emission reductions against a reference level for their sub-projects.

23. Benefits from the project, i.e. payments under the ERPA, will be distributed to beneficiaries according to the BSP, consulted with and agreed upon by ER Program stakeholders. An advanced draft BSP prepared by the DRC including principles, categories of beneficiaries, criteria and processes for the distribution of benefits and monitoring provisions, resulting from consultations with ER Program stakeholders, is provided in Annex 5. A final BSP will be a condition of effectiveness for the ERPA. The BSP distinguishes two categories of ERPA payments: i) Payments independent of performance to cover fixed operating costs, and ii) payments against performance to ER Program stakeholders. Payments independent of performance include institutional support

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

to the provincial government as well as incentives for IPs and local communities. Potential beneficiaries for payments based on performance are outlined in Annex 5.

24. Furthermore, the project plays an important role in piloting results-based payments for REDD+ at subnational level, not only for the DRC but also for the FCPF Carbon Fund and other REDD+ initiatives. Therefore, there is a high learning value associated with this project, which is expected to benefit other tropical forest countries, donors of results-based REDD+ finance and the entire international community.

C. PDO-Level Results Indicators

25. Achievement of the PDO will be measured against the following indicators: (a) Volume of ERs measured and reported by the Recipient, verified by an independent reviewer, and transferred to the FCPF Carbon Fund; (b) Payments received by the Recipient from the FCPF Carbon Fund for ERs generated by the ER Program; (c) ER payments distributed in accordance with agreed Benefit Sharing Plan (Yes/No)

III. PROGRAM and PROJECT DESCRIPTION

A. Program and Project

The Mai-Ndombe ER Program

26. The Mai-Ndombe ER Program is the first jurisdictional REDD+ program for results-based payments on a large scale in DRC and the Congo Basin and among the first ones in Africa. Its goal is to develop a provincial- level model for forest-smart development that provides alternatives to deforestation while simultaneously mitigating climate change, reducing poverty and securing local livelihoods, enhancing the governance of natural resources and protecting biodiversity.

27. In order to address the drivers of deforestation and forest degradation and generate ERs, the ER Program’s intervention strategy is three-fold: (i) re-orienting agricultural production on forest land towards practices that are less land-consuming than slash-and-burn farming, such as perennial crops and agroforestry; (ii) providing incentives for the conservation and sustainable management of forests through REDD+, and (iii) supplying the demand for wood products from the province-city of Kinshasa through reforestation and regeneration activities on savannah lands. More specifically, the ER Program will implement a balanced combination of enabling and sectoral activities.

28. Enabling activities aim at creating favorable conditions and addressing underlying causes of deforestation and forest degradation, which are critical for the project’s success. While measures to address the underlying causes of deforestation and forest degradation, such as population growth, are more complex and do not translate directly into ERs, they are crucially important to achieve the intended paradigm shift towards forest-smart development at jurisdictional scale. The ER Program contains four pillars of enabling activities: (a) Land use planning, land tenure and governance: developing a participatory framework for the sustainable management of natural resources, establishing Local Development Committees (LDCs),

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

developing simple management plans (SMP) and sustainable development plans (SDP) for strategic investments at all levels (province, territories, communes), clarifying land tenure through participatory planning methods, and promoting coordination across sectors; (b) Capacity building: Strengthening institutional and technical capacities of decentralized state services and local institutions, in particular LDCs and Agricultural and Rural Management Councils (CARTs), building capacities of the central government to manage natural resources transparently, and improving capacities of governmental agencies to control forestry and charcoal-making; (c) Enabling conditions for alternative (forest-smart) economic activities: developing new agricultural value chains for perennial crops, intended to substitute slash-and-burn farming, facilitating producers’ access to markets, improving local infrastructure and connectivity, and strengthening forest law enforcement; (d) Demography: Supporting family planning through the provision of information, awareness raising and access to means of birth control, and promoting youth education programs.

29. Sectoral activities address the direct causes of deforestation and forest degradation and aim at developing alternative economic activities in the following three sectors: (e) Agriculture: Promoting agroforestry on savannah lands, and improving cultivation techniques and pasture management, developing perennial crops (coffee, cocoa, palm oil and rubber) in forested landscapes as an alternative to slash-and-burn agriculture; (f) Forestry: Establishing PES schemes related to forest protection, supporting community forestry, promoting conservation concessions and reduced impact logging in forest concessions, enhancing afforestation/reforestation for timber production, and supporting the management of protected areas; (g) Energy: Developing assisted natural regeneration as well as afforestation/reforestation for charcoal production, establishing sustainable business lines for biomass energy supply, and expanding the dissemination of more efficient and cleaner cook stoves.

30. The implementation of a substantial part of these enabling and sectoral activities is secured through several investment projects in the ER Program area. A detailed description of ER Program activities and coordination of different finance sources as well as assumptions about the effectiveness of ER Program activities to generate ERs is provided in Annex 1.

31. The ERs will be verified against a Reference Level (RL), which is estimated at 48 million tons CO2eq per year for the reference period 2004-2014. The implementation of ER Program activities is expected to generate 40.3 million tons CO2eq over five years (gross). The FCPF Carbon Fund will purchase 11 million tons CO2eq over a six-year period.

The Project

32. The scope of the proposed project is the carbon finance transaction, which is one aspect of the broader Mai-Ndombe ER Program. The project is about the payments for verified ERs resulting from activities

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

implemented under the program. Other projects of the program include, for example, investment projects, such as the FIP, to support ER Program implementation.

33. The project has two components. The first component comprises the fixed costs of running the ER Program, which are independent of performance and further described below. The second component is the implementation of the BSP to distribute payments against performance, i.e. ERs against an agreed reference level for ER Program stakeholders.

B. Project Cost and Financing

The Mai-Ndombe ER Program

34. The ER Program is composed of two types of finance: (a) Investments to support the national REDD+ infrastructure and the implementation of ER Program activities, which are financed through projects and initiatives of CAFI, the World Bank and other financiers. (b) Results-based payments for verified ERs generated under the ER Program, which will be paid according to the terms negotiated under the ERPA. These ERPA payments over a period of at least five years (2018-2024) are included in the project described in this PAD.

35. The ER Program is not implemented in isolation but as part of the national REDD+ approach, which includes the following: i) the implementation of REDD+ related policy reforms, such as land use planning and land tenure; ii) a functional REDD+ infrastructure, in particular national REDD+ tools, such as the national REDD+ registry, the Feedback and Grievance Redress Mechanism (FGRM), monitoring of social and environmental REDD+ standards, and the measurement, reporting and verification (MRV) system; and iii) functional national REDD+ institutions. Financial support for the fixed costs related to these three elements is or will be provided by CAFI through various FONAREDD programs and amounts to US$ 41.7 million. The Mai-Ndombe ER Program is one of eight PIREDD supported by FONAREDD / CAFI. Therefore, it is assumed that 1/8 or 12.5 percent (US$ 5.2 million) of the currently available or programmed support for the national REDD+ approach contributes to implementing the ER Program. A break-down of the costs covered by FONAREDD programs with CAFI funding is provided in Annex 5.

36. The World Bank’s programmatic support results in a secured investment package of more than US$ 50 million to implement ER Program activities. Annex 1 provides a summary of activities supported through the different funding sources: Component 1 of the DRC Improved Forested Landscape Management Project (P128887) under the FIP in the Plateau District, also called Integrated REDD+ Project (PIREDD) Plateau (US$ 14.2 million), the Dedicated Grant Mechanism for IPs (DGM, US$ 6 million), CAFI (PIREDD Mai-Ndombe, US$ 30 million, an additional financing to the FIP), and a GEF additional financing (US$ 6.2 million) to the FIP. In addition to the World Bank-supported investment projects, one private project owner (Wildlife Works Carbon - WWC) has invested US$ 10 million in the establishment of a conservation concession in the ER Program area.

The Project

37. The project is about the results-based payments under the ERPA. The monetary value of the ERPA is defined by the ER volume and the unit price, which have been both negotiated. According to the commercial

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

terms duly negotiated, this PAD works on the assumption of an ER volume of 11 million tCO2eq (representing a maximum of 70 percent of the expected delivery) and a unit price of US$ 5 per tCO2eq, which corresponds to the willingness to pay expressed by the CFP. The ERPA value is therefore assumed to be US$ 55 million. The project is composed of two types of finance flows: i) fixed operational costs to manage the ER Program and expectations (incentives for IPs and local communities); and ii) payments to ER Program stakeholders against their performance, in accordance with the BSP.

38. The fixed costs for the ER Program to be covered under the ERPA include: (i) the institutional support to the provincial government and the PMU (amount to US$ 5 million over five years); (ii) a minimal amount of incentives for IPs and local communities (2 percent each of actual ERPA value) to recognize their efforts and manage expectations; and (iii) a risk mitigation buffer related to a potential financing gap for the management of national REDD+ tools if the CAFI funding for FONAREDD programs (see details in Annex 5) does not materialize as planned. The total amount of fixed costs for the ER Program management to be covered by the project amount to up US$ 7.5 million over a six-year period (Table 1). The fixed costs are considered “no-regret” measures for forest-smart development in Mai-Ndombe. The financing of fixed costs of the project will be secured through terms negotiated11 under the ERPA (through different types of advance payments).

Table 1: Summary of fixed costs related to the ER Program (for details see Annex 5)

Component / Project / Program Amount [US$] REDD+ Governance Program12 (to be financed by CAFI or other sources of funding). This program is a condition of effectiveness of the ERPA. National REDD+ registry (7.70 percent) 689,000 Feedback and grievance redress mechanism (13.36 percent) 1,195,000 Social and environmental REDD+ standards (7.94 percent) 711,000 Legal framework (3.49 percent) 312,000 Other (67.51 percent) 6,042,000 Sub-total 8,949,000 Minimum amount required to run the ER-Program to be covered by the 2,200,000 ERPA in the absence of funding for the US$ 8.95 million REDD+ Governance Program under CAFI (risk mitigation buffer) Institutional support for provincial government To be covered by ERPA payments 2,000,000 Program Management Unit (PMU) To be covered by ERPA payments 3,000,000 Recognition of past efforts achieved by IPs and rural communities To be covered by ERPA payments, as a percentage (4 percent) of the ERPA 300,000 nominal value Minimum amount required Minimum fixed costs to run the program, out of which at least US$ 5.3 7,500,000 million will be covered by the ERPA

11 Negotiations lasted one year and were finalized on August 24, 2018. 12 The tendering process launched by the FONAREDD for the REDD+ Governance Program is still ongoing; thus, the figures provided are estimates only. They are derived from the World Bank proposal submitted on June 12, 2017.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

39. Sustainable financing for the project depends on the generation of ERs. Therefore, the project will pursue an adaptive management strategy, i.e. monitor the development of drivers of deforestation and forest degradation and adjust the intervention strategy as needed. The purpose of ERPA payments to ER Program stakeholders is to reward them for the implementation of ER Program activities that generated ERs, to maintain the generation of ERs through reinvestments in ER Program activities and to incentivize additional activities in the ER Program area. IBRD or IDA Counterpart Project Components Project cost Trust Funds Financing Funding

Fixed costs 7.5 million 0 7.2 million 0 Payments against performance to ER Program stakeholders 47.5 million 0 47.3 million 0 according to BSP Total Costs 55.0 million 0 55.0 million 0

Total Project Costs 55.0 million 0 55.0 million 0

Total Financing Required 55.0 million 0 55.0 million

C. Lessons Learned and Reflected in the Project Design

40. The ER program considers lessons learned from operations in high-risk environments such as the DRC. It builds on experiences from the Forest and Nature Conservation Project (PFCN) as well as lessons summarized in the performance and learning review of the CAS (FY13-16)13 and in the Economic Sector Work (ESW) on DRC’s forest sector (Report No: ACS15507, December 2015). For example, involvement of independent third parties, such as the PMU, which will assist the provincial government in managing the ER Program, and the Multi-Partner Trust Fund Office of the United Nations (MPTF-O), is a mitigation measure to address fiduciary risks and weak capacities. The PMU will be identified through an international competitive bidding process aiming at selecting a firm or a consortium with references and qualifications in financial management and auditing, among other domains of expertise. Contractual arrangements will guarantee its independence vis-à-vis the government for the execution of its tasks and make reporting public.

41. Furthermore, the ER Program is based on experience in forestry and natural resources management (NRM) projects in Africa. It builds on lessons learned from tested agroforestry models in the Mampu and Ibi Bateke pilot projects, experience from WWF regarding the development of local infrastructure and contractual arrangements with communities in DRC as well as first lessons from the implementation of the FIP.

13 The CAS (http://documents.worldbank.org/curated/en/664211468246896400/pdf/661580CAS0Box30C0disclosed050160130.pdf) was extended to FY17. 11

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

42. The project also reflects the experience gained during the REDD+ readiness phase regarding institutional capacities and the management of REDD+ tools in DRC, but also from REDD+ implementation in other forest countries.

43. Finally, the project builds on the World Bank’s experience as trustee of carbon funds. Donors and investors have committed around $2 billion to climate and carbon finance projects through ERPAs, which govern the purchase and sale of ERs. The World Bank has signed more than 85 ERPAs, which translate into more than 70 World Bank projects. Among them are at least 15 projects in the Environment and Natural Resource Global Practice. One ERPA has already been signed in DRC, the Ibi Batéké Degraded Savannah Afforestation Project under the Biocarbon Fund Tranche 2. However, it should be noted that the ERPA related to this PAD is the first of its kind and the first under the FCPF Carbon Fund, which explains the high learning value attributed to this project.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

44. The ER Program is embedded into DRC’s national REDD+ approach. At the national level, the Steering Committee of FONAREDD (COPIL) is established and will have an oversight function for the project. The project will use FONAREDD as the main financial mechanism to channel ERPA payments to beneficiaries, in accordance with the BSP. All proceeds from the ERPA will go through FONAREDD, which is managed by the MPTF-O. In addition, the project will coordinate closely with the FONAREDD Executive Secretariat with the view to ensuring a continuous improvement of the national REDD+ tools. The proper functioning of these REDD+ tools is a prerequisite for ERPA payments to be made (e.g. MRV system, FGRM) and will require additional funding (details are provided in Annex 2). For that reason, to make the ERPA effective, the DRC shall provide evidence which demonstrates that the Program Entity has secured funding of USD 2,200,000 CAFI or other sources of funding to operationalize and improve the components and subcomponents listed in the guidance applying to the Readiness Package Assessment Framework (as specified in Annex I of FMT Note 2013-1 rev) required for ER Program implementation.

45. The signatory of the ERPA will be the Ministry of Finance. At the provincial level, the project’s governing body will be the Joint Provincial Steering Committee for the FIP and the ER Program. It provides strategic guidance and policy coordination for the ER Program.

46. A PMU, to be hired once the ERPA becomes effective, will assist the provincial government in the day- to-day management of the ER Program. Main functions include, among others, the administrative management of the project, support for new stakeholders to implement ER program activities to generate ERs, assistance to the FONREDD in monitoring the proper implementation of the BSP, and fulfillment of the project’s monitoring and reporting requirements.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

B. Results Monitoring and Evaluation

47. The RL for the Program is calculated based on the average annual historical emissions for the period 2004-2014. It also includes an upward adjustment14 considering DRC’s HFLD status. The adjusted RL is estimated at 48 million tons CO2eq per year with average annual historical emissions being 42.6 million tons CO2eq per year and the adjustment 5.6 million tons CO2eq per year. The ex-ante ER potential to be generated through the implementation of ER program activities during the ERPA period is estimated at 40.3 million tons CO2eq over five years (gross). After the deduction of ERs to be set aside in a buffer reserve to mitigate reversal and uncertainty risks, the ER Program is expected to generate 29 million tons CO2eq of emission reductions over the 2018-2024 period (net). The ERs set aside in the buffer and those transacted to the Carbon Fund will be registered in DRC’s transaction registry. The amount of ERs for purchase by the FCPF Carbon Fund according to the status of ERPA negotiations (11 million tons CO2eq) serves as a basis for this PAD.

48. The results of the project will be monitored as follows: The project’s MRV system will measure GHG emissions and removals in the ER Program area during the project period (Indicator 1). The PMU, in cooperation with DIAF and FAO, will prepare the ER monitoring report to be submitted to the FCPF Carbon Fund for verification by an independent reviewer (which will be contracted by the Carbon Fund). The verified ERs per reporting period will be the basis for ER payments to be made by the Carbon Fund to the Recipient. The payments made will be documented, among others, in the DRC’s transaction registry (Indicator 2). Finally, the PMU assisting the provincial government together with FONAREDD will oversee the distribution of ER payments in accordance with the BSP. The PMU will report on the proper implementation of the BSP to the Carbon Fund in an annex to the ER monitoring report (Indicator 3). It will be in the PMU’s responsibility to collect the necessary data from the MPTF-O, FONAREDD and other entities as needed. The collection of data will be gender- disaggregated whenever possible.

49. The project’s MRV system is currently under development as an integral part of the NFMS. The NFMS is under the responsibility of the Department of Forest Inventory and Planning (DIAF) and being established with support from FAO financed by CAFI (details are provided in Annex 2). It is expected to be in place when the first monitoring takes place at the end of the first reporting period. Emission Reductions will be measured and verified three times during the six-year project period. The results regarding areas of deforestation in the Mai- Ndombe province will also be used by DIAF for estimating GHG emissions at the national level for reporting to the UNFCCC. The expected ERs against the ER Program’s reference level per reporting period are provided in Table 2.

Table 2: Expected Emission Reductions per reporting period over the project period15

Reporting Period Minimum amount of ERs to be transferred to the FCPF Carbon Fund [tCO2eq] Reporting Period 1: 31 July 2018 – 30 July 2019 450,000

14 An upward adjustment of the RL above average annual historical emissions applies for countries that can demonstrate that i) long-term historical deforestation has been minimal across the entirety of the country and the country has high forest cover and ii) national circumstances have changed such that rates of deforestation and forest degradation during the historical reference period likely underestimate future rates during the ERPA period. The adjustment may not exceed 0.1%/year of carbon stocks. 15 Volumes of ERs will be measured and reported by the Recipient over three distinct reporting periods (the latest ending on June 30, 2024), but payments will be made upon ER title transfer, only once volumes of ERs are verified by an independent reviewer. For that reason, the project closing date is set later (31-Dec-2025).

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Reporting Period 2: 31 July 2019 – 30 July 2021 1,750,000 Reporting Period 3: 31 July 2021 – 30 June 2024 8,800,000 Total 11,000,000

C. Sustainability

50. The main argument for sustainability is the programmatic design of the ER Program to promote transformational impact in the Mai-Ndombe province. The results-based nature of the project will sustain the achievements from the World Bank-supported investment projects (e.g. FIP, CAFI, GEF) beyond their life time by providing additional ERPA payments for climate benefits resulting from these investments. Part of these payments will be reinvested in ER Program activities to continue successful practices to protect forests and improve the living conditions of the local population. An added value by the project is the establishment of a reference level and MRV system for ERs in cooperation with FAO financed by CAFI, which allows access to climate finance through the REDD+ mechanism and carbon markets in the future.

51. From an institutional perspective, the ER Program is fully embedded in national and provincial development priorities and the national REDD+ system. It will help to establish decentralized structures as foreseen in the decentralization process, which should be financed by the national budget in the long-term. Institutional support of the national and provincial governments is part of the BSP to ensure continued incentives including through the public administration. Investments into capacity building of governmental agencies and local authorities as well as into land use planning in line with legal requirements and customary rights is expected to create long-term responsible stewardship.

52. Social sustainability will be achieved through the ER Program’s focus on promoting alternative livelihoods, improving commodity value chains, creating employment opportunities, and establishing new business models for communities and private investors in agroforestry and perennial crops. Investments in local infrastructure will optimize opportunities for economic development. The reinvestment strategy of the ER Program through the BSP is intended to continue PES schemes with communities. The ER program also aims to improve the enabling environment for the participation of local communities in land use planning and the clarification of land tenure rights. Targeted investments in social infrastructure will further enhance social sustainability.

53. Environmental sustainability will be achieved by incentives for reducing pressure on natural forests. Forest protection will be promoted through local land-use planning, agroforestry and sustainable livelihood activities in the ER Program area. Participatory approaches for natural resource management will improve the longer-term environmental sustainability of forest resources.

D. Role of Partners

54. The ER Program is the result of intensive dialogue and review in the context of the FCPF Carbon Fund. All ER Program documents are publicly available on the FCPF website and comments received from development partners, civil society and other stakeholders have been considered to the extent possible. Some development

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

partners, e.g. Germany and Norway, have provided financial support to the ERPD development. The ERPD provides a complete list of partners who have contributed to its development.

55. Furthermore, the ER Program has been developed in close cooperation with CAFI, which serves as a donor coordination platform for development partners active in the Congo Basin. Moreover, the ER Program is embedded into the national approach supported by CAFI including, among others, reform processes on land use planning, land tenure and sustainable forest management. The dialogue with UNDP, as the trustee of CAFI, is ongoing for further coordination regarding institutional arrangements.

56. The World Bank’s programmatic support facilitates coordination of forest-related trust funds, including the FIP, CAFI and GEF. The strategic alignment of these funding sources maximizes synergies and avoids duplication of activities or institutional arrangements.

V. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

57. The overall risk of the project is rated high. The rating is based on the eight risk categories summarized in Table 3, which may jeopardize the implementation of the ER Program. The main risk factors are related to political and governance risks, institutional capacity and technical design.

Table 3: Systematic Operations Risk- Rating Tool (SORT)

58. Political and governance risks are rated high. The political environment is expected to remain unstable at least until the end of 2018 due in part to the postponement of national elections initially scheduled for the end of 2016 and now tentatively planned for the end of 2018. Corruption, mismanagement, insufficient institutional capacity and governance deficiencies have contributed to poor results in the natural resources sectors (mining and forestry) in the past. There is currently a large gap between the tax revenues that should be paid in mining and forestry and what is recorded, due in large part to a lack of transparency and accountability

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

and fraudulent practices by companies and government agencies. This trend is accelerating with the fiscal and foreign exchange squeeze and the absence of financing alternatives. The Ministry of Environment and Sustainable Development (MESD) carries out its central administrative functions – policy development, norm setting, and control – only to a limited degree. To mitigate governance risks, the project will work closely with CAFI and FONAREDD. FONAREDD has established a cross-sectoral coordination mechanism through the COPIL, which is chaired by the Ministry of Finance. The project will use the same national structures (e.g. COPIL, REDD+ Executive Secretariat) to use synergies based on capacity building financed by CAFI. Furthermore, the project will involve civil society in project implementation and establish an external independent PMU to fulfill control functions.

59. Macroeconomic risks are rated high. The continuous decline in foreign reserves maintains pressure on the local currency and on price stability. Until mid-2017, a clear acceleration in inflation was observed compared to the previous year. The pressure on the exchange market and the decline in foreign currency reserves are threatening the ability of DRC to import basic goods, while inflationary pressures are hurting the poorest. For that reason, the project is placing a special emphasis on the poorest minorities within the ER Program boundary. To this end, a portion of the proceeds is retained upstream to manage IPs and rural communities’ expectations and/or basic needs. This portion is independent of performance, and will materialize whatever the program performance will be.

60. Sector strategies and policy-related risks are rated high. Sectoral risks are related to the political and governance risks outlined above. The project will address challenging intersectoral dynamics and the interests of some stakeholders with vested interests, particularly through the review of the Ministerial Homologation Decree for REDD+ projects and programs over the course of the project implementation. For these reasons, the financing is largely targeting technical assistance, capacity building, and institutional support (refer to component #1 of the project). More broadly, the project is also under scrutiny by civil society and NGOs.

61. Risks related to the technical design of the project are rated moderate. The ER Program meets the requirements of the Methodological Framework of the FCPF Carbon Fund. While the ER Program’s intervention strategy is based on priority activities to address the main drivers of deforestation and forest degradation with secured investment finance and, thus, expected to generate ERs against the business-as-usual scenario (the reference level), there is a substantial risk associated with the Program’s reference level. The reference level has been established in accordance with the requirements defined by the Methodological Framework, with a cap of the upward adjustment for HFLD countries to a 0.1 percent absolute increase in the rate of deforestation. Consequently, it is possible that the implementation of ER Program activities will lead to an improvement compared to the business-as-usual scenario but not translate into results-based payments because of the way the reference level was set. In the event of low or non-performance, transfer failure would occur under the ERPA and risk the financial viability of the project. A transfer failure event would trigger the development of an action plan (remedies) in line with the ERPA General Conditions. Corrective actions may include discussions about improvements of the reference level to address potential methodological issues.

62. Risks related to institutional capacity for implementation and sustainability are rated substantial. The need to strengthen institutions and policy coordination as well as implementation capacity is high at all levels in DRC. The institutional arrangements for the Mai-Ndombe ER Program are in line with the national REDD+ approach to avoid duplications of structures and inefficiencies. The implementation of sectoral programs, among others on land use planning, tenure, agriculture and sustainable forestry, under FONAREDD with CAFI funding will increase institutional capacity on REDD+ implementation at various levels, which is an important

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

framework condition for the ER Program. Capacities at provincial level are equally weak. Mai-Ndombe is one of the newly created provinces through the decentralization process. While the provincial government can partly draw on previously existing structures, it is under-resourced budget-wise and administrative capacity needs to be built. The World Bank has targeted the Mai-Ndombe province in the IDA project on public financial management to build capacities at the provincial level and mitigate risks related to weak institutions. In addition, institutional support for the province is budgeted under the fixed costs of the ER Program and the project will involve an external service provider as PMU to support the provincial government in its daily management functions. It will be among the tasks of the PMU to build capacities at provincial level over time, so that the functions fulfilled by the PMU can be progressively integrated into the provincial government in the medium term. The concerted efforts to implement the National REDD+ Investment Plan with support from CAFI as well as to build capacities under the ER Program will address capacity challenges over time.

63. Fiduciary risks are rated substantial. The risk is Substantial, considering the political and security situation of the country, weak legal framework, and past project experience with operational delay and poor contract management. To minimize fiduciary risks, all ERPA payments will be managed through the FONAREDD / MPTF- O. There will be no direct payments to the government. Payments to be distributed to communities will be deposited in a dedicated FONAREDD window and then channeled to communities through FONAREDD / MPTF- O in line with the MPTF-O operations manual to be developed further. The private sector will also receive ERPA payments through FONAREDD. All these modalities will be detailed in the final BSP which shall be satisfactory to the World Bank prior to effectiveness. The PMU will be responsible for the day-to-day management of the project including assistance to FONAREDD in the monitoring of the implementation of the BSP. The PMU will be a firm or consortium with a credible track record and recognized management skills in challenging and weak capacity contexts.

64. Environmental and social risks are rated substantial, mainly because of capacity weaknesses at the national and provincial levels to implement the agreed-upon measures. Capacity building to apply and further develop the REDD+ safeguard instruments will take place through FONAREDD’s REDD+ Governance Project and the investment projects under the ER Program. The PMU will be responsible for monitoring safeguards implementation in the Mai-Ndombe province with additional oversight from FONAREDD.

65. Stakeholder risks are rated substantial. Consultations with many stakeholders have taken place at various levels during the ER Program development led by the CN-REDD and are documented in the ERPD. Substantial risks are related to the management of expectations regarding benefits from the ERPA. To mitigate that risk, CN-REDD and the World Bank have communicated clearly during the BSP consultations that any payments under the ERPA will be based on documented performance with associated delivery risks to avoid raising high and unrealistic expectations. In addition, the ER Program is designed to minimize risks for local communities and IPs by securing livelihood benefits through the investment projects (financed by FIP and CAFI) and recognizing their vulnerability by including incentives (4 percent of ERPA value split between IPs (2 percent) and rural communities (2 percent)) in the fixed costs of the ER Program.

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VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

66. The cost benefit analysis conducted for this project yields positive results across a variety of sensitivity analyses and data assumptions (see Table 4 and Annex 6 for details). The public goods character of forests and GHG and the related market failures make the public sector the appropriate vehicle for this project. Further, the proposed carbon finance transaction will increase the project’s development impact in ways that go beyond what can be realized by exclusive reliance on the client’s own resources or other external sources. This analysis contrasts the actual costs with economic benefits for the project, both discounted to 2018 (the baseline year). The benefits originate from ERs in the Mai-Ndombe province. For this economic analysis, benefits are assumed to be generated from carbon emission reductions and results-based payments to local communities including IPs. Other benefits including incentive payments independent of performance to local communities and IPs were not included in the economic simulations.

67. The Net Present Value (NPV) is estimated to be US$ 302.3 million, and the Benefit Cost Ratio (B/C-Ratio) is 7.72. The result’s robustness is verified through different sensitivity analyses. Different discount rates (5 percent, 10 percent, and 20 percent) are applied and a low carbon price as well as simulations run for low program performance. The benefits are much larger than the costs for almost all scenarios, even though this analysis did not include all benefits, such as benefits from incentive payments to local communities and IPs or effects on biodiversity and governance. The project benefits might be far greater, as this analysis also disregards benefits from new policies, financial and governance capacity building or the strengthening of land rights, which are all likely to trigger further positive developments.

68. The economic benefits generated by the project are likely to include significant development impacts given the broader economic framework within which the project will be implemented. The potential for the project to catalyze important development momentum for natural resource management is very high, with potential for replicability and continuity beyond the official lifetime of the project. Providing additional livelihood opportunities in rural areas can yield important secondary effects, for example with respect to improving agriculture production, access to education, and health services.

Table 4: Summary of economic simulation results

All Benefits with All Benefits with Low Without Carbon Benefits Baseline Carbon price Carbon price 5% 10% 20% 5% 10% 20% 5% 10% 20% NPV [in US$ million] 302.3 248.5 173.8 168.1 137.8 96.0 -21-5 -17.9 -12.9 B/C-Ratio 7.72 7.67 7.56 4.74 4.70 4.62 0.52 0.52 0.52 Sensitivity analysis 10% performance 10% performance and Low Carbon price NPV [in US$ million] 54.3 42.8 27.7 30.5 23.9 15.2 B/C-Ratio 7.61 7.33 6.77 4.71 4.53 4.17

69. Cash flow models for the ER program with ERPA payments under a 100 percent, 50 percent and 10 percent performance scenario are provided in Annex 5 (Appendix 4). The first ERPA payments to ER Program

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stakeholders would take place at the end of the first reporting period after verification by an independent reviewer in September 2019 at the earliest.

70. A sensitivity analysis for ER Program performance is provided in Table 5. Based on the assumptions about commercial terms provided in Annex 4, the sensitivity analysis shows that advance payments16 could not be fully recovered if ER Program performance is below 7 percent. Furthermore, the cumulative amount of advance payments would be higher than US$ 7 million only in the case of extremely low performance under 1 percent. As discussed in Para. 61, poor performance might trigger discussions about the RL, and considering all the activities implemented under underlying investments, it is expected that, in both cases (performance less than 7 percent), a revised RL may be considered, making the proposed carbon finance transaction more robust.

Table 5: Sensitivity analysis for ER Program performance

Cumulative advanced payments up to $7.5 million / UP: $5 / Share: 70% Performance

0% 2% 4% 6% 7% 8% 10% 20% 100% Loss for CFP ($) 7,500,000 5,468,387 3,436,773 1,405,160 389,353 0 0 0 0 CFP ERs received by 0 406,323 812,645 1,218,968 1,422,129 1,625,291 2,031,613 4,063,227 11,000,000 CFP

Actual ERPA 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 8,126,453 10,158,066 20,316,133 55,000,000 value ($) Max. cumulative Advance 7,500,000 6,710,327 5,920,654 5,130,980 4,736,144 4,341,307 3,551,634 3,000,000 3,000,000 Payments ($)

Fixed costs PMU ($) 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 Mai-Ndombe 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Province ($)

Expectations management 2% of the actual IPs 150,000 150,000 150,000 150,000 150,000 162,529 203,161 406,323 1,100,000 ERPA value, Local independent of 150,000 150,000 150,000 150,000 150,000 162,529 203,161 406,323 1,100,000 communities performance

Performance based payments distributed against sub-baselines, from which up to $2.2 million may be retained upstream to cover fixed costs in case of lack of CAFI tranche 2 or other sources of funding Sub-projects 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 2,801,395 4,751,744 14,503,488 47,800,000

16 The Assumption for the sensitivity analysis is a maximum amount of advance payments (up to US$ 7.5 million).

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B. Technical

71. The ER Program has been developed in accordance with the Methodological Framework of the FCPF Carbon Fund. The Methodological Framework is the result of a two-year consultation process involving international experts, donors and REDD+ countries. It contains 78 indicators regarding the general approach, level of ambition, carbon accounting, safeguards, sustainable program design and implementation and ER program transactions. An independent Technical Assessment Panel twice assessed compliance of DRC’s ERPD with the 78 indicators. The final assessment report rated 61 indicators as met, 3 as not met and 14 as not applicable at the assessment stage. The three indicators that were not met17 and those that were not applicable will be addressed during ER Program implementation (see next paragraph).

72. The ER Program’s MRV system, by using the same methods for quantifying emissions and removals as the reference level, will produce fully consistent results as a basis for quantifying emission reductions. Areas of deforestation, degradation and enhancement of carbon stocks will be estimated by the NFMS using a probabilistic sampling design consisting of permanent sampling units located systematically across the province. Additionally, temporary sampling units will be in areas of change to increase the precision of the area estimates. The forest cover change condition for each sampling unit is manually interpreted using a combination of medium resolution (e.g. Landsat 7 and 8), high resolution (e.g. Sentinel 2) and very high resolution imagery (e.g. Worldview, Planet, SPOT 6). The areas of deforestation will be used in combination with the Emission Factors and Removals Factors determined in the ERPD to quantify the annual GHG emissions in the monitoring period. The estimated GHG emissions will be subtracted from the RL to determine the ERs. Uncertainty of ERs will be quantified at 90 percent confidence level using Monte Carlo methods. Based on the estimation of uncertainty and the risk defined in line with the FCPF Carbon Fund Buffer Guidelines, the PMU will estimate the amount of ERs to be set aside in the uncertainty and risk buffers and will estimate the ER available to be sold to the FCPF Carbon Fund.

73. The Ministerial Homologation Decree for REDD+ projects and programs provides the legal basis and procedures for any REDD+ project or program, including the ER Program, to comply with the country’s legal REDD+ framework. This includes also the ER title transfer. The decree is currently under revision and will be finalized with assistance from the REDD+ Governance Project, and in any case prior to effectiveness.

C. Financial Management

74. For a carbon finance transaction, the assessment of financial management arrangements entails the review of financial flows from the FCPF Carbon Fund to the beneficiaries according to the BSP. The main principles for the financial management of the ERPA funds are to i) reduce complexity and organize financial flows through a limited number of “entry points”, i.e. reliable organizations administering bank accounts and taking responsibility for further distribution of funds downwards, ii) use existing reliable structures where

17 Indicator 9.2 on uncertainty analysis, Indicator 10.2 on relation between ER Program reference level and national reference level to be submitted to UNFCCC, Indicator 19.1 on reversal risks after ERPA term.

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possible, iii) minimize transaction costs, iv) ensure the proper recording of and reporting on all transactions related to the project and v) facilitate external audits as required by the Bank.

75. There are three types of recipients under the ERPA: i) to cover fixed costs of running the ER Program, ii) against performance for local communities and IPs, and iii) against performance to the private sector. The financial arrangements are as follows:

76. Proceeds from the ERPA will be managed by the MPTF-O, in line with the MPTF-O operations manual. First, proceeds will support the provincial government at the institutional level. The MPTF-O will coordinate with the World Bank’s Public Financial Management and Accountability Project (P159160) to define the specific needs for such a support. Second, the MPTF-O will hire the PMU. Third, incentives for local communities and IPs will be deposited in a dedicated window of FONAREDD, administered by the MPTF-O, to finance future project- based mechanisms benefiting communities and IPs. Precise modalities for channeling these proceeds to communities will be specified further together with the MPTF-O and FONAREDD in the first year of project implementation. It is envisaged that FONAREDD, in line with MPTF-O procedures, would adopt the approach currently used under the CAFI funding (calls for proposals to select projects and programs developed by delivery partners in close cooperation with communities and IPs, consistent with the ER Program requirements). Fourth, FONAREDD will also channel payments to private project owners, in accordance with the BSP.

D. Procurement

77. N/A

E. Social (including Safeguards)

78. Social benefits: Payments from the project will be shared with stakeholders per an agreed BSP. Principles of the BSP include the prioritization of the flows of funds to improve the livelihoods of local communities and the most vulnerable groups, such as women and IPs. In addition to the economic benefits expected from ER Program activities in poor rural areas, social and economic benefits will accrue to a wide range of beneficiaries. By sustaining the implementation of ER Program activities, the project will help strengthen legal and customary rights of local communities and IPs over land and resources. The flow of ERPA payments to communities, organized through calls for proposals for community projects through a FONAREDD window, will strengthen local structures, such as the LDCs. The LDCs are multi-stakeholder in nature with a balanced participation of stakeholder groups, including women and IPs.

79. Gender: The various ER Program activities have measures to ensure that women are adequately represented in the LDCs and CARTs and participate in the decision-making processes. This includes the development of SDPs to reflect gender-sensitive needs. Women will also benefit from improved farming practices and resulting increased household incomes.

80. Safeguards: The ERs to be purchased under the ERPA will result from discrete investments. To evaluate potential impacts of REDD+ investments, the DRC carried out a Strategic Environmental and Social Assessment (SESA) of the national REDD+ strategy and has in place the following six REDD+ safeguards instruments: ESMF, Indigenous Peoples Planning Framework, Resettlement Policy Framework, Pests and Pesticides Management

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Framework, Cultural Heritage Management Framework, and Process Framework18. All six safeguards instruments, produced under the FCPF readiness project, have been reviewed and cleared by the World Bank, thus meeting its operational policy requirements. All documents are publicly available on the websites of the World Bank, FCPF and the DRC government. Furthermore, the DRC developed national social and environmental REDD+ standards, which are consistent with the safeguards instruments. The Ministerial Homologation Decree for REDD+ projects and programs requires that all REDD+ projects and programs conform to both the national standards and the six above-mentioned safeguards instruments. Additionally, the investments supported through World Bank-financed projects are or will be subject to a set of project-specific safeguard instruments, which will be consistent with the national tools but tailored to each project (this is the case for the FIP project, which has its own set of safeguards instruments). Thus, any activity under the ER Program, whether financed through the World Bank or otherwise, will fall under the national REDD+ system described above and a comprehensive set of safeguard requirements. The Operations Environmental and Social Review Committee (OESRC) of the World Bank reviewed the safeguards approach of this project on November 16, 2017 and concurred with it. The institutional arrangements for the monitoring of safeguards implementation are covered in Annex 2.

81. Stakeholders: Consultations with stakeholders on the safeguard documents and on the overall ER REDD+ program have been extensive. The CN-REDD established a constructive dialogue with civil society and IP organizations over a long period. All major REDD+ documents (e.g. the national REDD+ strategy and the ESMF) were subject to multiple consultations with hundreds of stakeholders as documented in the Readiness Package. The various stakeholders involved in the development of the ERPD were organized in working groups around the main ERPD themes, in which the national civil society platform (Working Group on Climate and REDD+ known as GTCR-R) and IP network (Network of Indigenous and Local populations for the Sustainable Management of Forest Ecosystems – REPALEF) participated on a regular basis. In addition, significant efforts were undertaken over three years to inform and consult with local stakeholders in the Mai-Ndombe province. The Congolese Organization of Ecologists and Friends of Nature (OCEAN), a Non-Governmental Organization (NGO), was contracted by CN-REDD to lead consultations with local communities and IPs, who mandated representatives from the 19 sectors in the eight territories to participate. The consultation process is fully documented in the ERPD and in the BSP.

82. Feedback and Grievance Redress Mechanism: The DRC has developed a FGRM for REDD+, which was validated by national stakeholders in January 2017. The FGRM will be operationalized through FONAREDD’s REDD+ Governance Project. The existing FGRM for the PIREDD Plateau, which will be expanded to include the PIREDD Mai-Ndombe, will be fully integrated with the national FGRM. The PMU will be responsible for monitoring the implementation of the FGRM for the ER Program. The REDD+ registry will be used to file and

18 A Process Framework sets out the modalities and procedures to be followed by the Recipient in assessing potential access limitation as a result of activities and/or investments, and the measures to be taken to offset, reduce or mitigate such adverse impacts.

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document any complaints and response measures. In addition, as described below in Section H, the World Bank has its own Grievance Redress Mechanism.

F. Environment (including Safeguards) 83. 84. Safeguards: The safeguard approach as described above applies to all environmental safeguard issues.

85. Biodiversity and other environmental co-benefits: Environmental co-benefits will result from the ER Program’s strong emphasis on sustainable land use management. ER Program activities will notably support the natural regeneration of savannah ecosystems and the protection of primary forest. Environmental services provided by these ecosystems include increased tree cover in agricultural landscapes, improved air quality, maintenance of soil and water quality, erosion control, climate regulation as well as biodiversity conservation.

G. Other Safeguard Policies

86. No other safeguards policies are triggered for the project.

H. World Bank Grievance Redress

87. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed to address project-related concerns. Project-affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non- compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank’s attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance- redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

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VII. Results Framework and Monitoring

Results Framework COUNTRY: Democratic Republic of Congo Mai-Ndombe Emission Reductions Program (P160320)

Project Development Objectives

Project Development Objective Indicators

PDO Level Results indicators Core Unit of Baseline End Target Frequency Data Source / Responsibility for Data Measure Methodology Collection / Comments

Volume of ERs measured tons CO2eq 0 11,000,000 31 July 2019: 450,000 ERPD NFMS project and reported by the 31 July 2021: 1,750,000 implemented by FAO / Recipient, verified by an DIAF independent reviewer, and 30 June 2024: 8,800,000 transferred to the FCPF Carbon Fund

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US$ 0 55,000,000 ERPA, BSP Payments received by the Upon ERPA effectiveness: 1,060,000 PMU, MPTF-O, Recipient from the FCPF FONAREDD Carbon Fund for ERs generated by the ER Program Within 6 months upon 8,129,814 At least US$ 2.2 million the end of the reporting for 450,000 ERs period #1 (31 July 2019):

31 July 2020: 1,060,000

Within 6 months upon 29,233,847 the end of the reporting period #2 (31 July 2021):

31 July 2022: 1,060,000

Within 6 months upon 14,456,339 the end of the reporting period #3 (30 June 2024): ER payments distributed Yes/No n/a Yes Upon ERPA effectiveness ERPA, BSP PMU, MPTF-O, FONAREDD in accordance with Upon the end of the reporting period #1 agreed Benefit Sharing (31 July 2019) Plan 31 July 2020 Upon the end of the reporting period #2 (31 July 2021) 31 July 2022 Upon the end of the reporting period #3 (30 June 2024)

Description:

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

ANNEX 1: DETAILED PROJECT DESCRIPTION

COUNTRY: Democratic Republic of Congo Mai-Ndombe Emission Reductions Program (P160320)

Mai-Ndombe ER Program

88. The Government of DRC designed the Mai-Ndombe ER Program as a first step in implementing the country’s national REDD+ strategy at jurisdictional level. The ambition of the Mai-Ndombe Emission Reductions Program (Mai-Ndombe ER-Program) is to implement a model for green development at provincial level that provides alternatives to deforestation and rewards performance to mitigate climate change, reduce poverty, manage natural resources sustainably and protect biodiversity. It is designed to combine different sources of funding, including the FIP and CAFI, and to leverage private funding to scale up pilot activities and support the shift of a land use trajectory at large scale. A detailed description of the ER Program is provided in the ERPD, which is publicly available on the FCPF website19.

89. The accounting area of the ER Program is the Mai-Ndombe province, located in the west of the country and north of Kinshasa (Figure 1). It covers an area of 12.8 million hectares and consists of two former districts, which previously were part of the old Bandundu province: Plateau and Mai-Ndombe.

Figure 1: Location and vegetation cover of the Mai-Ndombe ER Program (Source: UCL – Design: J. Freund/WWC)

19 https://www.forestcarbonpartnership.org/sites/fcp/files/2016/Dec/20161108%20Revised%20ERPD_DRC.pdf

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90. The ER Program is designed as a combination of enabling and sectoral activities in accordance with the 7 pillars of the national REDD+ strategy. Sectoral activities are defined by the national REDD+ strategy as activity aiming to address the direct causes of deforestation and to generate measurable and verifiable emission reductions. Enabling activities aim to create conditions favorable to the implementation of sectoral options, but which also offer a means of addressing certain underlying causes of deforestation and contribute to the sustainability of sectoral activities. They do not generate emission reductions or a priori non-measurable emission reductions. A summary of ER Program activities is provided in Table 6, and a map locating the activities is in Figure 2.

Table 6: ER Program activities

Pillars Sectoral activities Enabling activities Agriculture AS1. Agroforestry and improvement of AH1. Strengthening agricultural value cultivation techniques chains AS2. Perennial crops development in non- forest areas (coffee, cocoa, palm oil and rubber) Energy ES1. Assisted natural regeneration for EH1. Formalization and strengthening of charcoal production. the fuelwood sector ES2.Afforestation/Reforestation for charcoal production Forest FS1. Reduced impact logging FH1. Strengthening forest and wildlife law FS2. Conservation of local community enforcement forests FH2.Legal compliance of industrial logging FS3. Conservation concession operations FS4. Afforestation/Reforestation for FH3. Development of community forestry. lumber production FH4. Support management of protected areas

Enabling H1. Capacity-building of decentralized State services Governance, H2. Multi-level capacity-building and Sustainable Development Plans design Population, Land- H3. Implementation of collective and strategic facilities use planning and H4. Family planning Land tenure

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Figure 2: Location of key program activities (Design: E. Marino/WWF)

91. The implementation of a substantial part of ER Program activities is secured through a number of investment projects in the ER Program area. Table 7 provides an overview of the package of investment sources implemented by the World Bank to support the implementation of ER Program activities in the ER Program area. In addition, Component 2b of the FIP: Strengthening the cook-stove sector and supporting the dissemination of cleaner cook-stoves (US$ 2.1 million) also contributes to achieving the ER Program goal by promoting energy efficiency on the demand side. A more detailed description of the activities funded under these projects and their coordination is provided in Table 8.

Table 7: Secured investment projects managed by the World Bank to support the implementation of ER Program activities

Financing source and project Amount Project period Forest Investment Program (FIP) DRC Improved Forested Landscape US$ 14.2 million (PIREDD Plateau) April 2015 – June 2020 Management Project (IFLMP, P128887), Component 1 Integrated REDD+ Project in Plateau (PIREDD Plateau) DRC Improved Forested Landscape US$ 5.9 million, only a portion goes to April 2015 – June 2020 Management Project (IFLMP, the Mai-Ndombe province P128887), Component 2a Supporting agroforestry investments in DRC

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DGM: Forest Dependent Community US$ 6 million at national level, Mai- Apr 2016 – Jul 2021 Support Project (P149049) Ndombe is one of the targeted provinces Central African Forest Initiative (CAFI) Mai-Ndombe REDD+ Integrated US$ 18.22 million, to be potentially May 2018 – Dec 2022 Project (P162837, PIREDD Mai- supplemented by a second tranche of Ndombe) US$ 9.03 million Support to Indigenous Peoples, US$ 2 million in total, Mai-Ndombe is Dec 2017 – Dec 2022 implemented through the DGM among the targeted provinces Global Environmental Facility (GEF) Mai-Ndombe REDD+ Integrated US$ 6.2 million Dec 2018 – Dec 2022 Project (P160182) International Development Association (IDA) Public Financial Management and US$ 50 million, Mai-Ndombe is one of Jun 2017 – Dec 2021 Accountability Project (P159160) the targeted provinces Health System Strengthening Project US$ 120 million overall, Mai-Ndombe is Jul 2017 – Dec 2021 for Better Maternal Health and Child one of the targeted provinces Health Services

Table 8: Coordination of activities funded by World Bank investment projects to support ER program implementation

Enabling and FIP: Plateau District of the CAFI: Geographical Other projects sectoral pillars of Mai-Ndombe province expansion of PIREDD the ER Program (PIREDD Plateau) Plateau Project to the Mai- Ndombe District to cover the entire Mai-Ndombe province Land use planning, 175 LDCs in the Plateau 600 LDCs in the Mai- land tenure and District Ndombe District governance • Organizing communities into LDCs; • GEF: Building capacities • Developing local SDPs and SMPs for LDCs through at the central participatory land use mapping; government level, e.g. on • Clarifying land tenure at all levels through national strategy for participatory planning methods; community forestry and • Promoting the representation of women in LDCs and knowledge management CARTs; • Building administrative and institutional capacities of the central government (Ministries of Environment, Agriculture, Interior, Land Administration) to manage natural resources transparently; • Improving capacities to control forestry and charcoal- making Capacity building of • Building administrative, institutional and technical • GEF: Building capacities the decentralized capacities of decentralized government agencies (i.e. at the decentralized level administration environmental and agricultural technical extension

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services of Ministries of Environment, Agriculture, Interior, Land Administration); • Building capacities of local structures at all levels, such as LDCs, farmer’s organizations and CARTs, to manage natural resources sustainably Enabling conditions • Implementing priority • Developing value chains for economic investments as defined for perennial crops, sectors in the SDPs, e.g. public such as coffee, cocoa, infrastructure, rubber and oil palm; improved methods for • Improving cultivation and NRM infrastructure and connectivity, e.g. roads, bridges, a ferry on the Kasai River Demography • Supporting family planning through provision of information, awareness raising and access to means of birth control; youth education programs Agriculture • Implementing agricultural investments defined in the SMPs, e.g. fire-fallow cultivation on savannah lands and agroforestry plantations with small-scale plots of acacia and oil palm; • Prevention of bush fires to promote natural regeneration of savannah lands; • Promoting research to improve farming practices and pasture management • Developing perennial • GEF: Facilitating private crops (coffee, cocoa, investments for agro- rubber, and oil palm) in forestry projects on forested landscapes savannah lands by subsidizing sub-projects selected through a public call for proposals Forestry • Establishing PES schemes to sustain new agricultural • DGM: Supporting practices while protecting forests; projects with IPs • Supporting micro-projects for IPs in coordination with the DGM • Promoting community • FIP Component 2: forests for biodiversity Establishing sustainable conservation, e.g. business lines for registration of biomass energy supply community forests

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(mainly charcoal) to urban centers • GEF: Incrementally supporting the establishment of IP- managed community forest concessions and other activities identified in IP Development Plans; • GEF: Supporting the management of protected areas (Tumba Ledima Natural Reserve, Salonga National Park, Oswe Hunting Reserve) Energy • Establishing • Establishing • FIP Component 2: agroforestry agroforestry plantations Improving quality and plantations for for charcoal supply improving production of charcoal supply cook stoves

92. In the context of the ERPD development, business plans have been developed for each type of activity to inform the design of the ER Program intervention strategy. Based on the intervention strategy of the ER Program and the secured financing sources, the estimation of the ER potential is based on the following three sets of activities and respective calculations about their effectiveness of implementation over five years (the detailed calculation can be found in Table 9):

(a) ERs from reduced deforestation and forest degradation through the protection of forests in conservation concessions and community areas: The estimated proportion of ERs from forest protection of the total expected ER volume is 95 percent. (b) ERs from reduced forest degradation through reduced-impact logging (RIL) in forest concessions: The estimated proportion of ERs from RIL of the total expected ER volume is 2 percent. (c) Enhancement of forest carbon stocks (removals of GHG emissions) through wood and agroforestry plantations: The estimated proportion of ERs from carbon sequestration through plantations of the total expected ER volume is percent.

Table 9: Ex-ante ER estimation for the ER Program

Total Gross Set-aside of Net Emission Unplanned Unplanned Planned Carbon ER ERs Risks and Reduction deforestation degradation Degradation sequestration (tCO2/year) uncertainty (tCO2/year) Year 1 1,406,518 1,722,408 54,000 43,191 3,226,117 903,313 2,322,805 Year 2 2,109,400 2,729,178 108,000 86,259 5,032,837 1,409,194 3,623,642 Year 3 2,973,219 4,083,613 162,000 190,333 7,409,166 2,074,566 5,334,599

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Year 4 4,135,608 5,891,731 162,000 387,565 10,576,904 2,961,533 7,615,371 Year 5 5,408,149 7,853,281 162,000 641,335 14,064,766 3,938,135 10,126,632 Total 16,032,894 22,280,213 648,000 1,348,683 40,309,789 11,286,741 29,023,048 % 40% 55% 2% 3%

Project Components

93. The project has two components related to the use of the ERPA payments in accordance with the BSP. The first component comprises the fixed costs of running the ER Program, which are independent of performance and further described below (Section Project Cost and Financing). Component two is the implementation of the BSP to distribute payments against performance, i.e. ERs against an agreed reference level for ER Program stakeholders.

94. Component 1 comprises the fixed costs to run the ER Program, independently of performance. These include the PMU operating costs (see Annex 2 Implementation Arrangements), capacity development for the provincial government as well as incentives for IPs and local communities.

95. Institutional support to the provincial government is required for the following reasons: First, the provincial government will be assisted by the PMU in the daily management of the ER Program to mitigate risks related to weak capacities. However, it is important to maintain full ownership by the province in its role as the accountable ER Program Entity and build capacities at the same time, which to a minimum level needs to be independent of ER Program performance, in early years of implementation. Second, the need for capacity building is high at all levels. The secured investment sources for the ER Program, notably US$ 14.2 million from the FIP and US$ 20 million from CAFI, have been designed mainly to implement ER generating activities and prioritize support to local communities and IPs. It is therefore important to direct some benefits from the ER Program to capacity building activities for the public administration to improve the enabling environment.

96. Indigenous Peoples receive special attention in the ER Program for two reasons. First, the ER Program recognizes the historical role of IPs in sustainable forest management. Second, IPs in DRC are among the poorest people of the world and the improvement of their livelihood is a prioritized co-benefit of the ER Program. The inclusion of IPs in the benefit sharing arrangements under the ERPA are two-fold: First, IPs will benefit from results-based payments against performance allocated under BSP. IPs are integrated members of local communities and will benefit from payments to communities, which will be deposited in a dedicated window of FONAREDD. Second, the DRC wishes to recognize the strong role of IPs in managing forests sustainably and their historic non-responsibility for deforestation by including incentives for IPs (2% of the ERPA value) in the fixed costs of the ER Program, which need to be covered independent of performance. The same incentive amount (2 percent of ERPA value) will be dedicated to local communities to avoid a distinction between local communities and IPs.

97. Component 2 of the project constitutes the distribution of performance-payments according to the BSP, which is provided in Annex 5.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

ANNEX 2: IMPLEMENTATION ARRANGEMENTS

COUNTRY: Democratic Republic of Congo Mai-Ndombe Emission Reductions Program (P160320)

Project Institutional and Implementation Arrangements

98. At the national level, the COPIL coordinates the implementation of REDD+ guided by the National REDD+ Investment Plan. The COPIL is chaired by the Ministry of Finance and includes six ministers in charge of the main land use sectors (agriculture, environment, forests, tenure, land use planning and energy) as well as representatives of civil society, the private sector and development partners. To ensure alignment with the national REDD+ approach, the COPIL will have an oversight function for the project. This includes, e.g., ensuring consistency of ER program activities with the national REDD+ strategy and validating main ER Program documents and decisions.

99. The FONAREDD Executive Secretariat is equipped with technical experts and responsible for the daily management of FONAREDD as well as the management of the national REDD+ tools together with the MESD, namely the national REDD+ registry, FGRM and monitoring of safeguards. The project will coordinate closely with the Secretariat and make use of the national REDD+ infrastructure it maintains.

100. At the provincial level, the project’s governing body will be the Joint Provincial Steering Committee for the FIP and the ER Program, which was established by Provincial Decree in September 2016. It is chaired by the Governor of Mai-Ndombe and composed of Provincial Ministers of environment, agriculture, land use planning, tenure, energy and planning, representatives of the local administration of each territory (CARTs), as well as representatives of civil society, IPs, private sector and ER Program stakeholders (e.g. WWF, WWC). Main functions include strategic guidance and policy coordination for the ER Program and approval of ER Program documents (e.g. annual work plans and budgets of the PMU, ER monitoring report).

101. A PMU will assist the provincial government in the day-to-day management of the ER Program. The PMU will be an international firm hired through a competitive process. It will be composed of a Team Leader and 5 experts as follows: 2 safeguards specialists, 1 financial management specialist, 1 procurement specialist, 1 carbon finance specialist. Selection criteria for the firm will include, among others, proven track record on financial management, profound experience in working in low-capacity and high-risk countries, and international reputation on managing large, complex programs.

102. The main functions of the PMU include the following tasks: promotion of the ER Program nationally and internationally (i.e. engage new ER Program stakeholders) including assistance to the private sector, coordination with ongoing sub-projects, fulfillment of the project’s monitoring and reporting requirements, capacity building of the provincial government, and sale of ERs. Furthermore, to assist FONAREDD the PMU will also be responsible to monitor and evaluate the proper implementation of the BSP as well as of any BSP of ER Program stakeholders for their respective projects. The monitoring function includes field visits as well as the collection and compilation of data, as needed. The PMU will also support a functional FGRM at provincial level and supervise safeguards monitoring and reporting.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

103. The continuous improvement of the national REDD+ tools is essential for the success of the project. For that reason, and in order to make the project effective, the DRC is asked to secure funding (under CAFI or any other source of funding) to support a REDD+ Governance Project. This project shall include support for the further development as well as implementation and/or management of the national REDD+ registry, Ministerial Homologation Decree for REDD+ projects and programs, safeguards and FGRM.

104. The project’s MRV system is under development through the NFMS project implemented by FAO and DIAF, also financed by CAFI. The CAFI financing is composed of two tranches: Tranche 1 provides US$ 6 million for the period January 2017 until January 2019, Tranche 2 would add another US$ 4 million for the period January 2019 until January 2021. The national MRV system, and the MRV system for the project as integral part of it, is expected to be in place by January 2019 (with Tranche 1 financing). This is in line with the technical requirements for the implementation of this project, as the first monitoring of emissions is scheduled in July 2019. The FAO project has been operational since January 2017. As of July 2018, DIAF has produced forest cover change data for the historical period 2000 – 2010 - 2014, has launched the National Forest Inventory and has submitted to the UNFCCC a first version of the national Forest Reference Level which is currently under technical assessment. Details about the work plan, deliverables and budget of the FAO project are available on the CAFI website. The World Bank is a member of the technical steering committee to ensure coherence between the ER Program and national levels. Details about the work plan, deliverables and budget of the FAO project are available on the CAFI website20.

Financial Management

105. The PMU will be responsible for the monitoring and evaluation of the proper BSP implementation. It will instruct the FCPF Carbon Fund to make payments to dedicated bank accounts based on the ER monitoring report and in line with the procedures specified in the BSP.

106. The financial management arrangements for ERPA payments to be handled through FONAREDD / MPTF- O for fixed costs will be developed in more detail prior to the effectiveness of the ERPA. Exact modalities for channeling proceeds to communities and IPs under the dedicated FONAREDD window as well as to the private project owners will be specified further with the MPTF-O and FONAREDD in the first year of project implementation.

20 http://www.cafi.org/content/dam/cafi/docs/drc-documents/DRC-Approved%20Programmes/DRC-NFMS-%20FAO/DRC- NFMS_PRODOC_FAO_Version%20finale.pdf

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

107. The World Bank, as part of its supervision role, will review the implementation of the project's financial management arrangements. This includes the BSP implementation with a focus on the PMU and FONAREDD.

Disbursements

108. The first disbursement will be made through an upfront advance payment upon the effectiveness of the ERPA to hire the PMU and cover other annual fixed costs of the project. Subsequently, disbursements will be made three times during the project period after the verification of ERs per reporting period.

109. In the years in between the reporting periods, when ERs are not measured, disbursements will be made to cover the annual fixed costs through interim advance payments. The disbursement schedule (cash flow) for different performance scenarios is provided in Annex 5 (Appendix 4).

Procurement

110. N/A

Environmental and Social (including safeguards)

111. The institutional arrangements for the monitoring of safeguards implementation will include a safeguards monitoring unit to be created under the REDD+ Governance Project prior to effectiveness. Specifically, it has been discussed with FONAREDD that the project will provide two experts for monitoring and evaluation and the updating of the social and environmental REDD+ standards and safeguards instruments based on lessons learned in the eight provinces covered by FONAREDD investments including Mai-Ndombe.

112. In addition, the PMU will be tasked with closely monitoring safeguards implementation in the ER Program area. It will include two dedicated safeguards specialists. Any new ER Program stakeholder must conduct specific studies and consultations to develop safeguards plans including mitigation measures as needed. The PMU will report on the implementation of safeguards to the World Bank through the ER monitoring report, which specifically requires an annex on safeguards implementation. Before authorizing actual payments under the ERPA, the ER monitoring report will be verified by an independent reviewer which will be contracted by the Carbon Fund. The safeguards monitoring report needs to be satisfactory to the World Bank, which can apply remedies in case of non-compliance.

113. Information about the sound application of safeguards in the implementation of ER Program activities will be disclosed through the following channels: (i) publicly available information in the national REDD+ registry; and (ii) the annex on safeguards implementation to the ER monitoring report.

Monitoring & and Evaluation

114. The NFMS project implemented by DIAF and FAO will be responsible for the measurement of ERs in the ER Program area over the course of the project implementation. The PMU will report the ERs to the FCPF

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Carbon Fund through an ER monitoring report for each reporting period. The Carbon Fund is responsible to organize the independent review (verification).

115. The net amount of ERs for ERPA payments is the amount of ERs generated by the ER Program after the deduction of a buffer reserve to mitigate reversal and uncertainty risks. The amount of ERs to be set aside in the buffer reserve is defined in line with the FCPF Carbon Fund Buffer Guidelines21. The assessment of reversal risks for the ER Program, which is described in detail in the ERPD, results in a set aside of 20 percent of ERs. In addition, the uncertainty analysis, which is also described in detail in the ERPD, indicates an uncertainty higher than 30 percent leading to a set-aside of 8 percent of ERs. The total amount of ERs to be set aside in each reporting period is shown in Table 9 above.

Role of Partners (if applicable)

116. A list of partners involved in the ER Program, without being exhaustive, is provided below:

Name of the partner Core capacities and role within the ER program CENTRAL GOVERNMENTAL ENTITIES National REDD+ Steering Committee National steering of the REDD+ process and of the National REDD+ Fund Members: Ministers of Environment, Finance, Planning, Land- use Planning, Agriculture, Mines, Water Resources and Electricity, Hydrocarbons, Land Tenure; representatives of the private sector and of civil society. CN-REDD (MESD) Coordinates the REDD+ process in the DRC and the design phase of the Mai- Ndombe ER program DIAF (MESD) Responsible for the national forest monitoring system CTR (Ministry of Finance) Focal point for monitoring the reforms under the economic governance matrix, including REDD+ reforms Focal point for the National REDD+ Fund Coordination Unit of the Forest Investment Financial and administrative management of the Forest Program (MESD) Investment Program (FIP) PROVINCIAL GOVERNMENTAL ENTITIES Provincial Government of Mai-Ndombe Pilot the implementation in the province and president of the REDD+ Provincial REDD+ Steering Committee. Work closely with the program management unit and has a steering and political coordination role. Provincial REDD+ Steering Committee Provincial steering of the program, approval of the work plans and budgets for the program, validation of monitoring reports Members: Ministries (Agriculture, Environment, Energy, Health, Land-use Planning, Land Tenure), territorial administration, decentralized agencies, the provincial REDD+ focal point and

21 https://www.forestcarbonpartnership.org/sites/fcp/files/2015/December/FCPF%20ER%20Program%20Buffer%20Guidelines.pd f

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

representatives of the private sector, civil society and local communities and Indigenous Pygmy Peoples. CIVIL SOCIETY GTCR-R Coordination of the participation of civil society in the REDD+ process and the ER-Program development, at national and provincial levels REPALEF Coordination of the participation of Indigenous Pygmy Peoples representatives in the REDD+ process and the ER-Program development, at national and provincial levels

DGM National Steering Committee & National Deliberative council. Decides on the annual DGM work plans Executing Agency and makes funding decisions on eligible community proposals WWF – DRC Program design and implementation partner and execution agency of the FIP PIREDD in the Plateau District Forest Governance Observer (OGF) Independent observer of the FLEG process, mandated by the MESD. Has worked since 2014 on the development of independent observation of the REDD+ process MOABI Manages an independent collaborative mapping platform for independent observers and local civil society GI-Agro Supports several villages in South Kwamouth on the development of REDD+ activities (agroforestry, regeneration etc.) CARITAS CONGO Asbl Supports agricultural producer organizations in the Diocese of Inongo on the improvement of agricultural production, their structuring and support for the strengthening of economic capacities. PRIVATE SECTOR AND PROFESSIONAL ORGANIZATIONS Wildlife Works Carbon (WWC) Program design and implementation partner, Mai-Ndombe REDD+ project holder approved by VCS and CCBA Wood Industries Federation (FIB) Network of industrial logging companies in the DRC

SODEFOR Forest company owner of 11 concessions in the ER-Program area SIFORCO Forest company owner of 1 concession in the ER-Program area

Maison NBK Forest company owner of 1 concession in the ER-Program area

Congo National Confederation of Agricultural Network of agricultural producers in Congo Producers (CONAPAC) SOGENAC Director of a livestock concession in Bolobo and Mushie. Volunteer for the development of savannah and forest protection activities within this concession. SOCALCO company (Dewji International Group) High-quality match manufacturing company based in Kinshasa; committed to developing agroforestry reforestation activities in

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

the program area, to setting up an R&D centre and to introducing local wood processing activities in order to increase local employment and revenue generation PERMIAN Global Support for conservation programs focusing on carbon performance through existing conservation concessions and facilitation for the creation of new conservation concessions.

FUNDING PARTNERS

UNDP Technical and financial support to FONAREDD Congo Basin Forest Fund (CBFF) Financing of integrated REDD+ pilot projects

Norwegian Agency for Development Cooperation Financing of WWF and VCS initiatives for implementing and testing (Norad) the jurisdictional approach of REDD+ German Development Bank (KFW), funded by the Financial support through the Carbon Map and Model project (LiDAR German Government (Ministry of Environment) etc.) European Forest Institute (EFI) Technical and financial support for various aspects of implementation of REDD+ in the DRC (communication and awareness raising, support for local operators, support for independent observation and South- South cooperation) JICA /JAFTA Technical and financial support for the strengthening of the DIAF's capacities for inventories and monitoring of forest cover in the province of Mai-Ndombe Agence Française de Développement (AFD) Financial support for (i) the AGEDUFOR project which aim to support sustainable management of forests in DRC (training of administration staff, implementation of forest management plan by forest companies and support the adaptation of the regulative framework) and (ii) the Satellite Observatory of Central African Forests (OSFAC) USAID-CARPE Financial support through partner NGOs and other agencies involved in participatory activities of land-use planning, REDD+ awareness raising and fire management among communities, strengthening of capacities for REDD+ implementation with a particular focus on environmental and social safeguards. United States Forest Service (USFS) Support for the DIAF and for fire management activities in the region of Mai-Ndombe OSFAC Technical support for the development of the national and provincial MRV system

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

ANNEX 3: IMPLEMENTATION SUPPORT PLAN

COUNTRY: Democratic Republic of Congo Mai-Ndombe Emission Reductions Program (P160320)

Strategy and Approach for Implementation Support

117. The strategy for Implementation Support has been developed based on the innovative nature of the project and its risk profile. The aim is to provide timely and efficient implementation support to the client, while at the same time implementing the risk mitigation measures identified in the SORT.

118. Procurement: N/A

119. Financial management. Supervision will review the implementation of the project's financial management arrangements, including but not limited to the proper BSP implementation, with a focus on the PMU and FONAREDD.

120. Coordination with other development partners, especially CAFI and REDD+ related initiatives. Implementation support will include: (i) the supervision of the implementation of all the environmental and social safeguards instruments, and sound implementation of mitigation measures to prevent any social and environmental risks associated to the project, and; (ii) collaboration with CAFI and the FONAREDD to ensure the alignment of all the REDD+ related initiatives.

121. Legal support: Implementation support will include verification that legal conditions have been met.

122. Anti-Corruption. The World Bank team will support implementation by the recipient of activities agreed for strengthening anti-corruption measures in the sector with the view to avoiding any “Sanctionable Practice" as defined in the ERPA CGs, and more particularly in the Section 14.04 of the ERPA CGs.

Implementation Support Plan and Resource Requirements

123. Technical inputs. The technical specialists and the Task Team Leader (TTL) are based in Washington DC. The fiduciary team is based in the Kinshasa office, as well as the safeguards specialist team (Social Development & Environment). Formal supervision and field visits will be carried out at least twice annually.

124. Fiduciary requirements and inputs. Training will be provided regularly by the World Bank's financial management specialist and procurement specialist to enhance project implementation, as needed, bearing in mind that the proposed operation does not require anything specific. The team will also help stakeholders to identify capacity building needs to strengthen their financial management capacity and to improve procurement management efficiency.

125. Safeguards: Due to the nature of the carbon finance transaction, payments of which will depend on the proper implementation of social and environmental safeguards instruments, the project will require close safeguards supervision.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Time Focus Skills Needed Resource Estimate Partner Role First twelve Guidance on months institutional TTL/NRM Specialist 26 (2 x 13) SWS n/a arrangements and project supervision Safeguards Guidance on BSP, Technical Specialist (Social 5 SWS safeguards, and input Development) grievance & redress Safeguards mechanism, and Technical Specialist 5 SWS quality control. input (Environment) Technical supervision: Technical MRV Specialist 5 SWS Carbon accounting input Technical supervision: Adaptation of the Carbon Finance Technical 5 SWS national REDD+ Specialist input infrastructure Sub-total 46 SWS 12-48 months BSP and safeguards Safeguards 30 (2 x 15) SWS n/a monitoring Specialists Project implementation TTL 39 SWS n/a supervision Technical supervision: Technical NRM Specialist 39 SWS technical aspects input Technical supervision: Technical MRV Specialist 15 SWS Carbon accounting input Technical supervision: Carbon Finance 15 SWS Technical Adaptation of the Specialist input national REDD+ infrastructure Sub-total 138 SWS

Skills Mix Required in Staff Weeks (SWS)

126. Bank team:

Skills Needed Number of Staff Weeks Number of Trips Comments Safeguards Specialist 4-6 SWS annually Field trips as needed Based in the country (Social development) office

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Safeguards Specialist 4-6 SWS annually Field trips as needed Washington based (Environment) Task Team Leader 12-14 SWS annually Three missions in Paris based year 1, then two missions at least MRV Specialist 4-6 SWS annually Two missions (at least Washington based year 1, then as needed) NRM Specialist 12-14 SWS annually Two missions Based in the country office Carbon Finance Specialist 4-6 SWS annually Two missions and field Based in the region trips as needed or in Washington

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

ANNEX 4: ERPA commercial terms as derived from negotiations between the CFP and DRC

ERPA Terms Description

IBRD, as trustee (Trustee) of Tranche A and Tranche B of the FCPF Carbon Fund, on behalf of Buyer FCPF Carbon Fund Tranche A and Tranche B participants (Participants)

Democratic Republic of Congo, represented by the Ministry of Environment and Sustainable Seller Development (MESD) and the Ministry of Finance

Host Country Democratic Republic of Congo

Parties Buyer and Seller

Whereas the Emission Reductions Payment Agreements (ERPAs)22 become effective upon signature of both Parties, the respective Party’s obligations under the ERPAs regarding the sale, transfer and payment for emission reductions (ERs) will only become effective upon the following conditions being fulfilled by the Seller (Conditions of Effectiveness), in form and substance satisfactory to the Trustee following consultations with the respective Participants:

1. Submission of a Letter of Approval23; 2. Submission of a final Benefit Sharing Plan which, based on the advance draft version of the Benefit Sharing Plan24, takes into account specific guidance to be provided by the Conditions of Trustee, following consultations with the respective Participants, on the outstanding Effectiveness issues that need further clarification in the final version of the Benefit Sharing Plan; 3. Action Plan which describes further steps and timelines to adopt a final Reversal Management Mechanism25; 4. Submission of the final terms of reference for the selection of an ER Program Management Unit tasked to manage the ER Program on behalf of the Seller; 5. Action Plan which describes further steps and timelines for the Seller to demonstrate its ability to transfer Title to ERs, free of any interest, Encumbrance or claim of a Third Party, prior to any ER Transfer; and 6.. Provide evidence which demonstrates that the Seller has secured funding of USD 2,200,000 (through the Central African Forest Initiative (“CAFI”) or other sources of

22 Each Tranche of the FCPF Carbon Fund is expected to enter into a separate ERPA with the Seller based on the terms agreed in this FCPF Carbon Fund ERPA Term Sheet. 23 A template of a Letter of Approval will be attached as an annex to the respective ERPAs. 24 It is agreed that the Seller must present a revised advanced draft version of the Benefit Sharing Plan prior to ERPA signature that is in accordance with the requirements of the Methodological Framework and is acceptable to the Trustee, following consultations with the Participants. 25 The Action Plan should include a deadline for the final Reversal Management Mechanism, in form and substance satisfactory to the Trustee, to be adopted.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

funding) to operationalize and improve the components and subcomponents listed in the guidance applying to the Readiness Package Assessment Framework (as specified in Annex I of FMT Note 2013-1 rev) required for ER Program implementation.

If any of the Conditions of Effectiveness have not been fulfilled by the Seller within twelve (12) months from the date of the respective ERPA, as may be extended by the Trustee (Conditions Fulfillment Date), the Trustee may, at its discretion:

(1) Extend the Conditions Fulfillment Date and, possibly, reduce the Contract ER Volume and one or more Minimum Reporting Period Amount(s) by the amount of ERs that, in the Trustee’s reasonable opinion, can no longer be expected to be generated and transferred due to the delay in the Conditions Fulfillment Date; or (2) Terminate the respective ERPA by written notice to the Seller.

Contract ER Volume 11,000,000 ERs26 (Contract ERs)

The Contract ER Volume will be transferred to the Trustee on a 70/30 percent basis (Percentage Split27), i.e. 70 percent of ERs28 generated under the ER Program during a Reporting Period must be transferred to the Trustee as Contract ERs and the remaining 30 percent of generated ERs can be used by the Seller for other purposes (e.g. 3rd party purchase).

In the event that the amount of ERs generated under the ER Program during Reporting Period 1 and/or 2 as part of the Buyer’s Percentage Split amount exceeds the respective Minimum Reporting Period Amount, such additional ERs will be transferred to the Trustee Percentage Split/Sweep as Contract ERs (Sweep), subject to the following capped Sweep ER amounts29 (Sweep clause Contract ERs):

Reporting Period 1: 2,500,000 Sweep Contract ERs Reporting Period 2: 4,500,000 Sweep Contract ERs.

In the event that in Reporting Period 1 the capped Sweep Contract ER amount is not exhausted in full any remaining Sweep Contract ER amount for Reporting Period 1 shall be carried over to, and thereby increase accordingly, the capped Sweep Contract ER amount for Reporting Period 2.

Reporting Periods Reporting Period 1: Date of ERPA – July 30, 2019

26 The Contract ER Volume would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall committed contributions to the FCPF Carbon Fund at the time of ERPAs signature. 27 Note: Percentage Split may be adjusted depending on revised advance draft Benefit Sharing Plan. 28 The Buyer’s Percentage Split would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall committed contributions to the FCPF Carbon Fund at the time of ERPAs signature. 29 The Sweep Contract ER Volume would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall committed contributions to the FCPF Carbon Fund at the time of ERPAs signature.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Reporting Period 2: July 31, 2019 – July 30, 2021 Reporting Period 3: July 31, 2021 – June 30, 2024

Minimum amount of Contract ERs30 required to be generated during each Reporting Period and subsequently transferred to the Trustee: Minimum Reporting Period Amount Reporting Period 1: 450,000 Contract ERs Reporting Period 2: 1,750,000 Contract ERs Reporting Period 3: 8,800,000 Contract ERs

Unit Price per Contract ER US$ 5.00 per transferred Contract ER

In the event that the amount of ERs generated under the ER Program during Reporting Period 1 and/or Reporting Period 2 as part of the Buyer’s Percentage Split amount exceeds the respective Minimum Reporting Period Amount plus the respective capped Sweep Contract ER amount, the Parties agree to grant the Trustee a Call Option to purchase additional ERs (Additional ERs), i.e., ERs generated under the ER Program, as part of the Buyer’s Percentage Split amount, in excess of the respective Minimum Reporting Period Amount plus the respective capped Sweep Contract ER amount in Reporting Period 1 and/or Reporting Period 2.

In the event that the amount of ERs generated under the ER Program during Reporting Period 3 as part of the Buyer’s Percentage Split amount exceeds the remaining amount of the Contract ER Volume, the Parties agree to grant the Trustee a Call Option to purchase such Additional ERs as part of the Buyer’s Percentage Split amount. Additional ER Volume and Exercise Price per Each of these Call Options provides the Trustee with a right, but not an obligation, to Additional ER purchase all or part of such Additional ERs from the Seller and is subject to the following requirements:

1. Maximum Option Volume 1: 5,000,000 Additional ERs (Tranche A and Tranche B)31; Maximum Option Volume 2: 1,000,000 Additional ERs (Tranche A only; junior to Maximum Option Volume 1) 2. Exercise Price per Additional ER: US$ 5.00 per transferred Additional ER (for Maximum Option Volume 1); US$ 6.00 per transferred Additional ER (for Maximum Option Volume 2) 3. Exercise Period: The Trustee must notify the Seller of its decision to exercise the respective Call Option (Exercise Notice) within sixty (60) calendar days following Trustee’s receipt of the final Verification Report for the respective Reporting Period indicating that Additional ERs have been generated under the ER Program; and

30 The Minimum Reporting Period Amounts would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall committed contributions to the FCPF Carbon Fund at the time of ERPAs signature. 31 The Maximum Option Volume 1 would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall committed contributions to the FCPF Carbon Fund at the time of ERPAs signature.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

4. Exercise Completion Date: The Seller must complete the transfer of Additional ERs for which the Call Option has been exercised within ninety (90) calendar days following receipt by the Seller of the Exercise Notice.

Only Tranche B of the FCPF Carbon Fund agrees on one upfront advance payment in the amount of US$ 1,060,000 (Upfront Advance Payment). Starting at the end of Reporting Period 1, Tranche A and Tranche B of the FCPF Carbon Fund agree on one or more regular interim advance payments (Regular Interim Advance Payments)32, as specified below. Tranche A and Tranche B of the FCPF Carbon Fund may provide an additional interim advance payment in the amount of up to US$ 2,200,000 (Additional Interim Advance Payment)33, as specified below. Any Regular/Additional Interim Advance Payment by Tranche A of the FCPF Carbon Fund will be conditional upon the Action Plan provided for under Condition of Effectiveness No.5 (see above) being implemented in full by the Seller at the time such payment becomes due. In any case, the sum of Upfront Advance Payment and Regular Interim Advance Payments under both ERPAs shall not exceed US$ 5,300,000 (Regular Advance Payment Cap) and the sum of Upfront Advance Payment, Regular Interim Advance Payments and Additional Interim Advance Payment under both ERPAs shall not exceed US$ 7,500,000 (Additional Advance Payment Cap).34

Advance Payment(s) The Upfront Advance Payment of US$ 1,060,000 will be subject to the following condition:

• Disbursement of the Upfront Advance Payment may not be made before fulfillment of the Conditions of Effectiveness.

Any Interim Advance Payment will be subject to the following conditions:

• Unless provided otherwise herein, disbursements of each Regular Interim Advance Payment will be linked to certain agreed milestone(s)35 related to interim progress to be achieved in the ER Program implementation process as documented in interim progress reports to be issued by the Seller and submitted to the Trustee (Interim Progress Reports). • Regular Interim Advance Payments shall be scheduled as follows and are subject to certain agreed milestones and receipt of Interim Progress Reports, in form and substance satisfactory to the Trustee following consultations with the respective Participants: o At the end of Reporting Period 1: US$ 1,060,00036

32The Regular Interim Advance Payment amounts would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall contributions to the FCPF Carbon Fund at the time of ERPAs signature. 33 The Additional Interim Advance Payment amounts would be split between Tranche A and Tranche B of the FCPF Carbon Fund based on their respective share in the overall contributions to the FCPF Carbon Fund at the time of ERPAs signature. 34 For the avoidance of doubt, any Regular/Additional Interim Advance Payment by Tranche A and Tranche B of the FCPF Carbon Fund is without prejudice to any respective rights of the Trustee under Article XVI of the GCs. 35 The milestones for each Regular Interim Advance Payment shall be finalized prior to ERPA signature and be attached as an annex to the ERPA. 36 See footnote 31

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o One year prior to the end of Reporting Period 2: US$ 1,060,00037 o At the end of Reporting Period 2: US$ 1,060,00038 o One year after the end of Reporting Period 2: US$ 1,060,00039 • In the event that the funding secured in accordance with condition no.6 of Schedule 1 (Conditions of Effectiveness) does not materialize or the related funding is not disbursed in a timely manner for reasons other than the Program Entity’s non-compliance with the respective underlying funding requirements, Tranche A and Tranche B of the FCPF Carbon Fund, taking into account the financial needs of the Seller and the particular circumstances for the secured funding not materializing or not disbursing in a timely manner, may provide an Additional Interim Advance Payment in the amount of up to US$ 2,200,000. Specific milestones or an Interim Progress Report are not required for this Additional Interim Advance Payment. • Without prejudice to any respective rights of the Trustee under Article XVI of the GCs (Events of Default and Remedies) and with respect to the ERPA payments due for transferred Contract ERs from Reporting Periods 1 and 2, if the respective actual gross ERPA payments under both ERPAs are less than US$ 1,060,000, the Parties agree that the Trustee shall top up the actual gross ERPA payment amounts by an amount equal to the difference between the actual gross ERPA payment amounts under both ERPAs and US$ 1,060,000. Such top up payment(s) shall be deemed part of the Regular Interim Advance Payments referred to above and shall be subject to the Regular Advance Payment Cap and the Additional Advance Payment Cap, but shall not require specific milestones or Interim Progress Report(s).

Any Upfront Advance Payment and Regular/Additional Interim Advance Payment, as applicable, will be deducted in full from future payments due under the respective ERPAs for transferred Contract ERs/Additional ERs, provided that (1) with respect to the ERPA payments due for transferred ERs from Reporting Period 1, no deduction shall take place, (2) with respect to the ERPA payments due for transferred ERs from Reporting Period 2, (a) if the actual gross ERPA payments under both ERPAs are US$ 1,060,000 or less, no deduction shall take place, or (b) if the actual gross ERPA payments under both ERPAs are more than US$ 1,060,000, the deduction will be limited to an amount that allows actual net ERPA payments under both ERPAs to be made to the Seller of at least US$ 1,060,000 (minus any potentially overpaid ER Advance Payment amount; see below).

Only in the event that the Trustee decides, in its sole and absolute discretion (following consultations with the respective Participants), to make payment for ERs based on receipt of a ER Monitoring Report only, pending subsequent Verification and ER Transfer, the Trustee may advance such payment before receipt of the corresponding final Verification Report (ER Advance Payment), provided that:

• In the event that a subsequent final Verification Report verifies an ER amount that is less than the amount reported in the ER Monitoring Report and the value of such

37 See footnote 31 38 See footnote 31 39 See footnote 31

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verified/contracted ER amount is less than the ER Advance Payment, the Trustee shall be entitled to recover the overpaid amount from any future payments under the ERPA for transferred Contract ERs/Additional ERs.

If any outstanding advance payment amount cannot be recovered in full from the last ERPA payments due for transferred Contract ERs/Additional ERs to be made under the ERPAs, the Trustee may (1) request prompt repayment of the outstanding advance payment amount from the Seller to the Trustee or (2) in its sole and absolute discretion and following consultations with the respective Participants, waive its right to recover any such outstanding advance payment amount.

Taxes and other charges levied in connection with the transfer of ERs (Taxes), if any, will be Taxes borne by the Trustee, unless such taxes or other charges are levied by the Host Country (in which case such taxes and other charges will be borne by the Seller).

Seller Costs:

• The Seller shall cover its own costs incurred in relation to ERPA negotiations and the preparation and implementation of the ER Program (Costs).

Trustee Costs:

Costs • The Trustee shall cover its own Costs incurred in relation to ERPA negotiations and ERPA implementation (including Costs for Registration of the ER Program and Verification of Contract ERs and Additional ERs) and shall not seek recovery of such Costs from the Seller. • Any additional costs incurred by the Trustee with respect to the process of converting a transferred Contract ER/Additional ER into an ER credit that may be eligible to be used by the respective Participants for compliance or resale purposes under any existing or future compliance carbon market, if applicable, will be borne by the Trustee.

For Tranche A Participants, a full transfer of title to any Contract ERs/Additional ERs is required.

For Tranche B Participants, notwithstanding Section 5.02(g) of the GCs, the Trustee will Transfer of Contract ERs/ retransfer the volume of Contract ERs/Additional ERs to be transferred to and paid for by Additional ERs Tranche B of the FCPF Carbon Fund and shall not prevent the Seller from using such retransferred Contract ERs/Additional ERs to meet its nationally determined contributions (NDCs) under the Paris Agreement, as may be appropriate and as consistent with the applicable modalities, procedures and guidelines under the Paris Agreement.

• In addition to Section 5.01(b)(i) of the GCs, the Seller shall monitor and report to the Trustee on the implementation of the Safeguards Plans and Benefit Sharing Plan during Additional covenants Reporting Periods. The Seller shall monitor and report to the Trustee on the implementation of the Safeguards Plans annually after the date of the ERPA. The Seller shall first monitor and report to the Trustee on the implementation of the Benefit Sharing

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Plan six (6) months after receipt of the first Periodic Payment and annually thereafter. The Seller may coordinate the annual monitoring and reporting of the Safeguards Plans and the Benefit Sharing Plan, provided that the Seller notifies the Trustee and the Trustee accepts such coordinated timelines. The Trustee reserves the right to initiate a separate monitoring of the implementation of the Safeguards Plans and/or the Benefit Sharing Plan annually after the date of the ERPA by an independent Third Party monitor. • The Seller shall submit a final Reversal Management Mechanism to the Buyer, in form and substance satisfactory to the Trustee, by the deadline provided in the Action Plan (see above; Conditions of Effectiveness No.3), but in any case no later than the first ER Transfer. If no such final Reversal Management Mechanism is provided by that deadline, this shall constitute a material breach by the Seller (Event of Default) under Section 16.01(a)(vi) of the GCs. • Without prejudice to the displacement risk mitigation measures listed in the ER Program Document and required to be implemented by the Program Entity in accordance with Section 9.01(a) of the GCs, the Program Entity shall ensure compliance with the moratorium on the allocation of new industrial logging concessions imposed by Ministerial Order (n°CAB/MIN/AF.F-E.T./194/MAS/02) dated May 14, 2002 (“2002 Moratorium”), as confirmed and extended by Presidential Decree (n°05/116) dated October 24, 2005 and Presidential Decree (n°08/02) dated January 21, 2008 (“Presidential Decrees”) within the ER Program Accounting Area. If (1) the Program Entity fails to ensure such compliance or (2) a breach of the 2002 Moratorium and/or the Presidential Decrees has occurred outside the ER Program Accounting Area and evidence exists that such breach outside the ER Program Accounting Area is the consequence of related land use activities moving from inside the ER Program Accounting Area to outside the ER Program Accounting Area (displacement) or (3) the 2002 Moratorium is lifted without the conditions for lifting the 2002 Moratorium (as specified in the Presidential Decrees) being met in full, this shall constitute a material breach by the Program Entity (Event of Default) under Section 16.01(a)(vi) of the GCs. • The Seller shall select and contract, in form and substance satisfactory to the Trustee, an ER Program Management Unit tasked to manage the ER Program on behalf of the Seller by no later than 6 months from the date all Conditions of Effectiveness (see above) have been fulfilled. If no such ER Program Management Unit is selected and contracted by that deadline, this shall constitute a material breach by the Seller (Event of Default) under Section 16.01(a)(vi) of the GCs. • In the event of an ER Transfer Failure (as defined in the GCs) in any given Reporting Period and without prejudice to the exercise of any remedies provided for under the GCs, the Trustee, in its sole and absolute discretion and following consultations with the respective Participants, may choose to agree with the Seller in good faith on an action plan to remedy such ER Transfer Failure. • The Seller shall improve the accuracy of the activity data on deforestation, forest degradation and enhancement of forest carbon stocks in the reference period (2004- 2014), provide information on the methodology applied and agree with the Trustee on an annex to the ERPD updating the relevant information before the end of Reporting Period 1. The reference level should be improved with the new activity data accordingly.

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If such improvements have not been made by that deadline, this shall constitute a material breach by the Seller (Event of Default) under Section 16.01(a)(vi) of the GCs.

With respect to Section 16.01(a)(i) of the GCs (ER Transfer Failure), the Seller may avoid the occurrence of an ER Transfer Failure by transferring all or part of the Seller’s Percentage Split Event of Default (ER of ERs generated and verified under the ER Program during the Term of the ERPA to Tranche Transfer Failure) A and Tranche B of the FCPF Carbon Fund as Contract ERs to make up for any shortfall in Contract ERs.

The Trustee, shall, if applicable, in consultation with the Seller and any other relevant Registration of ER authorities and entities, submit or arrange for the submission of the ER Program for Program (if applicable) Registration (as per default process under Sec. 8.01(a) of GCs).

The Trustee shall, in consultation with the Seller, arrange for Verification of generated, Verification of ERs monitored and reported Contract ERs/Additional ERs and shall contract an Independent Reviewer for Verification purposes (as per default process under Sec. 8.02(a) of GCs).

The Trustee and the Seller shall serve as joint Focal Points (as per default process under Sec. Focal Point 10.01(a) of GCs).

The place of conciliation shall be the capital of the Host Country (as per default process under Sec. 18.03(b) of GCs). Dispute Resolution The place of arbitration shall be Paris (differing from the default process under Sec. 18.03(c) of GCs which states London to be the default location).

Confidentiality No.

The ERPAs will become effective on the date of execution by both Parties. Unless terminated earlier, the ERPAs will terminate when all obligations with respect to the sale, transfer and Term of the ERPAs payment for Contract ERs and/or Additional ERs and, if applicable, the recovery of any outstanding advance payment(s) have been fulfilled, but in any case by no later than December 31, 2025.

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ANNEX 5: Advanced Draft Benefit Sharing Plan for the Mai-Ndombe Emission Reductions Program in the Democratic Republic of Congo

Latest version prepared by the DRC on June 15, 2018

Summary The National REDD+ framework of the Democratic Republic of Congo (DRC) was established to enable coordinated land-use action and finance as the basis for the country’s efforts towards climate change mitigation, sustainable development and poverty reduction. At the core of DRC’s 2012 Ministerial Homologation Decree for REDD+ is the concept of “nesting,” that is the integration of forest carbon projects into larger-scale REDD+ programs while allowing them to continue generating carbon credits (see Figure ).40 This reflects DRC’s vision on promoting a mix of jurisdictional and local REDD+ activities as a way to include the land sector in national mitigation actions, stimulate private investment and provide operational on-the-ground capacity.

Figure 1 – Nesting of REDD+ activities

Sources: adapted from Climate Focus (2016)

Key to the implementation of DRC’s national REDD+ framework is the Emission Reductions Program in the Mai Ndombe Province (ER Program) which has attracted US$ 50 million in investment to date, including from the Central African Forest Initiative (CAFI), the Forest Investment Program (FIP), the Global Environment Facility (GEF) and Wildlife Works Carbon (private sector). Result-based payments for the Emission Reductions (ERs) achieved under the ER Program are expected to scale up funding. An Emission Reductions Payment Agreement (ERPA) is in discussion for the FCPF Carbon Fund to purchase 11 million of the ERs achieved by the ER Program over the period 2018-2024. This pilot transaction could generate additional financing of up to US$ 86 million to support the ER Program and provide a pathway to the objectives of REDD+ in DRC.

40 Lee, D. et all. 2018. Approaches to REDD+ Nesting: Lessons Learned from Country Experiences. World Bank, Washington, DC. 50

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A Benefit Sharing Plan (BSP) is a critical element of ER Programs which sets out specific economic, policy and institutional arrangements for ensuring equitable and efficient delivery of ER payments. In the context of the FCPF pilot transaction, an advanced draft version of the ER Program’s BSP must be available prior to the ERPA signature and a definitive version of the BSP will be a condition of effectiveness prior to the first ERPA payment. The development of the ER Program’s BSP involved comprehensive, multi-level (national, province, territories) and inclusive stakeholder engagement (Indigenous Peoples, local communities, civil society, centralized and decentralized administration, private sector, etc.) throughout the preparation of the ER Program (2013-2016) and the ERPA negotiations with the FCPF Carbon Fund Participants (2016-2018).

The resulting draft BSP of the Mai Ndombe ER Program is expected to provide effective incentives for a variety of actors to engage in REDD+ action while also ensuring the sustainability of the ER program itself – as described below:

▪ Beneficiaries. Collective action involving multiple stakeholders undertaking different activities is necessary to achieve large-scale mitigation under the ER Program. Beneficiaries under the BSP include a range of actors with both direct and indirect influence on the ER program and its objectives, including forest resources managers (e.g. state’s protected areas, conservation concessions, farmers, local communities, indigenous peoples, etc.) and institutional stakeholders (e.g. national and provincial governments, customary entities, etc.).

▪ Payments for ER Program management. Payouts will contribute to ER Program management, development and governance including activities to engage with stakeholders. Payouts have senior rights to ERPA payments for performance, that is, will be made first (“Category 1”). A minimum of US$ 5.3 million will be provided in advance ERPA payments (independently of the Program’s performance), on top of which up to US$ 1.9 million will be added in case of performance of the ER Program – as detailed below:

i. ER Program administration: US$ 5 million in advance payments over 5 years will support i) a Program Management Unit (PMU) that will assist the provincial government in managing the ER Program (e.g. coordination of sub-projects, implementation of the BSP, safeguards, MRV etc.) (US$ 3 million); and ii) capacity building of the provincial government (US$ 2 million).

ii. Engagement activities with indigenous peoples and local communities: local communities and indigenous peoples will receive 2% of ERPA proceeds each (minimum of US$ 0.15 million each) to recognize their historical role, as well as current efforts, in sustainable forest management and to incentivize their engagement as potential developers of sub-projects. This allocation represents US$ 0.3 to 2.2 million over 5 years depending on the Program’s performance.

iii. Risk mitigation buffer: the operations of the national-level REDD+ institutions (e.g. FONAREDD, CN-REDD, civil society etc.) and infrastructure (e.g. registry, safeguards, GRM, MRV etc.) established during the REDD+ readiness phase are mostly supported through CAFI programs. However, in the event of delay or unavailability in CAFI’s conditional funding tranche, or in the absence of other sources

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

of funding, up to US$ 2.2 million in advance ERPA payments may be requested to guarantee continuous support to national-level REDD+ operations.

▪ Performance-based rewards to sub-projects. The BSP also provides for direct performance-based rewards, including finance and possibly ERs, to private sector or community-driven sub-projects that have demonstrated a contribution to the success of the overall ER Program’s performance (“Category 2” payments, that is, made after Category 1). In return, such sub-projects will be subject to:

iv. Payment cap: no single private sub-project can receive more than 17.5 percent of the nominal ERPA value. This aims to redirect payouts towards community-based activities outside the private sub- project boundary, even if their performance is lower. The remaining ERs not purchased by the FCPF Carbon Fund will go into a pool of in-kind ERs that can be provided to individual sub-projects for performance achieved.

v. Reference levels: sub-projects will be rewarded against agreed sub-reference levels validated by the regulator. The PMU is expected to develop guidance and information on how future baselines may be developed.

vi. Legacy project: an existing legacy project – the Wildlife Works Carbon (WWC) Mai Ndombe conservation concession – was validated with a project baseline methodology prior to the jurisdiction determining its own baseline under the fully-fledged ER Program. To be integrated and rewarded for performance over the ERPA period (2018-2024) the WWC project was required to reduce its baseline by 33%.

▪ Monitoring of the BSP implementation. ERs will be measured and (third-party) verified 3 times during the ERPA period (2018-2024) relying on the MRV framework of the ER Program. ER monitoring and verification reports will provide the basis for ER generation. The distribution of ERPA payments and ERs, in accordance with the BSP, will be overseen by the PMU and tracked by the transaction registry.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Figure 2 – Mai Ndombe ER Program: Distribution of Payments under the FCPF ERPA

1. Introduction

This document is the advanced draft benefit sharing plan (BSP) for the Mai-Ndombe Emission Reductions (ER) Program of the DRC, which builds on the ERPD.41 The Mai-Ndombe ER Program was provisionally selected in the portfolio of the FCPF Carbon Fund in June 2016 through Resolution CFM/14/2016/1 and finally selected in December 2016. The advanced draft BSP is the result of a stakeholder engagement process (see Chapter 8) and designed to meet the criteria of the FCPF Carbon Fund Methodological Framework (Criteria 29-33). The DRC is in the process of preparing the negotiations of an ERPA with the Carbon Fund Participants (CFP) and the World Bank, which is the Trustee of the FCPF. The signatories of the ERPA will be the DRC and the World Bank. An advanced draft version of the BSP, acceptable to the World Bank, is required prior to ERPA signature. A final version of the BSP will be a condition of effectiveness in the ERPA.

41 The ERPD is available on the website of the Forest Carbon Partnership Facility (FCPF) at https://www.forestcarbonpartnership.org/sites/fcp/files/2016/Dec/20161108%20Revised%20ERPD_DRC.pdf

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2. Nesting and crediting

There is a consensus worldwide on how to envision crediting to a jurisdiction and nested projects. Three options are on the table.

Figure 3 – Crediting options

REDD+ REDD+ REDD+ Registry Registry Registry

Scenarios 1 and 2 are usually preferred when: (i) projects/activities in the field are considered the priority to reduce emissions from deforestation and forest degradation; and (ii) project owners ready to invest within the program boundary are already identified and/or existing. Regarding the latter, project owners (private and public investors and/or groups of communities) have under these scenarios a better understanding of the profit and loss profile of their future investment based on estimated ERs to be generated under their project, and to be received in their registry account. Assets (ERs) to be received are secured, and can be easily identified by referring to carbon methodologies. Due diligence prior to investment as well as the decision-making process is better informed.

Scenario 3 may be preferred when policy reforms or enabling activities are considered the priority to address the drivers of deforestation and forest degradation, or when large REDD+ projects are unlikely to be developed.

When it comes to crediting, the DRC, supported by UN-REDD and FCPF, clarified its preferred options back in 2012. The ministerial decree dated February 2012 (Arrêté ministériel No 004/CAB/MIN/ECN-T/012 du 15 février 2012 fixant la procédure d'homologation des projets REDD+) recognizes the concept of projects aiming at generating ERs to supply any future carbon market or to be acquired by institutional investors and includes a set of rules to govern the registration, approval and external validation of such projects. Annex 5 of the ministerial decree lists the carbon standards recognized by the DRC, one of them being the VCS.

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More specifically, and since February 2012, the DRC chose the Scenario 2 presented above with crediting to jurisdiction and projects (with their own reference level developed in accordance with a recognized carbon standard). At the seventh Carbon Fund meeting held in Paris in June 2013, civil society expressed their wish to amend this ministerial decree to include communities as possible project owners benefiting from ERs under the REDD+ process. Discussions aiming at amending the 2012 ministerial decree are ongoing.

3. Legal framework for benefit sharing of REDD+ projects / programs in DRC

The Ministerial Homologation Decree for REDD+ projects / programs42 provides the legal basis and procedures for any REDD+ project or program, including the Mai-Ndombe ER Program. The Decree formalizes, among others, procedures regarding project and/or program registration in the national REDD+ registry, respect of social and environmental REDD+ standards and application of safeguards instruments, development of benefit sharing plans, availability of a feedback and grievance redress mechanism (FGRM) and ER title transfer. The Decree also defines that ERs generated by a jurisdictional REDD+ program, such as the Mai-Ndombe ER Program, will be measured at the program level against the Program’s reference level. A program usually integrates REDD+ projects, referred to as sub-projects, with sub-reference levels to be discussed with the program entity through a consultative and transparent manner, and validated through the homologation process.

4. Coordination of finance sources related to the ER Program

It is worth noting that the ER Program is embedded into the National REDD+ approach and aims to pilot REDD+ results-based payments in coordination with other sources of finance for REDD+ implementation, including the Forest Investment Program (FIP) and the Central African Forest Initiative (CAFI). To this end, the National REDD+ Coordination (CN-REDD), which has been leading the development of the ER Program, and the Executive Secretariat of the National REDD+ Fund (FONAREDD), which oversees the implementation of the National REDD+ Investment Plan, have worked together to effectively coordinate different finance sources and REDD+ benefits. In regard to the BSP of the ER Program, several CAFI- financed programs implemented by FONAREDD have been taken into consideration. This is because they provide financial support for national-level activities which are also highly relevant to the provincial ER Program. CAFI-financed programs include:

- REDD+ Governance (tendering process ongoing): support for the management of national REDD+ tools and institutional support for the national government; - Support to FONAREDD Secretariat (implemented by UNDP): institutional support for national government stakeholders and the FONAREDD Secretariat; - Support to Civil Society (implemented by UNDP): capacity building for the national civil society platform (GTCR-R) and social inclusion related to REDD+; - Sustainable Management of Forests by Indigenous Peoples (implemented by World Bank): capacity building at national and local levels to identify and implement forest management models by Indigenous Peoples (IPs);

42 Arrêté ministériel fixant la procédure d’homologation des investissements REDD+ 55

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- Implementation of the National Forest Monitoring System (NFMS) in the DRC (implemented by FAO): support for the Measurement, Reporting and verification (MRV) system at the national level and for the ER Program; - Support to the Land Use Planning Reform (implemented by UNDP): development of a land use planning policy and capacity building at national and local levels; - Support to the Land Tenure Reform (implemented by UN-Habitat): development of a tenure policy and capacity building of the National Commission on Tenure Reform (CONAREF) and communities; - Sustainable Management of Agriculture (tendering process ongoing): development of a national agriculture policy in line with REDD+ objectives and capacity building of the Ministry of Agriculture; - Sustainable Management of Forests (tendering process ongoing): elaboration of a national forest policy, revision of legislation and capacity building of environmental agencies.

5. Categories of potential beneficiaries

Potential beneficiaries of the ER Program shall contribute directly and voluntarily to the implementation of ER Program activities in the Program area. There are three categories of potential beneficiaries:

▪ Participants with a direct influence on forests, i.e. the managers of forest resources. These participants manage the state's public domain (protected areas), land-related concessions (agriculture, forestry and animal husbandry), conservation concessions, or are small-scale entrepreneurs, (groups of) local communities or farmers (including charcoal producers and hunters) benefiting from customary land rights. ▪ Institutional stakeholders at various levels, who control or guide investment decisions in the Program area or issue titles for access to natural resources. These stakeholders include the national and provincial governments, national and decentralized institutions and customary entities. ▪ Indigenous Peoples for their critical historical role in forest sustainable development. The sharing of benefits from the ER Program (in-kind ERs and monetary benefits from the sale of ERs) is based on the performance of project owners (sub-projects). More specifically, there are three types of beneficiaries that can receive payments from the ER Program: i) Institutions involved in the governance of the ER Program with associated fixed operational costs, such as the provincial government and the Program Management Unit (PMU); ii) Local communities and IPs to recognize their efforts in reducing emissions and/or their willingness to do so; and iii) Private sector including owners of logging and conservation concessions, sustainable charcoal producers, growers and others for the emission reductions generated by their sub-projects and verified against an agreed reference level. These beneficiaries receive directly or indirectly the following benefits from the ERPA (Figure 3):

▪ Payments independent of performance to cover fixed operating costs, which include incentives for local communities and IPs; and

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▪ Payments against performance, that is ERs against an agreed reference level for each integrated sub- project. Figure 4 – Two categories of ERPA payments in the Mai Ndombe-ER Program

ERPA

Fixed costs, including incentives for IPs and rural Payments against performance for communities and risk mitigation integrated sub-projects (independent of performance)

Meanwhile, in 2011, Wildlife Works Carbon (WWC)—a REDD+ project developer located in California— obtained the “exploitation rights” of two large logging concessions, including nearly 300,000 hectares of forestland adjacent to the Mai Ndombe lake. Instead of logging the forest, WWC created a “conservation concession”, and to promote biodiversity conservation and improve livelihoods in and around the concession, began developing a carbon offset project to value the emission reductions generated through the sale of carbon credits. In 2012, WWC registered the so-called “Mai Ndombe REDD+ Project” with both the Verified Carbon Standard (VCS) and the Climate, Community and Biodiversity Standards (CCBS). That same year, WWC verified over 2.5 million tons of carbon credits against the VCS and CCBS. To date, the project has issued over 13.3 million credits with vintages from 14 March 2011 to 31 December 2016. The Mai Ndombe REDD+ Project is located within the Mai Ndombe jurisdictional program as shown in figure C.1. Starting in 2018, the Mai Ndombe REDD+ Project is expected to be fully nested within the jurisdictional Mai Ndombe ER Program. WWC will not generate VCS credits (that is, Verified Carbon Units, or VCUs) anymore, using its VCS baseline, but will apply for Congolese Emission Reductions (CERs) to be generated in accordance with the FCPF Methodological Framework under the Mai Ndombe ER Program. To this end, WWC had to negotiate a sub-baseline under the ER Program set today at 3 800 000 tCO2 per annum when it was 5 671 613 tCO2eq per annum under the VCS.

6. Distribution of benefits

6.1 Principles and criteria for the distribution of benefits

ER Program stakeholders agreed on the following overarching principles for the BSP of the Mai-Ndombe ER Program: ▪ The objective of the ER Program is to contribute to reducing poverty and improving the livelihoods of the local population while mitigating climate change through REDD+ activities. ▪ Fixed costs associated with ER Program management need to be covered first from ERPA payments (on an annual basis) to ensure its sound implementation. ▪ The sharing of benefits from the ER Program (in-kind ERs and monetary benefits from the sale of ERs) is based on performance of program stakeholders (sub-projects) measured in ERs achieved against a

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reference level. The distribution of proceeds among beneficiaries of the sub-project takes place according to a benefit sharing plan which shall be satisfactory to the Regulator as specified in the Ministerial Homologation Decree. A sub-project can be developed by any of the potential beneficiaries identified above. ▪ Integrated sub-projects are only eligible for benefits if they respect the national social and environmental REDD+ standards and apply the REDD+ safeguards instruments while implementing activities. More specifically, ER Program stakeholders agreed on the following five criteria for ERPA payments against performance:

1. Payments to sub-projects will be based on agreed reference levels for the sub-project area. The process for the allocation of reference levels to program stakeholders is described below.

2. Payments will be made directly to private sub-project owners. Private sub-project owners that receive payments for their sub-project area of accountability will share benefits in accordance with an approved benefit sharing plan for the sub-project.

3. Cash payments for large private sub-project owners will be capped at 17.5% of the nominal ERPA value for each project respectively to prioritize financial flows to communities and IPs.

4. Large sub-project owners are eligible for in-kind ERs corresponding to the ERs generated against their sub-project reference level and not compensated under point 3 above.

5. When beneficiaries are communities and IPs, payments will be deposited in a window of FONAREDD, which is administered by the Multi-Partner Trust Fund Office of the United Nations (MPTF-O), until new integrated REDD+ projects to benefit communities and IPs are identified.

6.2 Category 1 of ERPA payments: Fixed operational costs

National policy framework, REDD+ institutions and tools. As outlined above, the ER Program is not implemented in isolation but is part of the national REDD+ framework which includes: • Implementation of REDD+ related policy reforms, such as land use planning, land tenure, sustainable agriculture and sustainable forest management;

• Functional REDD+ infrastructure, including national REDD+ tools such as the national REDD+ registry, the feedback and grievance redress mechanism (FGRM), monitoring of social and environmental REDD+ standards, and the measuring, reporting and verification (MRV) system;

• Functional national REDD+ institutions, such as the FONAREDD Steering Committee (COPIL), the FONAREDD Executive Secretariat and the civil society.

Most of the REDD+ institutions and tools were established during the REDD+ readiness phase and are not specific to the Mai-Ndombe ER Program but concern any REDD+ activity in DRC. In addition, REDD+ policy reforms have started as part of the implementation of the National REDD+ Investment Plan supported by CAFI. Such reform provides important enabling conditions for the ER Program but also any other REDD+ activity in DRC. The financial support needed for DRC to complete the national policy framework, further

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build capacities of institutions and manage the REDD+ tools is provided by CAFI through the FONAREDD programs described below. As of today, six programs (and potentially eight tomorrow) supported by CAFI indirectly contribute (or will contribute) to the success of the ER Program with US$ 22.75 million committed and under implementation.

Component / Project / Program Amount [US$] Projects likely to be supported by FONAREDD / CAFI which contribute to a certain extent to the implementation of the Mai Ndombe ER Program Support to civil society

Over a five-year period (2017-2021) - Funding secured as of today 2,000,000 Executive Secretariat of FONAREDD

Over a five-year period (2017-2021) - Funding secured as of today 6,750,000 Finalization and operationalization of the National Forest Monitoring System US$ 6.00 million over a two-year period First tranche of US$ 6 million over a two-year period (2017-2018) secured as 6,000,000 of today Second tranche of US$ 4 million to be secured over a three-year period (2019-2021) Support to tenure reform

Over a three-year period (2017-2020) - Funding secured as of today 3,000,000 Support to land use planning reform US$ 3.00 million over a three-year period First tranche of US$ 3 million over a three-year period (2017-2020) secured 3,000,000 as of today Second tranche to be secured: US$ 1.00 million (2021) Sustainable management of forests by Indigenous Peoples

Over a five-year period (2017-2021) - Funding secured as of today 2,000,000 Sustainable management of forests

First tranche over a three-year period (2018-2020): US$ 6.00 million Second tranche over a two-year (2021-2022): US$ 6.00 million First and second tranches remain to be secured Sustainable management of agriculture

US$ 4.00 million over a five-year period (2018-2022) to be secured Sub-total FONAREDD programs supported by CAFI 22,750,000

Table A: FONAREDD / CAFI portfolio which indirectly contributes to the ER Program

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▪ Fixed operational costs related to the ER Program Fixed operational costs occur independent of the performance of the ER Program. The objective for the ER Program is to minimize the fixed costs to maximize benefits that contribute to achieving the Program’s goals and that can be distributed against performance. The fixed costs of the ER program overall (i.e. including the national REDD+ infrastructure) are broken down in Table B below.

Component / Project / Program Amount [US$] REDD+ Governance Program43 (to be financed by CAFI or other sources of funding) National REDD+ registry (7.70%) 689,000 Feedback and grievance redress mechanism (13.36%) 1,195,000 Social and environmental REDD+ standards (7.94%) 711,000 Legal framework (3.49%) 312,000 Other (67.51%) 6,042,000 Sub-total 8,949,000 Minimum amount required to run the ER-Program which might be covered 2,200,000 by the ERPA in the absence of funding for the US$ 8.95 million REDD+ Governance Program Institutional support for provincial government To be covered by ERPA payments 2,000,000 Program Management Unit (PMU) To be covered by ERPA payments 3,000,000 Recognition of past efforts achieved by IPs and rural communities To be covered by ERPA payments, as a percentage (4%) of the ERPA nominal 300,000 value Minimum amount required Minimum fixed costs to run the program, out of which at least US$ 5 7,500,000 million will be covered by the ERPA

Table B: Estimation of fixed operational costs related to the ER Program over five years Institutional support for the provincial government.

As outlined above, institutional support is provided to the national government through various FONAREDD programs. At the ER Program level, a minimum of institutional support to the provincial government is necessary for the following reasons: - First, the provincial government will be assisted by the PMU in the daily management of the ER Program to mitigate risks related to weak capacities. However, it is important to maintain full ownership by the province as the accountable ER Program entity and build capacities. Such activities must be supported, to some extent, independently from the ER Program performance, especially in the early years of implementation.

- Second, the need for capacity building is high at all levels. The secured investment sources for the ER Program, notably US$ 14.2 million from the FIP and US$ 20 million from CAFI, have been designed mainly to implement ER generating activities and prioritize support to communities and IPs. It is

43 The tendering process launched by the FONAREDD for the REDD+ Governance Program is still ongoing; thus, the figures provided are estimates only. They are derived from the World Bank proposal submitted on June 12, 2017. 60

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therefore important to direct some benefits to capacity building activities for the public administration to strengthen the enabling environment.

Program Management Unit. The PMU plays a vital role in assisting the provincial government in the management of the ER Program. The main functions of the PMU include the following tasks: promotion of the ER Program nationally and internationally (i.e. engage new ER Program stakeholders) including assistance to the private sector (e.g. SODEFOR), coordination with ongoing sub-projects, fulfillment of the project’s monitoring and reporting requirements, capacity building of the provincial government, and sale of ERs. Furthermore, the PMU will also be responsible for monitoring and evaluating the proper implementation of the BSP as well as of any BSP of ER Program stakeholders for their respective sub- projects. The monitoring function includes field visits as well as the collection and compilation of data, as needed. The PMU will also support a functional FGRM at provincial level and supervise safeguards monitoring and reporting. The PMU will be an international firm hired through a competitive process. It will be composed of a Team Leader and 5 experts (2 safeguards specialists, 1 financial management specialist, 1 procurement specialist, 1 carbon finance specialist). Recognition of past efforts achieved by IPs and rural communities. The Congolese government wished to recognize the past efforts of IPs and local communities (2% of ERPA value) which led to the conservation of large swaths of forest in the DRC, and ensure the pursuit of their engagement and commitment to the success of the ER Program. For that reason, specific incentives were proposed to maintain the stakeholder engagement. Components Incentives over six-year ERPA term Incentives for Indigenous Peoples 2% of nominal ERPA value44 At least 2% of US$7.5 million: US$150,000 Incentives for local communities 2% of nominal ERAP value At least 2% of US$7.5 million: US$150,000 Total From US$ 0.3 to 2.2 million

Table C: Incentives as a recognition of past efforts achieved by IPs and rural communities to pursue stakeholder engagement

Incentives are justified as follows: Incentive for Indigenous Peoples. IPs receive special attention in the ER Program for two reasons. First, the ER Program recognizes the historical role of IPs in sustainable forest management. Second, IPs in DRC are among the poorest people of the world and the improvement of their livelihood is a prioritized co- benefit of the ER Program. The overall package of support for IPs is composed of the following elements: Support to IPs through investment projects independent of ER Program performance: • Dedicated Grant Mechanism (DGM): Forest Dependent Community Support Project (US$ 6 million) at the national level, with Mai-Ndombe being one of the targeted provinces. The DGM is implemented by CARITAS.

44 In case of a 100% performance scenario and an ERPA value of US$50 million (11 million tCO2 * US$ 5/tCO2), the 2% incentive amount would be US$ 1.1 million over 5 years. 61

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• CAFI: support to IPs, implemented through the DGM (US$ 2 million in total), with Mai-Ndombe being one of the targeted provinces.

Inclusion of IPs in the benefit sharing arrangements under the ERPA: • IPs will benefit from results-based payments against performance allocated to PIREDD Plateau and PIREDD Mai-Ndombe (“rural areas”, see below). IPs are integrated members of local communities and will benefit from payments to communities, which will be deposited in a dedicated window of FONAREDD.

• In addition, the DRC wishes to recognize the important role of IPs in managing forests sustainably and their historic non-responsibility in deforestation. Therefore, incentives for IPs are included in the fixed costs of the ER Program and will be covered independently from the Program’s performance.

The 2% figure has been discussed with IPs, through the IP network (REPALEF) and is fully supported all ER Program stakeholders. As agreed with IPs, the rationale for the value of 2% is that it is proportional to the underpinning analytical work for the DGM which dedicates US$ 6 million for IP support at the national level. Incentives for local communities. Following the BSP consultations, it was decided to allocation the same amount to local communities to avoid any discrimination distinction between local communities and IPs while recognizing the need for dedicated support to each stakeholder groups. Risk mitigation. It is important to note that the CAFI funding for FONAREDD programs will be provided in two tranches for each program. The second tranches are conditional upon the achievement of intermediate milestones for 2018 listed in the Letter of Intent between CAFI and DRC. There is a risk that payments for the programs’ second tranches may be delayed or not materialize. A limited buffer amount will be set aside to contribute to the fixed cost of the ER Program as a risk mitigation measure to ensure the continuation of basic functions, such as the management of national REDD+ tools. ▪ Financing of fixed costs of the ER Program The total amount of fixed costs for the ER Program amounts to US$ 7.5 million over five years. All elements of the fixed costs are considered as non-regret payments and aim at securing the necessary cash flow to keep the ER Program up and running and sustain a minimum financing flow to local communites and IPs even in case of non performance scenario at the Program level. Te figure 4 describes the two streams of finance (FONAREDD/CAFI and ERPA) which support the fixed costs related to the ER Program.

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Figure 4 – Finance streams supporting the fixed costs of the ER program

National REDD+ tools including MRV

Anchoring in national REDD+ approach: REDD+ policy reforms National government FONAREDD/CAFI

REDD+ institutions Civil society

Total ER Program-relatd costs Provincial government Indigenous Peoples (US$2M)

Sub-national ER Program: ERPA Program Management (US$7.5M) Unit (US$3M)

Incentives for local communities and IPs and risk REDD+ institutions (US$2.5M)

ERPA payments in support to the fixed costs of the ER Program will be managed by the MPTF-O, in line with the MPTF-O operations manual. With regards to institutional support for the provincial government and the hiring of the PMU, the MPTF-O will coordinate with the World Bank’s Public Financial Management and Accountability Project to define the specific needs. Finally, incentives for local communities and IPs will be deposited in a dedicated window of FONAREDD, administered by the MPTF- O. 6.3 Category 2 of ERPA payments: Payments against performance

While it is important that ERPA payments support the fixed costs of the ER Program independently from the Program’s performance, at the heart of the BSP are payments against performance, that is, the generation of ERs based on the successful implementation of ER Program activities organized in sub- projects. Performance-based ERPA payments to managers and beneficiaries of sub-projects will be made to eligible sub-projects which currently exist and/or will potentially be developed in the future:

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Figure 5 – Current and potential future beneficiaries eligible for ERPA payments based on performance

ERPA payments against performance

Rural areas Logging Conservation Plantations and Groups of covered by concessions concessions other land uses communities PIREDD

Charcoal PIREDD Plateau SODEFOR WWC Group of LDC 1 plantation (FIP)

Agroforestry PIREDD Mai other other Group of LDC 2 plantation Ndombe (CAFI)

SOGENAC other

other

In the context of this BSP, the two PIREDD projects covered by World Bank’s investment projects (financed by FIP and CAFI) will be grouped together under the appellation “rural areas”.

7. Process and timeline for the distribution of benefits

7.1 Two-phased process to integrate eligible beneficiaries in the BSP

It is important to distinguish between the two phases of the BSP: - Phase 1 reflects the BSP as agreed upon by ER Program stakeholders, that is in line with the FCPF Carbon Fund Methodological Framework and required for the signature of an ERPA. The Phase 1 BSP outlines, among others, the categories of eligible beneficiaries as well as criteria and processes for the distribution of benefits. Furthermore, under this phase, the BSP integrates existing sub-projects, i.e. the Wildlife Works Carbon’s (WWC) conservation concession, and ongoing activities, such as the Integrated REDD+ Project (PIREDD) Plateau under the FIP and the PIREDD Mai-Ndombe funded by CAFI. Each existing sub-project has a project document which describing activities and how these fall under the ER Program. Phase 1 will enable the DRC government to hire a PMU, which will support management tasks to operate the ER Program (Phase 2).

- Phase 2 will involve a fully operational PMU to continue to engage with and support these ER Program stakeholders who have participated in the ER Program development, such as SODEFOR and SOGENAC, but do not yet have a readily available project document to implement their sub-projects. The PMU will therefore provide assistance to ER Program stakeholders for the development of project

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proposals in line with ER Program requirements. The PMU will also be responsible for engaging new ER Program stakeholders in the implementation of ER Program activities (and, thus, become beneficiaries of the BSP), e.g. sub-projects developed by groups of communities (represented by LDCs), non-governmental organizations, forest concessionaires or agroforestry enterprises. As the implementation of the ER Program progresses, the BSP will be adjusted to include these additional stakeholders / sub-projects based on their project documents.

7.2 Development of project proposals for and allocation of reference levels to sub-projects

ER Program stakeholders are required to develop sub-project proposals in line with the requirements of the ER Program. As described above, the BSP distinguishes between those beneficiaries which are already involved in existing sub-projects and ongoing activities (i.e. where project documents already exist) (Phase 1), and those which will be involved in (potential) future sub-projects and will therefore have to develop specific project documents for defined ER Program activities (Phase 2). Existing sub-projects and ongoing activities in rural areas are: ▪ PIREDD Plateau, financed by FIP

▪ PIREDD Mai-Ndombe, financed by CAFI

▪ WWC conservation concession, financed by WWC.

Project documents are available for these three sub-projects/ongoing activities and have been conceptualized in the ERPD. Other ER Program stakeholders, such as SODEFOR, have conducted studies and analytical work, which will feed into the development of specific project proposals. For example, the proposal for reduced-impact logging prepared by WWF DRC, WWF Germany, GFA Consulting Group, FRM Ingénierie and SODEFOR provide some groundwork for forest concessions to participate in ER program activities. The PMU will also be responsible for engaging new ER Program stakeholders in the implementation of ER Program activities (and, thus, become beneficiaries of the BSP) and assist them in the development of project proposals. It will also develop a template for these project proposals, which need to provide, among others, the following information: • Mapping of forest extent and forest carbon stocks for the sub-project area of accountability proposed by the manager; • Legal status of forest and proposed land use by manager, e.g. logging concession, conservation concession, community forest, agroforestry plantation, agricultural plantation, rural area managed by LDCs; • Historical emissions as well as current and future threats (drivers of deforestation and forest degradation) to sub-project area of accountability; • Level of investment proposed by the manager to reduce emissions within the sub-project area of accountability; and • Plan for community engagement by the sub-project. Reference level for sub-projects. A key component of the project proposals is the reference level for sub- projects. For the ER Program Mai-Ndombe, the allocation of reference levels to sub-projects will be

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coordinated by the PMU following a transparent negotiation process and validated, as part of the project proposal, at the program level by the Provincial Steering Committee. The development of sub-reference levels will, in principle, follow the logic of the FCPF Carbon Fund applied at the ER Program level and will be based on two components: i) Historic emissions in the area of accountability allocated by the PMU resulting from the ER Programs reference level (average annual emissions during the reference period); and

ii) Adjustment to the historic emissions based on several criteria supported, among others, by a risk map indicating today’s and future pressures on forests.

The determination of current and future threats on forests (drivers of deforestation and forest degradation) includes, among others, the following criteria: • Distance of sub-project area from forest frontier, roads, population centers including estimate of population, navigable river, national boundary, major domestic market, access to international markets; • Law enforcement capability; and • Vulnerability of the perimeter of forest within project area, i.e. length of edge of forest at frontier, length of edge adjacent to road. The information allowing to assess these criteria will be captured on a risk map, which is under development in the context of the Carbon Map and Model project supported by the German Ministry of Environment and implemented by WWF. According to the ERPD, the reference level of the ER Program is estimated at 48 million tCO2 per year or 240 million tCO2 over a five-year period.

ER Program Reference Level Annual Emission/ Removals (tCO2/yr.) Average annual historical emissions from deforestation 24,651,957 Average annual historical emissions from degradation 18,838,100 Average annual historical removals from enhancement of -1,424,990 carbon stocks Adjustment 5,611,789 Total Reference level 48,022,794

Table D – Reference Level of the ER program (Source: ERPD)

In Phase 1 of the BSP, a specific sub-project reference level is only required for the WWC conservation concession (3.8 MtCO2e per annum), whereas the rest will be dedicated to “rural areas” for the benefit of communities and IPs. As new sub-projects are developed under the guidance of the PMU, e.g. forest concessionaires or groups of communities (e.g. through LDCs), additional sub-reference levels will be established. In Phase 2, the ER Program’s reference level will be stratified into more sub-reference levels as new ER Program stakeholders prepare project proposals.

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7.3 ERPA payments to local communities and IPs (defined as “rural areas”)

ERPA payments to local communities and IPs (for ERs measured against the sub-reference level for rural areas) will be secured by depositing them in a dedicated window of FONAREDD administered by the MPTF- O. These will be used to finance future project-based mechanisms benefiting communities and IPs. Precise modalities for channeling these proceeds to communities and IPs will be specified at a later stage together with the MPTF-O and FONAREDD in Phase 2 of the BSP. It is envisaged that FONAREDD, in line with MPTF- O procedures, would adopt the approach currently used under the CAFI funding. It consists of calls for proposals to select projects developed by delivery partners in close cooperation with communities and IPs, or groups of LDCs, and consistent with the ER Program requirements. Incentives for communities through results-based payments for forest protection are already being tested at a small scale through contracts for Payments for Environmental Services (PES) in the context of the PIREDD Plateau and PIREDD Mai-Ndombe projects. These PES contracts are based on proxy indicators, e.g. the number of agroforestry plantations planted by communities. An example of PES contract is provided in Appendix 2. The two PIREDD projects will build capacities at the local level over time and deliver important lessons regarding what works well what does not for communities under these PES contracts. The operationalization of the FONAREDD window for communities and IPs will build on these emerging experiences and apply the tested practices.

7.4 ERPA payments to private project owners

Large private sub-projects can receive payments directly from the FCPF Carbon Fund to minimize transaction costs and encourage new investors to come on board. In Phase 2 of the BSP, alternative arrangements can be explored to reflect the opportunities and risks associated with diverse types of companies. One of the BSP criteria agreed upon by stakeholders is that cash payments for large private sub-project owners will be capped at 17.5% of the nominal ERPA value for each project respectively in order to prioritize financial flows to communities and IPs. In turn, those project owners are eligible for in-kind ERs, generated by the ER Program and not sold to the Carbon Fund, corresponding to the ERs generated against their sub-project reference level and not compensated through cash payments under the ERPA. Private sub-project owners that receive payments for their sub-project will share benefits in accordance with a specific benefit sharing plan developed for the sub-project approved by the ER Program. The PMU will develop criteria for BSP of sub-projects to guide the private sector in developing their project proposals. As of today, there is one existing sub-project owned by a private project holder, which is the WWC conservation concession. Over the past six years, WWC has invested around US$ 10 million to manage the conservation concession. The BSP of the concessions has been negotiated between the MESD, WWC and communities within the concession area and is provided in Appendix 3. In the context of the ER Program, the DRC government agreed that its share of project profits according to the BSP of the WWC project, would be handled through FONAREDD to provide institutional support for the MESD. 7.5 Timeline for the distribution of benefits

The fixed operational costs occur annually and need to be secured first to keep the ER Program running. Therefore ERPA advance payments are needed independently from the performance of the ER Program performance to ensure its sustainability in case of nonperformance of the Program. In addition, fixed costs need will also be covered first after each verification generating ER payments.

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ERPA payments for performance will be made at each verification, that is three times during the six-year ERPA term. The timeline for ERPA payments under a 100%, 50% and 10% performance scenario are provided in Appendix 4. The first ERPA payments to ER Program stakeholders would take place at the end of the first reporting period after verification in October 2018. Appendix 5 illustrate the scale of potential benefits for ER program stakeholders through several examples of financial flows in Phase 1 of the BSP under different performance scenarios.

8. Monitoring provisions for the implementation of the benefit sharing plan

The ER Program’s MRV system is the basis for determining the amount of ERs generated by the ER Program and by its sub-projects. It is currently under development as integral part of the NFMS. The NFMS is under the responsibility of the Department of Forest Inventory and Planning (DIAF) and being established with support from FAO and financed by CAFI. Emission Reductions will be measured and verified three times during the six-year project period.

More specifically, the MRV system will measure GHG emissions and removals in the ER Program area, which will be spatially explicit for sub-projects. The PMU, in cooperation with DIAF and FAO, will prepare the ER monitoring report to be submitted to the FCPF Carbon Fund for verification by an independent reviewer. The verified ERs per reporting period will be the basis for ER payments to be made by the FCPF Carbon Fund to the Recipient. The payments made will be documented, among others, in the DRC’s transaction registry.

The PMU, to be hired after the ERPA becomes effective, will oversee the distribution of ER payments in accordance with the BSP. The PMU will report on the proper implementation of the BSP to the FCPF Carbon Fund in an annex to the ER monitoring report. It will be in the PMU’s responsibility to collect the necessary data from the MPTF-O, FONAREDD and other entities as needed. The collection of data will be gender-disaggregated wherever possible. The PMU will also monitor the respect of social and environmental REDD+ standards and applications of safeguards instruments by each ER Program stakeholder, which is a prerequisite to be eligible for benefits from the ER Program.

9. Summary of the participatory process to develop the benefit-sharing plan

The DRC has conducted consultations on the BSP at national, provincial and local levels throughout the development phase of the ERPD. The ERPD describes the principles of benefit sharing as agreed upon by ER Program stakeholders. The participatory process for the BSP is described in Chapter 15 of the ERPD while Annex 8 of the ERPD contains an overview of consultations conducted at all levels between 2013 and 2016. The consultations included discussions at local levels in particular in the territories of Bolobo, Oshwe, South-Kwamouth, and Inongo – many of them were conducted by WWF. The CN-REDD organized a participatory workshop on January 25, 2017 in Kinshasa to consult on the main principles of benefit sharing and further advance the BSP in preparation of ERPA negotiations. The results of the consultation workshop are documented in an Aide Memoire, which is available on the FCPF website together with the list of participants of the workshop. The results were also presented by the CN-REDD to the Steering Committee of FONAREDD on February 3, 2017. Subsequently, the CN-REDD conducted another consultation workshop on May 31, 2017 in Kinshasa, which concluded with a roadmap for next steps. The workshop is documented in an Aide Memoire, including the list of participants, which is available on the FCPF website. The advanced BSP will be made publicly available on the FCPF website.

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Appendix 1: Criteria used for the allocation of a sub-reference level to the WWC conservation concession under the ER Program

According to the criteria listed in the BSP, the reference level for the WWC sub-project is justified as follows: • The concession is on the frontier of expansion of deforestation from Kinshasa into the Congo Basin forest. It represents nearly 50% of the linear frontier of the forest and is the only largely intact concession on that frontier as a result of the project’s actions over the past 6 years. • The forest in the concession is attractive to commercial and artisanal loggers because the semi- deciduous forest is characterized by high valued timbers (Wenge) and low heterogeneity. For comparison, the forest concession directly to the South of the concession is operated by the same concessionaire from who WWC took over its concession. That adjacent concession is largely deforested today. Logging has led to the opening of the forest creating an exponential effect due to increase in accessibility and edge drying creating vulnerability to fire. This dynamic is absent in the more humid forests to the east of the Lake Mai-Ndombe. • The natural savanna areas within and adjacent to the concession are characterized by high population density, which induces high pressure on the forest (e.g. need for construction and fuel wood). In addition, the national road #7 links the Kinshasa market to these areas for agricultural products and fuelwood. • The WWC project has the only independently field-audited data on biomass for primary forest in the entire ER Program area. Over 400 ground plots were measured in randomly selected locations within the concession and resulted in a mean above and below ground biomass figure of 285 tons of carbon per hectare for primary forest. The additional plots done by the independent team of FRM to verify carbon stocks for the CN-REDD/WWF LIDAR study found almost exactly the same carbon stock values in the project area. • Since the concession is a high-risk area as described above, the high mean for deforestation for a forest stratum as measured for the entire ER Program area for the reference period 2004-2014 is used (1.87% per year). Degradation is excluded to be conservative. • Using the mean deforestation rate and the measured carbon stocks in the project area produces

a reference level of 4.865 million tCO2eq/year. WWC has compromised and accepted a reference

level of 4 million tCO2eq/year to enable progress with the ER Program.

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Appendix 2: Example of a contract for Payments for Environmental Services (PES) from the PIREDD Plateau

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Appendix 3: Benefit sharing plan of the WWC conservation concession negotiated between the MESD, WWC and communities within the concession area

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Appendix 4: Cash flow model for ER Program under different performance scenarios

Performance 100%

31-Dec-19 31-Dec-21 31-Dec-24 Upon 6 months upon 31-Dec-20 6 months upon 31-dec-22 6 months upon effectiveness the end of the the end of the the end of the reporting #1 reporting #2 reporting #3 Total Verification Yes No Yes No Yes ERs Acquired by the Carbon Fund 1,625,963 6,270,769 3,103,268 11,000,000 Payments upon verification 8,129,814 31,353,847 15,516,339 55,000,000 Advanced Payment (AP) 1,060,000 0 1,060,000 0 1,060,000 3,180,000 AP reimbursement 2,120,000 1,060,000 3,180,000 AP situation on a cumulative basis 1,060,000 1,060,000 2,120,000 0 1,060,000 0 Cash payments 1,060,000 8,129,814 1,060,000 29,233,847 1,060,000 14,456,339 55,000,000

Performance 50%

Upon 31-Dec-19 31-Dec-20 31-Dec-21 31-dec-22 31-Dec-24 effectiveness Total Verification Yes No Yes No Yes ERs Acquired by the Carbon Fund 812,981 3,135,385 6,209,700 10,158,066 Payments upon verification 4,064,907 15,676,924 31,048,502 50,790,332 Advanced Payment (AP) 1,060,000 0 1,060,000 0 1,060,000 3,180,000 AP reimbursement 2,120,000 1,060,000 3,180,000 AP situation on a cumulative basis 1,060,000 1,060,000 2,120,000 0 1,060,000 0 Cash payments 1,060,000 4,064,907 1,060,000 13,556,924 1,060,000 29,988,502 50,790,332

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Performance 10%

Upon 31-Dec-19 31-Dec-20 31-Dec-21 31-dec-22 31-Dec-24 effectiveness Total Verification Yes No Yes No Yes ERs Acquired by the Carbon Fund 162,596 627,077 1,241,940 2,031,613 Payments upon verification 812,981 3,135,385 6,209,700 10,158,066 Advanced Payment (AP) 1,060,000 247,019 1,060,000 0 1,060,000 3,427,019 AP reimbursement 2,075,385 1,351,634 3,427,019 AP situation on a cumulative basis 1,060,000 1,307,019 2,367,019 291,634 1,351,634 0 Cash payments 1,060,000 1,060,000 1,060,000 1,060,000 1,060,000 4,858,066 10,158,066

Performance 0%

Upon 31-Dec-19 31-Dec-20 31-Dec-21 31-dec-22 31-Dec-24 effectiveness Total Verification Yes No Yes No Yes ERs Acquired by the Carbon Fund 0 0 0 0 Payments upon verification 0 0 0 0 Advanced Payment (AP) 1,060,000 1,060,000 1,060,000 1,060,000 1,060,000 5,300,000 AP reimbursement 0 0 0 AP situation on a cumulative basis 1,060,000 2,120,000 3,180,000 4,240,000 5,300,000 5,300,000 Cash payments 1,060,000 1,060,000 1,060,000 1,060,000 1,060,000 0 5,300,000

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In case of a financial gap, an additional interim advance payment in the amount of up to US$ 2.2 million might be provided to cover the fixed costs of the ER Program to ensure the continuation of basic functions, such as the management of national REDD+ tools, etc. This would happen e.g. if the Tranche Two of the REDD+ Governance Program under CAFI does not materialize.

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Appendix 5: Examples of distribution of benefits according to different performance scenarios

Performance 100% Scenario 1A: Revenues capped at 17.5% of the ERPA value for WWC because of its high relative performance ERs Delivery - Min. amount per reporting Payments Beneficiaries generated period (tCO2 eq.) $ Million Million tCO2 (on a cumulative basis) WWC conservation concession 29.02 9.63 7/30/2019 7/30/2021 6/30/2024 Rural areas (REL-∑sub-RELs) 38.18 IPs & rural communities (4% of ERPA value) 2.20 1,175,963 5,696,732 0 Sub-Total 29.02 50.00 Program Opex 5.00 Total 29.02 55.00

Origin of ERs acquired by the FCPF Carbon Fund (million tCO2 eq.) Unit Price paid to beneficiaries ($) WWC conservation concession 11.00 0.88

Scenario 1B: High performance outside the WWC conservation concession ERs Delivery - Min. amount per reporting Payments Beneficiaries generated period (tCO2 eq.) $ Million Million tCO2 (on a cumulative basis) WWC conservation concession 7/30/2019 7/30/2021 6/30/2024 Rural areas (REL-∑sub-RELs) 29.02 47.80 IPs & rural communities (4% of ERPA value) 2.20 1,175,963 5,696,732 0 Sub-Total 29.02 50.00 Program Opex 5.00 Total 29.02 55.00

Origin of ERs acquired by the FCPF Carbon Fund (million tCO2 eq.) Unit Price paid to beneficiaries ($) Rural areas (REL-∑sub-RELs) 11.00 4.35

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Performance 50% Scenario 2A: Revenues capped at 17.5% of the ERPA value for WWC because of its high relative performance ERs Delivery - Min. amount per reporting Payments Beneficiaries generated period (tCO2 eq.) $ Million Million tCO2 (on a cumulative basis) WWC conservation concession 14.51 8.89 7/30/2019 7/30/2021 6/30/2024 Rural areas (REL-∑sub-RELs) 34.87 IPs & rural communities (4% of ERPA value) 2.03 362,981 1,748,366 -841,934 Sub-Total 14.51 45.79 Program Opex 5.00 Transfer Total 14.51 50.79 failure

Origin of ERs acquired by the FCPF Carbon Fund (million tCO2 eq.) Unit Price paid to beneficiaries ($) WWC conservation concession 10.16 0.88

Scenario 2B: High performance outside the WWC conservation concession ERs Delivery - Min. amount per reporting Payments Beneficiaries generated period (tCO2 eq.) $ Million Million tCO2 (on a cumulative basis) WWC conservation concession 7/30/2019 7/30/2021 6/30/2024 Rural areas (REL-∑sub-RELs) 14.51 43.76 IPs & rural communities (4% of ERPA value) 2.03 362,981 1,748,366 -841,934 Sub-Total 14.51 45.79 Program Opex 5.00 Transfer Total 14.51 50.79 failure

Origin of ERs acquired by the FCPF Carbon Fund (million tCO2 eq.) Unit Price paid to beneficiaries ($) Rural areas (REL-∑sub-RELs) 10.16 3.98

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

Performance 10% Scenario 2A: Revenues capped at 17.5% of the ERPA value for WWC because of its high relative performance ERs Delivery - Min. amount per reporting Payments Beneficiaries generated period (tCO2 eq.) $ Million Million tCO2 (on a cumulative basis) WWC conservation concession 2.90 1.78 7/30/2019 7/30/2021 6/30/2024 Rural areas (REL-∑sub-RELs) 2.97 IPs & rural communities (4% of ERPA value) 0.41 -287,404 -1,410,327 -8,968,387 Sub-Total 2.90 5.16 Program Opex 5.00 Transfer Transfer Transfer Total 2.90 10.16 failure failure failure

Origin of ERs acquired by the FCPF Carbon Fund (million tCO2 eq.) Unit Price paid to beneficiaries ($) WWC conservation concession 2.03 0.88

Scenario 2B: High performance outside the WWC conservation concession ERs Delivery - Min. amount per reporting Payments Beneficiaries generated period (tCO2 eq.) $ Million Million tCO2 (on a cumulative basis) WWC conservation concession 0.10 0.16 7/30/2019 7/30/2021 6/30/2024 Rural areas (REL-∑sub-RELs) 2.80 4.59 IPs & rural communities (4% of ERPA value) 0.41 -287,404 -1,410,327 -8,968,387 Sub-Total 2.90 5.16 Program Opex 5.00 Transfer Transfer Transfer Total 2.90 10.16 failure failure failure

Origin of ERs acquired by the FCPF Carbon Fund (million tCO2 eq.) Unit Price paid to beneficiaries ($) WWC conservation concession 0.07 2.34 Rural areas (REL-∑sub-RELs) 1.96 2.34

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

ANNEX 6: Detailed Economic Analysis

Introduction and Objectives

127. Deforestation and forest degradation play a large part in making the DRC the 35th largest emitter of greenhouse gases in the world. Deforestation rates are expected to increase further due to the rapid population growth, commercial agriculture and large-scale plantations and large-scale development projects, which will lead to increased accessibility of forests. This project aims at reducing GHG emissions from deforestation and forest degradation, enhance forest carbon stocks and improve people’s livelihoods in the Mai-Ndombe province through results-based payments. The project represents part of a larger Emission Reduction Program in the DRC conducted by the World Bank and supported by other donors and organizations.

128. The public goods character of forests and greenhouse gases and the related market failures make the public sector the appropriate vehicle for this project. Greenhouse gases are arguably the most detrimental negative externality of our societies and the market is and will not be able to solve them by itself. The significance of the reduction of Greenhouse Gas emissions and the significance of ecosystems is seldom adequately recognized in economic markets, government policies or land management practices. The tendency to underestimate the value of ecosystems is related, for the most part, to their “public good” quality. Ecosystems and the services they provide are owned by all and thus protected by none. They generate shared benefits and so encourage free riding. Being publicly provided, they are underpriced or un-priced and thus tend to be over- used and abused. Since the benefits are shared and ownership is collective, there is a tendency to free-ride on contributions for the provision of these goods. Collectively these features lead to pervasive degradation of ecosystems because of systemic market failures45.

129. The proposed carbon finance transaction will supplement the World Bank programmatic approach in the forest sector and the Mai-Ndombe province, and thus increase its development impact in ways that go beyond what can be realized by exclusive reliance on the client’s own resources or other external sources. The realization of this operation by a different entity would lead to inefficiencies and unnecessary transaction costs since most of the underlying projects are also implemented by the Bank. Furthermore, the World Bank can provide a combination of knowledge, finance, and convening power that is necessary to develop, pilot, share, and support the implementation of this innovative, climate-smart development solution. The position of the World Bank to develop and implement public-private collaborations that are required to accelerate innovative and leverage private capital and resources for climate change will be beneficial in project implementation and its sustainability.

130. This section presents an analysis of the economic (welfare) benefits generated by the proposed investment. By estimating the (partial) values of changes of carbon sequestration and livelihoods, and comparing them against the cost of the proposed investment, the overall economic welfare generated by the project is assessed. Due to the complexity of the project, the anticipated economic benefits cut across many sectors and aspects. The enhanced delivery of environmental goods and services, improved livelihoods and poverty alleviation are the two broad benefit categories. Given time and data constraints for this ex-ante EA, the consideration of benefits for the quantitative simulation will be limited to a few aspects and complemented

45 http://www.esa.org/education_diversity/pdfDocs/ecosystemservices.pdf

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

by a qualitative discussion of other benefits. The section discusses anticipated economic benefits and the presentation of results of a numerical simulation, including a brief assessment of the economic feasibility of the project.

Economic Benefits generated by the Project

131. The proposed investment is generating a diverse portfolio of economic benefits ranging from direct, tangible benefits to indirect, intangible benefits. A direct, tangible benefit is, for example the reduction of GHG emissions. On the other side of the scale, indirect and intangible economic benefits of the project are, for example the improvement of the public administration and associated delivery of public services triggered by the project’s supported capacity building for land rights. Table 10 provides a limited overview of selected examples of the four categories of benefits that can be associated with the project.

Table 10: Selected economic benefits generated by the project (underlined benefits are included in quantitative economic analysis)

Tangible Intangible Direct • Reduction in GHG emissions • Reduction in soil erosion/ increase in soil • Increase income conservation • Reduction in deforestation • Afforestation / reforestation • Increase of trees in the agricultural landscape • Biodiversity conservation • Poverty reduction Indirect • Reduced pressure on protected • Enhancing institutional mechanisms in areas support of decentralization and delivery of • Increased resilience to external public services shocks • Strengthened self-governance capacity of • Reduced malnutrition communities and community groups • Better access to credit • Lowering marketing costs • Reduction in inundations • Improved schooling and education

132. Given the lack of data and time and resource constraints for this ex-ante project economic analysis, only a few selected benefits will be used for the quantitative economic assessment of project feasibility. These are a) emission reduction benefits, and b) livelihood benefits from results-based payments for verified ERs to the local communities. Other economic benefits as listed in Table 10 are additional and need to be considered in the qualitative discussion, especially if quantitative simulation results indicate borderline economic feasibility of the project.

Main assumptions and cost factors

133. Cost-Benefit-Analysis was applied to conduct the economic efficiency assessment for this project. Sensitivity analysis is applied for the main simulation parameters notably discount rate and project performance. For the discount rate, alternative rates of 5 percent, 10 percent, and 20 percent are applied. To test the robustness of initial results a simulation is run for the case that only 10 percent of the expected emission

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

reductions are achieved. All sensitivity analyses are run for all discount rates scenarios. The results of the quantitative results will be complemented with qualitative benefits to conclude overall project feasibility.

134. Time: The distribution of costs and benefits over time follow the actual disbursement of the project as closely as possible. This means benefits start only to arise after the first advanced payment in 2018 as it seems unlikely that benefits are created without prior financial contributions. After 2024 it is assumed that there are no further benefits and no further improvements are achieved even though it is likely that the project will trigger further improvements in the future without substantial additional costs.

135. Carbon Benefits: The amount of emission reductions expected to be generated under the program is estimated at 29 million tCO2eq of which 11 million tCO2eq will be purchased by this project and count towards the carbon benefits. Emission reductions are reported over three reporting periods. In the case that the program does not perform as expected less emission reductions will be available for purchase. If only 10 percent performance is achieved, the purchased emission reductions will be limited to a total of 2 million. The expected emission reductions acquired per accounting period for the case of 100 percent performance and 10 percent performance can be seen in Table 11.

Table 11: Expected emission reductions per reporting period for 100 percent and 10 percent performance

Reporting Period 1: Reporting Period 2: Reporting Period 3: Total 31 July 18 – 30 July 19 31 July 19 - 30 July 21 31 July 21 - 30 June 24 100% 1,625,963 6,270,769 3,103,268 11,000,000 performance 10% 162,596 627,077 1,241,940 2,031,613 performance

136. The valuation of project carbon benefits requires the assignment of a dollar value per ton of carbon, which is a difficult exercise, given the recent collapse of global carbon markets. In this context, the market price of carbon does not reflect the social value of carbon storage of forests. Instead the social cost of carbon is used which attempts to capture the marginal (global) damage cost of an additional unit of emitted carbon. Using the official guidance for the social value of carbon as provided by the World Bank (2015) a baseline shadow value of carbon starting at US$ 30 in 2015 and increasing to US$ 80 (US$ 33 in 2018 to US$ 38 in 2024) in real terms by 2050 is applied. The lower carbon price path, ranging from US$ 15 in 2015 to US$ 50 in 2050 (US$ 18 in 2018 to US$ 23 in 2024), is used for the sensitivity analysis.

137. Livelihoods and poverty alleviation: In the DRC, seven out of ten households are poor with a disparity between rural areas -where about eight out of ten households are poor - and urban areas - where less than seven out of ten households are poor. The educational level is a key factor determining the standard of living in the DRC: the more educated the household head is, the higher the household consumption, and the less likely it becomes for such a household to be poor. The overall situation of IPs is considerably worse than the national population in terms of both living conditions and access to services such as health and education. Spending in Congolese households is dominated by food representing 62.3 percent of total expenditures. This household expenditure pattern reveals that any inflation affecting food reduces their real incomes, while increasing the number of the poor and vulnerable, all things being equal.

The World Bank Mai-Ndombe Emission Reductions Program (P160320)

138. The project directly benefits the livelihoods of both IPs and local communities. It will cover all eight territories of the Mai-Ndombe province, comprising a population of 1.5 million people. Beneficiaries of the project need to contribute directly and voluntarily to the implementation of ER Program activities in the ER Program area. Payments against performance will potentially benefit logging concessions, conservation concessions, enterprises, groups of communities and rural areas. The benefits for large private sub-project owners will be capped at 17.5 percent of the nominal ERPA value and are not included in the economic analysis as livelihood benefits. The expected payments against performance for local communities (including also IPs) are expected to amount to US$ 26.19 million. Since payment is only received against performance, low performance will lead to lower benefits from results-based payments. In the case of 10 percent performance, the rural community performing project owners are expected to be rewarded US$ 4.75 million.

139. The anticipated livelihood benefits are outweighed by carbon benefits, even if only low carbon prices are assumed. Project livelihood benefits are only included in terms of direct payments. However, the incremental livelihood increase does not consider any secondary, spill-over or long-term effects triggered by increased incomes, such as better access to health services, improved education, or overall positive impacts on the economy as a whole. Accounting only for direct payments the economic analysis therefore takes a very conservative approach.

140. Costs: The proposed Carbon Finance Transaction Costs are approximated using the investment costs of the project totaling US$ 55 million. According to the anticipated disbursement schedule, total project costs are spread out over FY18 – FY23. The costs of the project will partly depend on the performance of activities to reduce GHG emissions. Investment-type costs will occur independent of actual emission reductions, whereas results-based payments for verified ERs generated under the program will be subject to deliverables. The approximated individual annual allocation of costs for the case of a 100 percent project performance, as well as a 10 percent emission reduction performance can be seen in Table 12. These allocations are used for the cost calculations in the analysis.

Table 12: Project costs with 100 percent and 10 percent performance

Upon 31-Dec-19 31-Dec-20 31-Dec-21 31-dec-22 31-Dec-24 effectiveness 6 months upon 6 months upon 6 months upon Total the end of the the end of the the end of the reporting #1 reporting #2 reporting #3 100% 1,060,000 8,129,814 1,060,000 29,233,847 1,060,000 14,456,339 55,000,000 performance 10% 1,060,000 1,060,000 1,060,000 1,060,000 1,060,000 4,858,066 10,158,066 performance

Methodology

141. A net present value analysis is applied to compare project’s net benefits and net costs at the time of the first payment (July 2019). In addition to applying conservative values for the quantitative assessment, sensitivity analysis is applied in various ways for the key simulation parameters, notably discount rate, assessment of performance variation and lower social cost of carbon values. Alternative discount rates of 5 percent, 10

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The World Bank Mai-Ndombe Emission Reductions Program (P160320)

percent, and 20 percent are chosen. Quantitative results will be contrasted with qualitative benefits to arrive at overall project feasibility.

142. As required for economic analysis of projects, a “With” and “Without” project situation is used for estimating incremental benefits generated by the project. Taking account of the current situation, and the fact that the environmental as well as livelihood situation in the project areas is likely to continue to decline, even a slowing but continuing existing negative trend represents a project benefit. For example, a slow-down but continuation of deforestation and forest degradation trend is a benefit that can be quantified by the amount of incremental carbon that is not emitted into the atmosphere compared to the without project situation. Likewise, if household incomes can remain stable under a project situation compared to a possible negative trend due to declining agricultural productivity, deforestation, climate change, and other possible impact factors, this also represents an incremental benefit achieved by the project. Net Present Value (NPV) and Benefit-Cost Ratio (B/C-Ratio) are used as criteria to assess the economic feasibility of the project.

143. Only the payment-disbursement period is assumed to assess the economic feasibility of the Project. While Project costs only occur during the Project implementation period, benefits will most likely be generated beyond the lifetime of the Project. However, only benefits from the direct disbursement of payments are considered in this economic analysis, making it a very conservative approach. To harmonize project benefits and costs through the calculation of a present value of costs and benefits, a discount rate needs to be determined. In line with the World Bank’s guidance note on Discounting Costs and Benefits in Economic Analysis of World Bank Projects and given the significant impact of the choice of the discount rate on economic analysis outcomes, and the common difficulty in determining discount rates reflecting economic discounting behavior, a sensitivity analysis is applied considering discount rates of 5 percent, 10 percent, and 20 percent.

144. In addition to testing the impact of different discount rates on simulation results, other sensitivity analyses are applied that account for possible variations in key input parameters to test the robustness of simulation results. In addition to varying discount rates, simulation results are tested against changing project performance values. A sensitivity analysis is conducted for the case of project performance only reaching 10 percent, which is the case in which performing project owners will not be rewarded, as proceeds will essentially cover fixed costs to run the program. Additionally, an analysis is conducted excluding carbon benefits.

Results

145. Overall, results show positive simulation outcomes for the Project, thus confirming economic feasibility. Simulation results are summarized in Table 13. The table shows the net present value (NPV) and the benefit- cost ratio (BC) for different discount rates and benefit and performance variations. Only for situations in which carbon benefits are excluded, does the analysis yield negative results. The benefits are much larger than the costs in most scenarios and create a net present value of US$ 302.3 million in the baseline scenario and a B/C- Ratio of 7.72. Given the relatively large carbon benefits expected from the project, the economic robustness was tested for a low carbon price and under low program performance. Even with a low carbon price and performance at 10 percent, the project yields positive results at all discount rates.

146. Given that carbon benefits dominate the economic analysis, a simulation is run to assess project feasibility under the assumption of no carbon benefits being generated. The results show that under baseline assumptions of livelihood benefit increases, the project would not be feasible. However, with only one quantified benefit a very small sub-sample of potential benefits is included in the numerical simulation. If other benefits, as depicted

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The World Bank Mai-Ndombe Emission Reductions Program (P160320)

in Table 13, such as benefits from incentives for local communities and IPs or in education and health resulting from the income increase and biodiversity benefits were included in the simulations, positive results are expected.

Table 13: Summary of economic simulation results

Discussion

147. This ex-ante economic analysis conducted for the Mai-Ndombe Carbon Finance Transaction program for the Democratic Republic of Congo supports the program through positive results across a variety of sensitivity analyses and data assumptions. The analysis also tested the economic feasibility of individual project components, which yielded positive results. The analysis was also robust using varying discount rates and also testing for changes in anticipated results.

148. The quantitative analysis was also strictly limited to values that can be clearly attributed to the project. Besides the benefits from the emission reductions - the carbon benefits and livelihood benefits that were only accounted for in a very limited way- additional benefits can be associated with inter alia biodiversity conservation, economic benefits arising from the project investments, and governance benefits, such as benefits generated by the recognition and strengthening of legal and customary and users’ rights of local communities and IPs over land. Indigenous Peoples, who represent about 3 percent of the population in Mai-Ndombe, as well as local communities will receive special recognition by the project to respect their historical role in sustainable forest management. In addition to results-based payments they will receive incentive payments, these were also not included in the economic analysis but are expected to increase livelihood benefits. Furthermore, it was assumed that no more benefits would arise beyond the project implementation period, even though it is likely that positive effects will continue to generate positive incremental changes compared to the without project situation. While this approach systematically undervalues project impacts, it provides a high degree of robustness. If additional and downstream project benefits had been considered the simulations would have yielded even stronger results.

149. The economic benefits generated by the project are likely to have significant development impacts given the broader economic framework in which the project is implemented. The potential for the project to catalyze important development momentum for NRM is high, with potential for replicability and continuity beyond the immediate lifetime of the project. Providing additional livelihood opportunities in rural areas can yield important secondary effects; for example, with respect to improving agriculture production, and access to education and health services. The project can serve as an important catalyst for generating such changes with impacts beyond the immediate project boundaries and lifetime of the project.

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