GLOBAL ENVIRONMENT FACILITY 1354 1IPC- Public Disclosure Authorized Republicof Peru NationalTrust Fund for ProtectedAreas Public Disclosure Authorized Public Disclosure Authorized ProjectDocument March 1995 Public Disclosure Authorized THE WORLD BANK GEF Documentation The Global Environment Facility (GEF) assistsdeveloping countries to protect the global environmentin four areas:global warming, pollutionof internationalwaters, destructionof biodiversity,and depletion of the ozonelayer. The GEF is jointly implemented bytheUnited Nations Development Programme. the United Nations Environment Programme. andthe World Bank. GEF Project Documents - identifiedby a green band- provide extendedproject- specificinformation. The implementing agency responsible for eachproject is identifiedby its logo on the coverof the document. GlobalEnvironment Division Enviroinient Department World Bank 1818 H Street,NW Washington,DC 20433 Telephone:(202) 473-1816 Fax:(202) 522-3256 ReportNo. 23540-PER Republicof Peru NationalTrust Fund for ProtectedAreas ProjectDocument March 1995 CURRENCYEQUIVALENTS Currency Unit=New Sol US$1.0 = 0.4576 New Soles US$1.0 - 1.6044 Deutsche Mark WEIGHTSAND MEASURES The metric system is used throughoutthe report FISCALYEAR January 1 - December 31 GLOSSARY CIDA CanadianInternational Development Agency DGAPFS DirectorateGeneral of ProtectedAreas and Wildlife (DireccionGeneral de Areas Protegidasy Fauna Silvestre) FONANPE Trust Fund for the Conservationof Peru's Protected Areas (Fondo Nacionalpara Areas Naturales Protegidaspor el Estado) GEF Global EnvironmentFacility GET Global EnvironmentTrust GOP Governmentof Peru GTZ DeutscheGesellschaft fuir Technische Zusammenarbeit GmbH INRENA National Instituteof Natural Resources (Instituto Nacionalde Recursos Naturales) NGO Non-GovernmentalOrganization PROFONANPE The entity created as a not-for-profitentity of public interest but under private law to administerthe assets of PROFONANPE(Pro Fondo Nacionalpara Areas Naturales Protegidaspor el Estado) SINANPE National Systemof Natural Areas Protectedby the State (Sistema Nacionalde Areas Naturales Protegidaspor el Estado) TC TechnicalCommnittee This report is based on the findings of an appraisal mission which visited Peru in August, 1994. Mission members were Messrs./Mmes. Claudia L. Alderman (mission leader). Alberto Ninio (Envirornental Lawyer), Bemardita Zapata (consultant, financial issues), Mark Cymrot (consultatit, legal iss i). Ms. Michele de Nevers (LA2EU) was the peer reviewer. Other people who contributed to the project preparation wt . Messrs./Mmes. Christine Kimes, GEF coordinator, Kathleen Mikitin (ENVGC) and Jainison Suter (consultant). Mr. Rudl IfVan Puymbroeck (LEGLA) provided legal advice, and Mr. Francisco Tourreilles provided advice cn financial miatters.The GEF outside technical reviewers were Messrs./Mmes. Norman Myers, John Terborgh and Margaret Symington. Messrs. Yoshiaki Abe and Nicholas Krafft were Department Director (LA3DR) and Division Chief (LA3NR) respectively. April 26, 1995 12:01pm Part I: Project Summary PERU GLOBAL ENVIRONMENT FACILITY NATIONAL TRUST FUND FOR PROTECTED AREAS GRANT AND PROJECT SUMMARY Source of Grant: Global Environment Trust (GET) Grant Recipient: The Republic of Peru Beneficiaries: Designated Peruvian National Parks and Reserves Amount: SDR 3.5 million (US$5.0 million equivalent) Total Project Cost: US$6.361 million (five-year pilot phase) Terms: Grant Financing Plan (five-year pilot phase): GET Grant 3.5 SDR (US$5.0 million equivalent), for investment capital for the trust fund FONANPE US$1.361 million, interest income from trust fund Economic Rate of Return: Not applicable Map: IBRD 2501OR ESTIMATED GRANT DISBURSEMENTS BY YEAR (US$ '000) World Bank FY95 FY96 FY97 FY98 FY99 Fiscal Year Annual 5.0 0 0 0 0 Cwnumlative 5.0 5.0 5.0 5.0 5.0 PERU NATIONAL TRUST FUND FOR PROTECTED AREAS 1. Country/SectorBackground. Peru ranks as one of the biologicallymost importantcountries in South America, and among the handful of megadiversitycountries in the world. It contains a higher proportion of the species-richforests of Western Amazoniaand the tropical Andes than any other country. Peru has an estimated 19 percent of the bird species, 9 percent of the mammals, and 9 percent of the amphibiansin the world. The Peruvian Amazoncontains an extraordinaryassemblage of species: in the Iquitos area in northern Peru, for example, a single hectare of tropical rain forest has been found to contain 300 species of trees, by far the highest heterogeneityon Earth, for such a small land sample. Two of Peru's large protected areas, Manu BiosphereReserve and Tambopata- Candamo Reserved Zone, contain the world's highest recorded diversitiesof birds, mammals, reptiles, amphibians, freshwaterfishes, vascular plants, trees, butterflies, and invertebrates. 2. Peru's unique biodiversity, however, faces threats. The most importantof these stem from the deforestationresulting from several decades of spontaneousand government-promoted colonizationof mountain slopes in the eastern Andes and in tropical and temperate inter-Andean valleys. Although over ninety percent of the Amazonianlowlands of the country are still forested, some large vertebrates and valuabletimber species are now confined to an estimated 30 to 40 percent of Peru's Amazon. 3. The governmentrecently eliminatedmany of the distortionaryeconomic incentivesthat made colonizationof its Amazonianlowlands attractive to Peruvian subsistencefarmers. In late 1990 the Peruvian Congress passed an environmentalcode that contains several conservationprovisions, includingthe positive step of abolishinglegislation which provided incentivesfor colonizing Amazonia. Furthermore, the code requires the preparationof an environmentalimpact statement for any developmentactivity in Amazonia-- whether public or private. Recently, legislationhas also been passed requiring environmentalimpact assessmentfor mining, fishing and industrialdevelopment investments. Despite these legislativeefforts, however, the governmentmay have difficulty slowing the colonizationof the Amazonianlowlands. After a decade of severe economic and political crisis, Peru is significantlyreformulating its policies, setting the stage for economicrecovery. It has succeeded in drasticallyreducing the inflationand terrorist activity that crippled the nation until very recently. These changes can imply a large influx of tourists and, more importantly, increased investmentto exploit Peru's natural resources, both of which pose real threats to the country's biological wealth. 4. These problems, however, have not yet directly damagedthe integrity of Peru's vital sites of biodiversity. Peru has managedto set aside more than 6 million hectares of wet, moist, and dry tropical forest in national parks, reserves, and sanctuariesthroughout the country. Moreover, the legislationrelated to protected areas in Peru is comprehensiveand sound. In 1993, the government establishedthe NationalInstitute of Natural Resources(INRENA), bringing together the expertise of all Peruvian public agencies involvedwith the managementand conservationof Peru's natural resources. Peru's legislativeand institutionalefforts notwithstanding,the Governmentof Peru (GOP) has been unable to devote sufficientresources to its conservationareas. It cannot afford to develop or implementa coordinatednational managementplan for protected areas. Conservationefforts have thus been haphazard. Only four nationalparks receive any managementservices through INRENA; the other protected areas have no permanentmanagement personnel. The 1991 Tropical Forestry Action Plan reported that the park system employs 110 park guards for 5.5 million hectares, or one guard per 50,000 hectares. This index is only one among many that may be construed to indicate the severe deficiency of administrative and managerial inputs. Moreover, because of low salaries and lack of job security from budgetary fluctuations, the Peruvian park system has been unable to attract and retain qualified personnel. 5. Project Objectives. The project has four major objectives, to: (i) provide a long term and predictable source of funding for the protection of Peru's biodiversity through the establishment of a trust fund, the income of which would be used for financing the management of priority protected areas; (ii) improve INRENA's capacity to protect and manage Peru's protected areas; (iii) provide the country with a reliable institutional mechanism to channel debt donations for sustainable development and conservation through bilateral and commercial debt-for-nature swap agreements; and (iv) test the viability of trust funds as mechanisms for providing long term and sustainable funding for biodiversity conservation. 6. Project Description. Peru's government is committed to developing innovative mechanisms which would guarantee the appropriate management of Peru's protected areas and biodiversity. To this end, in December of 1992, the GOP created by Decree Law the Fondo Nacional para Areas Protegidas por el Estado (FONANPE), as part of a trust fund mechanism designed to provide long- term, sustained funding for Peru's protected areas. At the same time, the government created PROFONANPE as a not-for-profit institution under private law to manage the fund and to direct the use of its investment proceeds. In anticipation of the GEF grant, and on the bases established by the preparation of this project, PROFONANPE started operating in June 1993 under a grant from the German technical cooperation agency,