Document of The World Bank FOR OFFICIAL USE ONLY Report No: 35795-PA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$ 6.0 MILLION TO THE REPUBLIC OF PANAMA FOR A RURAL PRODUCTIVITY AND CONSOLIDATION OF THE ATLANTIC MESOAMERICAN BIOLOGICAL CORRIDOR PROJECT April 25, 2006 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. CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2006) Currency Unit = Balboa 1 Balboa = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AIP Annual Implementation Plan ANAM National Environment Authority CCA Comisión Consultativa Ambiental (Consultative Environmental Commission) DBC Department of Biological Corridors FM Financial Management GOP Government of Panama MBC Mesoamerican Biological Corridor MBC-P Panamanian Mesoamerican Biological Corridor MIDA Ministry of Agricultural Development. NGO Non-governmental Organization NRM Natural Resource Management PAMBC Atlantic Mesoamerican Biological Corridor Project PIP Project Implementation Plan POA Annual Operating Plan SINAP National Protected Areas System SMAP Sistema de Monitoreamiento de Areas Protegidas (Protected Areas Monitoring System) SNMDB Sistema Nacional de Monitoreamiento de Biodiversidad (National Biodiversity Monitoring System) TA Technical Assistance UAM Unidad Ambiental Municipal (Municipal Environmental Unit) Vice President: Pamela Cox Country Director: Jane Armitage Sector Director: Laura Tuck Sector Manager: Mark Cackler Task Team Leader: Matthew A. McMahon PANAMA Rural Productivity and Consolidation of the Mesoamerican Biological Corridor Project CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues.................................................................................................... 1 2. Rationale for Bank involvement ......................................................................................... 4 3. Higher level objectives to which the project contributes .................................................... 5 B. PROJECT DESCRIPTION ................................................................................................. 8 1. Financing instrument .......................................................................................................... 8 2. Project Development Objective .......................................................................................... 8 3. Project Global Environmental Objective and Key Indicators ............................................. 8 4. Project components ............................................................................................................. 9 5. Lessons learned and reflected in the project design .......................................................... 10 6. Alternatives considered and reasons for rejection ............................................................ 12 C. IMPLEMENTATION ........................................................................................................ 12 1. Institutional and implementation arrangements ................................................................ 12 2. Monitoring and evaluation of outcomes/results ................................................................ 15 3. Sustainability and Replicability ........................................................................................ 15 Critical risks and possible controversial aspects ....................................................................... 16 D. APPRAISAL SUMMARY ................................................................................................. 18 1. Economic and financial analyses ...................................................................................... 18 2. Technical ........................................................................................................................... 18 3. Fiduciary ........................................................................................................................... 19 4. Social................................................................................................................................. 19 5. Environment ...................................................................................................................... 20 6. Safeguard policies ............................................................................................................. 21 7. Policy Exceptions and Readiness...................................................................................... 23 Annex 1: Country and Sector or Program Background ......................................................... 24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 31 Annex 3: Results Framework and Monitoring ........................................................................ 32 Annex 4: Detailed Project Description ...................................................................................... 40 Annex 5: Project Costs ............................................................................................................... 49 Annex 6: Implementation Arrangements ................................................................................. 50 Annex 7: Financial Management and Disbursement Arrangements ..................................... 54 Annex 8: Procurement Arrangements ...................................................................................... 60 Annex 9: Economic and Financial Analysis ............................................................................. 65 Annex 10: Safeguard Policy Issues ............................................................................................ 68 Annex 11: Project Preparation and Supervision ..................................................................... 82 Annex 12: Documents in the Project File ................................................................................. 83 Annex 13: Statement of Loans and Credits .............................................................................. 84 Annex 14: Country at a Glance ................................................................................................. 85 Annex 15: Incremental Cost Analysis ....................................................................................... 87 Annex 16: STAP Roster Review ................................................................................................ 95 Annex 17: Selection of Project Area ........................................................................................ 109 Annex 18: Maps......................................................................................................................... 147 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Significant Global Biodiversity. Panama, an upper-middle income country that bridges North and South America in the midst of Atlantic and Pacific Oceans, has extreme economic inequality: around 40% of it population lives in poverty, half destitute, ranking it as one of the most unequal countries in the region. It is also one of the most biologically diverse countries in the world but faces serious threats to natural habitat conservation. It is a critical link in the Mesoamerican Biological Corridor (MBC), with more than 12,600 plant species (1,300 endemic and nearly 200 threatened). Of its 2,950 species of vertebrates, more than 100 are threatened and 121 are endemic (and a far larger number share endemism with only Colombia or Costa Rica). Nearly ten percent of bird species worldwide can be found in Panama, and twelve species are found only in Panama. Of the country’s twenty threatened bird species, four are endemic and nine are found in only one other country. Nearly fifty species of threatened amphibians, many of which are critically endangered, are found only in Panama and neighboring Costa Rica. These include numerous species of tiny but colorful tree frogs and poison dart frogs that have become a symbol of MBC forest biodiversity. The habitat of the critically endangered Oedipina maritima salamander is less than ten km2 and is declining. Among other spectacular rainforest species, Panama is also home to substantial populations of wide-ranging jaguars and harpy eagles, which require vast tracts of land under native vegetative cover in order to survive. Challenges to Global Biodiversity in Panama. Yet this biodiversity is threatened on several fronts. The advance of the agricultural frontier and spontaneous colonization at the rate of 50,000-80,000 hectares per year are rapidly shrinking the country’s forests and protected areas. Soil and water resources, particularly on the Pacific side of the country, have been depleted because of traditional agricultural practices and inadequate conservation measures. Indigenous production systems, with their low-intensity land use, long rotation periods, and plentiful forests for hunting and gathering, are increasingly becoming unsustainable due to economic pressures and are being replaced by farming systems emphasizing monoculture without rotation, leading to depleted soils and encouraging greater expansion of the agricultural frontier. These threats are heightened by rural poverty that drives the population