Document of TheWorldBank FOR OFFICIAL USEONLY ReportNo: 38670-PH PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS$50MILLION AND A PROPOSEDGRANT FROMTHE GLOBAL ENVIRONMENT FACILITY TRUST FUND INTHEAMOUNT OFUS$7MILLION TO THE REPUBLICOFTHE PHILIPPINES FORA NATIONAL PROGRAMSUPPORTTO ENVIRONMENT AND NATURAL RESOURCES MANAGEMENT PROJECT May 25,2007 RuralDevelopment,NaturalResources and EnvironmentSector Unit Sustainable DevelopmentDepartment East Asia andPacificRegion This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective March 19,2007 Currency Unit = PhilippinesPesos U S $ l = P48 FISCALYEAR January 1 - December31 A B B R E V I A T I O N S AND A C R O N Y M S 4DB AsianDevelopment Bank 40s Administration Orders APL AdaptableProgramLending B N F I BicolNationalPark Foundation ZAS CountryAssistance Strategy Z B D Convention on Biological Diversity CBFM Community Based Forest Management C E N R O Community EnvironmentandNaturalResources Officer CEPF Critical Ecosystems Partnership Fund CLUP ComprehensiveLandUse Plan CPPAP Conservation of PriorityProtected Areas Program DA Department of Agriculture DA-BFAR Department of Agriculture - Bureau of Fisheries and Aquatic Resources D A - B S W M Department of Agriculture - Bureau of Soil and Water Management DAO Department Administrative Order DENR Department of EnvironmentandNatural Resources DILG Department of Interior andLocal Government EA EnvironmentalAssessment EcoGov EnvironmentalGovernance EMB EnvironmentManagementBureau ENR Environmentand Natural Resources ENRU EnvironmentandNaturalResources Unit FASPO ForeignAssisted ProgramOffice FMB Forest Management Bureau GAA GeneralAppropriationAct GEF GlobalEnvironment Facility G I S Geographic InformationSystem GOP Government of the Philippines GPOA General Planof Operations andActivities IBRD InternationalBank for Reconstruction and Development ICB InternationalCompetitiveBidding IEC Information, Educationand Campaign IEM Integrated Ecosystem Management IFR Interim un-audited FinancialReports IPAF Integrated ProtectedArea Fund IPRA IndigenousPeoples'RightsAct IUCN InternationalUnion for the Conservation of Nature FOROFFICIAL USE ONLY JICA Japan International CooperationAgency LGUs Local Government Units LSP LocalService Providers M&E MonitoringandEvaluation MFO Major Final Outputs MGB Miningand Geosciences Bureau MOAS MemorandaofAgreement MOOE Maintenance and other OperatingExpenses M S W W Metro Manila Water and Sewage Authority MVDP Medium Term PhilippineDevelopmentPlan NBSAP NationalBiodiversity Strategy and Action Plan NEDA National Economic DevelopmentAuthority NL4 National Irrigation Administration N I P A S National IntegratedProtectedAreas System NPS- National Program Support to Environment and Natural Resources ENRM Management NRM NaturalResource Management PA Protected Area PAg ProgramAgreement PAB Project Advisory Board PAMB Protected Areas and Management Board P A W Protected Areas Wildlife Bureau PCO Project Coordination Office PENRO ProvincialEnvironmentand Natural Resources Officer PES Payments for EcosystemServices PFEC PhilippineFederation for EnvironmentalConservation PPSO Policy and PlanningService Office PSU Private Service Unit SIL Sector Investment Loan S I M Sector Investment and Maintenance Loan S L M Sustainable LandManagement UNDP UnitedNations Development Program U S A I D UnitedStates Agency for InternationalDevelopment WEM Watershed andEcosystem Management WMC Watershed Management Council Vice President: James W. Adams, EAPVP Country Manager: Joachim von Amsberg, EACPF Sector Director Christian Delvoie, EASSD Sector Manager: RahulRaturi, EASRE Task Team Leader: IdahPswarayi-Riddihough,EASRE This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. PHILIPPINES NationalProgram-Support to Environment and Natural Resources Management TABLE OF CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ................................................................ 1 1. Country and sector issues .......................................................................................................... 1 2. Government Strategy ................................................................................................................ 1 3. GEFEligibility .......................................................................................................................... 2 4. Rationale for Bank and GEF involvement ................................................................................. 3 5. Contributory factors to the potential for DENRs success with proposed initiative ...................3 6. Higher level objectives to which the project contributes ............................................................ 4 7. GEF Operational Strategy/program ObjectiveAddressedBy the Project ................................. 4 B .PROJECTDESCRIPTION .............................................................................................. 4 1. Lending Instrument .................................................................................................................. 4 2. Project development objective and key indicators ..................................................................... 5 3. Project Components ................................................................................................................. 5 4. Lessons learned and reflected inthe project design ................................................................... 9 5. Alternatives considered and reasons for rejection ..................................................................... - 9 C .IMPLEMENTATION ..................................................................................................... 10 1. Partnership arrangements., ...................................................................................................... 10 2. Institutionaland implementation arrangements., ..................................................................... 10 3. Monitoringand evaluation of outcomes/results ...................................................................... 11 4. Sustainability and Rephcabhty . . . ................................................................................................. 12 5. Critical risks and possible controversial aspects (see also Annex 13) ........................................ 13 6. Loanlaedit conditions and covenants .................................................................................... 15 D APPRAISALSUMMARY . ................................................................................................. 16 1. Economic and financial analyses ............................................................................................. 16 2. Technical ................................................................................................................................. 16 3. Fiduciary ................................................................................................................................. 17 4. Social ...................................................................................................................................... 18 5. Environment Category B (Partial Assessment) ....................................................................... 19 6. Safeguard policies .................................................................................................................... 20 7. Policy Exceptions and Readiness: No policy exceptions were sought for this Project ..............20 Annex 1:Country and Sector or Program Background ............................................................ 21 Annex 2: Major RelatedProjects Financed by the Bank and/or other Agencies 28 Annex 3: Results Framework and Monitoring ......................................................................... .................... 30 Annex 4: DetailedProjectDescription 41 Annex 5: Project Costs .............................................................................................................. ..................................................................................... 53 Annex 6: ImplementationArrangements ................................................................................. 54 Annex 7: Financial Management and Disbursement Arrangements 58 Annex 8: ProcurementArrangements ...................................................................................... ...................................... 70 Annex 9: Economic and FinancialAnalysis 80 Annex 10: GEF Incremental CostAnalysis .............................................................................. ............................................................................. 83 Annex 11:Sector Expenditure & Budget Review 89 Annex 12:Safeguard Policy Issues ......................................................................................... ..................................................................... 103 Annex 13:Project Governance Measures ............................................................................... 122 Annex 14: Project Preparationand Supervision ..................................................................... 127 Annex 15: Documents inthe Project File ............................................................................... 128 Annex 16: Statement of Loans and Credits 129 Annex 17: Country at a Glance ............................................................................................... ............................................................................ 131 Annex 18: Institutional ReformAgenda ................................................................................. 133 Annex 19: STAP Roster Review 145 Annex 20: Site Description ..................................................................................................... .............................................................................................. 152 MAPIBRD#33466 PHILIPPINES NATIONALPROGRAMSUPPORTFORENVIRONMENTAND NATURALRESOURCES MANAGEMENTPROJECT PROJECT APPRAISAL DOCUMENT EASTASIA AND PACIFIC EASRE Date: M a y 25,2007 Team Leader: IdahZ. Pswarayi-Riddihough Country Director: Joachim von Amsberg Sectors: General agriculture, fishing and Sector ManagerDirector: RahulRaturi forestry sector (85%); Generalpublic Project ID: PO96174 administration sector (1O%);Miningand other Lending Instrument: Sector Investment and extractive (5%) Maintenance Loan Themes: Other environment andnatural resources management (P);Other rural development (S) Environmental screening category: Partial Assessment Global Supplemental ID: PO91147 Team Leader: IdahZ. Pswarayi-Riddihough LendingInstrument: Specific Investment Loan Sectors: General agriculture, fishing and Focal Area: M-Multi-focal area forestry sector (5O%);Sub-national government Supplement FullyBlended?: Yes administration (35%);Flood protection (15%) Themes: Other environment andnatural resources management (P);Biodiversity (S);Other rural development (S);Climate change (S) Project FinancingData [XILoan [ ] Credit [XI Grant [ 3 Guarantee [ 3 Other: For Loans/Credits/Others: IBRD LoanUS$50.00 million; GEF Grant US$7.0 million Total Bank financing (US$m.): 57.0 million Proposed terms: FSLinUS dollars, with 8-year grace period andpayable over 20 years with levelDavment Source Local Foreign Total BORROWEFURECIPIENT 28.00 2.00 30.00 InternationalBank for Reconstructionand 45.50 4.50 50.00 Development Global Environment Facility (GEF) 6.00 1.oo 7.00 Total: 79.50 7.50 87.00 ResponsibleAgency: Department o f Environment andNatural Resources Visayas Avenue, Diliman Philippines Tel: (632) 929-6626 Estimateddisbursements(BankFY/US$m) F Y 7 8 9 10 11 12 13 Annual 2.00 5.00 9.00 10.00 11.00 9.00 4.00 Cumulative 2.00 7.00 16.00 26.00 37.00 46.00 50.00 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ No Does the project require any exceptions from Bankpolicies? Re$ PAD D.7 [ ]Yes [XINO Have these been approvedby Bankmanagement? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Ref:PAD C.5 [XIYes [ ] N o .# Does the project meet the Regional criteria for readiness for implementation? Ref:.PAD D.7 [XIYes [ No _ ~ _ ~. Project development objective Re$ PAD B.2, Technical Annex 3 The program's overall development objective is to assist the Department o f Environment and Natural Resources to improve efficiency and effectiveness inits service delivery. More specifically, the project would aim to strengthenthe allocative efficiency o f DENR'slimited budget resources, through better prioritization and partnership arrangements, facilitating scaling- up andbetter linkingofplans andbudgets. The program's approach based on targeted expenditure support is also consistent with the CAS strategy for improving fiscal and expenditure discipline, mainstreaming support for the regular programs o f the Government and developing broader sector based approaches. The GEF will partner the Bank inmeetingthese higher level objectives byproviding incremental funding for operational GEFpriorities with anticipated global benefits. The global environment objective o f the program would be to enhance ecosystem services for global and local benefits. Global Environment objective Re$ PAD B.2, TechnicalAnnex 3 The global environment objective o fthe program would be to enhance ecosystem services for global and local benefits. Specific global objectives would be addressed through GEF financing instrategic areasto enhance ecosystem services for global andlocalbenefits. Project description [one-sentence summary of each component] Re$ PAD B.3., Technical Annex 4 Project components have been designed to support a time slice o f DENR's core mandate and regular program. This approach constitutes a move away from projectized approaches generally employedby donor assisted projects inthe past, which established parallel structures andhad problems o ftransition to regular programs on completion. Project interventions will also be fully consistent with the attainment o fMajor Final Outputs (MFO) that agencies are adopting in a move toward results basedbudgeting, and adoption o f an Objective Performance Indicator Framework (OPIF). Component 1. PolicyDevelopment, Planning, Monitoring andEvaluation. Carrying out a program to implement DENR's Rationalization Plan. Sub-component 1:Improving the efficiency o f DENR's organization and operations, through the following activities: (a) developing a framework to rationalize DENR's existing overlapping or conflicting policies and administrative orders, andto clarify the assignments and approving authorities at the different levels withinthe DENR?s organization; (b) refining the administrative arrangements o f DENR's Environment ManagementBureau (EMB); and (c) establishing a procurement unit to handleprocurementmatters within DENR andrefining the administrative arrangements o f DENR's Internal Audit unit. Sub-component 2: Strengthening DENR's service delivery functions, through the following activities: (a) conducting surveys to measure clients' satisfactionwith DENR's service delivery; (b) improving access byDENRclients to its data andinformation, especiallyinregardto regulatoryprocesses and fees, through among other things, strengthening DENR'smanagement information system (MIS); and (c) strengtheningthe capacity ofDENR's Policy and Planning Office to undertake its monitoring and evaluation functions for DENR'soperations. Sub-component 3: Developingwatershed management plans, landuse and demarcation maps for watersheds and forest areas, groundwater maps, and geohazard maps o f highrisk areas. Sub-component 4: Implementing interim risk remedial measures relatedto abandoned mines, geology, and ground water protection; andpreparing comprehensive mine rehabilitation and remediation plans for priority abandoned mine sites. Sub-component 5: Strengthening DENR'spublic awareness and environmental education program. Component 2: Integrated EcosystemManagement. Carrying out a program to implement DENR'sintegratedwatershed andwetlands management strategies for targeted watersheds areas facing severe risk o f fbrther degradation and for sensitive ecological areas. Sub-component 1:Promoting participatory and integratedwatershed ecosystem planning and management; andraising integratedecosystem awareness among the stakeholders incritical ecological areas. Sub-component 2: Restoring and rehabilitating priority convergence watersheds; raisingpublic awareness o fhabitat rehabilitation andrestorationprograms; improving the knowledge o f the communities, LGUs and DENR local offices inthe ecologically degraded areas on 'rain- forestation'; supporting biodiversity conservation and management within priority 'protected areas'; and carrying out resource-based assessments inthe wetland areas to improve conservation planning, Sub-component 3: Supporting sustainable livelihood improvement Sub-projects that enhance the ecosystems, conserve biodiversity and increase farmers' income. Component 3:Environmental andNatural Resource Management Sub-component 1: Strengthening DENR'sregulatory and oversight functions and its capacity in implementation o f environmental regulations related to air and water quality, waste management and environmental impact assessment; and Sub-component 2: Strengthening participatory integratedwatershed management monitoring systems at the LGUand community levels. Which safeguard policies are triggered, ifany? Re$ PAD 0.6, TechnicalAnnex 12 The Project will help the DENR finance andcarry out its priority activities to meet its core mandates and strategic goals inmanaging, conserving andprotecting the country's environment andnaturalresources. Under Component 3, the Project is envisaged to strengthen andimprove the implementation o f the Philippine environmental impact statement (EIS) system since this i s one o fthe priority activities to be funded by the Project. With these, positive environmental benefits are therefore expected from the Project. Notwithstanding, an environmental assessment (EA) for the first year's activities has been preparedand it assesses the potential environmental impacts o fthe priority activities. Environmental guidelines have been formulated as part o f the EA inorder to provide recommendations and mainstreammitigation measures infuture priority activities to address negative impacts and enhance positive impacts. The assessment confirmed the significant positive environmental impacts that will result from the project's implementation through an integrated and ecosystem-based NRMapproach, with improved enforcement o f ENRlaws and standards. The assessment, however, did point to a few priority activities, where environmental andsocial safeguard measures need to beputinplaceto mitigatepotential negative environmental impacts; such as infrastructure support facilities incritical watersheds as part o f the NRMinterventions and the project has been designed to ensure that these interventions will not impose added pressure on the resources. The project has also been designed to ensure that implementation o f integrated action plans for critical watersheds do not affect forested areas or the forest dwellers dependent on forest and forest products for their subsistence.During the planning, design and implementationstages adequate consultations will be carried out to ensure that these issues are addressed. The Project will not finance any activities related to miningo fmineral resources. Itwill, however, assist Government address the legacy o f the past by supporting the preparation o f a comprehensive mine rehabilitation andremediationplan, implementation o f interim measures to contain immediaterisks posedby the abandoned mines to the environment andthe community andstrengthening enforcement o f environmental andsocial policies for current and future mining. Mapping o fhighrisk areaswill also be supportedto assist LGUsinlanduseplanning andreduce the risk o fdisasters. Given the significant environmentalbenefits o fthe Project and the minimal negative environmental impacts a few priority activities may produce, the Project i s classified as Environment Category B. The safeguard policies triggered are: OP/BP/GP 4.01; 4.10; and4.36. Significant, non-standard conditions, if any, for: Re$ PAD C.6 Loadcredit effectiveness: The following conditions apply: (i) the Borrower through DENRhas designated staff inadequate numbers, with qualifications and experience, andunder terms o f reference acceptable to the Bank, to be responsible for the financial management matters underthe Project at its Financial Management Service Office andits ForeignAssisted Projects Office; (ii) the Borrower has approved the first year work program for the Project; and (iii)the Borrower has finalized and adopted the Operations Manual satisfactory to the Bank inaccordance with the provisions o f paragraph 5 o f Section Io f Schedule 2 to the LoanAgreement; (iv) GEF Grant Agreement has been signedbetween the Bank and the Republic o fthe Philippines. Covenants applicable to project implementation: i) ByDecember31,2007, DENRshouldundertakeabaselinestudywhichinteraliawould provide measures o f client satisfactionwith DENR'sservice delivery inthe areas o f information andregulatory processes andprocedures. ii) ByJune30,2012, DENRshouldundertakeafollow-upstudytothebaselinestudy which, inter alia, would provide data and compare the effectiveness o f measures undertaken by DENRduringtheproject periodto improve client satisfaction inregardto service delivery inthe areas o f information andregulatory processes andprocedures. iii) ByDecember31,2009,anAdministrativeOrderwouldbeissuedandthereafter implemented, restructuring EMB into function-based divisions. iv) ByDecember 31,2007, anAdministrative Orderwouldbeissued andthereafter implemented, establishing the Procurement Unit consistent with FL49184. (As an interim measure, bynegotiations, a unit comprising the staff o f the Project Accounts Management Divisionwill be authorizedto act as the Procurement Unit, including all roles and responsibilities inaccordance with the RA9184). v) ByDecember 31,2007, an Administrative Order would be issued andthereafter implemented,providing for the InternalAudit functions to report directly to the Secretary o f DENR,inlinewithbroader Government anti-corruption initiatives. vi) ByDecember 31,2007, anMIS strategic planandbudget would be approvedand thereafter implemented, which inter alia would establish the action planfor improving the quality, public accessibility andlinks betweenthe key databases o fthe DENR. vii) ByDecember 31,2007, a 3-year Forward PlanningandBudgetingstrategy wouldbe developed which, inter alia provides a vision andbenchmarks for key reforms inDENRs operations; and viii) ByMarch31o feachyear, DENRwould submit its proposedplanandbudget for the following fiscal year, along with a report on the progress o f the project and on DENR?s RationalizationPlan, for review bythe Bank, DBMand NEDA, for the purpose o f facilitating alignment o fthe budget with the NPS-ENRMP andpriorities o f Government; however this review would inno way substitute for the normal review processes o f government. (viii) ByDecember 31,2007, DENRwould contract a firmto strengthen its internal audit functions, andby July 30,2008, and annually thereafter, submit an internal report o f the project to the Bank for review and comment. ix) ByJune 30,2010, amid-term review o fDENR's performance andachievements under the project would be undertaken and the findings o f that study discussed with DENR, DBM, NEDA andthe BankbyOctober 31,2010, and A. STRATEGIC CONTEXT AND RATIONALE 1. Country andsectorissues 1. Despite some improvement in recent years, the Philippine economy continues to lag with lower levels of GDP growth and investment per capita, than for the region as a whole. Weak economic performance has constrained the country's ability to reduce poverty and meet other development objectives. Reversing these trends through sustainable economic growth i s therefore, at the heart of the Presidents 10 Point Agenda for Growth, the Medium Term Philippine Development Plan (MTPDP 2004-2010), and the current World Bank' Country Assistance Strategy (CAS). These collectively underpin the strategic framework for economic development with social inclusion, poverty reduction and equity. More specifically the strategic goals of the MTPDP and CAS are; enhancing agricultural productivity and agribusiness, asset [land] reform, responsible management of natural resources and the environment and public sector/expenditure rationalization to improve public service delivery. In addition, the Government has enacted the Local Government Code (LGC) which devolves greater responsibility for managing economic development to Local Provincial, Municipal and Community Government Units (LGUs). Their active partnership in development and poverty reduction, therefore, i s accorded very high importance in Government policy, and i s a key pillar in the CAS. Long term, sustainable economic growth and poverty reduction depend on how successful Government will be inimprovingoverall fiscal stability, public service delivery and accountability, and in encouraging greater and more responsible private investment. But along with the emphasis on sustainable economic growth, as a precursor for inclusive poverty reduction, there are very real risks for the Philippines, that the lack of attention being given to sound environment and natural resource management (ENRM),will seriously offset short-term, economic gains, by significant longer-term costs. As recent history shows, the propensity for serious natural disasters will likely increase, as the costs of pollution and natural resource degradation rise. 2. Government Strategy 2. The Government of the Philippines (GoP) has undertaken reforms to enhance the policy and institutional framework for ENR management, and numerous laws and regulations are in place. Additionally, Government functions were transformed with passage of the Local Government Code (LGC), which advocated comprehensive decentralization and devolution of some of DENR's functions to Local Government Units (LGU). Other significant laws include the National Integrated Protected Area System (NIPAS) Act, the Comprehensive Agrarian Reform Law, the MiningAct, the Indigenous People's RightsAct (IPRA) Act, Fisheries Code, the Wildlife Resources Conservation Act, the Clean Air Act, the Ecological Solid Waste Management Act, the Toxic and Hazardous Waste Management A c t and the Clean Water Act. However, while some of these policies are beginning to have a positive impact, for the most part issues relating to inadequate resource allocation and weak institutional capacity and governance, are undermining effective implementation and compliance. 3. Against this background, the major challenge facing DENR; the institution charged with the broad mandate of protecting, andensuring soundENRmanagement and compliance, i s to: 1Also referredto as the Bankinthis document 1 i) Improve credibility and transparency - enhance public confidence in the DENR, away from a perception of being just a regulator to being an effective and respected conservator. T h i s negative perception of the department, often clouded by allegations of corruption, has significantly limited the ability of DENR to forge constructive partnerships. For many, it i s easier and faster to either "do the work hrst or seek clearances from DENR later," or simply to findways to avoid the bureaucracy altogether, and ii)Rationalizefunctions &expenditures - DENRneedsa substantialinstitutional overhaulto improve the quality of its service delivery. A Rationalization Plan has been developed by DENR in keeping with a government-wide initiative, but the challenge lies in having it effectively implemented. 4. The institutional weaknesses, both contribute to, and are a reflection of the severely constrained budget of the DENR. Some 85% of DENR's budget goes to maintaining the bureaucracy and personnel costs, leaving little for its operations. Consequently, DENR has relied heavily on foreign assisted projects and grants to fund its operations, but this has led to a projectized approach and resulted in short-term interventions, changing priorities, and lack of sustainability. There i s wide recognition that this segmented approach has to change to a more inclusive, sector wide approach, consistent with long term priorities. Moreover, there i s now a consensus that an integrated ecosystem approach i s needed to address cross-sectoral ENRMissues. Accordingly, the strategy i s to use the watershed as the unit of program planning, inter-agency coordination, prioritization, LGUempowerment and for engaging the private sector. 5. The DENR's institutional vision expressed, in the President's 10 Point Agenda for Growth and the Medium T e r m Philippine Development and Investment Plan (MTDIP 2004-2010, broadly encompasses: (i) promotion of sustainable and responsible natural resource use; (ii) protection of / ecologically fragde areas and reforestation; and (iii) promotion of a healthy environment. Consistent with these priorities, the DENR i s committed to implementing three Major Final Outputs (MFOs) inthe five-year period 2006-10, which forms the basis of the performance-based budgeting system being developed by the The loan from the Bank, together with a grant from the Global Environment Facility (GEF), would fund a portion of this five year program while supportingDENR to implement key institutional reforms inline with its Rationalization Plan. 3. GEF Eligibility 6. The Philippines i s eligible for GEF funding as a signatory to, and has ratified the key global treaties on the environment: Convention on Biological Diversity (1993), United Nations Framework Convention on Climate Change (1994) and the United Nations Convention to Combat Desertification (UNCCD, 2000) as well as Ramsar (1994), and i s an active participant inthe United Nations Forum on Forests. In addition, the planned support is in line with the National Biodiversity Strategy and Action Plan (NBSAP), including its operational strategies to ensure: (i) collaboration among key stakeholders in the country; (ii) formulation and enforcement of comprehensive policies and procedures for biodiversity conservation, sustainable use and equitable sharing of its components; (iii) proper integration of biodiversity conservation strategies in development planning and management at all levels and by all sectors; (iv) puttinginto practice a * The MFOs serve as the main guide in DENR's target setting and planning, and consequently are the basis for its budget requests, as well as the associated Indicators, Program and Activities which are described inDENRAdministrative Order (DAO) No. 2003-019 issued onJune 17,2003. 2 conservation culture or environmental ethics for biodiversity and bio-resources; (v) active participation of all sectors and stakeholder in biodiversity conservation; and (vi) fulfillment of the country's commitments and obligations to the Convention on Biological Diversity (CBD), as well as other regional and international agreements. A second iteration of the NBSAP, which was called the Philippine Biodiversity Conservation Priority-setting Program (PBCPP) was completed in 2002. This helped to redefine priorities for protected areas. The NPS-ENRM Program i s also consistent with the priorities identihedinthe NationalAction Planto address the objectives of the UNCCD, which advocates integrated watershed management as a key strategy for sustainable ENRM, and the introduction of area -specific technologies to reverse declining land productivity and the supply of freshwater. 4. Rationale for Bank and GEF involvement The Bank has been active in the Philippines over many years in promoting ENRM policy and development. A number of projects have been funded and the Bank has acted as a focal point and catalyst for engaging DENR, the National Economic Development Authority (NEDA), donor partners, NGOs, LGUs and communities, in ascertaining critical and emerging natural resource management issues and their linkages to development strategies. The outcome of these consultations were published in two studies; "Governance of Natural Resources inthe Philippines" and a "Natural Resources Management: Way ForwardAction Plan for the Philippines". Inaddition the Bank routinely works with DENR in producing the Philippine Environment Monitor, which highlights issues and concerns related to solid waste, air and water pollution in the country. A budget and expenditure review of DENR was recently conducted, the results of which are presented inAnnex 11. 8. These engagements provide the Bank a unique perspective of environmental and natural resources management issues that will have to be addressed to meet country development and poverty reduction objectives. The consultations have also highlighted the need for adopting an integrated, programmatic and sector wide approach to ENRM, compared to previous projectized interventions. This approach i s strongly endorsed in the CAS. Additionally, GEF through World Bank, UNDP, UNEP and the ADB, has also been a major partner with DENR, and has invested some U S $118.7 million since 1992 for environmental management. Investment has been heavily on climate change mitigation (58%) and biodiversity conservation (37%). 5. Contributory factors to the potential for DENR's success with proposed initiative 9. From the outset of the design of the NPS-ENRMP, strong interest in the project has been expressed by the three oversight agencies: the Department of Budget Management (DBM); the National Economic and Development Authority (NEDA); and the Department of Finance (DOF). Specifically, they have supported design initiatives aimed at improving the efficiency and accountability of DENR in line with government-wide initiatives to: (i) introduce results based budgeting; (ii) adopt of an Organization Performance Indicator Framework (OPIF`); (iii) involve LGUs more effectively inthe delivery of devolved functions, and (iv) achieve greater convergence inpublic sector delivery by the three rural development institutions; DENR, DA and DAR. The design of the project addresses each of these issues, and several mechanisms are included for active involvement by the oversight agencies in the monitoringthe project's implementation. A further factor expected to contribute to the success of the project, i s the focus on an agreed Institutional Reform Agenda, which i s closely aligned with the broader Rationalization Plan of DENR. 3 6. Higher levelobjectives to which the project contributes 10. In line with the MTPDP and CAS goals, the NPS-ENRMwould assist DENR to: (i) and create strengthen an enabling institutional environment to mainstream ENRMand enhance the sphere of influence of DENR; and (ii) the GOP in enhancing ecosystem services for additional global assist and local benefits. Furthermore the planned assistance would contribute to the specific policy and strategic goals of promoting social inclusion, by strengthening the participation of communities in natural resource management and decision-making, strengthening devolution in line with the Local Government Code by partnering with LGUs, and engaging the private sector to be more responsible. It would also support the CAS focus on governance, by making the system for planning budgeting and delivery of services in DENR and selected LGUs more efficient and transparent. The program's approach based on targeted expenditure support i s also consistent with the CAS strategy for improving fiscal and expenditure discipline, mainstreaming support for the regular programs of Government, and developing broader sector-based approaches. The GEF will partner the Bank in meeting these higher level objectives, by providing incremental funding for operational GEF priorities with anticipated global benefits. 7. GEF Operational Strategy/program Objective Addressed By the Project 11.The GEF's Operational Program on Integrated Approach to Ecosystem Management (OP 12) is aimed at bringing synergy between the various GEF focal areas (biodiversity, climate change, international waters, POPS,land degradation, ozone) in a manner that optimizes multiple benefits. Consistent with this, the proposed NPS-ENR provides a comprehensive framework to manage natural resources across sectors and administrative boundaries, facilitate local participatory approaches to watershed management, and enhance prioritizationwithin the DENR's functions. In particular, the design emphasizes the two main thrusts of OP12, capacity building and on-the- ground investments. Through capacity building, the policy, legal and regulatory framework would be strengthened to support Integrated Ecosystem Management (IEM). DENR's provincial units, LGUs, People's Organizations (POs) and other community groups would be strengthened to undertake integrated ENR planning and implementation, consistent with the thrust of decentralization and devolution. Conflict resolution among resource users would b e addressed by replicating existing working models from different parts of the country. Capacity buildingwould be aimed at mainstreaming biodiversity conservation and sustainable land management, again drawing upon successful experiences from elsewhere. On the ground investments based on an IEM approach would be made in specific priority watersheds and micro-catchments. Priority watershed areas have been identified which contain critical ecosystems and biodiversity of global significance. Detailed descriptions of the natural resource characteristics of these target watersheds, including presence of biodiversity of global significance, the threats, proposed IEMapproaches and potential technological interventions are provided inAnnex 20. B. PROJECTDESCRIPTION 1. LendingInstrument 12. In ascertaining the right loan instrument for the project the key concerns were the need for a flexible product to fund an approach which i s long term, programmatic, sector wide and integrated into DENR's regular program. To meet these requirements, especially the need for a long term program, an APL was considered as a possible choice. Likewise a S I L was also a possibility.Both 4 were rejected, as it was felt they provided less flexibility in financing and could not be used as strategically inmeetingDENRsreform agenda, as could a SIM. 2. Project development objective and key indicators 13. The program's overall development objective would be to assist the Department of Environment and Natural Resources improve efficiency and effectiveness inits service delivery. More specifically, the project would aim to strengthen the allocative efficiency of DENR's limited budget resources throughbetter prioritization and partnership arrangements, facilitating scaling-up and better linking of plans and budgets. Underpinning this development objective, is the fundamental need to build credibility and capacity inDENR;the institution charged with the very broad mandate of protecting and conserving the Philippines' considerable natural resource base, but without the commensurate resources and support needed to do the job. The design of the project, therefore, takes a two pronged approach. Firstly, it addresses the need to build credibility, both within government and with the general public, as to DENR's accountability for resource use, transparency in implementing ENRpolicies and regulations, and need to strengthen governance over its operations. The relatively small operational budget DENR receives vis-a-vis its size (85% of the budget i s for personnel services), i s a reflection of the reluctance to allocate additional resources to DENR, based on past performance. Secondly the project is designed to strengthen the manner and efficiency by which core functions are implemented. Specifically, project interventions have been designed to support compliance with key policies and regulations through enhanced transparency, and through strengthened partnerships with stakeholders. Likewise, at the watershed level, the project supports a shift away from sub-sectoral interventions (forestry, protected areas, water etc), towards an integration of ENR functions, in partnership with LGUs and communities. M u c h needs to be done and investment needs are substantial to protect, conserve and manage the coastal, forest, soil, water, mineral, and biodiversity resources of the Philippines. Economic growth and employment creation are vital to reducing pressure on natural resource degradation, but the ability to create the environment for sound ENR management, will depend on the pace at which DENR can establish leadership for the sector. 14. The global environment objective of the program would be to enhance ecosystem services for global and local benefits. Specific global objectives would be addressed through GEF financing in strategic areas to enhance ecosystem services for global and local benefits. The global environment objective would be achieved by applying an integrated ecosystem management (IEM) approach in priority watershed areas and selected sites of global significance. Livelihood models and payment for environmental service approaches would incorporate carbon frnance as a possible source of funds for sustainingthe carbon stock. Global benefits would include: biodiversity protection (e.g. habitat protection, natural forest regeneration and reduction of threats to protected areas); improved ecosystem services such as enhanced water flows, reduction in sedimentation loads, and increased capability for carbon storage. Additional global benefits would arise by creating synergies that optimize linkages between focal areas, e.g., &e management and conversion of slash and burn agriculture with more sustainable agricultural practices, which increase land cover and contribute to increasing carbon stock. Restoration of wetland functions would provide habitat protection for biodiversity, increase carbon stocks and strengthen hydrological cycles. 3. Project Components 15. Project components have been designed to support a time slice of DENRs core mandate and regular program. This approach constitutes a move away from projectized approaches generally 5 employed by donor assisted projects in the past, which established parallel structures and had problems of transition to regular programs on completion. Project interventions will also be fully consistent with the attainment of Major FinalOutputs (MFO) that agencies are adopting ina move toward results based budgeting, and adoption of an Objective Performance Indicator Framework (OPIF). 16. Component/MFO 1:Policy, Planning, Monitoringand Evaluation (total cost US$30.14 M - of which GEF US$1.90 M):D u e to the construction of DENR'sMFOs, a wide range of activities are included under MFO1, including those which are more operational in nature, supporting investments inMFO 2 and 3, (e.g., preparation of maps, development of fullrehabilitation plans for abandoned mines, surveys and development of detailed watershed management plans). More importantly, however, the design of the project maintains conformity with the MFOs, and therefore the GAA. That said, an important element of Component 1 i s the support for DENR`s institutional reform agenda which i s based on the institutions Rationalization Plan. In line with the DBCC requirement that DENR "flesh-out" and "implement" its Rationalization Plan under the loan, a Framework Rationalization Plan has been developed (Annex 18: Table 2 - Rationalization Plan and Action Framework) which identifies the specific actions and outcomes expected under the project, and the longer-term steps to be undertaken by DENR to fully implement its Rationalization Plan. Progress inimplementing the Rationalization Plan would be reviewed annually as part of the oversight agency review of DENR's work plan and budget, included as a dated covenant under the loan. Subcomponent 1.1: Rationalization of ENR Plans and Policies: a) Strengthening the efideng of DENR's organiqation and operations: Key activities include: i)development of a framework for rationalizing and prioritizing the wide ranging ENR policies and legislation; ii)streamlining the delegation of approving authorities at the different hierarchical levels of the organization; and iii) restructuring EMB to be functionally-based, rather than sub-sectoral. Expenditures would be for technical assistance, facilitation of action plans for planning and budgeting, and some computers and software necessary to support the activities; b) Strengtheningthe service deliveyfnnctions in theprovisionofdata, information and MeYE: The project would support a baseline survey which, inter alia, would provide measures of client satisfaction with DENR`s service delivery, and on the level of perceived transparency inthe access to data andinformation. A follow-upsurvey wouldbe done byJune 30,2011,The Policy and Planning Office would be strengthened to more effectively monitor DENR's program implementation and to undertake periodic evaluations. Support would also be provided for strengthening key databases, and the establishment of a more effective MIS system. By December 31, 2007, it has been agreed an MIS strategic plan and budget would be approved which inter alia would establish and thereafter implement the action plan for the design of a program to improve the quality, public accessibility and links between the key databases of the DENR. Expenditures would be for the baseline surveys, setting-up and upgrading of the MIS system, and purchase of goods as required, and c) StrengtheningDENR's overallproject managementprocesses: The programmatic approach being supported by the project would entail expenditures for conducting the internal audit, and for PCU/FASPO for project management and associated costs such as computers, data collection and compilation. Subcomponent1.2: Surveys and Mapping: Survey and maps would be prepared to better demarcate forest lands, watersheds, protected areas, foreshores, geo-hazards @gh risk areas for landslides and flood-run-off) and groundwater. To the extent that the project provides for the location of boundary markers/survey pegs, it has been explicitly agreed that, under the project, the placement of such markers shall not support nor encourage in any way, actions which would lead to the displacement of people occupying lands within the demarcated areas. Expenditures will include the costs of maps, surveys, GPS units etc. 6 Subcomponent 1.3: Watershed Development Planning: Expenditures would include the preparation of watershed management plans, including the characterization of land-use patterns, delineation of forest and protected areas etc., and their ground truthing. This will b e focused on the prioritywatersheds identified for supportand discussedindetail inComponent 2 below. Subcomponent 1.4: Remediation of Risks: Support would be for (i) investigation and analysis site and development of environmental rehabilitation and remediation plans for selected abandoned mines; (ii)implementation of interim mitigation and remediation measures to manage immediate risks posed by the abandoned Bagacay mine site, while the final rehabilitation and remediation plan is being prepared; and, (iii) development of environmental and social policies and guidelines for current and future mining. Subcomponent 1.5: Public Awareness and Environmental Education: Support, in particular from the GEF, would be provided for review and assessment of DENR's IEC strategy and framework, structure, roles and functions, drawing upon the experience from other donor-project supported IEC plans and programs and identifjmg best practices in ENR for dissemination and replication. Expendtures would be for strategic public awareness and education campaigns, goods, services, some technical capacity, preparation of the campaign materials etc. 17. Component/MFO 2 Integrated Ecosystem Management (total cost US$14.09 -of which GEF US4.43): This component targets watersheds facing severe risk of further degradation, and particularly those in critical ecological areas. It focuses the support on participatory actions with stakeholders who are directly influenced by the state of the natural resource degradation. Subcomponent 2.1 Integrated Ecosystems Management: a) Promoting participatorywatershed management. The focus would be on prioritized integrated watershed and wetlands management strategies in priority areas facing severe risk of further degradation or in sensitive ecological areas. Specific activities to be supported would include: community organizing, stakeholder analysis and mobilization, formulation of IEM/IWM guidelines, IEM/IWM plan formulation; conduct of specific and focused IEC (see component 1.3 above), land use zoning planning and boundary delineation. Support would also be provided for strengthening communications systems and strengthening partnership/ collaboration with other sectors in environmental compliance. A specific focus would be on strengthening LGUs to undertake responsibilities in ENR management. The watersheds agreed to be supported under the GEF and the SIM areas follows: i)Angat Watershed Reservation (55,709 ha), Ipo Watershed (6,600 ha), Dona Remedios Trinidad-Gen. Tinio WFR (20,760 ha), Kanan Watershed (39, 160, 83 ha), Bicol River Basin: Libmanan-Pulantuna Watershed (70,924ha), and Ligawasan Marsh (46,798 ha). Additionally, it has been agreed that funding under the SIM would be directed to support integrated watershed protection activities in Abulog (CAR), Matutinao (Region 7), Pola (Region 4-B). For these additional watersheds, before investments are made itwillbe necessary to follow the up-front work on stakeholder/social and environmental assessments, as well as site descriptions. These activities could be included as part of the watershed management plan work to b e done under the project in 2007; b) Habitat Rehabilitation and Restoration. T h i s would support: i)restoration and rehabilitation of convergence watershed (with GEF support) and non-convergence watersheds (with S I L support); ii) capacity building (LGU, local communities, DENR); and iii)IEC campaigns. Prioritized degraded ecologically sensitive areas would be rehabilitated primarily through rain-forestation. Biodiversity conservation and management would be supported within priority PASand other biologically important areas; and the assessment of key conservation areas, including resource-base assessments and mapping of wetlands. 7 Subcomponent 2.2 Agro-Forestry and Livelihood Support: Communities would be supported to implement demand driven livelihood activities that achieve sustainable land management and/or biodiversity conservation, identified inmicro-catchment plans. Guidelines for project proposals would also emphasize linking sustainable land and natural resources management practices and tenurial instruments with community participation in local ENR monitoring systems and resource protection. Proposals would be financed on a competitive (such as community willingness to provide in-kind contributions) and best practice basis, and would be screened and endorsed by the Watershed Management Councils and or LGUs. Carbon finance activities will be explored as a means of providing recurrent financing in exchange for the establishment and maintenance of forests in eligible areas. Financing for this i s envisaged to be provided through Carbon Funds, the details of which would be worked out at a later time. 18. Component/MFO 3 Strengthening Environment and Natural Resources Management (total cost US4.77 M -of which GEF US0.67): This Component targets the regulatory and oversight functions of DENR. Subcomponent 3.1 Monitoring Systems for ENR Laws and Regulations: Support would be for: (i) strengthening of key regulatory functions related to the issuance of tenurial instruments, and encroachment into forest areas; and (ii) strengthening the implementation of regulations, relating to air and water quality, solid waste management, and environmental impact assessment (EIA), which inter alia, would include greater transparency, improved partnerships with both the public and the private sector and the use of market-based and command and controlinstrument. T h i s component would fund capacity-building for volunteer enforcement and local natural resource monitoringin priority sites. On the compliance of environmental laws and regulations, the Program would finance the following priority activities: (i) quality management: purchase of air quality monitoringequipment to upgrade air DENR'smonitoringtools and capability; monitoringof private emissions testing centers to ensure they perform according to the guidelines and standards set by the DENR; monitoring of firms issued with permit to operate to ensure that they comply with the standards; inventory of firms with hazardous air emissions and stack sampling, among others; (ii) quality management: establishment of at least water three priority water quality management areas that will pave the way for the implementation of the recently enacted Clean Water Act, including the implementation of the environmental user fee/discharge permit system, an economic instrument, to complement water quality regulations; operationalization of the multi-sectoral water quality management boards (WQMBs); implementation of the environmental user fee/discharge permit system; and capacity building activities for EMB Central and Regional Offices and the WQMBs to implement the discharge permit system; (iii)waste management: inventory of firms that manufacture and/or import toxic and hazardous wastes; and technical assistance to LGUs on solid waste management to increase compliance and adoption of the ecological solid waste management act by the LGUs; (iv) EM:development of guidelines to strengthen the implementation of an EIA system, which inter alia would include provisions for bio-diversity and capacity buildingof Regional Offices and LGUs. Subcomponent 3.2 Community-based Participatory IWM Monitoring System: On the basis of the existing DENR Biodiversity Monitoring System (BMS), a local level priority participatory land, water and resource use monitoring system will be developed to be used in IWM. DENR has, with funding from the World Bank, developed a successful BMS for protected areas over the past 10 years. GEF funds would, through the financing of TA, assist DENR in scaling-up this existing monitoring system so that it can be used as a participatory monitoring tool intargeted watersheds and PASwith a critical and urgent need for conservation action, across the Philippines. It will be further developed so that it can be used as a simple monitoringtool for IWMand with added monitoringcomponents such as water quality and soil. 8 4. Lessons learned and reflectedinthe project design 19. Indesigning the NPS-ENRM, a number of valuable lessons were incorporated from past Bank and GEF interventions, along with issues raised in environmental impact assessments and discussions with stakeholders. These are presented in the Bank/GOP papers on "Governance of Natural Resources in the Philippines" and the "Natural Resources Management Way ForwardAction Plan for the Philippines". The papers highlight the importance of: (i) strengthening decentralization of natural resources management and devolution of responsibilities to LGUs and communities; and (ii)overhauling DENRs budget process and strengthening the participation of communities and local governments in ENRM. To contribute to a better understanding of the finance and budget structure of the DENR, a sector expenditure and budget review was carried out as part of project preparation; the results of which are presented in Annex 11. Lessons from previous Bank/GEF/donor projects3 include: (i)effective sectoral reforms require accompanying investments in transitioning to a new policy environment; (ii) institutional support and the right incentives can enable LGUs in effective NRM; (iii) considerable benefits are possible from devolution of NRM and service delivery to LGUs and communities if they are fully engaged and their capacities are strengthened; (iv) LGUs and communities are willing to commit and allocate scarce resources to NRM,livelihood generation, rural infrastructure development and maintenance provided they are recognized as the overall managers of these efforts and are properly supported with relevant technical assistance; (v) multi-sector partnerships are important in solving complex forest management issues; (vi) appropriate and effective long term tenure instruments to provide incentives are important; (vi) fund transfers to LGUs through national government agencies remains highly inefficient and; (viii) investments in natural resources (forestry, protected areas and watersheds) require longer and more sustained support than i s possible under a project scenario. 5. Alternatives consideredand reasons for rejection 20. D o nothing: Given the relative complexity of initiating a long term program for mainstreaming environment and natural resource issues in policy and development in the Philippines and the relatively limited success of the GoP to effectively institute ENRM in the past, it would not be inappropriate to steer away from further interventions and do nothing. However, this alternative has high long terms costs, both nationally and globally. The very high dependence of the economy and private income, especially poor, on primary resources, heightens the need for responsible utilization and sound institutional management. The devastating pace of natural resource and environmental degradation over the past five decades, has taken the Philippines from being one of the richest biological regions inthe world, to one of the most over-exploited, polluted and at-risk. 21. Sector Investment Loan: To address ENR concerns, the GoP has historically adopted a single- issue or project by project approach, both for local and ODA financing. Although this approach has been supported by donors including the Bank, it has resulted in short-term interventions, rapidly changing priorities, and lack of follow-through and sustainability in transition to regular programs. Continuingwith a project approach was therefore considered inappropriate. 22. Development Policy Lending vs. Sector Investment and Maintenance approach: In the present climate, a Development Lending Policy (DPL) i s likely to be viewed with skepticism and (1)Environment Sector Assistance Loan (1991-1998); (ii) Central Visayas Regional Project; (iii) Agrarian Reform the The USAIDEnvironmental GovernanceProject ,and (vi) an Independent Evaluation of GEFOP12 Communities Development Project (1996- 2003); (iv) Conservation o f Priority ProtectedAreas Project (CPPAP); and (v) 9 reluctance, if it included the type of conditions needed in DENR. A SIM was preferred, given its potential to address issues on a comprehensive, programmatic and cross-sector approach. It also provides an effective vehicle for strengthening the institution that will carry out the program. C. IMPLEMENTATION 1. Partnershiparrangements 23. Partnership arrangements willbe important for the on-the-ground implementation of the watershed activities. NGO-led projects, supported by the private sector and donors, are being implementedin some of the NPS-ENRMP project areas, and could become partners. These would be firmed up during the initial stages of implementation, but, based on stakeholder consultations duringproject preparation, potentialpartners under the project include: 1) Southern Sierra Madre: The National Power Cooperation (NAPOCOR), the Metro Manila Water and Sewage Authority (MSWW) and the National Irrigation Agency (NIA) have expressed an interest in project activities. Inaddition, Yakap, a local NGO grantee of Critical Ecosystems Partnership Fund (CEPF), under a partnership MOA DENR Region N a yhas secured local endorsements within the proposed Mt. Iridand Mt.Angdo protected areas, located inone the project areas. ii) Bicol River Basin: NGO's have been active in providing assistance to Producer Organizations (PO) and barangays in the area, these include: (i)Philippine Rural Reconstruction Movement (PRRM); (ii) Centre for People Empowerment in the Uplands (FAI); (iii) Movers for Development Foundation (PMDI);(iv) Philippine Federation Prime for Environmental Conservation (PFEC); (v) Bicol National Park Foundation (BNFI) POs selected under CBFM programs for DENR; (vi) Concerned Environmentalist Group of Sigamot (CEGSI); (vii) Tible Bantay Kalikasan Organization (TIBKOI); and (viii) Pag-asang Samaan Para sa Kalikasan ngTancong Vaca (PASAKAT). iii) Ligawasan: has been actively supported by a number of NGOs including: (i)the Ligawasan Youth Association for Sustainable Development Inc; and (ii) the Maguindanao Development Foundation Inc. 2. Institutional and implementation arrangements 24. Overall Implementation of the project would follow normal DENR management and administrative structures and procedures to ensure that project supported activities are consistent with the Department's regular operations. To facilitate management's oversight of the project, a Special Order 1030, has been issued which inter alia provides for a Project Steering Committee (PSC) at senior management level to guide project implementation, and a Project Coordination Unit (PCU) under FASPO to coordinate project activities, and consolidate reports for submissionto the World Bank and oversight agencies. Annex 6 provides detailed implementation arrangements, which entail regular operations and supportbeing provided by DENR units/offices, as part of their normal functions, given that NPS-ENRMP i s providing program/budget support for DENR regular operations. Operations Manuals have been prepared by DENR to aid in implementing and integrating activities supported under the Bank loan and the GEF Grant. 25. The Project will use an annual Program Agreement as the basis for annual planning, budgeting and disbursement. The Planning and Policy Studies Office would initiate the annual PA, and would liaise closely with the Budget Division and the Financial Management Service to ensure that the PA 10 i s in agreement with the priority activities identified and with the proposed annual appropriations. The PA would be prepared to cover both the loan proceeds and the GEF grant financing; and would include milestones and corresponding tranche payments for the purposes of monitoring. The PA preparation would also have input from the DBM and NEDA, who have observer status. The PASwill be reviewed every 6 months and adjusted if needed. To ensure that there i s no delay inproject implementation, by March 31 of each year, DENR would submit its proposed PA (including planned activities and budget for the following fiscal year) for review by the DBM, NEDA and the Bank, for the purpose of facilitating alignment of the budget with the NPS- ENRMP and priorities of Government as well as to initiate disbursements (please see Annex 6 for details). 26. At the watershed level, Watershed Management Councils (WMC) would be responsible for planning and coordination. The establishment of the WMC would be consistent with the relevant provisions of the Clean Water Act. Each WMC would be co-chaired by the provincial Governor and the PENROs on behalf of the RED, who would also provide operational support. The WMC would lead preparation of watershed management plans with technical support provided by a strengthened Provincial Environment and Natural Resources Unit. 27. At the municipal level, an MOA under the framework of a Regional MOA would be signed between the DENR (PENRO)/CENRO), MDFO and the mayors of participating MLGUs, which would set out the responsibilities of the MLGUand the DENR for NRMat the municipallevel. At each MLGU a Municipal Environment and Natural Resources Unit (MENRU)) or a Municipal Planning and Development Office (MPDO), would b e created or strengthened, with responsibility for implementationand monitoring. 3. Monitoring and evaluation of outcomes/results 28. Responsibility for M&E of program activities under the NPS-ENRMP would rest with the Policy and Planning Service (PPSO), in collaboration with the PCU/FASPO and regional DENR offices and bureaus. The collection and submission of data will follow the regular institutional arrangements. FASPO would be responsible for the collection and analysis of data related to GEF activities. FASPO has long experience in managing and monitoring foreign assisted projects and has a dedicated unit responsible for M &E. Progress reports on the NPS-ENRMP would be prepared by PPSO and FASO, and these reports would also be reviewed by NEDA as part of its annual ODA Portfolio Review. Copies of this report would be provided to the Bank and reviewed as part of the Bank and GEF supervision of the project. Additionally, two dated covenants relating to progress monitoring would require that by June 30, 2010, a mid-term review of DENR's performance and achievements under the project would be undertaken and the findings of that study discussed with DENR, DBM, NEDA and the Bank by October 31, 2010, and that by September 31, 2012 a completion report of DENR's performance and achievements under the project would be undertaken under the direction of NEDA , and the findings of that study discussed with DENR,DBMand the Bank by November 30,2012. 29. The Results Framework (Annex 3) provides indicators by which to measure the outcomes and DENRs performance under the project. At appraisal, DENR management reviewed and indicated their agreement with the Results Monitoring Framework. While, as discussed previously, the project i s not directly linked to the implementation of DENR's Rationalization Plan, it i s consistent with and supportive of a number of the key institutional reforms in the plan. There i s therefore, a close alignment between the goals of the Rationalization Plan and the Project Development Objective. 11 Accordingly, and inaddition to the Results Framework (Annex 3), an "Action Framework" (Annex 18) has been developed showing how the project supports the implementation of DENR's Rationalization Plan, and providinga basis for monitoring further institutional reforms. A review of this Action Framework would be includedinthe annual review provided for by a dated covenant under the loan requiring that by March 31 of each year, DENRwould submitits proposed plan and budget for the following fiscal year, along with a report on the progress of the project and on DENR's Rationalization Plan, for review by the Bank, DBM and NEDA, for the purpose of facilitating alignment of the budget with the NPS-ENRMPand priorities of Government. 4. Sustainability and Replicability 30. Sustainability and replicability considerations are intrinsic to the project development objective and design of the NPS-ENRMP. Through the SIM lending instrument, and its integration with the grant from GEF, the Bank and GEF are supportinga time-slice of DENR's regular program, using i t s regular administrative processes and operational units. T h i s move away from projectized approaches, generally employed by donor assisted projects inthe past, should significantly improve the sustainability of intervention by avoiding the establishment of parallel structures and problems of transitioning to regular programs on project completion. Under the NPS-ENRMP, project interventions will be fully consistent with the attainment of Major Final Outputs (MFO) that agencies are adopting in a move toward results based budgeting, and adoption of an Objective Performance Indicator Framework (OPIF). Additionally, the alignment of the project's Institutional Reform Agenda with the Rationalization Plan has ensured consistency between what the project i s supporting, and the longer term institutional goals of the DENR. The close attention being given to the project by the oversight agencies, and particularly implementation of DENR's Rationalization Plan, are further elements that will help to sustain the reforms and operations supported by the project. 31. Sustainability and opportunities for replicability of actions will also be advanced through capacity building targeted to regional DENR offices, LGUs and communities, to better manage natural resources. Experience from a number of projects in the Philippines shows that LGUs and communities when empowered, can become willing and effective managers of natural resources. The IEC strategy under the project would also help raise the level of awareness of ENR best practices, and promote local interest in environmental stewardship. Financial sustainability at the local level would be promoted through a number of initiatives based on scaling up existing successful conservation frnancing models, such as Payments for Ecosystem Services PES) and community financing developed under the USAID supported Eco-governance project. The opportunity for Carbon finance will also be explored duringimplementation. 12 5. Critical risks and possible controversial aspects (see also Annex 13) Risk MitigationMeasure Risk Rating To Project Development Objectives The overriding political priorities emphasizing The reform agenda agreed for the project specifically addresses S the need for rapid economic growth, issues of institutional strengthening, allocative efficiency, improved employment creation and general poverty service delivery, prioritization and partnership arrangements reduction within a constrained public designed to build DENR's credibility and effectiveness. These are expenditure program, clearly entail trade-offs critical mitigating measures for enhancing public expenditure for that negatively impact on the resources and ENRmanagement .and buildingawareness of natural resources as a follow-through on commitments for better scarce economic good. That said, the difficulties in changing the environment and natural resource "ways of doing business" and perceptions for such a large management. organization remain substantial and will take time and sustained effort to achieve. Devolution o f ENR functions to LGUs, The criteria established for the selection of watershed under the which are essential to improve project were designed so as to ensure that solid support already S implementation effectiveness and scaling-up exists at the LGU level in the selected watersheds. The scaling -up over the longer term, will be difficult, given of activities to other watersheds will require buy-in from other the many social and economic demands o n LGUs both to ENR management priorities, and to the benefits LGUs, their limited budgets and institutional perceived to come from a partnership with DENR. Under the capacity. project, the risks have been mitigated by concentrating activities initially o n 5 watersheds where there i s already solid LGU interest. The scaling-up (eg, t o the three other watersheds potentially identified for support under the project) would depend on progress and experience gained in implementing activities in the initial 5 watersheds. T o Program and institutional goals Budget constraints, evolving political and K e y mitigating measure include: i)the close link between the S economic priorities that are often at odds with institutional reform agenda being pursued under the project, and the soundENRmanagement, along with frequent overall Rationalization Plan for the DENR being monitored by the changes in senior management of DENR, Government oversight agencies (DBM& NEDA).This would help have impeded the implementation o f keep the focus on the goals and expected outcomes of the project., consistent policies and operations. The and ii)the project focus o n strengthening core DENR functions resulting lack of transparency and operational centered on agreed MFOs, within the regular budget of the DENR effectiveness has diminished the credibility of would also contribute to ensuring operational continuity, and be less the institution in spite o f its pivotal role in sensitive to management changes and outside pressures. protecting and conserving the country's very Nevertheless, the pace o f reform and improved service delivery in significant natural resource assets. The DENR can only be expected to be modest at best. The pace of difficulties in reversing this situation are change in public perception of DENR and compliance with substantial and a significant risk for the regulations will likely be even slower. project The project has strong support from the The chronic disconnect between DENR's planning and budget M oversight agencies (DBMand NEDA), and i s would be specifically addressed by the project through the fully consistent with the broader public sector implementation of guidelines to be issued by DBM in support of reforms being introduced government-wide. GOP's Expenditure Rationalization and Service Delivery Program The outcome will, however, be at risk if the (ERSDP) and i t s push for Sector Efficiency and Effectiveness, ii) pace of the expected government-wide the mechanism of establishing a Program Agreement as a basis for reform program i s reduced. disbursement under the project, and iii)the mechanisms to be used under the project for the flow and specific tagging of funds by DBM, would collectively help to ensure better linkage of expenditures with plans. Ifimplemented as planned, these measures should substantially reduce the fiduciary risks. The pace of policy, legal and regulatory The project, while clearly having limitations in regard to needed S reforms & amendments to overcome legislative and enforcement actions, would facilitate the process of discrepancies & deficiencies in environmental reform through analysis, preparation of codes of conduct and and natural resource related laws has been standards, preparation of legal and administrative orders and 13 I Risk Mitigation Measure Risk Rating slow. Even for existing ENR laws, they procedural manuals and support for advocacy actions. remain largely underfunded and hence under- implemented. This, coupled with lack of transparency in some areas, and perceived inconsistencies in enforcement, contribute to the issues o f credibility and effectiveness discussed above and add significantly to the risks confronting the project GEF resources would be used to help identify these trade-offs, to M pursuit of conservation goals, such as propose mitigation measures, and to provide direct support to expanding the area under forest cover and LGUsbyway of aLivelihoodDevelopment Fund. transitioning farmer to more sustainable agricultural practices T o ComponentResults Inadequate capacity at the various levels H within DENR to handle procurement, in Prior to initiating the program for DENR carryout a procurement terms of staff availability and competency capacity training program required under RA 9184 to cover the necessary for the mainstream implementation agency's central and field office staff handling procurement, and a o f the procurement for the program, and no targeted training for LGUsinthe GEF area procurement Manual in place yet to direct Completion, GPPB approval and agency adoption of the DENR DENRstaff handlingprocurement Procurement Manual. The Manual will provide specific instructions on: (i) procurement at all level of DENR including threshold of approvals, (ii) mandatory compliance to the APP and updates, (iii) postingof awards in the eGPS, (iv) civil society participation inthe procurement processes, (v) use of the PBDs {Philippine Bidding Documents}; Lack o f a unified Procurement Unit and Rationalization of procurement functions by way of establishment H redundancy of procurement functions of a unified Procurement Unit, and reducing the number o f BACs between foreign-assisted and regularly funded at the Central Office and at various level, in accordance with the projects at the DENR central level, and requirements of RA 9184; multiplicity of BACs at the bureau level down to the field offices Transparency issues as: (i) bigDENRcontract Adoptionof the anti-corruption measures, as outlined inAnnex 13 M awards not posted as required by the Philgeps of the PAD, including strengthen internal control, community- (Philippine Government Electronic based approach and independent monitoring Procurement System), (ii) absence of civil society representative in the procurement process, and (ii) use of shopping as preferred option of procurement Inadequate internal control as evidenced by: Procurement supervision and post reviews by D E X R - C O over the M (i)recordkeepingnotsystematic inallcases; field offices and the LGUs, and link with the Internal -Audit as (ii) audithasnotbeenestablished; and internal described under .innex 7 (iii)absence of formal system to hear and document administrative cases on procurement. FinancialManagement Fiduciary risk that project fbnds will b e mis- Strengthen the Internal Control for the Project and the Internal H used due to weak k t e m a l controls and weak Audit function ofDPWH. (See Annex 7 ) Internal Audit capacity. Overall Rating H 14 6. Loan/credit conditions and covenants 32. Conditions of Effectiveness: (i) Borrower through DENR has designated staff in adequate the numbers, with qualifications and experience, and under terms of reference acceptable to the Bank, to be responsible for the financial management matters under the Project at its Financial Management Service Office and its Foreign Assisted Projects Office; (ii) Borrower has the approved the first year work program for Project; and (iii) the Borrower has finalized and adopted the Operations Manual satisfactory to the Bank inaccordance with the provisions of paragraph 5 of Section Iof Schedule 2 to this Agreement; and (iv) GEF grant agreement has been signed between the Bank and the Republic of the Philippines. 33. Key Dated Covenants: i) By December 31,2007, DENR shouldundertake a baseline study which inter aliawouldprovide measures of client satisfaction with DENR's service delivery in the areas of information and regulatory processes and procedures. ii)ByJune30,2012,DENRshouldundertakeafollow-upstudytothebaselinestudywhich,inter alia, would provide data and compare the effectiveness of measures undertaken by DENR duringthe project period to improve client satisfaction inregard to service delivery inthe areas of information and regulatory processes and procedures. iii)ByDecember31,2009,anAdministrative Orderwouldbeissuedandthereafterimplemented, restructuring EMB into function-based divisions. iv) By December 31, 2007, an Administrative Order would be issued and thereafter implemented, establishing the Procurement Unit consistent with RA9184. (As an interim measure, by negotiations, a unit comprising the staff of the Project Accounts Management Division will be authorized to act as the Procurement Unit,including all roles and responsibilities inaccordance with the RA9184). v) By December 31, 2007, an Administrative Order would be issued and thereafter implemented, providingfor the Internal Audit functions to report directly to the Secretary of DENR, inline with broader Government anti-corruption initiatives. vi) By December 31, 2007, an MIS strategic plan and budget would be approved and thereafter implemented, which inter alia would establish the action plan for improvingthe quality, public accessibility and links between the key databases of the DENR. vii) By December 31,2007, a 3-year ForwardPlanning and Budgeting strategy would be developed which, inter alia provides a vision and benchmarks for key reforms inDENRs operations; and viii>By March 31 of each year, DENRwould submitits proposedplan and budget for the following fiscal year, along with a report on the progress of the project and on DENR's Rationalization Plan, for review by the Bank, DBM and NEDA, for the purpose of facilitating alignment of the budget with the NPS-ENRMPand priorities of Government; however this review would in no way substitute for the normalreview processes of government. ix) By December 31,2007, DENRwould contract a firm to strengthen its internal audit functions, and by June 30, 2008, and annually thereafter, submit an internal report of the project to the Bank for review and comment. x) Satisfactory implementation of COA 2005 audit recommendations within 6 months of effectiveness. 15 xi) By June 30, 2010, a mid-term review of DENR's performance and achievements under the project would be undertaken and the hdings of that study discussed with DENR, DBM, NEDA and the Bank by October 31,2010. D. APPRAISAL SUMMARY 1. Economic andfinancial analyses 34. The NPS ENRMprogram will directly support the DENR meet major thematic thrusts prioritized inthe MediumTerm PhilippineDevelopment Plan (MTPDP 2004-2010) related to Environment and Natural Resources management namely: (i) sustainable utilization of natural resources; (ii) protection of ecologically fragde areas; (iii) creation of a healthier environment; (iv) promotion of responsible mining and (v) disaster risk mitigation. Direct program benefits will accrue to the DENR in ensuring the agency has timely availability of budgetary resources to hance priority activities under its regular program. This in turn will enable the agency to improve its resource allocation, operating efficiency and overall effectiveness in delivering mandated services more cost effectively. Improved service delivery will translate into greater accessibility to environmental information, knowledge, appropriate technology and consequently awareness and affirmative action towards environmental and natural resource conservation. Efficient regulatory and monitoring procedures will reduce transaction costs for compliance, thereby creating incentives for stakeholders to make better resource use decisions and actively participate in more efficient management of the environment and natural resources. 35. NPS-ENRMP i s a budget support (framework type) project, where the conventional ex ante cost/benefit analysis i s not possible as most of the major investments have not been identified or designed in detail before loan/credit effectiveness4. Moreover, most of the investments to be financed under NPS-ENRMP (through budgetary support) involve environmental or public sector/institutional capacity strengthening, where it i s not possible to quanti$ benefits inmonetary terms. Therefore, financial and economic rates of return cannot be meaningfully estimated. The cost effectiveness of NPS ENRM, however, i s rated as being high, as the project will purposefully introduce and support various procedures that will significantly improve systems and processes in DENR's service delivery over existing/alternative systems. T h i s in turn will improve overall allocative efficiency in the use of public resources, a key thrust in the MTPDP. In particular, the NPS ENRM will support a number of initiatives to address deficiencies which currently hinder efficiency and cost effectiveness. Collectively these efficiencies, and a strengthened institution, are critical in the context of the Philippines as studies indicate the economic cost of weak ENR management can be extremely high. (Ref. para 4 Annex 9). For GEF interventions an incremental cost analysis has been carried out, and it i s presentedinAnnex 10. 2. Technical 36. The technical recommendations underlying the project's design are based on the analyses of key sector issues. For example, proposals for the rationalization of DENR's expenditures and programs are based on extensive reviews of its budgets and expenditure patterns, in relation to its mandates and responsibilities. Proposals for conserving critical ecosystems are underpinned by diagnostic studies ineach of the target watershed areas which examined the status of the natural resource base, the threats and underlying causes of environmental degradation and on this basis identified appropriate technical interventions that are also socially and economically compatible (details are Refer to PAD preparation guideline and Handbook on Economic Analysis of Investment Operations, OCS Network/LLC, andJanuary 26,1998 16 provided inAnnex 4). The menu of potential interventions was derived from experience elsewhere in the Philippines, where the technical merit of individual activities has been tested under similar ecological and social conditions. 3. Fiduciary 37 The h a n c i a l management review carried out showed that, in general, the Financial Management (FM) system of DENR is not adequate to satisfy the minimum requirements of the Bank. The detailed results of the FMreview and action plan are presented indetail inAnnex 7. 38. The Project wiU be handled by both the Mainstream and the FASPO FM staff such that there i s counterchecking and reconciliation controls of key accounts of the Project. The Internal Audit (IA) function wiU be strengthened organizationally and by capacity building measures. The IA shall cover the Project semi annually with IA report being submitted for each review. The project would use SOE based disbursement & would plan for a report based disbursement when they are able as when it i s acceptable to the Bank. Designated Accounts @As) shall be maintained at the DENR (separate DAs for the Loan and for the Grant) and at MDFO. Quarterly Interim un-audited Financial Reports (IFRs) and annual audited h a n c i a l report including the Management Letter of the Auditor would be required to be submitted. LGUs will b e reporting to the MDFO on the liquidation of their funds. 39. Funds flow would be as briefly describe below, with more detail inAnnex 7. Loan and Grant funds flow from the Bank to the DAs of DENRand MDFO - Funds flow from the World Bank to the Philippine Treasury's account at the Central Bank of the Philippines, then to the Designated Account (DA) of the Project maintained by the DENR/MDFO after issuance of a Notice of Cash Allotment (NCA) issued by DBM. Payments of eligible expenditures shall be taken out of the DA. Fundingrequirements of the payee staff bureaus and Field Operating Units (FOUs)will be covered by a Program Agreement (PAg) where milestones and corresponding tranche payments are indicated. Milestones shall be validated by the FASPO or the FOUs as the case may be. For Line Bureaus who currently receive their budget funding directly from the Government, and where a transfer of fund from DENRi s not allowed by budget rules, their Program Agreement shall be paid on a Direct Payment basis throughthe DA of DENR. 40. Fundingrequirements of the LGUs will be covered by a Program Agreement (PA@between the MDFO and LGUs where milestones and corresponding tranche payments are indicated. The PAS shall be reviewed and endorsed by DENR prior to the subsequent signature on the activities between MDFO and concerned LGUs. 41. Procurement: While procurement reform in DENR, as required by the Philippine procurement law (RA 9184), was recently initiated (i.e., covering central offices, bureaus and field offices), the conclusion of the procurement assessment i s that the project i s in the high risk category. This i s primarily because of: (a) inadequate capacity at the various levels within DENR to handle procurement, in terms of staff availability and competency necessary for the mainstream implementation of the procurement for the program, and no procurement Manual in place yet to direct DENR staff handling procurement. Weak capacity of the LGUs to implement procurement, and expressed resistance of the Leagues' on the use of RA 9184; @) lack of a unified Procurement Unit and redundancy of procurement functions between foreign-assisted and regularly funded Collectively the separate Leagues for Provinces, Cities, Municipalities and Barangays 17 projects at the DENR central level, and multiplicity of BACs at the bureau level down to the field offices; (c) inefficiencies in the DENR and LGU procurement process as the Annual Procurement Plan (APP) which should have been a planning and monitoringinstrument were never followed; (d) transparency issues as: (i) DENR contract awards not posted as required by the Philgeps big (Philippine Government Electronic Procurement System), (ii) absence of civil society representative in the procurement process, and (iii) of shoppingas preferred option of procurement; and (f) use inadequate internal control as evidenced by: (i) keeping not systematic in all cases; (ii) record internal audit has not been established; and@) absence of formal system to hear and document admimstrative cases on procurement. 42. The action plan outlined in Annex 8, and agreed with DENR authorities including the Anti corruption measures / Governance measures has been included inAnnex 13 of the PAD. The plan aims to address the high risk rating by: (a) prior to initiating the program for DENR carry out a procurement capacity training program required under RA 9184 to cover the agency's central and field office staff handling procurement, and a targeted training for LGUs in the GEF area; (b) supporting the rationalization of procurement functions by way of establishment of a unified Procurement Unit, and reducing the number of BACs at the Central Office and at various level, in accordance with the requirements of RA 9184; (c) ensuring that there i s LGU confirmation by way of Municipal /City or Provincial Board Resolution affirming the mandatory use of the PBDs and the GPM issued under RA 9184 for use in the conduct of procurement; (iv) supporting the completion, GPPB approval and agency adoption of the DENR Procurement Manual. The Manual will provide specific instructions on: (i)procurement at all level of DENR including threshold of approvals, (ii) mandatory compliance to the APP and updates, (iii) postingof awards in the eGPS, (iv) civil society participation in the procurement processes, (v) use of the PBDs {Philippine BiddingDocuments}; (d) adoption of the anti-corruption measures, as outlined inAnnex 13 of the PAD, including strengthen internal control, community-based approach and independent monitoring; (e) use andupdate of DENR agency procurementindicator, developedwith the GPPB. Establishment of procurement monitoringwhich will be a mainstream function as required by RA 9184; and (f) carrying out procurement supervision and post reviews by DENR-CO over the field offices and the LGUs, and link with the InternalAudit as described under Annex 7. 4. Social 43. Individual Social Assessment Reports have been done for the five selected sites for Integrated Ecosystem Watershed Management, and a separate one has been done to guide actions related to the interim measures proposed for the Bagacay mine. The watershed-specific social assessment reports will guide implementation and also provide demographic and socio economic baseline data of affected communities along with a framework for micro enterprise development. This would facilitate the development of sustainable livelihood activities even in sensitive areas where no restriction of access i s envisaged. The social assessment for the interim measures to be undertaken, pending formulation of the full scale Plan for the closure and rehabilitation of the Bagacay mine provides recommendations to ensure participation of stakeholders, accountability, and factors to consider in the preparation of the full scale rehabilitation plan. It emphasizes the need for an effective conflict resolution mechanism. 44. An IP Policy Framework has been submitted and reviewed by the Bank as acceptable. It details the principles and operational guidelines for the preparation of the IP Development Plan that will form part of the Integrated Ecosystem Watershed Management Plan for the Southern Sierra Madre Cluster, where a considerable number of indigenous groups are present, and for the Libmanan- 18 Pulantuna Watershed, where Agtas are stakeholders. Disclosure was done by postingthe reports in the DENRwebsite, inconcerned LGUs public bulletin boards. 45. Involuntary resettlement, land acquisition and restriction on access to sensitive areas are not expected. Indigenous peoples/indigenous cultural communities are present in the Southern Sierra Cluster, composed of the Angat, Ipo, DRT-Gen Tinio and Kanan Watersheds and Libmanan- Pulantuna Watershed, but the project i s not expected to negatively impact them. To enhance the inclusion of their interests, an Indigenous Peoples Policy Framework, in compliance with the Bank`s OP 4.10, has been prepared. The Project i s also designed to address general issues of access to natural resources by other groups in the target areas, ensure social acceptability; and contribute to ENR conflict resolution among the different stakeholders through the participatory planning process to be followed. The Project would support opportunities for NGOs to be contracted by DENR or LGUs to undertake specific activities in sub-project implementation, such as awareness campaigns, community training, third party monitoring, and development of alternative livelihoods. 5. Environment Category B (Partial Assessment) 46. Two separate environmental assessment (EA) studies were conducted by the DENR as part of the Program preparation. One assesses the impacts of year 1 activities and the other assesses in great detail the impacts of the interim measures. The two EAs indicate negligible negative environmental impacts of the year 1activities due their "soft" nature (surveys, planning etc). Environmental issues related to the interim measures include siltation of waterways due to civil works and the potential increase in acid mine drainage during construction. Siltation will be addressed by constructing silt traps/ponds within the drainage channels and downstream of the limestone channels and other strategic areas and by doing the construction during summer/dry months. Most of the tailings are already compact. Regular monitoring, de-silting and maintenance activities will be conducted to ensure efficiency of the silt traps. Silt materials collected from de-siltation and maintenance activities will be deposited in the interim at the tailings ponds, until full measures and disposal options are identified. The increase of acid mine drainage (AMD) volume is considered remote. However, as a precaution, any excavation required in the construction of diversion channels, limestone channels and slope stabilization activities, will be done during the dry season. Upon completion of the interim measures, the volume of acidic water will be reduced, since all neutral water from the different tributaries will flow directly to Taft River and only the rainwater which falls on the mining areas will form acidic water. Any acidic water generated will be subjected to a neutralization process through the limestone channels, before flowing into the Taft River. The possibility of tailings ponds (TP) failure is highly unlikely due to the already compacted nature of the tailings, the absence of water impounded along the TP structures, which reduces the pore pressure in the dam, the lower height (3 - Sm) and gentle slopes of pond embankments, and the construction of drainage canals within the tailings ponds. This has been confirmed by a separate geotechnical assessment report conducted by the Mines and Geosciences Bureau. In the remote event that dam failure will occur, no community will be immediately or severely affected. 47. The EAs provide environmental guidelines for project activities, including a negative list of activities. These guidelines are included as part of the Operations Manuals. The Environmental Management Bureau (EMB) of the DENR, with the mandate of implementing the Philippine EIA,willbe strengthened under the project and will ensure that the guidelines are followed. The other Bureaus of the DENR (MGB, FMB, PAWB) have the capacity to prepare and/or review EAs, through their participation on the EL4 Review Committee of DENR, under EMBs 19 leadership. LGUs, on one hand, will be trained under the project to screen activities for environmentalimpacts and to prepare their respective EAs or Ems. 6. Safeguardpolicies SafeguardPolicies Triggeredby the Project Yes No EnvironmentalAssessment (OP/BP/GP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11-03, beingrevised as OP 4.11) Involuntary Resettlement (OP/BP 4.12) IndigenousPeoples (OD 4.20, beingrevised as OP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects inDisputedAreas (OP/BP/GP 7.60)* Projects on InternationalWaterways (OP/BP/GP 7.50) X 7. Policy Exceptions and Readiness: No policy exceptions were sought for this Project. * By supporting the proposed project, the Bank does not intend to prejudice thefinal determination of the parties' claims on the disputed areas 20 Annex 1 Country and Sector or Program Background PHILIPPINES: NationalProgram-Support to Environment and NaturalResources Management Sustainable economic growth i s at the heart of the Government's and Bank's strategic framework6 for attaining economic development with social inclusion, poverty reduction and equity. To complement measures for sound and open investment in the economy to stimulate growth, however, there i s need for proper management of natural resources (agriculture, marine, forests and minerals) and the environment. Inadequate regard to implementing requisite NRM measures and safeguarding the economy from excessive environmental costs i s rapidly eroding resource inventories (some of which are unique to the Philippines), which could seriously compromise short term economic gains by larger, longer term costs. In addition to direct resource costs (no more forests and fish), environment related economic costs (from pollution, health and congestion) will increase, tourism revenues decline as the earlier comparative advantages (wild life and natural beauty) disappear, and the cost of cleaning up after irresponsible industries falls on the public sector. Consequently, continued Environment and Natural Resources (ENR) mismanagement potentially constitutes a major impediment to long term growth. The cost of past failures has already been high. Forestry i s now a marginal sector, as a result of timber depletion and un- sustainable management over a long period, which took the country from being the world's largest exporter of tropical hardwoods in the 1970s to being a net importer of forest products by the 1990s. Inthe early 1 9 6 0 ~the timber industry was the largest source of foreign exchange earnings, ~ which declined rapidly and by the 1990s the sector's contribution to export earnings was less than 0.5%. Inaddition to export products there was also significant loss of natural bio-diversity with the loss of a wide variety of tropical rain forest, floral species, a diverse range of endemic faunal species and several important marine and coastal ecotypes. Un-regulated illegal logging, moreover, has also increased human and economic cost due to land slide and flood disasters. In fisheries, the problems of over-fishing and fishery stock depletion are attributed to prevalence of an open-access system, the use of destructive techniques and the inability of government enforcement agencies to regulate entry to fishing waters and penalize destmctive and depletive activities. The decline in fishery stock i s also related to upstream externalities, i.e. pollution, siltation, sedimentation, mine tailings, and the loss or damage of coral reefs, mangroves, and other fish habitats. Collectively, there are worrying signs of extensive ecosystem and environmental degradation with ominous trends such as: 0 Severe forest degradation, with forest cover reduced from 70% in 1900 to 6% ; Only one third (32'/0) of coral reefs remain in good condition, while most are degraded with 27% inpoor condition; coastal mangroves are also significantly depleted; L o s s of watershed integrity due to inappropriate upland agriculture, deforestation, and road construction, leading to water shortages, sedimentation and natural disasters; Almost half (45'/0) of the arable lands in the Philippines have been moderately to severely eroded, forcing subsistence farmers to move onto marginal lands; As a result of deforestation and overexploitation, the Philippines has many species under severe threat and endangered with 331 species on IUCN's Vulnerable or Endangered list in 2002 (compared to 183 species in 1992) while 23% of the endemic vertebrate species are threatened. President's 10 pointAgenda for Growth; MediumTerm Philippine DevelopmentPlan (MTPDP); and the current World Bank CAS. 21 0 Although the country has 206 priority-protected areas only 8 of these have been approved by Congress, and most PASare "paper parks" with neither staffnor budgets. Air and water pollutionlevels inmajor urban centers exceed acceptable standards, resulting inlarge economic costs fromhealthandrelateddamage; About 31% of diseases are water-related. 2. A summary of the threats and root causes is presented inTable 1below and see Working Paper 2: Natural Resources Issues & Threats in the Philippines as well as the Philippines Environment Monitor series, for further details. TABLE THIU iTANDROOTCAUSEA 1: Root Causes Illegallogging Land degradation: Lack of funds for Establishment o f protected areas with Limited/no natural forest protection and clear demarcation and official regeneration o f the maintenance recognition forest inmost areas. Strong demand for Development of community based Soilerosion timber leads to high forest management agreements and Increased runoff rate profitswhich paves other types of co-management systems increasing severity o f the way for illegal between local communities and the flooding. logging DENR Sedimentation of rivers Highdependence on Strengthening o f forest monitoring Water quality: wood as energy throughlocal community based Deterioration inthe resource leads to biodiversity monitoring systems quality of water felling o f trees for Establishment and trainingof voluntary resources firewood community forest guards Biodiversity: Lack o f monitoringo f Promote alternative uses of forests such Destruction and forest resources as ecotourism, sustainable collection and disruption o f the natural 0 Lack o f capacity to marketing of forest products, and agro- environment enforce forest forestry. Fragmentationandloss o f legislation 0 Introduction o f highly efficient wood habitats stoves to lower demand for firewood Species loss Reforestation Slash and burn Landuse change: agriculture / Migration to upland Introduction of integrated watershed Conversion of forest areas leads to a and ecosystem management (WEM) Kaingin lands into agricultural breakdown o f withinformation systems, mapping and lands customary rules o n land use planning based on S L M & Destructionof resource management principles secondary forests, and tenure. There i s Provide technical assistance and training Clearing of wooded corridors, or also a tendency for to introductionof agro-ecological forest for primary forests when creation of open farming practices conversion to blazes flare out of access situations and agriculture in Promote alternatives t o kaingin control or escape during thereby less forested agriculture to reduce pressure on the the burningof community control watersheds forest. Some possible activities identified pastureland. over natural resources are ecotourism, sustainable collection Changes inland holding uses. and marketing of forest products, and as a result o f changes in Population growth agro-forestry. landuse due to migration from Introducingmandatory "rain- Land degradation: lowlands to uplands forestation" as part o f diversified Soil erosion causes the leads to lack of livelihood options, and finance the exhaustion of nutrients, agricultural land establishment of provincial and Increased runoff rate Lack of alternative municipal nurseries to meet supply and increasing severity of livelihood demand by forestry sector, watershed floodinp.. opportunities managers and communities 22 Bio-Physical Impact Root Causes Mtemative IEMpractices and mitigating measures Sedimentation of rivers Lack of awareness and B Land demarcation and issuance of land Biodiversity: skills inagro-ecology titles Introduction of exotic, Lack of clear tenure B Development of community based invasive species that and resource access forest management agreements and overtake indigenous and systems other types of co-management systems often endemic species between local communities and the Fragmentationandloss o f DENR habitats Speciesloss Encroachment, Landuse change: Migrationfrom Identify the mainzones inthe population Conversion of forest lowlands to uplands watersheds where there are problems pressure and lands into agricultural due to poverty withland tenure and ownership, such as squatting in lands Road construction transient farming, squatting, irregular watershed and 0 Changes inland holding settlements, etc. inorder to support protected areas Lack of clear tenure as a result o f changes in arrangements lead to resettlement, land demarcation and land use de facto open access issuance of land titles Landdegradation: situations Introduction of integrated watershed Limited/no natural Lack of demarcation and ecosystem management (WELM) regeneration of the of protected areas withinformationsystems, mappingand forest inmost areas. Lack o f environmental land use planningbased on S L M Inadequate regeneration principles intherestofthe forest. education and awareness Creation of alternative livelihood Soil erosion causes the Insufficient budget options exhaustion of nutrients, and capacity for Establishment of protected areas Increased runoff rate watershed planning management boards increasing severity of and management Physical demarcation of protected areas flooding. Establishment of sanitation and waste Sedimentation of rivers management facilities Water quality problems Biodiversity: Introduction o f exotic, invasive species Fragmentationandloss o f habitats Speaesloss Over-grazing Landdegradation: Distortions and Development of sustainable co- andillegal Limited/no natural disincentives caused management systems between livestock grazing in regeneration of the by the unclear land owners and the DENR forested forest inmost areas. tenure & resource Animal fattening schemes watershed Inadequate regeneration access system inthe rest ofthe forest. Land-use planning and regulation o f Open access grazing tenure issues Loss of topsoil and with little or no other erosion control o n the number Establishment of silvipastoral systems Increased runoff rate of animals grazed on Information and awareness increasing severity o f common pastures. flooding. Livestock owners do Sedimentation of not control access to rivers/dams. the range resources Biodiversity: and therefore are n o t Destruction and empowered to disruption o f the natural develop and apply a environment range management Fragmentation and loss system 23 I Bio-Physical Impact Root Causes Alternative IEMpractices and mitigating measures o f habitats Species loss Illegal hunting Biodiversity: Low priority on PA Support researchto ascertain the status and trafficking Loss ofwildlife management and o f populations o f the most commercial inwild species Speaesruns the risko f Biodiversity usedspecies. becomingextinct or Conservation Support strengthening and institutional seriously threatened. Lack o f enforcement capacity building (technical, human, and Strong market financial) o f those organizations demand for rare responsible for the control and species and existing management o f wildlife trade networks, often Strict implementation o fwildlife laws on an international and policies basis Establish community basedbiodiversity monitoring systems Wildlife IEC campaigns 3. To address concerns, the Government i s introducing widespread reforms to enhance the policy and institutional framework for environment and natural resources management through various laws and regulations. Despite these commendable initiatives, many barriers still remain to overcome threats to the natural resource base. For example, weaknesses in local resource planning still remain, as well as biodiversity concerns not being sufficiently integrated into sector plans. These , problems are accentuated by the lack of funding for operations within DENR to deliver its broad mandate and in LGUs for devolved NRM functions. (See Annex 11 Sector Expenditure and Budget Review) Specific constraints include: An open resource access policy which has encouraged over-exploitation coupled with weak property rights and management authority. Various tenurial instruments to confer property rightshave hadlimited success and failed to close access. 0 DENR's falling budget and its structure with a high proportion of utilization on personnel services and little for operations and investment inENRM Fragmentation of DENR'sbudget over diverse and uncoordinated functions (bureaus) and high dependence on Official Development Assistance (ODA) 0 Slow devolution toward more community and local responsibility for ENRM. Although some LGUs have assumed many of these functions others have not. So far a small proportionof DENR's staff has been decentralized, whilst at the local level, officials need clarification of the division of roles and responsibilities between DENR and LGUs. These constraints are compounded by complex and cumbersome processes of securing tenure and property rights, and recently the blanket cover annulment of all Community Based Forest Management Agreements (CBFMAs) to the benefit of the private sector. Effective decentralization has also been hampered by weak capacity in LGUs and among the devolved DENR staff to undertake new functions, which involve managing large ecosystems and protected areas, tasks that are technically demanding. Coastal Resource Management functions are divided to multiple agencies DENR, DA-BFAR and LGUsleading to less than optimal outcomes; The goals of more local transparency and accountability in NRM not being met as the Integrated Protected Areas Fund (IPAF) mechanism remains ineffective and there i s significant lack of assured funding for local institutional bodies - provincial environment councils and Protected Areas Management Boards (PAMBs) 24 e Lack of service and performance standards in ENRM, e.g. very slow procedures in securing tenure instruments and issuance of resource use permits e Implementation of policies and laws has generally been incomplete and uncoordinated; with some conflicting regulations; the N I P A S act could b e improved (to address more complete decentralization, resource generation, better facilitation of Integrated Protected Area Fund (IPAF) disbursements to the PAS,etc.) and resolution of conflicting provisions need to be resolved inNIPAS, Comprehensive agrarian reformprogram, IPRA and the LGC. e Jurisdictional overlaps need to be resolved through review and rationalization of DENR's mandate by streamlining functions among its Bureaus as well as with other agencies, such as Department of Agriculture Bureau of Fisheries and Aquatic Resources (DA-BFAR) and DA- BSWM; There i s weak enforcement of environmental laws and inadequate follow up on compliance due inpart to inadequate institutional capacity, limitedgovernance (especially lack of accountability) as well as lack of effective economic incentives; Insufficient internalization of externalities in the decision making of farmers particularly in the upland and among other private operators involved in the harvesting and/or processing environmental goods and services; Lack of clear land tenure lead to border conflicts, encroachment, squatting and irregular settlements. Tenure and ownership problems make it difficult to introduce agro-ecological production methods and sustainable land management practices among local farmers. Tenure security i s fundamental for establishing community based natural resources management regimes; e Unlike some countries, the Philippines has initiated and tried a fair number of local efforts to address NRMand biodiversity conservation. These have inparticular been implementedby and through local civil society organisations, LGUs and international NGOs. In several cases, innovative and promising models and practices have been developed. However, the localized nature of such models and the lack of mechanisms for replicating and scaling-up these experiences has meant that most such efforts tend to live relatively isolated and independent lives, with geographically limited impacts. e Information to support NRM decision-making i s often lacking, resource maps are incomplete or outdated; at the local level stakeholders have little access to environmental information and especially knowledge about good practices from elsewhere inthe country. Lessons learned and reflected inthe project design 4. The design of the project generally reflects the main findings from the previously mentioned studies: "Governance of Natural Resources in the Philippines" and the "Natural Resources Management Way Forward Action Plan for the Philippines", which advocate strengthening decentralization of natural resources management and devolution of responsibilities to LGUs and communities, overhauling of DENR's budget process and strengthened participation of communities and local governments. Specific lessons have also been incorporated into project design from completed projects and from GEF Evaluation studies. Furthermore, the program reflects issues and concerns related to Environmental Impact Assessments (EMS), solid waste, air and water pollutionidentified through periodic monitoringof the environment. 25 CompletedProjects: 5. Several projects recently implementedhave providedvaluable lessons: The Environment Sector Assistance Loan (1991-1998) provided the following lessons: (i) Sectoral reforms in themselves cannot be effective without the accompanying investments needed to transition to a new policy environment; (ii) with institutional support and the right incentive structure LGUs are capable of being effective stewards of NRM;(iii) the limited given financial and appropriately trained human resources available to the DENR, tremendous benefits are possible from devolution of NRMand service delivery to LGUs and communities, as long as they are fully engaged in the process and their capacities are strengthened; (iv) LGUs and communities are willing to commit and allocate their scarce resources to NRM, livelihood generation, rural infrastructure development and maintenance provided they are recognized as the overall managers of these efforts and are properly supported with relevant technical assistance; (v) multi-sector partnerships are important in solving complex forest management issues; and (vi) appropriate and effective long term tenure instruments to provide incentives are important; and (vii) fund transfers to LGUs through the national government agencies can be very inefficient. There i s a need to put inplace an efficient fund transfer mechanism through which national and donor financial resources can be channel to LGUs during the transitional stage towards their full decentralization. The Central Visayas regional project i s an important component of the national decentralization program. It found that successful ENRMneeds a combination of actions at national and local levels and different actors may be more effective at one or more of these levels. To be most effective stakeholders, a diverse group such as this, including World Bank staff, Non- Governmental Organizations (NGOs), local community leaders and participant farmers must have clearly distinguished roles. The Agrarian Reform Communities Development Project (1996- 2003) found that LGUs could be effective service providers once their capacity was strengthened. Furthermore, the project reconfirmed the effectiveness of participatory approaches in facilitating community and sustainable development inthe Philippines, but stressing the importance of counterpart (cash or kind) contributions inpromotingownership. 0 Among the lessons from the Conservation of Priority Protected Areas Project (CPPAP) and other Official Development Assistance (ODA) assistance to PASwas that investments in natural resources such as forestry, protected areas and watersheds require longer and more sustained support than i s possible under projects. On the other hand, the project also showed some important weaknesses, inparticular: the need for improved devolution of natural resource management, but this would only work if coupled with adequate institutional capacity building; greater accountability for implementation; budget management which i s aligned with project activities; and requisite political support and buy-in at the local level, including developing appropriate financing mechanisms to support objectives. These issues have been taken into account in the design of the proposed project, and significant effort will b e directed to institutional strengthening to address these weaknesses. The USAID Environmental Governance Project developed successful approaches for engaging local communities in NRMplanning but found that these interventions need to be followed-up with sustained technical and financial support for implementation. With regards to mining, experience (and the Extractive Industry Review) shows that good governance and responsible environmental and social practices are required for mineral development to contribute to growth in a sustainable manner. In 2003 the Bank and IFC 26 supported a program with government and donors to help "Build Consensus for Sustainable Development of the Philippines Mineral Resources". One of the key issues raised by civil society was the environmental legacy of past miningwhich this project will help to address. Those economic instruments in environmental management such as the adoption of environmental user fee system (EUFS) and the public disclosure of environmental performance when coupled with the command and control measures for pollution control could improve and enhance compliance by the regulated community. LessonsLearned from the GEF Independent Evaluation of OPl2 Study 6. Several lessons learned are as follows: e Sound initial diagnosis of problems and assessment of possible solutions is often missing in project design and this often results inpoor justification for conformity with OP12; e Appropriate scientific and technical approaches to problem solving i s often missing in project design; e All projects claim multiple global environment benefits, but often indicators do not reflect this multi-focality (also notedinthe 2005 GEF Portfolio Implementation Review); e Some projects describe expected synergies between or among focal areas, but none actually defines or measures synergies; e Trade offs that are sometimes inevitable because of conflicting conservation and development goals are rarely identified, discussed or measured; e Projects should include mechanisms to learn from experience and to adapt during implementation; and e There i s a need for accurate establishment of baselines and for identification of appropriate SMART indicators. 7. The project has been designed to take these lessons into consideration. An overall key lesson i s that the potential for sustainability i s increased through longer term programmatic support and not so much from short-term project interventions. 27 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management Description Buildmg Partnerships for The project aims to reduce or remove the critical barriers to effective environmental Environmental Protection management, such as inadequatc policy, limitcd investment or disparate institutional and Management of the East capacity. Asian Seas (PEMSEA) JNDP National CaDacitv Needs Supports to identify priority capacity needs related to global envuonmental Self-Assessmeit f& Global management in the Philippines and examine any barricrs to effectively address thesc Environmental Management needs that exist. inthe Philippines \ V i providc kcy nationaldccision-makerswell as well as external fundmg agencies with critical information about the country's specific capacity nceds to protect the global environment UNDP Assessment of Capital The support assesses the capacity buildmgneeds of the Philippines to implement and Building Needs for update thc NBSAP and fulfill its commitment to the US Convcntion on Biological Biodiversity Conservation Diversity(CBD) and Management in the Philippines WE3 Laguna de Bay Institutional The Project will assist the Laguna Lake Development Authority (LLDA), Local Strengthening and GovernmentUnits (LGUs), and other stakeholders, improve the environmentalquality Communitv of the LagunaD e Baywatershed. cy WE3 Land Administration and The project will continue the process of institutional reform initiatedin the first phase Management I1 Project and will support the formation of a Land Administration rlgency, support a Land (LAMPII) .idministration Reform, and issuc up to 264,000 tides. l h e project will work in 3-5 provincesin4 regions inpartnershipwith LGL's. Duration2005-30. UNDP Samar Island Biodiversity The projcct supports the establishmentof the Samar Island Natural park (SINP), a new Project protected area zoned for multiple uses centring on protection but providing for sustainable harvests of non-mber forcst products and institutes a comprehensive range of conservationmcasurcsto insulatethe park from humanpressures. UNDP Sustainable Management of The projectm s to prorcct and effectively and efficiently manage hit. IsarogSational Mt. Isarog Territories Park for sustainable use with the full cooperation and collaboration of different JSUMMIV stakeholders EEPF (Critical CEPF-fundedprojects inthe ProtectedArea Design and Management of Core Nuclei within the Sierra Madre Ecosystem Sierra Madre Biodiversity BiodiversityCorridor Partnership Corridor BuildingPartnerships for Sustainable Management of Critical Watersheds in the fund) Sierra Madre's Palali-MamparangMountains IEC and awareness campaign for the sustainable resource management at the critical watersheds of Sierra Madre's Palali-MamparangMountainRange EnablingCommunities and Ancestral Domain Stakeholders to Improve Natural ResourceManagement Mt Irid-MtAngilo ProposedProtectedAreaAdvocacy Project Mt. Irid- Angdo New Protected Area Establishment: An Example of Public- PrivatePartnership Expansionof the Aurora MemorialNationalPark Sierra MadreForestGardensProgram Building Critical Stakeholder Support for Conservation of the Philippine Eagle (PithecophagaJefferyi) Populationalongthe Sierra MadreMountainRange Corridor Facilitationand ProtectedArea Management of Core Nuclei Within the Sierra MadreBiodiversityCorridor Strengthening conservation efforts and land use on the Northern Sierra Madre Corridor throughthe RegionalGeographicInformationNetwork (RGIN) Design andManagementof the NortheasternCagayanConservationCorridor A 10-Year Framework Plan for Ecohistorical Tourism in the Sierra Madre BiodiversityCorridor 28 ZEPF IEPF-fundedprojects in the Development of Biodiversity Monitoring Project for the Eastern Mindanao :astern MindanaoCorridor Corridor Empoweringthe Manobos of Mt. Magdiwata Forest ReserveArea to Effectively Managetheir AncestralDomainClaim BuildingCivil Society's Capacityfor ConservingEasternMindanao'sPrioritySites Toward Biodiversity Conservation Within the Eastern Mindanao Corridor: BiodiversityArchivingandAssessment Project ProposedExpansionof the Mt. Hilong-HilongRangeProtectedLandscape Conservation of the Taguibo Watershed and formulation of the watershed managementanddevelopmentplan Eastern MindanaoCorridor Facilitationfor the Philippines Conservation of the D e l Carmen Watershed and formulation of the watershed managementanddevelopmentplan Socio-economicand environment developmentofBucasGrande Watershed Participatory Biodiversitv Assessment and Conservation of Mt. Hamimitan CoastalandMa le Resources UNDP rubbataha Reefs Sational Marine Park and World significant biological diversity and ecological processes of the Tubbataha- Reefs HeritageSite National Park and to manage Tubbataha Reefs National Marine Park (TRNMP) and the surroundingareaon a sustainableand ecologicallysound basis. UNDP BoholMarineTriangle The project will ensure that options and existence values embodied in the globally significant Bohol Marine Triangle (BMT) are conserved. GTZ Integrated Visayan Sea The program will address the two critical and interconnected issues of fisheries Coastal Resources and resource depletion and persistent poverty among municipal fisher folk facing the Fisheries Management Visayan Sea. Fisheries resource depletion is the fundamental cause of the declining Program(vissea) income from fishing. that. in coniunctionwith lack of alternative livelihoodin remote U I fishingvillages, contributesto intensifiedpovertyamongmunicipalfisher folk. GTZ Leyte IslandProgram The program aims at enabling inhabitants, and especially the poor population, of selected seas on Leyte to obt& an increasedincome-throughsus;ainabie management ofLeyte's naturalresources. ADB/GEF Integrated Coastal Resources The Project will be implemented in about 65 municipalities in the provinces of Management Cagayan, Zambales, Masbate, Cebu, Siquijor, and Davao Oriental. Main components include: development of an institutional framework for integrated coastal resources management (ICRM), address policy weaknesses and legal gaps, clarifyrolesof national government agencies concerned and local governments, and address their capacity building needs; assessment of resources in the coastal zone of participating municipalities, developmentandimplementationof ICRMplans, law enforcement,and protecting and managing marine sanctuaries and corridors of high biodiversity; assistance to municipal fisherfolk to develop sustainable enterprises and livelihood, improvement of water supply and sanitation among the disadvantaged coastal communities. PolicyandPlan SIDA GIS Cookbook for LGUs I Environmental llonitoring at LocalGovernment level UNDP Environment and Natural Review andassessment of the imperativesof the Environmentaland NaturalResources Resources Framework (ESR) sector in order to develop an ENR framework that will guide the planning and Development and implementation of intcnentions for the protection of the environment and the Implementation sustainable developmentof naturalresources UNDP Mainstreaming Sustainable The support aims to integrate sustainable developmentinto national, regionaland local DevelopmentandPhilippine governance, and institutionalizeenhanced systems and processes at the national and Agenda 21 Into national locallevels of governance. Regional and Local Governance WB Strengthening Review of EMB's mandatesin regardto EIA, air and water quality management, solid, Environmental Enforcement toxic and hazardous and the implementation capacity, performance and gaps. Also and Compliance Capacity of provides environmentalmanagement framework for a function-basedEMB insteadof DENR-EMB beingsubsector-based. 29 Annex 3: Results Framework and Monitoring PHILIPPINES: National Program-Support to Environment and Natural Resources Management PDO Outcome Indicators Use of Outcome Information 1. The objective of the i) ImplementationofDENR'sreform i)Thepaceof implementingthe Project i s to assist the agenda, which includes timely actions on Reform Agenda and the alignment Borrower's Department the dated covenants, achievement of the of these reforms with the broader of Environment and key milestones and continued progress Rationalization Plan for DENR Natural Resources inimplementingthe Rationalization (described inAnnex 18), would (DENR)inimprovingits Plan. provide a direct measure of efficiency and fl) 30% improvement inoverall client DENR's ability to pushthrough effectiveness inits service satisfaction with DENR service delivery with the fundamental changes delivery. by type of client e.g. needed to strengthen the LGU/communities. institution. The outcome iii)80%oftheProject'sinvestmenttargets information would, inparticular, b e inrehabilitation, ecosystem development of value to DENRand the and assessments being met. oversight agencies in their on-going iv) 15% reduction of total suspended efforts to promote the particulate matter levels in Metro M a d a rationalization. over the 2007 basehe levels. ii)Informationfromclientsurveys wouldprovide feedback to DENR w h c h hitherto has been h t e d , & help motivate change by flagging specific deficiencies. iii)Achievement of investment targets wouldprovide a measure of allocative efficiency and improvements in the management processes. 2. Global Environmental i) 106,000 hectares of protected areas, i)Yr4assessappropriatenessof 0bjective protection forest and wetlands in GEF effectiveness of PA management Ecosystem services are supported sites under effective too.1 enhanced for global and management by end of the Project. additional local benefits fl) 35% of ecologically sensitive forests ii)Yr4-5consolidateresultstobetter (outside protected areas) under effective guide adjustments in the institutional protection. strategy and improve replication of iii> 25% d e c h e inthe area under kaingin (as successful models in n e w areas. measured by no. of plots) as a result of project interventions. Intermediate Results Results Indicators for Each Use of Outcome Monitoring from Each ComDonent Subcomponent Component 1: i)Frameworkdevelopedforthe i)Significantdelaysinfinalizing Environment and natural rationalization of environment and and implementingpolicy and resources management natural resources management policies legal framework would have policies plans and and legislation which inter alia identifies affect the project meetingits practices streamlined and overlaps and inconsistencies as a basis for PDO. supported by enhanced clarifjmg and gudmg the operations and ii)Improvementsinstakeholder service delivery interms core functions of DENR. access to information, and of data and information ii)Keydatabasesrelatingto:a)industrial clarified procedures inregard to 30 Intermediate Results Results Indicators for Each Use of Outcome Monitoring from Each Component Subcomponent access. use, b) forests, and c) protected areas regulations, fee schedules etc., available o n - h e for public access, wdlprovide a direct measure of including hks to forms, procedures and the improvements inDENR's fee schedules relating to regulatory service delivery. processes and service contracts. iii) Clarification of procedures and iii) Procedures and responsibilities for the streamlined issuance of issuance of tenure instruments CBRMA/CBFMAs and standardized and streamhed. issuance of updated NIPAS- iv)National integratedprotected areas IRRwill provide a direct system/implementation rules and measure of DENRs willingness regulations updated and, streamlined and to resolve regulatory revised policy issued. bottlenecks. v) Mappingof prioritygeo-hazard areas iv) Finalization of maps will completed provide a measure of the vi) Comprehensive rehabilitation and efficiency of DENRin remediation plans for 5 abandoned mines utilizing resources under the completed project vi) Forwardplanningand budgetingstrategy started to be implemented which inter alia provides a vision and benchmarks for key reforms inDENRs operations. viii)Interimmeasures for the rehabilitation of Bagacay mine site fully implemented Component 2: 1) 30%of degraded forest inGEF Yrl-Yr2Verify that the selection Effective management supportedsites rehabilitated with native of areas for rehabilitation follows systems inplace to species representing the bio-geographic agreed social, environmental and conserve critical region as identified in the W. ecosystem integrity criteria ecosystems and natural ii) Atleast30%ofdegradedforestlandsin resources in the Project non-convergence watersheds Yrl-Yr2. Verify that approved areas, degraded areas rehabilitated with native species by the livelihood activities are financially rehabllitated, and end of the Project - viable and follow agreed sustainable use regimes iii) 100%of GEF supported protected environmental and SLMnorms initiated and implemented areas (PA) mainstreamed PA by communities and management effectiveness tool Yr3-Yr5. Concentrate on LGUs basedon iv) Use ofPA management effectiveness consolidation of results, integrated ecosystem tool replicated in60 YOof proclaimed improvement of the strategy and management principles. PASnationally. replication of successful models in 60% of targeted communities in GEF n e w areas within the program area supported sites implementing micro- catchment plans by the end of the Yr 5 assess effectiveness of Project. outreach or stalling of the vi) 30% of households incommunities in decentralization of NRM GEF supported sites adopted livelihood practices promoted by the fourth year of Project implementation. Yr 2-3 assess requiredchanges in Vii) 75 Yo of funded activities (by $ value) in livelihood aspects to respond to GEF supported sites implemented by changes in community needs the LGUs and/or other stakeholders viii) Watershed Management Councils, The extent of LGU, other MOAsbetween DENRand government agency and NGO Participating LGUs and MOAs between participation in the project through 31 Intermediate Results Results Indicators for Each Use of Outcome Monitoring from Each Component Subcomponent Participating LGUs and NGOs inplace MOAS,wouldbe a measure of for allwatersheds selected which, inter opportunities for s c a h g up uhu, clarifies the devolution of functions DENR's impact related to: a) watershed & ecosystem management, b) management of communal forests, and protected areas. iv) Improvements of fee collection ix) Best practices of integrated ecosystem withlocalplough-back management being replicated through mechanisms provide a measure of information education campaigns inat DENRs effectiveness in least 2 non GEF supported watershed improvingENRmanagement areas. implementation. i) Payment for ecosystem services schemes operational inat least two watershed areas and generating ENR related service fees and royalties. Component3: i) 10% per annum increase incompanies YR1-YR3 determines IEC Appropriate and complying with environmental message effectiveness and comprehensive standards compared to baseline. outreach. Adjust strategy, delivery environment and natural ii) Designation and operationalization of at mechanism, etc. as needed resources regulations and least 3 water quality management areas. standards, implemented, iii) 128LGUs are implementingthree Yr3 indicates effectiveness of monitored and enforced. aspects of ecological solidwaste EMBinimplementing management. environmental laws iv) Monitor 179PETCs. v) Monitor 4,700 industries issuedwith YR4-5 gauge replicability into permit to operate. broader programs and replication vi) Monitor 1,600 companies along elsewhere waterbodies. vi) Monitor 101priority bathingbeaches. viii) 4,216 ECP projects issued ECC. 32 t M M I L L I Y * 10 I -0 B B PI A& 3 B & 3 B 3 PI 3 3 B c4 3 : a Y v1 w n 8 B 3 >I .s 2 .s + 2 + 3 $ 3 $ + 3 $ sN + 3 $ I s. 8+ E: 8 t s. N s. 8+ 3 E: K 8+ I t 2+ E I + 2+ 3 s. 3 s+ E: s3 K 3 InstitutionalArrangements for Results MonitoringandAnalysis 1. Special Order 1030 (see Annex 6) provides for the NPS-ENRMPprogram M&Eto be undertaken by the Policy and Planning Service (PPSO) for the regular activities of DENR, while the PCU/FASPO would undertake M&E functions for the GEF funded activities. However, as specific functions and responsibilities of the various Bureaus/Units of DENR are decentralized to field offices and to participating LGUs, they would be responsible for monitoring the sub- components and activities they are implementing, but the data would be collected and analyzed by the PPSO and FASPO.The PCU/FASPO would be responsible for submitting progress reports to the Bank and for preparing and presenting the results of M&E analyses to DENR management and the oversight agencies. The Results Framework presented in Annex 3 sets the primary parameters against which the outcome of the project would be evaluated. T h i s would be complemented by progress achieved during the project period inachieving the goals of DENR's Rationalization Plan, the framework for which i s provided in Annex 18, and which i s part of DENR's ongoing discussions with the oversight agencies. 2. Feed-back Mechanisms and Key Users of M&EInformation. Disbursements under both the SIMand the GEFgrant for the NPS-ENRMPare very much output focused and, as such, M& E information would be used both to substantiate the financial reporting requirements through the report on Statement of Sources and Uses of Funds (A report on the receipt and uses of funds by project components by activities, Annex 7), as well as in preparing annual progress reports on the project. To ensure that key baseline information i s collected on DENR's performance, and subsequently evaluated, the following dated covenants have been included inthe project design: i) By December 31,2007, DENRshouldundertake a baseline studywhich inter aliawould provide measures of client satisfaction with DENR's service delivery in the areas of information and regulatory processes and procedures. ii) ByJune 30,2012, DENRshouldundertakeafollow-upstudytothebaselinestudywhich, inter alia, would provide data and compare the effectiveness of measures undertaken by DENR duringthe project period to improve client satisfaction inregard to service delivery inthe areas of information and regulatory processes andprocedures. 3. Key users of the information, apart from DENR's own management and the Bank, would be the oversight agencies; NEDA and DBM. Several mechanisms for ensuring that M&E information i s collected, evaluated and reviewed are provided for inthe project design, u i ~ : i.M&EreportswouldbereviewedbyNEDAaspartofitsannualODAPortfolioReview. Copies of this report would be provided to the Bank and reviewed as part of the Bank and GEF supervision of the project. ii.ByJune 30,2010,amid-termreviewofDENR'sperformanceandachievementsunderthe project would be undertaken and the findings of that study discussed with DENR, DBM, NEDA and the Bank by October 31,2010, and iii.BySeptember31,2012acompletionreportofDENR'sperformanceandachievementsunder the project would be undertaken under the direction of NEDA, and the findings of that study discussed with DENR,DBMand the Bank by November 30,2012. 39 iv. By March 31 of each year, DENR would submit its proposed plan and budget for the following fiscal year, along with a report on the progress of the project and on DENR's Rationalization Plan, for review by the Bank, DBM and NEDA, for the purpose of facilitating alignment of the budget with the NPS-ENRMP and priorities of Government; however this review would in no way substitute for the normal review processes of government. 4. Strengthening of the Management Information Service /ISTMO: As an adjunct to the M& E to be undertaken under the project, an important project component wouldbe the development of an effective M I S system. Thus i s a critical need for DENR management and efficiency gains for the institution. During project preparation a separate MIS unit (ISTMO), led by an Assistant Secretary, was established and staffed. The project would support the development of the MIS system, and feedback from M &E functions under the project, would contribute to the design and development of the DENR-wide MIS system. Details of the step-wise approach being taken under the project to support development of the MIS system are described inAnnex 4. 40 Annex 4: Detailed Project Description PHILIPPINES: National Program-Support to Environment and NaturalResources Management 1. The project would have three components which have been purposefully designed around the DENR'sregular programs and three Major Final Outputs (MFOs). Activities to be financed under the SIM loan will address defined DENR priorities under its core program, while the GEF grant will be mostly targeted at financing incremental activities in selected watersheds, which have been prioritized by DENR for conserving critical ecosystems. The key GEF activities to be supported are described under Components /MFOs 1and 2, and are summarized inTable 1. 2. D u e to the construction of the MFOs used by DENR, a wide range of activities are included under MFOl (Component l), including those which are more operational in nature, supporting investments in MFO 2 and 3, (eg., preparation of maps, surveys and development of detailed watershed management plans). This unfortunately mixes budget lines for strictly policy and planning aspects of DENR's work, with its field operations. Importantly, however, the design of the project maintains conformity with the existing MFOs, and therefore the GAA. Likewise the component and sub-component headings used to describe the project are based on the GAA to facilitate implementation. During project preparation, the possibility of redefining MFOs was explored with DBM, but there was a reluctance to change them. This, however, can b e re-explored further during implementation, as there i s consensus with the view that there i s a need to establish MFOs more representative of DENRs's core functions to facilitate better planning and accountability.. 3. COMPONENT/MFO 1: Policy, Planning, Monitoring and Evaluation: An important element of this Component i s the support for DENR's Institutional Reform Agenda, which i s based on the institution's Rationalization Plan. T h e basis and details for this i s described inAnnex 18, and is therefore not repeated here. Moreover, most of the actions inthe ReformAgenda require management decisions and follow-through rather than investments per se. The following described the more investment related aspects of Component 1. 4. Sub-component 1.1:Rationalization of ENR Plans and Policies: a) Strengthening the efficiency of DENR's organization and operations: The activities to be supported have been built on priorities and plans developed by DENR. Underpinning this would be the development of a framework on how the wide ranging ENR policies and legislation are to be rationalized, given the numerous laws, executive orders, special orders and administrative orders that have been issued over the years, many of which are overlapping at best and conflicting in other cases. The framework would specifically address the need to strengthen protected areas management through more effective devolution and stakeholder participation, with DENR maintaining its oversight and monitoring functions. In order to deepen mainstreaming, emphasis will be given to: i)clarifying regulatory policies on ENR devolution, resolving issues related to tenurial instruments, compliance to environment and natural resources rules and regulation, ecosystem and biodiversity protection; ii) planning and management of the proposed intervention areas as part of integrated watershed and wetland management; iii)mainstreaming biodiversity concerns in spatial planning in areas outside of NIPAS legislation and under management by other agencies and entities; and iv) linkages with watershed, land and coastal management in selected sites 41 and community management through increased payments for ecosystem services (PES) and other incentives. With regards to the latter, a general problem for the ENR sector has been the general lack of budgetary resources and this situation i s not likely to change inthe near future. There i s a strong need for developing models and a culture of PES where incomes generated locally are ploughed back directly into local ecosystems protection and management. Types of PES models are functioning or are under development in some provinces with institutionalplough-back systems protecting watersheds and vital biodiversity areas, as part of a sustainable watershed management effort. Pilot-testing of PES-models will feed directly into the actions of Component/MFO 2. b) Strengthening the service delivery functions in the provision of data, information and M&E: The project would support a baseline survey which, inter aha, would provide measures of client satisfaction with DENR`s delivery of its core functions, and on the level of perceived transparency in the access to data and information. A follow-up survey would be done by June 30, 2012. The Policy and Planning Office would be strengthened to more effectively monitor DENR's program implementation and to undertake periodic evaluations. A key activity to be supported under the project and integrally linked with DENR'sgoal to b e more transparent and responsive to client needs in terms of issuance of permits etc, would be the strengthening of databases, and the establishment of a more effective MIS system. DENR has received technical assistance through a number of externally funded projects for database strengthening, but the project funded approach has neither been conducive to establishing integrated systems nor the maintenance of databases as a core function. For example, information on the universe of industries to b e regulated and the types and characteristics of wastes they generate are requisites to improving enforcement of standards and compliance monitoring. T h i s information i s generally lacking at EMB, with only 3% of the total registered industries in EMB's radar screen. There are also deficiencies in the databases in terms of the access by the public and its client responsiveness in terms of providing forms, fee schedules etc on-line. The need for this would be elaborated upon as an outcome of the planned Client survey (see "a" above). The recent establishment and staffing by DENR during project preparation of a Systems and Technology Unit, i s a first step in addressing the database and MIS issues. The target would be that by December 31, 2007, or the end date of first year of project implementation an MIS strategic plan and budget would be approved and thereafter implemented. While funds have notionally been provided under the project for strengthening the database and MIS system, the project's initial support would be for preparatory work and technical assistance needed to design the various informational, programmatic, and technical aspects of the system to be developed. T h i s will be a step-wise process, beginning with a review of the existing systems, their systemic deficiencies and limitations, and a definition of the next phase of work. Bank implementation review missions would need to include ICT specialists to review and help guide this process. To the extent funds have been provided under the project for hardware, the need for this would be determined by the pace at which DENR is able to advance this process. Importantly, however, the project would seek to ensure that the strengthening of the databases and MIS system inDENRis internalizedas a core function requiringannualbudget allocations. c) Strengthening DENR's overall project management processes: The entire project supported activities under this sub-component are elements of the Reform Agenda described in Annex 18. The programmatic approach being supported by the project, and specifically the way inwhich loan funds would be part of the regular budget of the DENR, are designed to help bring about better allocative efficiency inthe budget throughbetter linkingof plans and budgets. A key challenge will be to implement the changes in practices needed to support an integrated ecosystem management approach, that are crucial if DENRi s to develop the mechanisms for scaling-up its impact through greater participation of local communities in the planning and management of watersheds and micro-catchments. This wouldbe a specific goal to be supported by the GEF under'theproject. 42 5. Sub-component 1.2: Surveys and Mapping: Survey and maps would be prepared to better demarcate forest lands, watersheds, protected areas, foreshores, geo-hazards (hlgh risk areas for landslides and flood-run-off. a) Forestryandprotectedarea mapping:To the extent that the project provides for the location of boundary markers/survey pegs, it has been explicitly agreed that, under the project, that the placement of such markers shall not support nor encourage inany way, actions which would lead to the displacement of people occupying lands within the demarcated areas. The project would supportan integrated approach which would support activities linked to landsurvey and forest land use classification, including finalization of forest lines (GIs delineation), review of experiences and lessons learned on forest land use and cadastral survey and mapping, mobilization of human resources, benchmark assessment of project site, consolidation of best suitable land management practices for use in the scaling-up of protected forest land and biodiversity management, agreement on criteria and indicators and guidelines for rational classification of production and protected forest lands, and conduct of series of workshops, hands-on training and development of mapping tools for scalingup protectedareas and biodiversity management. Geo-hazard mapping of high risk areas. The overall objective of the Geohazard Assessment program i s to prevent human injuries and material damage by forecasting and/or preventing accidents caused by natural hazards, and communicating such knowledge to local authorities and the general public in affected areas to allow for preventive/mitigating measures to be taken. The main users of the findings of the proposed program would be the authorities responsible for: (i) land use planning and classification; (ii) development; (iii) project disaster preparedness; (iv) management in case of accidents; and (v) mitigation of impacts. The end beneficiaries would be the general public. The hazards to be considered include all major geo-related phenomena occurring in the country, including: landslides (slide, creep, slump and fall, these being rain-induced or in other modes), subsidence of the ground, floods, tropical cyclone winds and storm surge, coastal erosion, volcanic events, and earthquakes. The work would encompass an initial identification of hazardous areas, followed by comprehensive studies related to each of these areas according to the following cycle: hazard characterization, risk evaluation, definition of preventive measures, execution of urgent measures, and information & consciousness-raising among potentially effected people. Accordingly, for each identified and studied hazardous area, a variety of maps and reports/presentations will be produced and actively disseminated. A main set of products would include: (i)Geohazard susceptibility zoning documentation and maps; (ii) Site-specific risk zoning information and maps; (iii)Geological site suitability maps for evacuation/relocation sites; (iv) Database documentation of geohazard data and information; (v) Final consolidated area reports and geological reports with recommendations for measures to be taken; (vi) IEC materials for the consultation with the affected population and other stakeholders. Products will serve in the promotion of awareness among the people regarding the susceptibility of the country to various geohazards and the risks/impacts these could pose inmuch of their everyday life. In other words, to raise the stakeholders' understanding of some processes (landslides, floods, subsidence, mudflows, coastal erosion and storm surges) operating in nature, to provide them with the basic capacity to understand how to avoid or mitigate such hazards, and to give practical advice and direction regarding urgent measures to be taken in the areas to b e studied. c) Groundwater mapping. The overall objective of the proposed program is to provide hydro- geological information in order to identify groundwater resources, and to provide a base of knowledge for the efficient and sustainable exploitation of such resources. More specifically, the program aims to improve the scientific and technical methods and procedures for the elaboration of hydro-geological maps, to produce such maps on a regular basis, and to make these maps and associated information easily available to various stakeholders and policy makers. Present 43 groundwater mapping by MGB i s usually ad hoc in character, demand-driven, and concentrated to areas of limited spatial extent (Village, municipality, etc.). The great drawback with such an approach i s that the larger aquifers, controlled by major porous rock formations or large-scale structures in the bedrock will not be correctly mapped and understood. Maps at a scale of 1:50,000 would represent a good compromise between the demand for overview and detail. The choice of areas to be mapped and their priorities will be based on: (i) existing hydro-geological small-scale the overview map of the country; (ii) geological, seismological, hydrological and other maps; (iii) areas with low precipitation and where water resources are scarce; and (iv) urban areas where the consumption of water i s high. The actual work of map preparation wdl follow modern established methods of presenting both known reserves and the potential for encountering additional groundwater resources. Thus, confirmed data and predictions will be related to geological formations and their varying properties, tectonic structures, the existence of groundwater springs or wells, etc. M a p features, as well as all more detailed available information which may not be possible to depict in a map of this kind, will be presented in text, figures, tables and photos in the monograph that will accompany each map. The quality of water being encountered will be determined by using the services of PETROLAB laboratory of the MGB for the chemical analysis and BFAD for the bacteriological component. Accordingly, the output of the program for groundwater mapping will be the following: (i) groundwater maps in the scale of 1:50,000 in the quadrangle grid of the national map system; (ii) individual description (text, tables, diagrams and photos) for each of the map sheets. The number of maps/descriptions produced annually will be relatively low duringthe first year of introduction of new work methods and tools, but increasing as routines are developed and experience gained. Publication will be by computer printing and map plottinginrelatively small editions, but complemented whenever required (printon demand). 6. Sub-component 1.3: Watershed Development Planning: Expenditures would include the preparation of watershed management plans, (withmicro-catchment plans as subsets), including the characterization of land-use patterns, delineation of forest and protected areas etc., and their ground truthing. This will be focussed on the priority watersheds identified for support and discussed in detail inComponent 2 below. Sub-component 1.4: Remediation of Risks: The sub-component would be limited in scope, but would be designed to address priority issues related to miningrehabilitation, geo-hazard mapping and protection of groundwater. Specifically it would support: (i) site investigation and analysis and development of environmental rehabilitation plans for selected abandoned mines; (ii) interim mitigation and remediation measures deigned to both prevent or reduce the legacy of the past mining activities, (Bagacay mine only) while the final rehabilitation plan is being prepared, and to support pilot activities to develop environmental and social policies for current and future mining; (iii)geo-hazard mapping of high risk areas for landslides and flood-run-off, to assist in land use planning and mitigate against the risks of mudslides etc., that too frequently cause severe loss of life, property and damage to the environment; and (iv) improve ground-water mapping to facilitate sustainable management of this increasingly important source of water for domestic, agricultural and industrial use. More specifically the followingwould be carried out: a) Prepare mitigation or rehabilitation programs, including monitoring plans for the documentation and follow-up of measures taken. Being one of the tasks during the five-year program, a detailed environmental assessment for each mine will be conducted as part of the elaboration of plans for rehabilitation (actual final rehabilitation not to be executed within this program). An environmental assessment related to the possible impact of the present program, including interimmeasures at Bagacay, has been prepared as part of this PIP. 44 b) Implementation of primary measures: Final full rehabilitation will not be undertaken by this project. Rather, interim measures for mitigation/rehabilitation work within the proposed program will be limited to the Bagacay mine site. Itis estimated that certain primary critical measures willbe commenced within the first two years of the programto protect people and the environment from additional negative impacts from the mine area. These measures include the following: i) Construction of diversion channels to prevent inflow of surface water into the mining area, ii) neutralization of acid mine drainage (AMD) in critical areas, iii)certain measures for erosion control, and iv) construction of fences and berms around open pits to prevent accidents involving people and animals. In addition, re-vegetation/reforestation trials of all mine components such as waste rock dumps, tailings ponds, open pits and others will be carried out. The total area occupied by the Bagacay mine including all its components is about sixty (60) hectares based on the rapid appraisal done by MGB Central Office on June 2005. However, per the Developmental M a p prepared by DENR Region VIII, the perimeter survey of the area i s two hundred fifty (250) hectares while the parcellary survey i s one hundred twenty eight and 10/100 (128.10) hectares. It should also be acknowledged that the required level of vegetation to control erosion and dusting willrequire a number of years. Once vegetation is established, maintenance willstill be required untilsuch time that performance targets are achieved. c) Final remediation measures: The plan for the full rehabilitation of Bagacay Mine will be developed during the proposed four year program. The rehabilitation plan will focus on the extent and character of acid mine drainage, which will be mapped, monitored and evaluated. Design of mitigation facilities will also be done. Furthermore, geotechnical issues regarding slope stabilities and related consequences will be clarified. The actual execution of this latter program would be a f i r s t priority under the anticipated extension of the NPS-ENRMprogram from 2011 onwards. 8. Sub-component 1.5: Public Awareness and Environmental Education: Support, in particular from the GEF, would be provided for review and assessment of DENR's IEC strategy and framework, structure, roles and functions, drawing upon the experience from other donor-project supported IEC plans and programs and identifying best practices in ENR for dissemination and replication. An IEC campaign would be supported with the view to covering activities which focus on replicable best practices that will be directly supportive of the Project's over-all objective as identified inthe DENR'sinstitutional vision. With the recent adoption' of the watershed as a basic planning and management unit, the regional and Provincial DENR staff would undergo training in the IEM approach and lead the process of elaborating multi-sectoral watershed action plans. However strengthening of DENR's training capacity will first take place at national level in the form of a TA Trainers Training of a core DENR Training Team identified at bureau level. The local level capacity building will take place in priority watershed and wetland sites and develop actual multi-sectoral IWMPs together with guidelines to facilitate training to be replicated in other areas. There are good opportunities to coordinate with existing programs such as EcoGov in order to use their training and awareness materials. 9. COMPONENT/MFO 2: Integrated Ecosystem Management: T h i s component would support and prioritize integrated watershed and wetlands management strategies in target watersheds facing severe risk of further degradation, and those in sensitive ecological areas. It will be the main focus of GEF on-the-ground investments, with SIM co-financing. The component would be implemented initially in priority watershed areas identified by DENR, i.e., i)Angat Watershed Reservation (55,709 ha), Ipo Watershed (6,600 ha), D o n a Remedios Trinidad-Gen. 'DENRDAO2005-23 45 Tinio WFR ( 20,760 ha), Kanan Watershed (39,160,83 ha), Bicol River Basin: Libmanan-Pulantuna Watershed (70,924ha), and Ligawasan Marsh (46,798 ha). These sites were selected on the basis of the following criteria: (i) significance (threatened and unique ecosystems, endemic and Global threatened species, unique biological assemblage); (ii)land degradation and opportunities for improved land management; (iii)bio-geographic and ecosystem representation; (iv) potential impact; (v) local enabling environment e.g. LGU and community interest and commitment, NGO partners; and (vi) complementarity and synergies with other donor efforts, including NGO programs. A detailed description of the ecological, social and economic characteristics of these sites, as well as the threats and potential remedial practices are given inWorkingPaper No. 2. 10. Duringappraisal, it was agreed that fundingunder the SIM could be extended to support integrated watershed protection in Abulog (CAR), Matutinao (Region 7) and Pola (Region 4-B). For these additional watersheds, before investments are made it will be necessary to follow the up-frontwork done under the PHRD grant for the other watersheds, inter-alia, stakeholder/social environmental assessments, as well as site descriptions. 11. Sub-component 2.1 IntegratedEcosystems Management a) Promoting Participatory Watershed Management. At the watershed level, formation and/or strengthening of multi-sectoral watershed management councils ox/TuIC) that will provide the overall direction to the management of the watershed will be organized in a highly participatory process involving the different stakeholders, once they have been identified and profiled. The establishment of the WMC would be consistent with the relevant provisions of the Clean Water Act. The various Boards created by environmental laws such as the PAMB, Provincial SolidWaste Management Board, Air-shed Governing Board, and the Water Management Board will be reviewed and considered to avoid unnecessary duplication, creation of bureaucratic layers, and usurping of powers. For example, a WMC could be created by strengthening the PAMB into a multi-sectoral body. A draft TOR for WMCs i s presented inthe Operations Manual. LGUs would have main responsibility for management at the micro-catchments level. During project preparation, 23 municipal LGUs were identified as having a major stake and role in the management of the targeted watersheds and wetlands. However, those LGUs and barangays whose participation i s most critical will be identified and their commitment to support watershed rehabilitation at micro-catchment level further determined. In addition to establishment and operations of WMCs, activities to be supported include community organizing, stakeholder analysis and mobilization, formulation of IEM/IWM guidelines, IEM/IWM plan implementation, zoning and mapping, and boundary delineation. Stakeholder identification and analysis would begin with the initial list of key institutional stakeholders that include the DENR, LGUs, and local communities, and other stakeholders from within and outside the watershed that have been identified during preparation. Profiling will focus on the description of the type and extent of stakes, the degree of power and influence of stakeholders, and the capacity to participate invarious watershed management activities. This will help define the roles that each stakeholder will play in the whole management scheme for the watershed and the capacity buildingneeds that have to be met. b) Habitat Rehabilitation and Restoration: The concrete activities to be undertaken for each watershed will vary due to site specific characteristics. On the basis of activities under community- based micro-catchment planning and regulation of tenure, the prioritized degraded ecologically sensitive areas will be rehabilitated primarily through reforestation with Philippine (rain forestation) 46 species and based on best practices and lessons learned from advanced priority testing for example on Leyte and in Bukidnon.Existingclassification systems could be used such as the conservation priority areas very recently classified by DENR in partnership with Haribon Foundation and Conservation International and other collaborators from research and academic institutions. Thus, the sub-component would support biodiversity conservation and management within priority PAS and other ecologically important areas. In areas where the forest cover i s relatively intact, but degraded, "rain forestation" will be supplemented with Assisted Natural Regeneration (ANR), if applicable. Outside of critical conservation areas, the establishment of high value agro-forestry plots with non-invasive species inproduction and multiple-use zones will be supported under the livelihood component. The resource accounts to be developed both for the upland and coastal areas will form part of the monitoringsystem that will be developed for the watershed. Among the preparatory activities will be the conduct of IEC introducing the principle of "rain-forestation" with local, native species and implementation of capacity buildingcourses for local DENR and LGUand communities on "rain-forestation". Once local capacity i s inplace nurseries with native, local plant species will be established and managed by the LGUs. Where geo-hazard risks have been identified as a result of land degradation, erosion control will be supported - control of the erosion prone areas will mainly take place through establishment of terracing, wattling and natural vegetation strips including river bank stabilization courses to increase capacity of farmers in SLM practices. In larger degraded areas outside of the watershed forest, GEF-supportmay be given to the establishment of small-scale highvalue crop plantations or community woodlots to provide fuel wood plantations as an alternative source to use of the natural forest. These investments will be linked to new tenurial arrangements with the DENR and be managed and owned by the local communities as part of alternative livelihoods options insupport of the IWM process. 12. Sub-component 2.2: Agro-Forestry and Livelihood Support Livelihood projects for GEF sites (DRT-General Tinio, Libmanan-Pulantuna, Kanan, Ligawasan, Ipo and Angat): Technical and financial assistance to sustainable livelihood improvements linked to IEM will be provided to help small farmers transition from unsustainable agricultural practices to more sustainable livelihoods that enhance ecosystem services, conserve biodiversity and increase incomes. Potential livelihood micro-projects would be identified through the participatory planning processes, be based on existing best practices and seek to combine increase in income through diversified livelihood options with reduced pressure on resources. Some of the best practices on which these initiatives would be based are experiences of communities in the buffer zones of forested conservation areas and watersheds elsewhere in the country such as, agro-forestry, integrated and sustainable land management practices, and processing of non-timber forest products. Program support for sustainable livelihoods will supplement existing LGU-funded livelihood enterprises, where applicable, and channeled through existing LGU facilities. Proposals from individual communities should emanate from the participatory planning process at micro- catchment level and would be financed on a competitive (such as community willingness to provide in-kind contributions) and best practice basis be screened and endorsed by the Watershed Management Councils. Guidelines linking sustainable land and natural resources management practices and access to appropriate tenurial instruments with community participation in local ENR monitoringsystems and resource protection will be developed. Addressing livelihood concerns in the priority watersheds and wetlands will include a package of approaches as follows: (i) enhancing the productivity of the land (or increasing production per unit); (ii) broadening of income-base through alternative livelihood; (iii)establishment of secondary and tertiary product processing enterprises for higher value added to commodities; (iv) expanding non-cash income; (v) provision of support infrastructure such as roads, market linkage; (vi) provision of funds; (vii) skill enhancement and training; and (viii) formulation of enabling policies (tenurial instruments). 47 13. During project implementation, carbon finance will also be pursued for this component. This will complement the GEF activities by providingimportant incentives to encourage planting and ensure sustainability of the carbon stock in eligible areas through support to livelihoods, provision of recurrent financing and provision of a transparent performance monitoring and governance framework. The financing i s proposed to be provided through the World Bank`s Carbon Funds under agreements to purchase emission reduction credits from eligible reforestation activities under the program. The "Emissions Reduction Purchase Agreement" (ERPA) i s proposed to be negotiated during the beginning of project implementation and incorporate the following aspects: (i) paymentswillbeclearlylinkedtoperformancemonitoringincludingthegrowthand project maintenance of the trees and existing natural forest cover; (ii) the quantity of emissions reduction and price paid will be a negotiated outcome based on identified eligible projects; and, (iii) the institutional arrangements for payment will be developed as part of project implementation and agreed at the time of ERPA signature Table 1:Key GEF Activities under Components 1and 2 Sub-comDonents Actions (i) Implement participatory Undertake participatory assessments to survey community resource use, threats and micro-catchment planning and needs; management including training, Trainingand capacity buildingbased onbest practices developed by EcoGov; capacity buildingand awareness Facilitate communities and IPSto propose community management boundaries in raisingto improve overall collaboration with LGUs and DENR; ecosystem management Support community negotiation process to propose zoning schemes and boundaries and rules, rights and responsibilities for targeted resources/areas; Undertake broad hearings and focal group reviews incommunities and with LGUs and DENR to hnalize and approve Management Plans and zoning schemes and establish implementing local level MOAS; Integration o f management plans into ,municipal land use plans and into provincial and regional development plans Formalize the community resource use plan through a tenurial agreement with DENR; h. Provide locally best practice multi-media packages on the benefits o f IWMand SLMpractices; management; i.formationofintegratedWatershedManagementCouncilstostrengthencross- sectoral coordination and management implementation ineach watershed (ii)rehabilitationandprotection Undertake watershed surveys and validations to determine key areas for of degraded ecologically rehabilitationincluding riverbanks and streams; sensitive areas including riverine Introduce the principle of "rain-forestation" where seeds and seedlings of plant areas through reforestation with species unique to the local forest habitat and bio-geographic zone are collected, Philippine (rainforestation) propagated innurseries and planted in denuded forest areas; species and based on best Establish larger "rain forestation" plant nurseries capable of producing enough practices and lessons learned stock of a diverse number of species to be used for rehabilitation o f core areas Primarily in production and multiple-uses zones establishment of vegetative erosion control measures through wattling, terracing, natural vegetation strips, and highvalue agro-forestry activities; Preparation of areas for rehabilitation and actual out-planting; f.Management and maintenanceofrehabilitated areas. (ii) biodiversity Integrated Preparation and implementation of participatory and local-language management conservation and land and plans in selected watersheds including establishment and capacity-building of resource use management WMCs and PAMBs with a greater role o f LGUs and other government agencies in within critical priority day-to-day operations; conservation areas including Integration of management plans into, municipal land use plans and into provincial watersheds, PASand other and regional development plans ; biologically important areas and Support to facilitation of preparation and issuance o f relevant tenurial and land use rationalization o f PA system instruments: 48 d.) Support to targeted alternative livelihood interventions linked to conservation and sustainable use strategies; Development and implementation of a strategy to speed up disestablishment of protected areas and re-delineation of proclaimed areas to include more habitats in intact conditions representing the Philippine bio-geographical regions; g Development of PES with plowback mechanisms directly financing protection and monitoring and other vital management activities in the targeted watersheds and Pas under GEF -assistance; h. Issuance of enabling policies for replication and scaling-up o f successful PES experiences in priority watershed and wetland sites and PAS and support to implementation (iv) identification and Investigate the potential anchorage at LGU level of livelihood activities, models implementation of sustainable and best practice; Livelihood Improvements that Prepare overviews for communities outlining existing and innovative new options support IEM. for optimizing economic benefits from sustainable natural resources management; c. Support communities/POs in developing and implementing the activities through e.g. technical training, market analysis, business plan development, conditional investment financing.. etc. 14. COMPONENT/MFO 3: Strengthening Environment and Natural Resources Management: T h i s Component targets the regulatory and oversight functions of the DENR and support actions to: (i) DENR's tools and capability to monitor and air quality standards improve through purchase of new equipment, strengthening its industrial database system and capacity building of its staff; (ii)increase compliance by the regulated community on environmental regulations throughthe mobilization and support of the private sector and the LGUs and the use of economic instrument to complement command and control system of regulations; (iii) the build capacity of LGUs on solid waste management to increase adoption of an integrated and ecologcally-sound solid waste management and (iv) develop and implement a community-based participatory integrated watershed management monitoringsystem. 15. Sub-component 3.1: Monitoring Systems for ENR Laws and Regulations - T h i s sub- component would specifically contribute to: (i) strengthening of the enforcement and monitoringof regulations, relating to air and water quality, solid waste management, and environmental impact assessment (EIA) which inter alia, would include greater transparency, improved monitoring and partnerships with both the public and the private sector and the use of market-based and command and control instruments. In particular, the sub-component would support DENR strengthen the implementation of its sub-sector mandates under the Clean Air Act, the Ecological Solid Waste Management Act, the Clean Water A c t and the Philippine EIS system and put into action some of the key recommendations in Bank studies with EMB, including the Philippine Environment Monitor series, technical assistance on Strengthening Environmental Enforcement and Compliance Capacity (SEECCTA) and the Strengthening on Environmental Performance Monitoring of the Philippine EIS system (SEPMES), as well as the assessment of the Philippine EIS system as part of the Country System work. Lessons learned from the Bank-funded projects such as the Laguna de Bay Institutional Strengthening and Community Participation (LISCOP) Project on the use of a user fee system for wastewater discharges and public disclosure of information will be taken into account, as well as experiences from other Projects such as the Metro Manila Air Quality Improvement Project financed by ADB. The activities to be frnanced under the project include: a) Air Quality: The mainproblem being, the total suspended particulate (TSP) levels inMetro Manila and major urban centers, which have exceeded ambient standards due primarily to mobile (transport) and stationary (industries) sources. For the past 3 years, TSP levels inMetro Manila have 49 been in downward trend because of the retirement of highly polluting power plant in Sucat, Paranaque, the intensified drive of the DENR,LGUs and the private sector against smoke belching vehicles, increase monitoring of industrial emissions and the testing of vehicle emissions by the private emission testing centers (PETCs) as a requirement for car registration renewal, among others. Air quality management priorities to be supported under the Project would build on these successes by supportingthe following: (i) purchase of air quality monitoring equipment to increase monitoring stations and upgrade the DENR's tools and capability; (ii) monitoring of PETCs to ensure they perform according to the guidelines and standards set by the DENR; (iii) monitoring of priority firms issued with permit to operate to ensure that they comply with the standards; (iv) inventory of firms with hazardous air emissions so they could b e included in the DENR monitoring; (v) stack sampling of industrial firms; and (vi) capacity buildingof DENR staff both at the Central and Regional Offices. It i s envisaged that the intensified monitoringof the DENR on the PETCs and industrial firms would compel smoke-belching vehicles and air polluting firms to comply with the standards otherwise corresponding penalties would b e meted to the violators; b) Water Quality: The Project will finance pilot activities to support the implementation of the Philippine Clean Water Act, which requires the establishment of a water quality management area (WQMA) in each major river basin in the country to be managed by a DENR-led multi-sector Water Quality Management Board (WQMB).With the exception of the Laguna Lake, the rest of the WQMAs have yet to be established and the guidelines to establish them have yet to be formulated. The Project would specifically support the following: (i)identification and establishment of at least three priority WQMAs; (ii) development of water quality management action plan and compliance plan inthese WQMAs; (iii) development of guidelines and procedures for the establishment ofWQMA; (iv) creation and operationalization of the 3 WQMBs inWQMAs to be established; (v) implementation of the environmental user fee/wastewater discharge system, an economic instrument to complement water quality regulations; and (vi) capacity building of DENRCentral andRegional Offices andWQMBs; c) Waste Management: Under the Ecological Solid Waste Management A c t (ESWMA), the LGUs are charged of collecting and managing solidwastes intheir respective areas of jurisdiction, with the DENRonly providingtechnical assistance. The ESWMA has beenpassed about five years ago and yet majority of the LGUs inthe country are still operating open dumpsites despite the ban imposed by the Act on open dumpsites. Part of the reason is the financial difficulty of the LGUs, but also the inadequate capacity to implement the Act. To increase LGU adoption on the three aspects of solid waste management (segregation at source, segregated waste collection, composting and MRFs),the Project will be providingtechnical assistance to LGUs. Specifically, the Project would support: (i) development, dissemination and information education campaign of guidelines and technologies for solid waste management; (ii)development of incentives for good solid waste management practices by households, f i r m s and LGUs; (iii) technical assistance to select LGUs in implementing the three aspects of solid waste management; (iv) capacity buildingof DENR Central and Regional Offices. In addition, the Project would also support the inventory of firms that manufacture and/or import toxic and hazardous wastes so that they could be properly regulated and monitored for compliance; d) Environmental Impact Assessment: The Bank's review of the Philippine EIS System as part of the broader country's safeguard systems review reveals that the legal and institutional framework of the system i s adequate. It was, however, noted that the system has been used mainly as a regulatory tool, with the environmental compliance certificate (ECC) becoming the most important permit to b e secured in any development project. As a planning tool, however, the EIS System contribution 50 has so far been limited. Environmental assessments are still applied downstream of key feasibility decisions and in many cases, the EA i s viewed more as a formality or justification of the project location, design and other parameters that have been already decided in the FS. The system also faces significant challenges interms of its efficiency due to the following practices: (i)the screening scheme results in many small scale and insignificant projects being subjected to the EIS requirements; (ii) scoping i s not able to narrow down the scope of the assessment, resulting in the voluminous EA reports that lack focus and depth on the analysis of critical impacts; (iii) the administration of the system i s centralized, particularly the decision making of project approval, that prevents the EIS process from meaningfully contributing to local planning; (iv) the requirements of other agencies overlap or duplicate with the EIS requirements; and, (v) the follow up and monitoring protocols established by DENR are complex and overlapping while able to only reach 18% of the total number of projects issued with ECC. The Project would be supporting the implementation of priority activities that would address some of the challenges. Among others, the Project would finance: (i) activities to strengthen the EIA information system as a decision support tool; (ii) development and dissemination of guidelines and regulations for EIA reviewers to tighten the scoping and review process; (iii) partnership and capacity building of LGUs on environmental performance monitoring of firms issued with ECC to improve the monitoring system and follow up; (iv) development ofguidelines and manualfor LGU-led multi-partite monitoringteam (MMT); 16. Sub-component 3.2: Community-based Participatory IWM Monitoring System! Recent experiences from Africa and South East Asia' suggest that participatory monitoring of natural resources and resource uses have a number of very valuable add-on benefits. First it is a meaningful way of establishing collaboration between local stakeholders and government staff for instance in management of resources inside and adjacent to ecosystems under protection including protected areas. But it also improves communication between local stakeholders and authorities, generates awareness and changes in attitudes among locals, and sometimes may even lead to increased compliance with laws and a decrease in land and natural resource conflict, and strengthening of existing community-based resource management systems, thereby empowering the local community members. Local participatory monitoring also has the ability to provide LGUs and protected area staff a sense of direction of the objectives of the protected areas; and through PAMB discussions and decisions increase actual mitigating resource and land use actions on the ground within a short timeframe. This applies to the management of other critical conservation areas as well. 17. The goal i s to develop - on the basis of the existing DENRBiodiversity MonitoringSystem (BMS) - a local level ~riority'~ participatory land, water and resource use monitoring system to be used in IWM. DENR has, with funding from the World Bank, developed a successful BMS for protected areas over the past 10 years. GEF funds would, through the financing of TA, assist DENR in scaling-up this existing monitoringsystem so that it can b e used as a participatory monitoring tool intargetedwatersheds andPASwith a criticalandurgent need for conservation action, across the Philippines. It will be further developed so that it can be used as a simple monitoringtool for IWM and with added monitoringcomponents such as water quality and soil degradation/erosion. 8Support PAWB GPOA 3.p. Special Issue of Biodiversity and Conservation `monitoring matters: examining the potential of locally-based approaches'. Volume 14, Number 11, October 2005 lo This component supports the DENRMFO1and PAWB GPOA 3p 51 18. Key activities supported by GEF include: 9 Conduct of an assessment of existing IWM and BMS experiences, management structure, participation, and minimum monitoringneeds on basis of reports and field visit; ii) Assessmentof IWMfunctions, management structure, stakeholders (including roles and participation), and minimum, qualitative monitoringneeds; iii) Through IWM stakeholder consultations including communities identification of meaningfulindicators for land, water and forests and key diversity under global threats; iv) Elaboration of a proposal for community based, simple IWMmonitoring system, including attention to: (a) simple and realistic approaches; (b) providing incentives (not necessarily financial) for stakeholder participation; and (c) assessing accountability and representation of poorest resource users; VI Priority testing of participatory IWMmonitoring system and feedback exercises with LGUs and other stakeholders, revision of proposal; vi) Integration of monitoring system in IWMplans, including provision of simple monitoring protocols linkingdata to tangible management action; vii) Design mechanism for providing monitoring feedback to IWM Councils, LGUs and provinces; and Viii) Completion of information flow loops to secure that all relevant stakeholders are involved. 19. Once the system is developed, GEF funds will support costs related to its implementation within the priority areas, but with the understanding that DENR will expand the system to other critical conservation areas once local capacity i s inplace. The system would include monitoring of trends on the wildlife trade, resource extraction and improvement inthe enforcement of wildlife and other natural resource related regulations. Furthermore it will be designed to monitor impact trends as a result of the implementation of tenurial instruments and alternative livelihoods linked to IWM. The monitoring component will be simple, replicable and designed to influence and guide adaptive management strategies as well as enhance local ownership and raise awareness to protect habitats and improve ENR management to enhance ecosystem services". The monitoring system will include indicators for the use of land, water, wildlife and forest resources. The participatory monitoring will provide tangible feedback for ENR management decisions and furthermore also help increase compliance with ENRlaws. l1 The type of monitoring described here is low-cost and based on community participation. It does not necessarily involve computers, GIS or satellite images. It is kept simple and low-cost in order to enhance long-term sustainability and localownership. 52 Annex 5: Project Costs PHILIPPINES: National Program-Support to Environment andNatural Resources Management Project Cost By Component and/or Activity Local Foreign Total U S $million U S $million US$million 1. Policy,Planning, Monitoringand Evaluation 33.63 2.89 36.52 2. IntegratedEcosystem Management 13.25 0.38 13.63 3. Strengthening EnvironmentalManagement 3.43 1.15 4.58 Total Baseline Cost 50.31 4.42 54.73 Physical Contingencies Price Contingencies 2.14 0.11 2.25 Total Project Costs 52.45 4.53 57.00 Interest during construction Front-end Fee12 0.00 0.00 Total FinancingRequired 52.45 4.53 57.00'3 Total Project Cost by F i n a n ~ i e r ' ~ GEF IBRD Total Cost Project Cost By Component and/or Activity US$ d o n US$million US$million 1. Policy, Planning, MonitoringandEvaluation 1.90 36.24 38.14 2. Integrated Ecosystem Management 4.43 9.66 14.09 3. Strengthening EnvironmentalManagement 0.67 4.10 4.77 Total Project Costs 7.00 50.00 57.00' * Th e expectedGoP equivalent contributionto approximatelyUS1630 d o n , which wouldbring the totalproject costs to USW7 d o n . l2It i s expected that the project will go to the Bank's Board in the present fiscal year; that i s before June 30, 2007. T h i s being the case, the Front EndFee would be wavered following the "ling ineffect for the present fiscal year. l3There is an expected GoP counterpart contribution o f approximately US$30 million, which would bringthe total project costs to US$87 million. Includingcontingencies 53 Annex 6: Implementation Arrangements PHILIPPINES: NationalProgram-Supportto Environment andNaturalResources Management 1. Implementation of the project would follow normal DENR management and administrative structures and procedures to ensure that project supported activities are consistent with the Department's regular operations. To facilitate management's oversight of the project, Special Order 1030, issued December 5,2006 provides for the following: 2. Policy and Overall Program Direction: The NPS-ENLIP shall have an Executive Cornmittee headed by the Secretary, as the Project Steering Committee (PSC). The PSC shall have over-all responsibility and supervision over the project. `lhe Senior Undersecretary and Chief of Staff shall provide leadership throughout the project preparation and implementation. Representatives from DBM and NEDA would be included with observer status. The PSC will be the main link for the joint DENR/\XrBimplementationreviews, and would be chaired by the Senior Undersecretaiy or in h i s absence the Undersecretary for Policy and Planning. It will have representation from Assistant Secretaries for FASPO, Director for Finance, Planning and Policy and Directors of each Bureau (EMH, PAW, MGB,and FMB). 3. Overall Project Operation and Coordination: Day to day operation of the project would be c o o r h a t e d through a Project Coordination Unit @XU) under the Unified Project Management Office/FASPO. The PCU shall act as Secretariat for the project. The Assistant Secretary for FASPO shall directly head the PCU to be supported by at least two (2) staff from the FASPO and the implementing bureaus. The PCU, through the IISEC for FASPO, shall closely coordinate with the Planning Office in the regular planning, monitoring and evaluation. It shall be mainly responsible for the consolidation of the reports for submission to the World Bank and oversight agencies. As the PCU, the FASPO shall handle the preparation of Withdrawal Applications, Statement of Expenditures (SOE) and Management of the Special Account, the consolidation and submissionof the financial management and procurementreports. 4. Regular Operations and Support: The following unitsloffices shall undertake their regular functions and provide necessaiy support to the project given that NPS-ENRMPis program/budget support for DENR to undertake its mandates and achieve its major final outputs (MFOs): i) Planning and Policy Studies Office: The PPSO shall initiate the formulation of the Annual Program Agreement. It shall closely coordinate with the Budget DivisionlFinancial Management Service in ensuring that Annual Program Agreement i s in line with the priority activities identified and with the proposed annual appropriations. The PPSO shall primarily be in-charge of monitoring the regular activities under the SIM. It shall also prepare the regular operations reports as gathered from the Regional Offices and Bureaus. ii)FinanceandManagementService:TheProjectwillbehandledbyboththeMainstreamand the FASPO FM staff such that there i s counterchecking and reconciliation controls of key accounts of the Project. The Mainstream FM shall handle the second screening of transactions and the keeping of the separate regulatory books of accounts and preparation of financial reports for the Project. It will also handle Bank Reconciliation and the keeping of the Property or inventory ledgers for the Project and the conduct of periodic physical inventory taking and reporting of results T h e Mainstream FM staff involved shall b e specifically designated to be 54 responsible for the Project's regulatory books of accounts through a Special Order (SO). On the other hand, the FASPO FM system shall handle the initial screening of transactions, management of the Designated Account @A), preparation of Withdrawal Applications (WAS) and Statement of Expenditures (SOE), preparation of Interim un-audited Financial Reports, Consolidation of Financial Reports and the reconciliation of the Property and Inventory records with the Property and Inventory ledgers and Annual Physical Inventory results. The Staff of FASPO shall b e reorganized by functions rather than by their current set up of assigning FM staff by Project to maximize efficiency and effectiveness. The NGAS, including the Internal Control that in it, shall strictly b e complied with especially on Cash, Accounts Receivable, Inventories, Properties and Payables. T h e Bank`s FM and Disbursements policies and procedures shall also be used. iii) Human Resource Development Service: Capacity Butldng activities for the DENR personnel will be mainstreamed into the HRDS. Workplan preparation and conduct of the training activities will be handled by the HRDS. iv) Management Information Service /ISTMO: The development of an effective MIS system is an important goal of thc project, and a critical need for DENR management and efficiency gains for the institution. ISTMO would, therefore, be both proactive in helping to support the MIS system needed for the project, while also incorporatinginto its design of the DENR-wide MIS system, the feedback and experience from the NPS-ENRIP on the nature and detail of information needed to strengthen DENR's planning, budgeting and management systems. v) Technical and Policy Support: The line and staff bureaus shall provide technical and policy support including guidelines and standards formulation to ensure effective project implementation. 5. Special Provisions for GEF:- The PCU/FASPO would coordinate GEF funded activities, with the central and regional offices 6. Field Operations: The Regional Offices shall drrectly undertake the activities at the field or site level. Regional Operations shall be under the drrect supervision of the Regional Executive Director with the concerned Regional Technical Director or Regional Director providing assistance and technical services. RED, through concerned RTD or RD shall coordinate and collaborate properly with the partner LGUs, NGOs/POs (planning, implementation, monitoring and evaluation) and private sector for integration and complementation. 7. Monitoring and Evaluation: Monitoringand Evaluation of the Project shall be undertaken by the Planning Service for the regular activities, while the PCU/FASPO would undertake M&E functions for the GEF funded activities. 8. Program Agreement: Authority to sign the Program Agreement (agreement to change the name form Program Contract as in the SO) be that of the Senior Undersecretary/Chief of staff, or if unavailable, the Assistant Secretary FASPO may sign provided the Program Agreement i s in accordance with the approved annual project work plan. The Program Agreement for 2007 should be prepared by loan negotiations. 55 9. Watershed Management activities: The Regional Executive Directors responsible for the selected watersheds would have overall responsibility for the NPS-ENRMP, including the implementation of environmental management plans, and provide direct supervision of activities to be carried out by DENR. However, to the extent that the project would seek to ensure that devolved functions relating to watershed, forestry and protected areas management are carried out by the responsible LGUs, the Provincial LGUs in close collaboration with the PENRO would provide technical support to Municipal ENRO/Development Offices, which would be responsible for implementation of the program activities at local level. For the four watersheds selected for initial investment, details on the composition of the management councils and strengthening of provincial or municipal ENROs were worked out during on-site stakeholder consultations, as part of pre-appraisal and are described below, although arrangements in Ligawasan need to be fine- tuned as part of the inception phase. i) DENR will, as part of the devolution process, establish LGU inter-agency and OGA cooperation at the local level, where GEF grant support i s provided. The cooperation will be based on MOASto be signed during inception between the DENR-REDSand the participating provincial Governors and other Government Agencies such as the NAPOCOR, M W S S and NIA (Angat-PO), andtheArmed Forces of the Philippines (Dona RemediosWatershedForest Reserve and Angat-Ipo). For Ligawasan Marsh, the REDSof DENR ARMM and DENR Region 12are envisioned to co-sign jointly with the participating LGUs. ii) At the watershed level, Watershed Management Councils (WMC) would be responsible for overall watershed level planning and coordination. Each WMC would be co-chaired by the provincial Governor and the PENROs on behalf of the RED, who would also provide operation support. T h e WMC would lead preparation of watershed management plans with technical support provided by a strengthened Provincial Environment and Natural Resources Unit. The operation of each WMC would be governed by terms of reference with clearly defined performance indicators. T h e WMC would complement the PAMB and in some cases could be a strengthened PAMB. FASPO would have responsibility for outsourcing technical service contracts for capacity building and technical assistance in support of watershed management planning, and iii)Atthemunicipallevel,anMOAundertheframeworkoftheRegionalMOAmentioned:(i) above, would be signed between the DENR (PENRO)/CENRO), MDFO and the mayors of participating MLGUs, which would set out the responsibilities of the MLGU and the DENR for NRM at the municipal level. The MOA would include clear performance indicators for which the MLGU and DENR would be responsible. Project funds would be provided through the MDFO as small grants to MLGUs and could be used to hire service providers who would help strengthen LGU capacity for preparation and implementation of Municipal and Community Level Resource Management Plans and for co-financing the implementation of livelihood activities linked to integrated ecosystem management. At each MLGU a Municipal Environment and Natural Resources Unit (MENRU)) or a Municipal Planning and Development Office (MPDO), would be created or strengthened, with responsibility for implementation and monitoring, and assisted by the Provincial ENRU. In some of the priority areas, NGO-led projects supported by the private sector and international donors are under implementation. In such cases, these may become the NPS-ENRM's co-partners. 56 5. CoordinationArrangements with other Donor-financed Projects and NGOs Partnership arrangements will be important for the on-the-ground implementation of some of the watershed activities. NGO-led projects, supported by the private sector and donors, are being implemented in some of the NPS-ENRMP project areas and could become partners. These would be firmed up during the initial stages of implementation, but, based on stakeholder consultations during project preparation, potentialpartners under the project include: i) Southern Sierra Madre: The National Power Cooperation (NAPOCOR), the Metro Manila Water and Sewage Authority (MSWW) and the National Irrigation Agency (NIA) have expressed an interest in project activities. In addition, Yakap, a local NGO grantee of Critical Ecosystems Partnership Fund (CEPF), under a partnership MOA DENR Region IVa, has secured endorsements from the barangay captains and mayors of affected barangays and municipalities within the proposed Mt. Irid and Mt.Angdo protected areas, located in one the project areas. ii)BicolRiverBasin:NGO'shavebeenactiveinprovidingassistancetoProducerOrganizations (PO) and barangays inthe area and wouldbe possible partners insome of the proposedproject activities. Active NGOs in the area include: (i) Philippine Rural Reconstruction Movement (PRRM); (ii) for People Empowerment in the Uplands (FAI); (iii) Movers for Centre Prime Development Foundation (PMDI); (iv) Philippine Federation for Environmental Conservation (PFEC); (v) Bicol National Park Foundation (BNFI) POs selected under CBFM programs for DENR; (vi) Concerned Environmentalist Group of Sigamot (CEGSI); (vii) Tible Bantay Kalikasan Organization (TIBKOI); and (viii) Pag-asang Samaan Para sa Kalikasan ng Tancong Vaca (PASAKAT). iii) Ligawasan: has been actively supported by a number of NGOs including: (i) Ligawasan the Youth Association for Sustainable Development Inc; and (ii) Maguindanao Development the Foundation Inc. 57 Annex 7: FinancialManagement and Disbursement Arrangements PHILIPPINES: National Program-Support to Environment and NaturalResources Management Executive Summary 1. A Financial Management Assessment Review of the Department of Environment and Natural Resources (DENR) was undertaken with the objective of ensuring that there i s inplace an adequate financial management system that satisfies the Bank`s OP/BP10.02 inconnection with the Agency's proposed loan for the National Program Support for Environment and Natural Resources Management Project (NPS-ENRMP) and the Proposed Grant from the Global Environment Facility (GEF) Trust Fund. Under OP/BP 10.02, the borrower and the project implementing entities should maintain financial management systems--including accounting, financial reporting, and auditing systems--adequate to ensure that they can provide to the Bank accurate and timely information regarding project resources and expenditures.The review was carried out inaccordance with the Bank`s guidelines under Financial Management Practices in World Bank-Financed Investment Operations dated November 3,2005. It focused on the assessment of the Agency's FM system including those for Foreign Assisted Projects and considered the country and the sector's FMsituation. 2. The DENR FM system consists of: 1) a Mainstream FM system under the Financial Management Service (FMS) that handle its regulatory accounts for both the Agency and its Projects; and 2) a special FM system under the Foreign Assisted and Special Projects Office (FASPO) to handle the special FM requirements of Projects such as special recording, reporting and disbursement requirements. The proposed National Program Support project i s intended to finance a part of DENR's regular budget, thus, inprinciple, shouldbeusingDENR's Mainstream FMsystem. 3. However, the review indicated that the Mainstream FM system of DENR is not adequate to satisfy the minimum requirements of the Bank. While it has adequate FM Staffing, its Internal Control needs improvement as reflected in the Auditor's adverse opinion on its 2005 audit report. These exceptions pertain to un-reconciled bank accounts, un-liquidated cash advances, un-reconciled Inventory and Property accounts and payables with no claimants and long outstanding payables. Consolidation of accounts are delayed and prepared on a yearly basis only. I t s Internal Audit function also needs improvement as it does not function as it should b e under International Standards for the practice of InternalAudit. 4. On the other hand, the FASPO FM system for foreign assisted projects have acceptable Internal Control as reflected ingeneral inthe Auditors' reports on financials of FASPOprojects where they expressed an Unqualified or clean opinion. The FM system of the FASPO meets the minimum requirements of the Bank. 5. On the overall, due to the pervasive effect of the main FM system at DENR, the FM risk i s rated High. 6. The DENRproposed the following mitigatingmeasures inthe FMarrangement for the project: a. Strengthen the Internal Control for the Project - The Project will b e handled by both the Mainstream and the FASPO FM staff such that there i s counterchecking and reconciliation 58 controls of key accounts of the Project. The Mainstream FM shall handle the second screening of transactions and the keeping of the separate regulatory books of accounts and preparation of financial reports for the Project. It will also handle Bank Reconciliation and the keeping of the Property or inventory ledgers for the Project and the conduct of periodic physical inventory taking and reporting of results The Mainstream FM staff involved shall be specifically designated to be responsible for the Project's regulatory books of accounts through a Special Order (SO). On the other hand, the FASPO FM system shall handle the initial screening of transactions, management of the Designated Account (DA), preparation of Withdrawal Applications (WAS)and Statement of Expenditures (SOE), preparation of Interim un-audited Financial Reports, Consolidation of Financial Reports and the reconciliation of the Property and Inventory records with the Property and Inventory ledgers and Annual Physical Inventory results. The Staff of FASPO shall be reorganized by functions rather than by their current set up of assigning FM staff by Project to maximize efficiency and effectiveness. The NGAS, including the Internal Control that in it, shall strictly be complied with especially on Cash, Accounts Receivable, Inventories, Properties and Payables. The Bank's FM and Disbursements policies and procedures shall also be used. b. Strengthening of the Internal Audit function - DENR has agreed to strengthen its Internal Audit initially by having it report directly to the Secretary. DENR issued Administrative Order (AO) no. 15 in November, 2006 organizing and staffing the Internal Audit function into a higher level organization with the stature of the highest organization level in the Agency to an Internal Audit Service (IAS) and headed by an Undersecretary (Usec). A Director would manage the IAS. The I A S shall have two divisions, the Financial Audit and Operations Audit Divisions. In addition to the foregoing organizational and staffing requirements to be addressed during Project implementation, the IA strengthening would entail a phased approach inshiftingto a level inaccordance with International Standards of IA.The InternalAudit shall also be given training and hands-on and twinning training through the hiring of an Internal Audit firm. In the Process of its strengthening, the I A S shall subject the project to a semi annual IA review with corresponding report submitted to the Bank. The project would use SOE based disbursement and would plan for a report based disbursement when they are able; and the documentation quality i s acceptable to the Bank A Designated Account (DA) shall be maintained at the DENR-FASPO and at MDFO (for the GEF Grant) to be used to pay eligible expenditures pertaining to DENRand those pertaining to LGUs, respectively. The Project would be required to submit quarterly Interim un-audited Financial Reports (IFRs) and annual audited financial reports, including the Management Letter of the Auditor. LGUs will be reporting to the MDFO on the liquidation of their funds. The FM risk of the Project would be mitigated to an acceptable level when the foregoing measures are implemented and have shown effective impact. 10. The GEF Grant component for LGUs of about US$5Mshall be channeled through the Municipal Development Fund Office (MDFO) of the Department of Finance. The MDFO acts as a conduit for Loan and Grant funds for LGUs and has a separate FM system for Projects. Currently, the funds for LGUled activities (except capacity building) pass through the MDFO. The MDFO FM system for Projects satisfies the minimum requirement of the Bank for the Grant with Moderate FMrisk. 59 FinancialManagement Assessment 11.The Countryissuesidentified are as follows: a. Perceived corruption in the country - The country's corruption rating by an international institution that monitors corruption is high. While the rating i s a perception, the fiduciary overall risk i s rated high. b. Weak InternalAudit capacity- Internal auditing in government agencies is not well developed mainly due to budget constraints. This weakens the InternalControls inthe said agencies. c. Weak LGU FM capacity - FM capacity of LGUs of the 4h to 6* class category are generally weak. T h i s i s basically brought about by their lack of funding resources and the consequent lack of qualified FM staff who could accept low level salary rates. Projects that have close supervision, good coordination with LGUs, and clear and adequate FM guidelines could better cope with this issue. RiskAssessment andMitigation 12. The FM risk for loan for the Project is rated high. The Risk assessment table below gives the details and its mitigatingmeasures. RiskCategory / Residual Condition of Main FMRisk Rating risk Nego/Board or Effectiveness Y/N?) Inherent Risk H N I.Country: The Banki s currentlyworkingwith government a. Perceivedcorruption on IntegrityDevelopmentAction Plansunder H N its anti corruptionefforts.T h i s i s yet on its early stages. b.Weak InternalAudit function. The Bankhas initiatedaddressingthis through H N its Grant on Strengtheningthe InternalAudit (L4)with the PhilippineAnti Graft Commission as its implementingentity. This i s still inits c. Weak LGU FMCapacity early stages.Pleasesee IAarrangement for the Projectbelow. H N ProgramAgreement(PAg) shallbe usedto transactwith the LGUswith validated 2. Sector Issue milestones as basis of tranche payments. The flat budgetof DENR H The Projectfinancesa programwith adequate budgetcover.The FM staffingof DENR is 5. Entity (DENR): adequate except for LA. The Projectincludes a N Perception of corruption anc phasedstrengtheningof the L4 function. M Weak Internal Control in thc Agency. Projectincludesstrengtheningof the Agency's IA functionandProject Governance L Project Level Measures.See InternalControlmitigation a. The Project i s medium in size measuresbelow. M N The loan involves US$SOManc in different geographica The participationof DENR's FieldOperating locations. Units (FOUs) and the ProgramAgreement Control Risk H IIArrangementwith LGUswill ensure that there " i s controlin the geographicalareas. M N 60 RiskCategory / Risk I RiskmitigatingMeasures Residual Condition of dain FMRisk - - Rating risk Nego/Board or Effectiveness Y/N?) budget M Remarks:Agency has an acceptableformal M N budgetingprocess consistentwith the Government's requirements. .Accounting M N a. Use of NGAS and eNGAS Remarks:Use of NGAS andeNGAS has improvedthe accountingof the Agency b. FASPO staffis significantly. organizedon a byproject M N basis. That is, each staff While this structure has worked well, an havebeenassigneda project improvementcouldbe achievedby assigningthe to handle all the staff by process such as one group would do the Project relatedFM initial screeningof transactions, DA requirements. management,preparationof WASandSOEs M N .Internal andanother wouldbe handlingreconciliation Control andtrackingcontrols andreporting, and a) The 2005 Audit Reporton consolidationand preparationof financial the Agency expressed an reports for allprojects.This would make Adverse audit opinion rotationand back up systempossiblemakingthe mainlyon un-reconciled processmore efficient. bank accounts, long outstandingcash advances, The Projectshalluse the MainstreamFMstaff and un-reconciled as well as those of the FASPO FMto InventoryandProperty countercheckthe Project's keyaccounts suchas accounts andnonexisting Cash, Inventories,andPropertiesandAccounts claimantsoflong Payable.Screeningof transactions shallbe done outstandingAccounts at both FASPO andMainstreamFM.The Payablereflecting MainstreamFM shallmaintainthe Inventory weaknesses inInternal and Propertyledgerswhile the FASPO FMwill Control. prepare the reconciliationof their bookswith that of the Inventoryand Propertyledgers as wellas the Annualphysicalinventoryresults. The mainstreamFM shallprepare bank reconciliationof the DA managedby the FASPO FM. CashAdvanceswill not be allowed for World Bank funds andgovernmentfunds will be strictlycontrolledunder NGAS cash advance liquidationpolicy.FASPO FMshallbe M requiredto track payment of contractors/consultants or supplierssuch to ensureundue delays inthe paymentof bills and a correspondingreport are submittedto Project Managementincludingcorrectivesteps taken. M ))Weak InternalAudit Strengtheningof IA will beincludedinthe Project.This would entail trainingon the latest M . Funds InternationalIA standards andpractices anda Flow twinningand hands on arrangementwith a Weaknesses inInternalControl reputablefirm. The TOR of the Consultant affects funds flow. shallbereviewedand endorsedby the Bank. M .Financial Reporting See item 3 above. Breakdownof controlsinthe accounts affectedthe fairness of presentationof financialreports. See item 3 above. . Auditing Remarks:FASPO submitstimely Audit reports. Continuethe use of COA. For improved controls, copies of IFRswill be submitted quarterly to COA so they coulddo progressive H-High M- 61 Strengths andWeaknesses 13. The strengths of the Agency's Financial Management system are: i) The NGAS i s more than an accounting system as it also contains relevant accounting standards. N G A S prescribes standards on Accounting Policies and procedures including Internal Controls, presentation of financial statements, accounting for government transactions, property and inventory accounting, methods of accounting for income, budgeting standards, required books of accounts, budget registries, records, forms and reports including instructions onits preparation or maintenance. It also defines its Chart ofAccounts and provides pro forma entries and other more. T h i s provides the foundation for good Internal Control, Accounting and financial reporting. eNGAS on the other hand i s a bookkeeping software that i s consistent with the bookkeeping part of the NGAS. The Agency uses the N G A S for its accounting policies and procedures and eNGAS for its computerized bookkeeping. DENR i s in the process of installing the eNGAS inits Central Office. ii)TheAgencyhasadequatebudgetresourceswithadequatecoordinationwiththeDepartmentof Budget and Management. iii)TheFASPOoftheAgencyisabletosatisfactorilyhandletheFMofitsProjectsresultingto unqualified audit reports. 14. The weaknesses of the Agency's Financial Management system as rated Highin the risk tables are summarized as follows: i) A weak internal control and its effect on funds flow and financial reporting - InternalControls on Reconciliation of bank accounts, Inventory andProperties; liquidation of cash advances; and controls on the validity and tracking of Accounts payables are weak causing the issuance of an Adverse audit opinion on DENR's Financial Statements. ii)WeakInternalAuditfunction-InternalAuditusedtobeapartofthefinancialmanagement Service of the DENR and has very few staff. The head of the Unit i s below Director Level. While there has been upgrading on its status to a Service, the staffing and top management required i s not yet inplace. The IA unit does not cover foreign assisted projects. Their audit i s a compliance audit and does not reflect the international practice standards for LA. Financial Management Atrangements 15. Followingare the FMarrangements for the Project: FMOrganizationandStaffing 16. The FM organization for the project shall be composed of the FM staff at the Mainstream FMand those at the FASPO FM. At the Mainstream FM system, the Director of the FMS shall be the ultimate responsible person for the Project's FM as well as the FASPO Head. The Chief Accountant at the F M S and an Accounting staff at an Accountant level shall be specifically designated through a Special Order to handle the Project at the F M S side. The FASPO FM shall be reorganized on per function basis such that its staff of about 8 i s divided into two functional groups. 62 17. Thus, the Project will be handled by both the Mainstream and the FASPO FMstaff such that there i s counterchecking and reconciliation controls of key accounts of the Project. The Mainstream FM shall handle the second screening of transactions and the keeping of the separate regulatory books of accounts and preparation of financial reports for the Project. It will also handle Bank Reconciliation and the keeping of the Property or inventory ledges for the Project and the conduct of periodic physical inventory taking and reporting of results The Mainstream FM staff involved (Director, supervisor and accountant level staff) shall be specifically designated to be responsible for the Project's regulatory books of accounts through a Special Order (SO). On the other hand, the FASPO FM system shall handle the initial screening of transactions, management of the Designated Account PA), preparation of Withdrawal Applications (WAS) and Statement of Expenditures (SOE), preparation of Interim un-audited Financial Reports, Consolidation of Financial Reports and the reconciliation of the Property and Inventory records with the Property and Inventory ledgers and Annual Physical Inventory results. Budgeting 18. The Project will be using the Agency's budgeting system which i s being used government wide. Under this system, Budgets are prepared based on the budget call of the DBM with indicative ceilings. Regions, Services, Bureaus and PMOSare required to submit their detailed plans for the year. A work and Financial Plan i s required to support budget submissions with corresponding computations or assumptions .These are then reviewed by the respective Directors for discussion and adjustment by Management. Such budgets are checked as to their relevance with the mandate, programs and priorities of the Agency. The Secretary would then have the final say on the Budget and this i s endorsed to the DBM for further screening. After DBM approves of the Budget, it transmits this to the office of the president who in turn would transmit it to Congress for its deliberation. After the budget i s approved by Congress, this i s sent to the President for final approval and issuance as the General Appropriations A c t (GAA).The GAA then becomes the basis of the quarterly release of funds (throughthe use of the Notice of Cash Allotment or NCA) to the Agency or Projects. Adequate budget registers to control budget implementation and reporting i s maintained through the NGAS. Accounting 19. The NGAS shall be used for both the regulatory and Project accounting system. The Chart of Accounts for Project reporting shall be using the components and categories of the Project while the regulatory accounts shall be using the required Chart of Accounts for Government. During the Project implementation, the Project will endeavor to use the eNGAS for its accounts. Internal Control 20. The Project shall be governed by the Agency's Internal Control in addition to the miagating measures indicated under Internal Control. The key Agency Internal Controls includes proper segregation of functions (such as custodial and recording functions; and preparation, review and approval functions) and the approval of transactions and signing authorities are adequately and properly designated and documented ina manual. Adequate supportingdocuments are required and are checked prior to approval of transactions. Goods and services received are required to be properly inspected or accepted. Documents are stamped paid when disbursed and are to be properly filed. 63 FundsFlow andDisbursement arrangements 21. The funds of the Project come from loan proceeds, Grant funds and Government counterpart funds. The expenditure centers of the Project would be at the DENR for DENRrelated expenses plus LGUcapacity buildingexpenses and at the MDFO for LGU small infrastructures and related expenses. Estimated amount of Loan and Grant funds to b e channeled into each expenditure center i s as follows: Loan Funds:DENR-----US$50 M GEF Grant: DENR US$3 M MDFO 4 M Total US$57M 22. Followingis the graphical flow of funds for the loan and GEF grant: NPSENRMP FUNDSFLOW LOAN - GEF 1 P \ \\\L 23. The fund flows are further described as follows: Loan and Grant funds flow from the Bank to the DAs of DENR and MDFO - Funds flow from the World Bank to the Philippine Treasury's account at the Central Bank of the Philippines, then to the Designated Account (DA) of the Project maintained by the DENR/MDFOafter issuance of a Notice of CashAllotment (NCA) issuedbyDBM.Payments of eligible expenditures shall be taken out of the DA. 64 b) Funds flow from the DENR DAs to payee Bureaus and FOUs: Fundingrequirements of the payee staff bureaus and Field Operating Units Q?OUs)will be covered by a Program Agreement (PAg) where milestones and corresponding tranche payments are indicated. Milestones shall be validated by the FASPOor the FOUs as the case may be. For Line Bureaus who currently receive their budget fundingdirectly from the Government, and where a transfer of fund from DENR is not allowed by budget rules, their Program Agreement shall be paidon a Direct Payment basis throughthe DA of DENR. c) Grant funds flow from MDFO DA to LGUs: Funding requirements of the LGUs will be covered by a Program Agreement (PAg) between the MDFO and LGUs where milestones and corresponding tranche payments are indicated. The PASshall be reviewed and endorsed by DENR prior to the subsequent signature on the activities between MDFO and concerned LGUs. d) Government counterpart funds flow: Counterpart funds flow shall be through the normal government channel which i s through its common fund maintained at the Government Commercial bank. This account i s funded by the Bureau of Treasury as checks are issued after the issuance by the DBM of the Notice of Cash Allocation (NCA) based on its monthly releases on the budget. 24. The proposed Project shall be disbursed over a period of 5 years inthe amount of $50 millionwith a GEF Grant of US$7 million. The Government has made a request for retroactive finan~ing'~. The disbursements of the loan shall be in accordance with the Financial Plan for the Project for the followingcategories as follows (inUS$ millions): Loan (in US$ ,000) Total Project Loan eligibdtty YO IBRDloan Categories Works 14,776 100 14,001 Goods 6,970 100 6,769 Services 12,835 100 12,283 Routine Operating 15,420 100 14,670 Expenses Total 50,000 50,000 25. Note on Operating Costs Category. T h i s category covers DENR's Maintenance and other Operating Expenses which would be carried out by the DENR. Such costs relate to, for example, costs of DENR validating the maps in the field, operating costs related to the field preparation for rehabilitation of watersheds to be implemented by the bureaus, per diem for the staff to carry out their regular duties, maintenance of the MIS systems etc. The funding would not be for incremental costs. 26. Note on Services Category. Services category refers to costs associated with Component 1, with respect to the policy work, IEC campaigns, training for DENRpersonnel, setting up the MIS,work l5 Paragraph 6, Annex 8 explains the guidelines for advanced procurement and for the purposes of retroactive financing andthe Loan agreement provides the provisions for eligibility. 65 on the eNGAS system, map analysis, preparation of watershed management plans, training providedto DENR's partners inthe field, some national consultancies andworkshops. 7. Retroactive Financing. The Loan i s expected to be approved by the World Bank Board by June 19, 2007, and declared effective by October 1, 2007. Withdrawals up to an aggregate amount not to exceed $500,000 equivalent may be made for paymentsmade prior to this date but on or after March 19, 2007, for Eligible Expendituresof goods, civil works and services. Details for advancedprocurementwouldbe in accordancewith Section 1.9 of the Procurement Guidelines and 1.12ofthe ConsultantsGuidelines(see Annex 8). GEF Grant (inUS$ ,000) (inUS$ ,000) ILGU Counterpart (over and above the GEF Works 3.121 100 3.121 147 Goods 1,281 100 1,281 67 Services 1,861 100 1,861 98 Livehhood Grants 737 100 737 39 Total 7.000 7.000 351 28. The Loan Designated Account (DA) shall be maintained at the DENR with the LandBank of the Philippines (LBP). The DA ceiling shall be US$4 million. Should the DA become insufficient for the operations of the Project, a request for an increase with justification or supports may be done. The thresholdfor Direct Payment shall be 20% of the outstandingDA. 29. The Grant DA shall be maintainedat the DENR and MDFO with the LBP. The DA ceilings shall be US$300,000 for DENR and US$500,000 for MDFO.Should the DA become insufficient for the operations of the Project, a request for an increase with justification or supportsmay be done. 30. T h e threshold for Direct Payment shallbe 20% of the outstandingDA. 31. Disbursement for the Project shall be through the use of a summary report in the form of a Statement of Expenditure (SOE) with option to convert to a summary report in the form of an interim un-audited financial report (IFR) with concurrence of the Bank. In any case, IFRs shall be required to be submittedby the Project, the format for which shall be agreedwith the Bank. FinancialReporting 32. The Project shall be required to submit separately for the Loan and Grant a quarterly Interim un- audited Financial Reports (IFR) as follows: 66 Balance Sheet - A statement of resources of the project. Statement of Sources and Uses of Funds - A report on the receipt and uses of funds by project components by activities. Semi Annual Financial Plan - Based on the implementation and procurement plans of the project as well as what i s available inthe budget. This should also include the financing plan as well as the level of Special accounts or of funds to b e maintained. Audit hangements 33. Internal Audit (IA): The strengthening of the IA function shall be part of the Project activities. This would entail the hiring of an IA firm to train and provide hands-on experience through a twinningarrangement with the DENR IA staff. The arrangement would specificallyinclude training of the IA staff, including hands-on activities, orientation of the Audit Committee, preparation of the IA Charter and IA Manual and purchase of computers/laptops. The IA activity would be led by the IA firm with the IA staff of DENR being guided in the process. The IA firm should be in place within 6 months from effectiveness. 34. The project shall be covered by a semi annual IA review with a corresponding IA report being issued. The f k s t LA report shall be due one year from date of effectiveness and every 6 months thereafter. The report shouldbe covered under InternalAudit review notwithstanding their limited scope and authority. An annual Internal Audit report on the Project would be required semi annually. The LA activity will be done in coordination with the External Audit activity. The IA findings and reports shall be made available to the ExternalAudit and vice versa. The scheduling of their activities shouldbe such that they do not duplicate what has been covered by the other and that they consider intheir review each other's findings as applicable. 35. External Audit: The external Auditor for the Bank`s Projects would be the Commission of Audit (COA). Audited Financial Statements shall be required to be submitted no later than 6 months after the Fiscal Year including a Management Letter which would contain the auditors' comments on the Project's Financial Management including its Internal Control. The audited Financial Statements shall consist of: (i) Balance Sheet; and (ii) and Uses of Funds. Sources ActionPlan: 36. Following are the mitigatingFMaction plans: a. Issuance of an SO to designate the accountable personnel for the Project at FMS and at FASPO and their corresponding general duties and responsibilities attached to be issued prior to effectiveness by the DENR Secretary. b. Maintenance of separate books of accounts and reports for the loan and Grant funds of the Project at the Accounting Division including reconciliation and other management reports with report formats to be ready prior to effectiveness under the responsibility of the Director of FMS. c. Strict implementation of the policy on Cash Advances/ transfers. A monthly Report of Cash Advances or Transfers shall be submitted to FASPO for action. T h i s will be implemented immediately uponeffectiveness under the responsibility of FASPO. d. Implementation of the policy of periodic Physical count of Property and Inventory items and the reconciliation of the results with the books of accounts reported to be undertaken during Project implementation under the joint responsibility of the F M S Director and FASPO Head. 67 e. FASPO shall ensure that the Inventory and Property accounts per their records reconcile with that of the Mainstream FMsystem and those of the Annual Physical Inventory results. f. FASPO shall track the payment ofPayables and submitquarterly report to Project Management on the tracking results includingcorrective steps to be taken. g. FASPO will submit quarterly Interim un-audited Financial Reports (IFRs) to the World Bank. The Agency should hasten its installation of the electronic N e w Government Accounting System (eNGAS) during Project implementation under the responsibility of the FMS Director and FASPO head. h. FASPO to ensure that FOU periodic financial reports are timely and that these are properly reviewed with test checking of transaction documents. Visits to the FOUs by FASPO Finance staff shouldbe made to ensure that what i s being reported are properly supported and validated on the FMarea. i.FASPOFMstafftobereorganizedbyfunctionalareassuchasonegroupforInitialscreening of transactions, DA management, and preparation of WASand SOEs, and another group for the Reconciliation works, reporting on Cash Advances and Accounts Payable no. of days bills are paid, and preparation of quarterly Interimun-audited Financial Reports. j. Inclusion in the project components the strengthening of the Internal Audit function. T h i s would require the hiring of an Internal Audit fLrm to strengthen the IA capacity in terms of trainingand hands on experience througha twinning arrangement. Semi Annual InternalAudit Review of the Project with corresponding IA report shall be done. The first Internal Audit report shall be due within one year from effectiveness and every 6 months thereafter. k. By March 31, 2008, the Borrower through DENR shall complete implementation o f the recommendations inits 2005 audit report inaccordance with the FinancialManagement Action Plan, inamanner, satisfactory to the Bank. Loan Conditions 37. Effectiveness condition: the Borrower through DENR has designated personnel in adequate numbers, with qualifications and experience, and under terms of reference acceptable to the Bank, to be responsible for the financial management matters under the Project at its Financial Management Service Office and its Foreign Assisted Projects Office. By March 31, 2008, the Borrower through DENR shall complete implementation of the recommendations inits 2005 audit report inaccordance withthe FinancialManagement Action Plan, inamanner, satisfactory to the Bank. 38. Dated covenant: Selection of an IA firm to strengthen the IA function of DENR. The firm should be in place within 6 months from effectiveness. The Project will be covered by an IA review with the first IA report to be submitted within a year after effectiveness and every 6 months thereafter. FinancialCovenants: 39. The following financial covenants shouldbe included inthe loan agreement: a) The project should maintain an adequate financial management system with appropriate books of accounts andinaccordancewith generally accepted accounting principles. b) The IFRs shall be submitted to the Bank on a quarterly basis as well as to COA to facilitate their audit and timely submission of audit reports as required below. c) The Auditor will be COA and their TOR will be the same as those they do with the Bank's current projects. The following shall be the required audit submissions: 68 Type of Financial Description Deadline Audit Opinion Statements coverage 1.ProjectFinancial Composed o f : June30 o f the To cover the whole Statements 1.ConsolidatedProject following calendar Project on a Balance Sheet year. consolidated basis. 2. ConsolidatedProject Sources and Uses o f Fundswithaudit certificate usingBank's pro forma adapted to their audit findings. 2. Audit Management June 30 of the To cover the whole Letter Detailed audit findings and following calendar Project on a recommendations year. consolidated basis Supervision Plan 40. Objective and Nature: The FM supervision of the project shall be periodically done to ensure that loan and grant proceeds are used only for the purposes for which it was granted, with due regard to economy, efficiency, the achievement of the project's objectives and the FM risk rating of the project. 41. Review of sample Program Agreements and the achievement of milestones including their validation with comparison to the corresponding cost and the funds released. Reasonableness of the funding of milestones should be checked. An overall review of all Program Agreements as well as the physical accomplishments and funds disbursed shouldbe made. A biggap of funds disbursed and physical accomplishment would need checking as to whether funds are needed in the amount disbursed and whether the funds still exists. 42. Coverage: The coverage of the supervision should address the total project financial arrangements of both the loan and Grant including those on the counterpart funds of the Government consistent with the financing and funds flow for the Project. Supervision shouldcover DENR Central Office, FASPO, MDFO and sample FOUs and LGUs.The sample shall likewise be cyclical and risk based on the type of sub project, amount of funds released as well as on the type of LGUs @.e., lst6 or class LGU). 43. Frequency and duration: The project should be supervised periodically with a budgeted supervision time of 6 weeks per year consistent with the High risk rating of the project. By the nature of the work required under Bank's policy and depending on the state of the project's financial management and the status of the FM action plans, at each supemision may be from a minimum of 2 weeks to a maximum of 3 weeks. However, 2 to 3 days visit could be done on a more frequent basis addressing limited FMconcerns. 44. Staffing: The supervision shouldbe done by at least a qualified FMS. 69 Annex 8: Procurement Arrangements PHILIPPINES: NationalProgram-Supportto Environment andNaturalResources Management A. General 1. Guidelines: Procurement for the proposedproject would be carried out in accordance with the World Bank`s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised August 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised August 2006, and the provisions stipulated in the Legal Agreement. While the new Philippineprocurement law (RA 9184) i s reasonably in harmony with the Guidelines at the NCB level, the Procurement Schedule of the Loan Agreement will include an Annex detailing the procedures under the national law that are not acceptable to the Bank. The general description of various items under different expenditure categories for the f k s t 18 months are described below and summarized in attached Procurement Plan. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be a rolling plan that will be updated at least semi-annually or as required to reflect the actual project implementation needs and improvementsinthe institutional capacity of DENR. 2. Procurement of Works:Works to be procured under this project would include: cadastral surveys, mapping, aerial photographyand orthophoto mapping, survey and mapping, geo-hazard mapping, groundwater mapping,rehabilitation of forest lands/ mines, and agro-forestry. No ICB is expected under the project due to the small size and disperse nature of the sub-activities. NCB level procurement estimated inexcess of US$ 50,000 up to US$500,000 per contract will be done using the Philippine BiddingDocuments for Works, agreed with the Bank. Small works costing less than US$ 50,000 will be awarded based on shopping procedures, by comparing priced quotations obtained from at least three qualified contractors, as defined inPara.3.5 of the Guidelines. Works contracts meeting the requirements of paragraph 3.8 of the Guidelines, may, with the Bank`s prior agreement, be carried out by Force Account in accordance with the provisions of said paragraph of the Guidelines. Community participation in procurement will be used for pre-identified works under the watershed management and development componentinaccordance with the procedures includedinthe OperationsManualand /or CDD Manual, acceptable to the Bank. 3. Procurementof Goods: Goods to be procuredunder this project would includeAir and air quality equipment, IT equipment, software, aerial photo, satellite imagery, digitizers, survey equipment, boats and vehicles. Procurement of goods estimated to cost more than $250,000 per contract will be procuredunder ICB method, goods estimated to cost less than $250,000 andmore than $50,000 per contract will be procured under NCB method, and goods estimated to cost less than $50,000 will be procuredunder Shopping method. For ICB method, the Bank`s SBD will be used and for NCB, the PhilippineBiddingDocuments (PBD) as harmonized with the Asian Development Bank, Japan Bank for International Cooperation and the World Bank will be used subject to the identified rules that are not acceptable to the Bank as specified inthe PBD. Shopping will be done following 70 comparison of price quotations obtained from several suppliers in accordance with Para. 3.5 of the Guidelines. 4. Selection of Consultants: Consultant services will include the provisionof Technical Services for water and air quality, surveys on industrial pollutants, solid waste management, environmental compliance, development of plans and policies, assessment of protected areas, groundwater mapping, geohazard mapping, design and development of remote MIS system and establishment of mine baseline conditions. Short lists of consultants for services estimated to cost less than $ 200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph2.7 of the Consultant Guidelines. 5. Advance Procurement Action and Retroactive Financing, The Loan i s expected to be approved by the World Bank Board by June 19, 2007, and declared effective by October 1, 2007. In accordance with Section 1.9 of the Procurement Guidelines and 1.12 of the Consultants Guidelines, some activities under the program have commenced before loan effectiveness which are intended to accelerate project implementation. The DENR had immediately proceeded with the initial steps of procurement before signing the related Bank loan. In such cases the procurement procedures, including advertising, are inaccordance with the Bank procurement guidelines inorder for the eventual contracts to be eligible for Bank financing, and the prior review process by the Bank are followed. Retroactive financing i s estimated at US$ $500,000. B. Summary ProcurementAssessment 6. The World Bank team16has reviewed the procurement environment in the DENR (Central Office, Bureau's, representative field offices) and a few sample LGUs. The review included the related system inplace, organizational structure and the capacity of the DENR to implement procurement actions for the proposed program. Also considered was the capacity of the LGUs for the related GEF component; given their current weak capacity to implement procurement following Bank procurement guidelines or R.A. 9184. On the background to this assessment were the earlier Procurement Capacity Assessments (PCAs) for LAMP2 and MTSP-GEF, including the CPPAP experience. 7. Since the passing of the new procurement law, RA 9184, there has been significant improvement in the country's public sector procurement regime which mandated the use of a single procurement law in all levels of the government. The achievements in procurement harmonization and alignment of efforts under the law were substantial as the use of the country procurement systems, at the NCB level, i s now supported by the World Bank. Accordingly, agreement was reached by the Government with ADB, JBIC and the Bank on procurement harmonization and on the use of the Philippine BiddingDocuments prescribed by RA 9184 for NCB level procurement; 8. At the DENR, agency level procurement reform was recently initiated along with the reform requirements of RA 9184, and it i s intended that the reformwill cover the field offices including the regional and provincial. As part of the national agenda for the strengthening of implementation of the procurement reform the Government Policy Procurement Board (GPPB) agreed with DENR its addition to the earlier nine (9) agencies, out of the many agencies, on the pilot testing and customization of the Generic Procurement Manual. To enhance transparency in procurement as 16Cecille Vales for the central DENR for purposes o f MTSP-GEF, and subsequently updated by Noel Sta Ines (assisted byAlice Tiongson) for the other units o fDENRincluding the LGUs. 71 well as monitoring compliance the DENR also agreed with the GPPB the pilot-testing of the Agency Performance Indicators (API) within the agency. 9. Overall procurement risk assessment category is high. 10. The following are the key issues that would need to be addressed: a. Inadequate capacity at the various levels within DENR to handle procurement, interms of staff availability and competency necessary for the mainstream implementation of the procurement for the program, and no procurement Manual in place yet to direct DENR staff handling procurement. Weak capacity of the LGUs to implement procurement, and expressed resistance of the Leagues" on the use of RA 9184; b. Lack of a unified Procurement Unit and redundancy of procurement functions between foreign-assisted and regularly funded projects at the DENR central level, and multiplicity of BACs at the bureauleveldown to the field offices; C. Inefficiencies in the DENR and LGU procurement process as the Annual Procurement Plan (APP) which shouldhave been a planningandmonitoringinstrumentwere never followed; d. Transparency issues as: (i) DENR contract awards not posted as required by the Philgeps big (Philippine Government Electronic Procurement System), (ii)absence of civil society representative in the procurement process, and (iii)use of shopping as preferred option of procurement; and, e. Inadequate internal control as evidenced by: (i) record keeping not systematic in all cases; (ii) internal audit has not been established; and (iii)absence of formal system to hear and document administrative cases on procurement. 11.The following are part of the Action Plan to address the above identifiedissues and risk: a. Prior to initiating the program for DENR carryout a procurement capacity training program required under RA 9184 to cover the agency's central and field office staff handling procurement, and a targeted training for LGUs inthe GEF area; b. Rationalization of procurement functions by way of establishment of a unified Procurement Unit, and reducing the number of BACs at the Central Office and at various level, in accordance with the requirements of RA 9184; c. LGUs confirmation by way of Municipal /City or Provincial Board Resolution affirming the mandatory use of the PBDs and the GPM issued under RA 9184 for use in the conduct of procurement; d. Completion, GPPB approval and agency adoption of the DENR Procurement Manual. The Manual will provide specific instructions on: (i) procurement at all level of DENR including threshold of approvals, (ii) mandatory compliance to the APP and updates, (iii) posting of awards in the eGPS, (iv) civil society participation inthe procurement processes, (v) use of the PBDs {Philippine BiddingDocuments}; e. Adoption of the anti-corruption measures, as outlined in Annex 13 of the PAD, including strengthen internal control, community-based approach and independent monitoring. "CollectivelytheseparateLeaguesforProvinces,Cities, MunicipalitiesandBarangays 72 f. Use and update of DENR agency procurement indicator, developed with the GPPB. Establishment of procurement monitoringwhich will be a mainstream function as required by RA 9184; g. Procurement supervision and post reviews by DENR-COover the field offices and the LGUs, and linkwith the InternalAudit as described under Annex 7. C. Anti-corruption Measures 12. Based on the results of the agency's capacity assessments the followingmeasures willbe carried out: 13. Anchored in the five-pronged strategy of improving political accountability, civil society participation, private sector involvement, public sector management, and limit on institutional power, and in complementing the broader effort at country program level, the following steps will be undertaken to help mitigate corruption inthe project: i) Civil Society Participation: To increase transparency, the DENRs Bids and Awards Committee will comply with the procurement law and invite civil society observers in procurement biddings; ii)PublicSectorManagement:Stepswillbetakenintheprogramtoenhancetransparencyand accountability in procurement and financial management. Strict adherence to the Procurement Reform A c t and measures to ensure that bid notices and contracts are published in the eGPS and UNDB/dgMarket will be implemented, where appropriate. Further, there will b e a full enforcement of delayed penalty provisionof contracts; iii)StrengthenInternalControl: DENRwillinstitutionalizeitsinternalauditunittotakethelead in determining the adequacy of internal control, monitor and enforce policies, d e s and regulations on procurement and financial management. Further, DENR will operationalize the N e w Government Accounting System inall its offices and will convert to eNGAS agency-wide within a period of two years; and iv) ProcurementReviews: a. Usingthe Agency Procurement Performance Indicator System, evaluate the performance of the agency based the data being monitored by the Government Procurement Policy Board -TechnicalSupportOffice(GPPB-TSO); b.A procurement review team comprising of the DENR's Internal and External Audit and the Bank's joint fiduciary team will conduct an extensive review of project expenditures and procurement processes; c. To detect fraud and collusion in procurement contracts, Picalo software will be utilized under the supervision of the Government Procurement Policy Board Technical Support Office (GPPB-TSO) and, if needed, appropriate guidance from the Department Integrity Unitof the Bank, wdlbe requested; d. Checking the integrity of contract implementation by reviewing variation orders and inspecting the quality of completed works, delivered goods and submitted outputs; e. Findings of anomalies uncovered in the review will be referred to and investigated by the Commission on Audit, the Office of the Ombudsman and the National Bureau of Investigation. The Integrity Unit of the Bank will collaborate with the investigators; f. Complaint of anomalies in procurement resulting from the review will be referred to the Internal/External Auditor and the GPPB-TSO, for initial investigation. If there i s prima facie evidence or sufficient proof, the auditor will refer the case to the Office of the Ombudsman and/or the National Bureau of Investigation for formal investigation. Filing of charges will be the responsibility of the NBIor the Ombudsman; 73 g. Blacklisting or suspension and administrative processes against erring parties will be pursued by the GPPB-TSO based on the reports of the investigators while debarment process willbe handled by the Bank internally; h.Filingof appropriate criminal charges to the court will be handledby the NBI and/or the Office of the Ombudsman. 14. In addition to the above four steps the following policies will be adopted to mitigate corruption under the Project: a) Communication and Advocacy. - Inan open society like the Philippines, the most effective deterrent to corruption i s a well-informed citizenry. The project will promote good environmental citizenship that should not tolerate corruption of any kind, based on a clear understanding about the close link between and among corrupt practices, natural resources degradation, pollution, establishment of industries/business outside the correct land use plan and environmental disasters. As a result, public opinion will be more strongly brought to bear for the concerned offices to more efficiently deliver mandated services and therefore contribute to achieving desired biophysical results. Ordinary citizens have shownwillingness to cooperate with well-publicized programs such as "clean-and-green", waste segregation, smoke-belching and the industrial eco-watch program. Transparency-enhancing measures will include providing the public with on-demand electronic access to sector plans, programs, budgets and accomplishments and regular public disclosure of performance and/or compliance among the regulated community; b) Community-Based Approach - The threat of being exposed by an aggrieved and agitated local community i s a powerful deterrent to any thought of wrongdoing. Communications and advocacy directed at the general public will be complemented at the local level with activities to enlighten and enable communities to actively participate in the campaign to fight corrupt practices. Initially, citizen participation can be in the form of enhanced civic mindedness, for example, avoiding any involvement in corruption. Later on, they can adopt a watchdog perspective and more actively campaign against corrupt practices in their own communities, e.g., possible abuses in the operation of checkpoints to check on illegal logging, discharges of water pollutants, emission of air pollutants, proper land zoning, etc. The project will promote "responsible fiscalizing" to prevent abuse of anti-corruption measures for instance through anonymous complaints motivated by political differences or personal conflict. c) Multi-sector Partnerships - Effective management of the environment and natural resources requires close and continuing interaction between and among the DENR, LGUs, local communities and the private sector. This partnership will not only lead to more effective decentralized management but will also strengthen the system of checks and balances at the local level especially in terms of disclosing possible abuse or abdication of functions. These same stakeholders can be the source of, or remedy to, corruption. Multi-sector partnerships should be based not only on gradually building trust, confidence and capacity, but also on a legal and institutional framework that more clearly defines the roles and relationships among the parties involved especially inforest and environmental management. d) Independent Monitoring - The objective is to maintain a database on key institutional performance indicators, to include institutionalreform and corruption indxators. Independent, impartial and credible monitoring, assessment, and reporting will exert continuous pressure on whoever intends to deviate from professional standards of performance at any level. 74 Communityand public perception on the incidence of and trends incorruption will particularly be effective deterrents. Monitoring results will be fed into multi-level communications, advocacy campaigns and public disclosure of information and performance using a variety of mass media. T h i s will complement citizens' satisfaction surveys and ranking of government agencies currently being undertaken by private groups. Project ProcurementImplementation 15. The DENR i s the lead implementing and coordinating agency, and will be mainly responsible for overall leadership inprocurement and project implementation, including those by the LGUs for the GEF component. Inthe interim the project procurement willbe managed and supervised by the FASPOuntilthe DENRProcurement Unitis established and become operational. D. Procurement Plan 16. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on April 24, 2007 and i s available at the FASPO in DENR. It will also be available in the project's database and inthe Bank`s external website. The Procurement Plan will be updated based on the guidelines for updating the procurement plan which should be agreed during Negotiations. E. FrequencyofProcurementSupervision 17. In addition to the prior review supervision to be carried out from Bank office, the capacity assessment of the ImplementingAgency has recommended one in six months supervision missions to visit the field to carry out post review of procurement actions. Inaddition, field visits between missions will be undertaken in various field locations. With respect to each contract not subject to prior review, the procedures set forth in paragraph 4 of Attachment 1 to the Procurement and Consultant Guidelines will apply at an initial ratio not less than one (1) in five (5) contracts. This ratio maybe be adjusted based on the satisfactory performance of the executing agencies. 75 Attachment 1: ProcurementPlan Details of the ProcurementArrangement @s procurement plan agreed between DENR and the Bank covers the first 18 months of the activities that will be financed under the Project). I.GENERAL 1. Project information: Country: Philippines Borrower: Republic of the Philippines Project Name: NationalProgram-Supportto Environment and Natural Resources Management Project Implementing Agency (PIA) - Department of Environment and Natural Resources (DENR) 2. Bank's approval Date of the procurement Plan: April 24,2007 3. Date of General Procurement Notice: April 16, 2007 (will be updated when the GPN is published) 4. Period covered by this procurementplan: First 18 monthsof the project (May 1,2007 to Nov 1,2008) The DENR shall update this Procurement Plan in accordance with the Agreement guidelines, and furnish such update to the Bank for approval. DENR, and the LGUs for the GEF component, shall implement the Procurement Plan in the manner inwhich it has been approved by the Bank; hence only activities mutually agreed by the Bank will be included in the "Procurement Plan". Activities for goods, works and services not covered by the Procurement Plan may not be financed fromthe Loanor Grant. With respect to each contract not subject to prior review, as in the agreed procurement Plan, the procedures set forth in paragraph 4 of Appendix 1to the Procurement and Consultant Guidelines (i.e. Ex-post review) will apply. The ratio during the first year shall be 1:5. T h i s post review ratio maybe be adjusted, based on the procurement performance of the executing agencies. 11. Goods andWorks andnon-consulting services. Goods 7. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement which was determined by the Procurement Specialist based on the on the assessment of the implementing agency's capacities, are as follows: 76 Procurement Method Procurement Prior Review Comment MethodThreshold Threshold 1. I C B Goods More than 9250,000 -UIcontracts 2. N C B Works Less than $500,000 The first NCB per Use of the Phdippine BiddmgDocuments Bureau and Field (PBD) for Goods and Works, as office per year, elaborated inthe Procurement Manual 3 N C B G o o d s L e s s than $250,000 regardless of cost, are including the exceptions required for Bank subject to Bank's prior assisted projects; review. 4 Shopping for Works L e s s than $50,000 The first shoppingper Use o f the forms prescribed under GPPB's Bureau and Field the Procurement Manual; office per year, 5 I Shopping for Goods I Less than $50,000 regardless of cost are subject to Bank's prior review. 6 Direct Contracting for All contracts Goods and Works 7 Force Account All contracts 8 C D D N o n e C D D i s subject to the requirements as detailed inthe CDD Manual, and will b e subjected to post review. 8. Prequalification and domestic preference. No pre-qualification or ICB is expected for this project / program. 9. Proposed Procedures for CDD Components (as per paragraph. 3.17 of the Guidelines: CDD procedures as defined, and cleared by the Bank, for the separate CBRMP project will be adopted and customized for this program, and will be includedinthe Operational Manual. 10. Reference to Procurement Manual: Procurement for the project / program will be carried in accordance with the DENR Procurement Manual, issued under RA 9184 and cleared with the Bank. The Manual prescribed the administrative procedures for the bidding process and the steps to be followed by all Bureaus and field offices of DENR. For NCB procurement, the rules that are not acceptable are enumerated inthe NCB Procurement Annex of the Loan Agreement. For other methods, the rules specified in the Bank Guidelines govern and the Procurement Manual applies suppletorily. ICB level contract are not expected, however, inany case the Bank's standard bidding documents, and the Bank's Guidelines will be used for ICB. 11.Any Other Special Procurement Arrangements: Being a budgetary support program a number of activities, estimated at US$ 5 millionare foreseen to commence before loan effectiveness. Hence to accelerate project implementation, the DENR can immediately proceed with the initial steps of procurement before signing the related Bank loan. In such a case the procurement procedures, ' including advertising, shall be inaccordance with the Bank procurement guidelines inorder for the eventual contracts to be eligible for Bank financing, and the normal review process by the Bank shall be followed; 12. Procurement Packages with Methods and Time Schedule for the first 18 months. [Columns for pre-qualification and domestic preference are excluded inthe hereunder table] 77 I L Ref.No. Contract Description ENR MGB 1 G 2007 ITEquipment&Accessories ENR MGB 2 G 2007 Eqmt&InstmentPackagc ENR MGB 3 G 2007 Vehiclepac% ENR MGB 4 G 2007 X-rayDiffactameter ENR MGB 1 W 2007 RehabofBwacavMines IENR FMB 1 G 2007lGeodeticerade~ackaae ENR FMB 2 G 2007 ITotaJStation(2W7) I 0.236I NCB I Prior I 30-Jd-07I 2ndNCBGoodsforFMBI 111. Selection of Consultants. 13. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1to the Guidelines Selection a n d Employment of Consultants: Selection Method Prior Review Threshold Comment 1. QCSS,CQ and QSS for h s us$100,000.00 2. Individual Consultants US$50,000.00 3. Single source selection (SSS) for firms and Allcontracts sole source selection for individuals 78 14. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than $ 200,000 equivalent per contract, may comprise entirely of national consultants inaccordance with the provisionsof paragraph 2.7 of the Consultant Guidelines. 15. Selection Plan - Consultancy Assignments with Selection Methods and Time Schedule. Being a budgetary support the program activities are to be undertaken by the organic staff of the DENR hence no consultants are expected to be selected, at least during the first 18 months of project implementation. IV. ImplementingAgency CapacityBuildingActivities withTime Schedule 16. Inthis sectionthe agreed Capacity BuildingActivities are listedwith time schedule No. Expected outcome / Estimated Estimated Start Date Activity Description cost Duration Comments 1 Establishment of the interim DENR December 31, On-going T h i s i s among the Procurement Unit 2007 actions agreed to established project's readiness, and will ensure that the procurement procedures are mainstreamed into DENR 2. Approval and issuance o f the DENR December 31, On-going The manual will Customized Procurement Manual 2007 prescribed the mandatory requirements of the law required of all DENR units Establishment o f the permanent On-going The creation of the DENRProcurement Unit permanent unit i s in line with the Rationalization Plan, and will ensure longterm enforcement of FL4 9184 for all units of DENR. Trainingof Procurement 5 days As soon as the trainingwill practitioners, project staff and DENR provide basic auditors on Proc Manual procurement knowledge and manual i s skills on approved by procurement and GPPB willfacilitate future certification to work on procurement. 79 Annex 9: Economic and FinancialAnalysis PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management 1. The NPS ENRMprogramwilldirectly support the DENR meet major thematic thrusts prioritized in the Medium Term Philippine Development Plan (MTPDP 2004-2010) related to Environment and Natural Resources management namely: (i) sustainable utilization of natural resources; (ii) protection of ecologically fragde areas; (iii) creation of a healthier environment; (iv) promotion of responsible mining; and (v) disaster risk mitigation. The Program will ensure that DENRwill have timely availability of budgetary resources, for operation and capital expenses, to finance agreed priority activities under its regular program. Focusing expenditure on priority, rather than broad based operations and activities will,in tum, enable the agency to manage budgetary resources more strategically, improve resource allocation, operating efficiency and overall effectiveness indelivering services more cost effectively". Improved service delivery will translate into greater accessibility to environmental information, knowledge, appropriate technology and consequently awareness and affirmative action towards environmental and natural resource conservation. Efficient regulatory and monitoring procedures will reduce transactions costs for compliance, thereby creating incentives for stakeholders to make better resource use decisions and actively participate in more efficient management of the environment and natural resources. 2. The NPS-ENRMP is a budget support (framework type) project, where conventional ex ante cost/benefit analysis i s not possible as most of the major investments have not been identified or designed in detail before loan/credit effecti~eness.'~Moreover, most of the investments to be financed under NPS-ENRMP (through budgetary support) involve environmental or public sector/institutional capacity strengthening, where it i s not possible to quantify benefits inmonetary terms. Therefore, as benefits can not b e effectively quantified, financial and economic rates of return can not be meaningfully estimated apriod'. However, the cost effectiveness of NPS- ENRMP is rated as being high, as the project will purposefully introduce and support procedures that will improve the use of budgetary resources, systems and processes inDENRs service delivery over existing/alternative systems. This in turn will improve overall allocative efficiency in the use of public resources, a key thrust in the MTPDP21. In particular, the NPS-ENRMPwill support a number of initiatives to address deficiencies which currently hinder efficiency and cost effectiveness. Specific program activities for improving cost effectiveness compared to current or alternatives include: (i) Coordinated Planning and Budgeting vs existing de-linked systems. A major thrust of the NPS ENRMwill be to supportwider Government efforts of bringinggreater public 18Improving allocative efficiency inthe public sector is a major thrust o fthe joint GoP, World Bank, Asia Development Bank Public Expenditure Review (WB-PER 2003) entitled "Improving Government Performance: Discipline, Efficiency, and Equity inManaging Public Resources" Refer to PAD preparation guideline and Handbook on Economic Analysis o f Investment Operations, OCS NetworWLLC, and January 26, 1998 2oNonetheless during project implementation where appropriate economic studies will be carried out on the merits o f specific interventions in watersheds such as community based agro-forestry. See also para 4 & 5 which indicate the broader impact that NPS ENRMP may have in reducing the economic cost of environmental and natural resources mis-management. 21MediumTermPhilippine Development Planand also WB PER -2003 80 expenditure rationalization into agencies. It will initiate and support systems of planning and budgeting in DENR that are results based using major final outputs which have been agreed with the oversight agencies. T h i s allows much greater scope for priority setting and monitoringservice delivery (outcomes) inrelation to publicresource allocations (costs) than hitherto. This would be a major improvement over the present system of planning which remains highly de-linked from budget setting, (they are almost independent, discrete activities) leading to poor allocation of scarce public resources. Program Agreement vs Loosely-defined work plans. The program implementation plan (PIP) has been structured ina comprehensive format that will allow the identification of the specific inputs that need to be procured, the timing of procurement, the target output, the actual budget to be made available and the specific responsibility centers. On t h i s basis, the implementation of the program will be preceded by the drawing up of Program Agreements which will bind and make relevant units of the DENR accountable for clearly identified activities, milestones and outcomes. T h i s mechanism will improve transparency in resource allocation and ensures that the needed resources actually flow into units which are accountable and responsible for producing outcomes. Managers will be accountable for delivery of outputs and outcomes in Program Agreements which will be monitored and form the basis of reimbursement of agreed expenditures. (5) Mainstreamed vs stand-alone Financial Mechanisms. Under NPS ENRM, the system of procurement, disbursements and auditing have been designed to ensure more efficiency inthe accomplishment of timely outcomes. No additional institutional mechanisms would be required but measures to improve internal audit and control systems will be put inplace to ensure that the flow of project funds will directly support agreed priorities along MFOs. The use of existing institutional procedures, moreover, avoids the need to establish separate financial arrangements for the project, as would alternatively have been the case for a typical foreign assisted project. To address risks associated with delays that could unduly constrain program implementation and to prevent cost overruns, the program will seek to establish and operationalize a Procurement UnitinDENR. (See also Annexes 7 and 8). (iv) Investment prioritization and selection criteria vs random selection of projects. Well-defined criteria have been developed (see Project Implementation Plan on file) as a basis for prioritizingwatersheds and investments. T h i s will allow the DENR to be more strategic and cost-effective as it i s able to improve programming of resources. In the past, the DENR spread limited resources thinly, resulting in marginal outputs and higher costs per unit output. (v) Community-driven planning and implementationvs agency imposed priorities. The program will ensure direct and active stakeholder and community involvement in planning and implementing program activities in the watersheds. Counter-part arrangements will be established for communities and stakeholders to provide contributions in cash or in kind, thereby reducing the fiscal burden on government. M o r e effective partnership will also increase the likelihood of sustainability of intended outcomes. In forest protection, for example, community led surveillance and patrollingwill provide more cost effective option than the irregular monitoringby DENR at present. (vi) Improved planning through database development M&E vs planning under uncertainty. The program will provide significant support for enhancing database and 81 monitoring systems. This will strengthen the objective information basis for decision making and priority setting, thereby improving the cost efficiency of resource allocation, compared to the current system of planninginan information vacuum. (vii) Up-scaling best practices and value addition vs reinventing initiatives. Incognizance of the many initiatives that DENRhas already pioneered inthe past, NPS-ENRMwill build on earlier successes made in ENRM. Rather than creating new institutional mechanisms, preference will be on mainstreaming and capitalizing on existing structures and mechanisms while simultaneously taking into account the need for rationalization. 3. From a wider economic perspective a more efficient and cost cost-effective agency, will be better equipped to mainstream ENRMissues in economic and development policy and in regulating and safeguarding against excessive ENRM costs in future. Available studies indicate that the economic costs of weak ENR management inthe past have been extremely high. It i s estimated, for example, that the un-sustainable management of tropical forests (formerly a major economic resource) has resulted in a decline from 21 million hectares in the 1900s to between 5 and 7 million hectares presently. The overall cost of this decline i s approximated at $28billion or PhP1.4 trillion22. Illegal fishing practices, water pollution and other factors, are rapidly destroying the country's fish and coral resource. USAID estimates that the country looses around US$420 million (PhP20 billion) annually inpotential revenues due to mismanagement of fisheries. Similarly, significant soil erosion has imposed high costs on infrastructure, settlements, and productivity with 21% of agricultural lands and 36% of non-agricultural lands, assessed as moderately or severely eroded. In rice production alone, foregone earnings were estimated at PhP1.2 billion (1997) compared to PhP1.l million a decade earlier. The economic value of nutrient loss due to soil degradation is estimated to have reached PhP1.16 billion in 2000. The economic cost of air and water pollution i s extremely high and will increase significantly without improved management. The health cost of particulate (PM10)pollutioninthe four largest cities was estimated to be inexcess of US$400millionin2001 alone, whilst contaminated water led to more than 500,000 morbidity and 4,200 mortality cases in 2000 due to water-bourn disease. Avoidable annual health costs due to losses in direct income and medical expenses are estimated at PhP3.3billionz3. 4. Although, as discussed above, it is not meaningful to undertake ex ante cost benefit analysis of the NPS ENRM, ex post evaluation of other Bank projects broadly illustrate24potential (future) fiscal impact of activities like Cadastral databases, which are considered a crucial building block toward efficient property/land titling. The future (end use) benefit of the cadastral information would be improved valuation and tax revenues for Government including LGUs. As an example, a recently completed land titling project in the L a o People's Democratic Republic25indicated favorable fiscal impact as a result of a long term World Bank assisted land titling project. The evaluation indicated that Government tax revenues increased due to: (a) transfer fees from a higher number of recorded transactions and higher land values; (b) higher land tax collection as a result of higher collection rates and more realistic assessments of land values; and (c) taxes on capital gains from increased land values. zz Constanza et al. "The Value of the World's Ecosystem Services and Natural Capital, Nature ~01.387,May 1997 23 Department of Health (DOH) 24 This i s only illustrative as the causal relation ship between cadastral surveys under the project and actual mechanisms to improve tax revenues remain weak 25 Lao People's Democratic Republic Land Titling Project (IDA 28320) I C R 2006 Although more pertinent to the Philippines, no illustrative (economic or financial information could be derived from the 2005 I C R of the Land AdministrationManagement Project (LAMP-1) 82 Annex 10: GEF Incremental Cost Analysis PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management Baseline Scenario The DENR i s the lead agency for the conservation, management, development and sustainable use of natural resources in the Philippines. It plays a central role in organising and implementing natural resources programs and projects through its six Bureaus and will continue to implement its mandate for ENR. However, existing programs aimed at conservation, management and development of the country's environment and natural resources remain under-funded. The funds received by the DENR mostly cover personnel costs with limited amounts remaining for its operational budget. (See W1). T h i s means that on-going government programs, e.g. watershed degradation, can not be effectively implemented. Many of these programs have been on-going since the early 1990's and include: Social Forestry, Forest Lands, Community Forestry and Ancestral Domains. Other more recent initiatives that DENR would like to implement but are constrained by funding include: adoption of the watershed ecosystem management approach; implementation of a community livelihood assistance program, more vigorous campaigns against illegal logging and surveys of priority watersheds for rehabilitation and protection. Under the Baseline scenario a major Bank supported program, the NPS-ENRMP would b e implemented aimed at strengthening DENR's performance in ENRM. It would enhance the contribution of the natural resource sector in economic growth and improve environmental stewardship as well as support development of livelihood activities. It would also include limited activities in support of biodiversity conservation, and management of ecosystems. Inaddition there would be a number of donor supported projects principally directed at enhancing local natural resources towards income benefits. 2. The NPS-ENRM would provide major support to the DENR under the baseline scenario and would provide targeted expenditure support for a time slice of priority activities to overcome barriers and establish sound and coordinated environment and natural resource management systems. The program would address weaknesses in previous environment and natural resource management assistance and support agreed priority activities under DENR's regular program. The principal activities to be financed under the NPS-ENRMare outlined inAnnex 4 - detailed project description. 3. Baseline activities would also include a number of donor funded projects, but these concentrate on rural economic development, limited aspects of forestry management, strengthening local institutions and poverty alleviation. Such projects include: (i) Bank supported Mindanao Rural the Development Project (ii) United States Agency for International Development (USAID) - Eco- Governance (Eko-Gov) Program centered in Mindanao, (iii)European Union Forest and Biodiversity Protection (seven projects 5.3M=US$6.3M) and Rural Environmental Protection (three projects worth 5.5M=US$b.bM) and (iv) the AsDB Integrated Coastal Resources Management Project (ICRMP) and Fisheries Resource Management Project. The former was approved by the GEF Council in September 2004, but has not been approved by AsDB's Board due to shortage of GoP counterpart funds. 83 Baseline Benefits: 4. Baseline activities should generate significant development benefits from improved natural resources management but would mainly be focused on strengthening the DENR`s capacity on a national scale to better plan, manage and budget, as well as improving people's livelihoods and economic well-being. Some capacity building would occur through the Eco-Governance project, but it is focused on Mindanao province. Overall, the management of the country's natural resources would be strengthened and although some biodiversity benefits would occur, particularly incoastal areas, ifthe ADB supported projects are implemented. But these would be limited as watershed areas would be targeted based primarily on their development benefits and the services and processes of critical terrestrial ecosystems inparticular would continue to erode. 5. Moreover, the promotion of local level resources management would continue to be restricted by the slow and insufficient decentralisation process and the required priority would not be given to the establishment of environment and natural resource offices in the LGUs. Mainstreaming SLM and biodiversity conservation into local resource plans i s unlikely to occur; consequently there would be failure to fully adopt comprehensive ecosystem management interventions that integrate ecological, economic and social goals to achieve multiple cross-cutting benefits and the degradation of critical ecosystems would continue. Furthermore, given the scale of the problems in the Philippines, the baseline programs can only address a share of the NRMproblem. The GEFAlternative 6. Under the proposed alternative scenario, the GEF would finance the incremental costs of expanding the baseline to achieve global and additional local environmental benefits in targeted critical watersheds. GEF financing would focus on overcoming barriers at the regional and local levels for implementation of decentralized natural resource management, buildingon existing best practices. Without GEF support, only limited measures can b e implemented and they may be inadequate to begin reversing the natural resource and land degradation trends and loss of biological diversity inthe Philippines. The main focus of GEF support would be on scaling-up good practices to achieve greater ecosystem sustainability, using priority watershed areas as the basic unit for engagement and an integrated ecosystem approach that will address issues related to land degradation, primarily soil erosion, sedimentation, watershed degradation, and encroachment of protected areas and fragde ecosystems including wetlands. The IEM approach will capture global benefits by improving the structure, functioning and processes of ecosystems as well as provide local benefits by improving the productivity of land. By linking sustainable land management and enhanced protected area protection these aspects will be more readily integrated in overall local and regional development and land use planning. 8. Furthermore, the focus on environment sustainability of activities in priority watershed and other critical conservation areas including small-scale agricultural and forestry sector activities will be enhanced with GEF support. Thus, GEF support will not only catalyze the adoption of comprehensive ecosystem interventions that provide cross-cutting global benefits but it will also enhance local benefits by improving land productivity. In so doing it will secure biodiversity benefits and also capture the off-farm benefits associated with agro-forestry and soil fertility improvement, specifically, enhancing carbon stocks together with downstream reduction in sedimentation loads inrivers and other waterways. 84 9. Specifically, the GEF alternative would add the following incremental elements to the baseline: a. Buildingcapacity for watershed management planning. GEFwould support development and or revision of watershed management plans for selected sites and institutionalization of the integrated ecosystem management approach as the basis for NRMplanning at local level, which wouldbe implementedtaking into account the need for close coordination of key partners, and the decentralized and integrated nature of watershed management. b. Watershed management information system. Incremental GEF support would help in establishment of a watershed information system which would be an important step in watershed management planning that would enhance access to local level ecological data by rationalization and consolidation of existing GIS databases in the different ENRinstitutions. c. Information and Education Strategy. Assistance would be provided for targeted awareness and IEC campaigns to promote project acceptance and participation in the preparation of integrated watershed management plans. The target group would include the local political elite and businessmen who benefit from natural resources exploitation. IEC will be used as a tool in the watershed planning process to establish a good understanding among key stakeholders of the linkages between biodiversity, SLM and livelihoods, required conservation and potential new livelihood options. d. Rehabilitation and protection of degraded ecologically sensitive areas. On-the-ground investments inreforestation where appropriate with Philippine (rainforestation) species, would be made to enhance vegetative cover, as a means to mitigating and/or rehabilitating degradation and improve ecosystem processes and services based on the prioritization established in the planningprocess. e. Biodiversity conservation and management for biologically important plant species and animals. This wouldinclude activities bothwithin and outside protected areas. Rationalization of the PA system would also be supported to be followed up by concrete investments in two protected areas inthe priority sites. Good practices of sustainable financing based on payment for environmental services would be prioritized and scaled up f. Sustainable Livelihood Improvements linked to IEM. Based on the participatory integrated watershed planning processes activities selected for each site would be guided by the following approach: (i)Increasing the income for the communities through generating alternative (non-resource-based) livelihoods and diversification, (ii) reducing pressure on the resources and; (iii) incentivesformanagementandconservationofresources. SLM creating practices could include soil conservation, better use of crop residues, alternatives to slash and burn, andvarious agro-forestry initiatives. 10. Benefits. The global benefits from the GEF alternative would include: biodiversity protection (for example from habitat protection natural forest regeneration and reduction or elimination of threats to priority protected areas); improved ecosystem services such as enhanced water flows, reduction in sedimentation loads, and increased capability for carbon storage. Additional global benefits would arise by creating synergies through actions that optimize linkages between focal areas, such as fire management and replacing the area under slash and bum agriculture with more sustainable agricultural practices which increases land cover and contributes to increasing carbon stocks. Restoration of wetland functions would provide habitat protection for biodiversity, increase carbon stocks and strengthen hydrological cycles. Additional local benefits would be derived from many of these results, For example, enhanced water flows would benefit downstream users, agricultural 85 productivity would be increased and restored wetlands would provide increased products as well as better protection to coastal areas by mitigating storm surges. 11. Costs. The estimated baseline and GEF Alternative costs are summarized in Table 1. The difference between the cost of the baseline (US$50 million ) and the cost of the GEF Alternative (US$57.0 million) i s US$7 millionwhich i s the s u m requested from the GEF. Table 1Summary of Incremental Costs Component Cost Category Cost USD Domestic Benefits Global Benefits Million 1. Policy, Planning Baseline 14.21 ENRplans, policies, Minor global benefits arising Monitoringand laws and regulations are from ongoingpositive Evaluation rationalized and more changes to the environment, effectively implemented use of a programmatic (Planning and for managing the approach, and increased pace Management; Capacity- country's ENR of decentralizationand buildingand devolution processes of information, and Better trained staff i s DENR awareness) able to initiate IWMP, which contribute to Some improvement inthe improved land use and management of critical understanding o f S L M ecosystems inpriority areas as practices a result of better land planning, zoning and use GEFalternative 16.41 Efficient and capable Capacity buildingleads to staff inplace, including IEMapproach being ecosystem institutionalized and more environmental expertise effective management to manage and approaches for critical coordinate issues at ecosystems that provide multiple levels leading to global benefits more effective natural resource use decision Greater priority inlocal making resource planninggiven to biodiversity and S L M as a Strengthened and more result of mainstreaming effective planning, budgeting and Improved coordination of, management contributes and implementation of global to DENRbeing a better environment conventions regulator and conservator of the Effective management of the country's natural baseline program and better resources targeting o f expenditures in the ENR sector provides More efficient spin-offs that increase global expenditure on ENR environmental benefits management leads to moderately better cost effectiveness inprotectionofthe Project monitoringand nations natural resources evaluation system takes account o f global Enhanced monitoring environment concerns and evaluation system Dissemination of good 86 Component Cost Category Cost USD Domestic Benefits Global Benefits Million practices inIEMmore broadly inthe Philippines Increment: 2.20 Baseline 32.98 Increased domestic Some ecosystems services agricultural productivity strengthened such as, better managed hydrological cycles Better forest resulting inreduced run-off management leads to leading to better soil fertility more sustainable forest and reduced sedimentation production loads. Wildlife population Some biodiversity benefits protected and increases fromimproved forest cover Rehabilitation of mine sites reduces risks from landslides Benefits to downstream water users from erosion control measures inthe form of increasedwater quality Reduced damage from loss of Droductive lands GEFalternative 37.15 Greater crop GEFinterventions targeted to productivity increases watersheds with globally important ecosystems resulting in significantly Better flood control in strengthened and better uplands and flood performing ecosystems protection from wetland services, includingwetlands: improvements better erosion control, enhanced stream flows; water Increasedincome to quality improvements; beneficiaries from shoreline protection livelihoods linked to IEMpractices Reduced sedimentation loads inmainwater courses Reduced damage to critical habitats caused by land degradation Natural forest regeneration occurs, expanded forest cover and better protection of critical habitats Increased agro-biodiversity use Expanded use of native species for reforestation and agro forestry 87 Component Cost Category Cost USD Domestic Benefits Global Benefits Million Reductioninthe area under kainginwhich is replacedby more sustainable practices Increment: 4.17 3 Strengthening Baseline: 2.27 Environmental Enforcement of Better protection of forest Management environmental resources from reduction in regulations contributes illegal logging to better protection of ENRandgreater security for ENR dependent enterprises. Improved environmental health of the population Increasednumber of local g o v e m e n t s and private sector entities involved with in-place pro-active and responsive monitoring systems for environmental laws and redations GEFalternative of 2.90 Appropriate and Better protection of which: cohesive regulations and biodiversity resources through standards are community monitoringand implemented, monitored enforcement. and enforced with a higher number of violations being detected by multi-sectoral and community-based mitigating actions implemented with preventive methods and intime 0.63 Totals 49.47 56.47 Increment 7.0 88 Annex 11:Sector Expenditure & Budget Review PHILIPPINES: National Program-Support to Environment andNaturalResources Management A. Public Expenditure Overvied6 1. The overall fiscal situation inthe Philippines remains constrained by low revenues on the one hand and high mandated expenditures on the other. In addition, the structure of the budget, with high expenditures on discretionary, personnel and debt servicing costs leave little maneuverability and flexibility to respond to needs. T h i s i s resulting in low expenditures on much needed public investments, which are essential to stimulate long-term growth and reduce poverty. The very high expenditures on personnel and staffrng costs mean that maintenance and other operating expenses (MOOE) and capital outlays (CO) are inordinately squeezed and grossly insufficient to operationalize strategic development goals and improve public service delivery. From a macro perspective, clearly revenue collections need to increase, and/or wage bill expenditures need to diminish, to sufficiently finance the Government's growth and poverty-reduction agenda. The Government recognizes that increasing fiscal flexibility inthe short to medium term entails a three- pronged strategy: (i) implementing a strategy to increase revenue collections; (ii) controlling the wage bill, and (iii) streamlining the executive. Revenue generation through an expanded tax base is at the heart of the first of these thrusts, whilst (ii) (iii) the core of Government's agenda and form for civil service and public expenditure reforms." 2. Budget and expenditure efficiency have also been constrained by various distortions, such as the allocation of scarce resources to special budget funds which are not aligned to Government policy priorities and are non-transparent in use. The prevalence of special congressional funds in the national budget raises issues of budget comprehensiveness, as these expenditures are frequently "off-budget" and not accounted for inbudget formulation or execution. Senators and members of congress are also entitled to a variety of additional funds for development purposes, congressional initiatives and compensatory allowances. These congressional funds ineffect represent a significant amount of "off-budget'' resource allocation not subject to the prioritization, accountability, and transparency requirements for other expenditures. 3. Broader budgetary inflexibilities and constraints are mirrored at the sectoral level. For example in education", the ratio of personnel costs to the total recurrent budget i s above 90% in the Philippines, compared to an average ratio of around 64% for lower middle-income countries. Moreover, it i s recognised that increasing sectoral allocations will not necessarily improve service delivery and reduce poverty, given structural budgetary constraints, the lack of allocative (planning and budgeting) efficiencies and the need to deliver public goods more equitably. To improve resource efficiency and impact, there i s need to institutionalize better medium-term expenditure planning and budgeting to ensure these are more responsive to national priorities. 4. In the Agricultural and Natural Resource Sector, persistent problems prevent the Philippines achieving sustainable competitiveness. K e y sectoral constraints remain e.g., lagging productivity, poor transport and marketing infrastructure, low credit, low value, high and unsustainable levels of natural resource depletion and pollution costs. Strategically, major policy directions of Government 26Philippines - Improving Government Performance: Discipline, Efficiency, and Equity in Managing Public Resources A Public Expenditure, Procurement, andFinancialManagementReview (PEPFMR) (2003)- World Bank,Asia DevelopmentBankand GoP ( See for details) 27Executive Order 366 (EO-366) 28As with most other sectors 89 to address these issues include: (i) total factor productivity; (ii) raising modernizing agriculture (iii) improving human capital asset reforms; and (iv) strengthening governance. Agriculture and agrarian policy reforms in the Philippines are anchored in four landmark legislations: (i) the Agriculture and Fisheries Modernization A c t of 1997; (ii) Fisheries Code of 1998; (iii) the the Comprehensive Agrarian Reform L a w of 1988; and (iv) Republic A c t 8532 which augments agrarian reform program funding. B. Sector Expenditure Overview 5. The structural budget imbalances and distortions that persist inthe wider public sector also appear prevalent in the Department of Envkonment and Natural Resources (DENR). However, the problems of allocative efficiencies are accentuated in the DENR as the agency has amongst the highest staff complements in the public sector'' and at the same time has seen its share in the national budget decline. (Fig 1) In nominal terms, DENR's budget remains erratic and variable, whilst inreal terms there appears to be steady erosion (Fig2). fig 1:Percentage Share of DENRBudget inGOP Allocation 1.60 I 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 O . O O j ' I I I I I " ' fig 2: DENR Budget2000-2005 Constant 2000 Prices 4.9 - 4.7 - 4.5 - p E a 4.3 - m n 4.1 - 3.9 - 3.7 - 3.5 , The five largest employers of permanent staff in 2001 were Dept Ed (480,348 filled positions), SUCs (58,189), DOH (26,625), the Judiciary (26,422), and DENR (21,023); they were followed by DOF (19,145), DPWH (18,145), and DOTC (16,957). D A and DAR together employ 20,117 permanent staff. 90 6. The relative decline of DENR's sipficance in overall budgetary allocation i s partly attributed to devolution of ENRh4 functions to LGUs and other stakeholders and partly to the low profile of environment and natural resource issues in economic and development policy. Hence reversing h s trend, enhancing awareness and raising the profile of ENRMissues in economic policy are core objectives under the proposed NPS ENRM. The problems of a declining aggregate trend are exacerbated by increasing expenditure on personnel costs at the expense of MOOE and CO. Duringthe period 1990-2005 PS costs assumed an ever higher share of the budget, increasingfrom 31% of the budget in 1990 to 62% in2005. Ths was driven by the rise inc i d service entitlements and staff increases and has progressively eroded budget flexibility for policy and program development. Duringthe same period, CO expenditures have declined from 43% in 1990 to 12% in2005. MOOEremained at around25% ofthe budget. (Fig3) I fig 3: DENRBudgetbyExpenditure Category A II 1,000 ox 1990 1993 1996 1999 2002 2004 2005 7. As a consequence, the programmable share3' of the budget fell from about 50% in 1990 to some 30% presently. (Fig4) 30Programmable share constitutes that portionof the budget which is n o t obligated to staff costs, routine operation and maintenance costs and committed as counterpart funding for ongoing or anticipated foreign assisted projects. 91 fig 4: Programmableand NonProgrammableBudget Share 1I 1 6.00 5.00 4 00 C 300 n 2 00 100 1 0 00 1990 1995 2000 2004 8. As DENR's budget (from national sources) continues to declme the Depaxtment has had to rely more heavily on foreign assisted projects (FAPs) to bridge funding gaps, particularly for operations. Indeed inthe absence of these external finds the department would have very little operational and development fundmg. However, this source of fundmg i s also gradually declining, in part as the share of programmable budget i s d e c h g due to crowdmg out from growing personnel costs. Whrlst in the early 1990s foreign assisted fundingcontributed over 50% of DENR' budget and s d l around 20% by the end of the 1 9 9 0 ~overall contribution has declined to between 10-12 '/o ~ currently. Fig5 Fig5:%share of FAPs inTotal Budget 1990 1995 1998 2000 2004 2005 9. As part of an overall strategy to improve pubic expenditure management and service delivery, the Government i s introducing various measures to enhance sector expenditure management through Medmm Term Expenhture Frameworks and Sector Effectiveness and Efficiency Reviews (SEERs). The Government has also improved the overall budget process to increase transparency and enhance the linkage between medium-term expenlture estimates to medium-term investment plans. The MTEFs are being developed from by undertaking SEERs, which are intended to strengthen the link between planning and budgeting and the reviews are seen as an important step 92 toward prioritization of public expenditures inline with the MTPDP. The purpose of the SEER i s to evaluate existing Program Activities and Projects (PAPs) in the budget with their relevance in attaining desired sectoral and departmental outcomes. Incompleting SEERS, agencies are required to: (i) and finalize sector outcomes; (ii) agree specify Major Final Outputs (MFOs) and link MFOs to sector outcomes; (iii) the relation of each of the PAPs to MFO(s); and (iv) prioritize specify PAPs. The priority ranking is determined by the extent to which an individual PAP contributes to the attainment of an outcome, consistent with both the legal basis of the agency and the priorities of the MTPDP. As part of the overall reform process in developing the synergy between departmental budgets and its declared plans and desired outcomes, an Organization Performance Indicator Framework (OPIF), i s also been introduced to monitor these linkages and delivery. Although still being developed the DENR has introduced key aspects of these planning and budgeting processes to improve efficiencies. Considerable work, however, still remains to be done inbetter linkingplans, with budgets and outcome inthe DENRas there remains significant gaps in the budget in terms of priority and results orientated spending. (Table 1 and Annex 1). See also section 4. Table 1 DENRBudgetConfiguration by Expenditure Category 2002-2006 10. The expenditure profile in Table 1indicates significant gaps remain inprioritisingand reallocating budgetary expenditure in line with MTEF and SEERS,indicating that the fundamentals of public sector reforms and results-oriented budgeting have been slow to filter into the budget process. The overall budget has been fluctuating between 5.5 and 6.6 billion pesos while the share of individual activities by expenditure category within the regular program has remained essentially unchanged. Of concern, however, has been the continued deterioration inFAPsbetween 2002 and 2006. 11. Inlight of this a major focus of the proposed NPS ENRMwill be to strengthen DENR's capacity to improve service delivery and impact through more efficient coordination of its planning and budgeting processes. This will involve support to further developing key aspects of the MTEF and DENR's evolving rationalization process. This will be done largely to increase budgetary space for 93 programmable share and for operations and capital development. Other aspects to improve institutional efficiency include; strengthening the Department along functional lines, more effective ENR service devolution to LGU, the private sector and NGO and improving collection and market-basing of services, user fees and royalties. The reorientation of the budget alongMFOswill also require continued support. Presently though an attempt has been made to re-assign expenditures lines according to MFOs there has not been a substantive change other that sub- dividing existing line items.. As a start, prioritization of programs and activities is expected from the General Program of Action (GPOA) 2005-2010 that DENR has developed. Provisionally, the GPOA includes 15 priority activities in forest management, A&D land distribution, revival and clean-up of the miningindustry, urbangreening, solidwaste disposal air andwater clean-up, coastal management, bio-diversity preservation andwildlife management andgeo-hazard mapping. 12. Detailed cost estimates for the GPOA are not yet available but are expected to relate closely to the MTPIP. The 2006 NEP budget lines encompassing envisioned GPOA activities represent about two billion pesos of which about one third would be programmable. Spread over four years, a GPOA program of eight billion pesos could be absorbedwithin the actual budget structure. At higher amounts of GPOA investment other, presently not GPOA-relatedbudgetlines and activities would need to be forfeited or extra-budgetary resources mobilized. Within the budgetlines linked to the GPOA re-allocations among subsidiary activities would be required. Inaddition, all GPOA programming foresees a stronger regional focus (e.g., concentration of activities on particular watersheds, rather than spreading funds thinly over all watersheds) that would override the presently fairly even regional allocation of operational funds and make major inter-regional re- allocations of the budgetnecessary. 13. The MTPDP and the President's 10-Point Agenda31, provide the main policy thrusts to guide development 2005 to 2010. Based on the MTPDP section on ENRM, NEDA and DBM have prepareda MTPIP for 2005-2010. MTPIP expresses the MTPDPin financial terms and links it to budgeting. It proposes a 12 billion peso (US$ 235 million) investment program for 2005-2010. Table 2 summarizes the MTPIP for ENRM. Table 2: MTPIP-ENRM Source: NEDA 31 The focus of the agenda is on economic growth, political reconciliation, decentralization,job creation, balancing the budget, rural infrastrucmre and education. 94 14. The MTPIP outlines expenditures increasing from 1.3 to 2.3 billion pesos, or 2 billion on average over 6-years (2005-2010). This corresponds to a half or two thirds of the DENR average annual operational budget during the last five years. Of the total investment one quarter would be for new programs and activities, the remainder for ongoing PA. DBM and NEDA appear to view the 12 billionpesos (before inflation) of the MTPIP as the indicative operational budget ceiling for DENR during 2005-2010. Compared to present spending on operations the ceiling would be 800 million pesos lower annually on average than during 2002-2006. To meet GPOA goals, therefore, it will be imperative that the budget i s better targeted to the highest priorities. It would also depend on how successfully DENR i s able to re-shuffle personal service costs internally to create more budget space. C. DENRInstitutional Structure 15. The DENR budget structure i s a reflection of its organization. DENR i s a relatively complex institution. The main characteristics of the DENR organization are the existence within a central Administration (Secretariat) of four staff bureaus (forest management, land management, protected areas and wildlife management and ecosystems research and development). The first three are responsible for DENR's ENRM operations in the field and essentially cover the green agenda. There are further two line offices, the Environmental Management Bureau (EMB, in charge of the brown agenda) and the Mines and Geo-Sciences Bureau (MGB) responsible for administering the mining sector. There exist also a number of ENRM-related agencies that are to varying degrees linked to DENR, including the National Mapping and Resources Information Authority (NAMRIA), the Laguna Lake Development Authority, the National Water Resources Board and the Natural Resources Development Corporation. Of these the first, the NAMRIA, i s treated for budget purposes as part of DENR while the others are independent government-owned entities having their own budget process. 16. The four staff bureaus as well as the EMB and the MGB implement their activities through a hierarchy of field offices at regional, provincial and local community level. There exist 16 regional (RENRO), 74 provincial (PENRO) and 170community-based offices (CENRO). 17. The DENR organization has been criticized as uncoordinated and discrete where individual units act independently in the formulation and implementation of ENRM. I t s sub-sector- or commodity-based structure does not facilitate a comprehensive view of environmental issues. A solution i s seen in a more functional structure of the DENR organization and by extension of the agency budget. D. DENRBudgetandExpenditure Structure 18. The broad outline of the annual budget presentation to legislative bodies in all government agencies i s a standardized recommendationby DBM. The three mainexpenditure categories are: (i) Personal Services (PS); (ii) Maintenance and Other Operating Expenses (MOOE); and (iii) Outlays Capital (CO). Each of them is divided further into more detailed categories. PS comprises salaries and wages, other personal compensation (e.g., transportation, clothing, housingallowances etc), as well as incentives and bonuses and contributions to retirement plans @LIP). MOOE comprise annual consumable items, such as travel, training, supplies and materials, advertising, repairs and maintenance. CO expenditures cover mainly the acquisition and improvement of assets in government ownership that are consumable for more than one year. In DENR important asset formation includes the value of reforestation and land improvement on government-owned land. 95 19. Government agencies treat PS and the part of MOOE that pertains to a minimal level of functioning of the agency (e.g., buildingmaintenance, utilities and routine operations) as mandatory or non-programmable. The coverage on due schedule of the non-programmable portion of the budget i s of higher priority than the rest of the expenditures and the related part of the budget i s usually allotted fully. Non-programmable expenditure forms the largest share of the budget. The peso counterpart contribution to foreign-assisted projects PAP) i s also considered as part of the non-programmable portion. Even though international projects have been slowed down by non- availability of counter-part contributions they do represent strong government obligations and for purposes of the SIM are excluded from the `free' budget portions. Programmable expenditures are residualby nature. As such they are highly variable in absolute amount and inrespect of the pace at which cash i s allocated for them throughout the FY to the agency. Programmable expenditures make up rarely more than 30% of the overall DENR budget and fluctuate considerably with even modest budget changes. Programmable expenditures, together with loan and grant proceeds from foreign assisted projects, determine the substantive and developmental contents of DENR budgets. The success of the DENR work program i s critically dependent on a sufficient and regular availability of programmable resources. 20. Interms of budget lines and activities the budget structure distinguishes between routine programs covering continuing agency functions and specific projects either local- or foreign-funded. The agency's individual budget lines and activities are consolidated into (i) General Administration and Support (GASS), (ii) to Operations (STO) and (iii) Support Operations. These distinctions are of relevance in a results-based budgeting approach. GASS are unlinked activities that are not and cannot be attributed to particular Major Final Outputs (MFO) while operations and parts of STO can and are linked to outputs and outcomes. 21. DBM provides agencies annual expenditure ceilings based on various factors including resource availability, policy priorities and agency performance. Agencies are required to prepare a core budget within the expenditure ceilings as a basis for the National Expenditure Program PEP) for the President's submission to the legislature. Agencies, including DENR, also prepare a supplemental budget that serves as a standby in case additional resources become available or significant shifts in policy and priority occur during budget execution. In periods of budget constraints, like now, the supplemental budget i s seldom of practical importance, though DENR s d l continues to attach high priority to it despite i t s apparent irrelevance. 22. The DENR budget structure reflects the great organizational complexity of the agency. Each of the four staff bureaus and the two line offices undertake a wide range of budgeted activities inup to 16 RENROs and at the levels below3'. There is a vast heterogeneity of tasks listed under different budget line headings. In addition, as indicated earlier, many institutions concerned with ENRM, especially LGU, are excluded. 23. Table 3, illustrates a summary of the conventional, pre-MFO, expenditure structure for FY 2006. Of a total NEP of nearly 6 billion pesos (US$ 110 miUion) some 70% are for the regular program activities under the Office of the Secretary, including the staff bureaus and their field operations, 18% are for the attached (he) agencies EMB, NAMRIA and MGB, and 12%are contributions by FAP. Local counterpart funds contribute on average 27% to FAP financing and 3% to overall financing33. 32PENROs' andCENROs' budgetsare vettedandconsolidatedbythe Regionalofices andare not directly receivedby centralbudgetauthoritieso fDENR 33The contribution of peso counterparts varies according to the type of project. Generally loan projects require a higher local share than grant projects, the latter often being exempt of counterpart fundingrequirements. 96 24. General administration and support services (GASS) absorb 21% of the regular OSEC budget, Support to Operations (STO) 9% and operations 70%. The respective shares of expenditure categories of attached agencies are of a similar order. STO 259 111 372 Onerations a. Fund 101regular program 2.122 525I 239I 2.886 Sub-total II 3.047II 8051 2681 4.120 I b. Fund 102FAPs I I I I I 25. Among the major expenditure categories the table above illustrates the predominance of personal services inthe budget. Overall, PS claim 62% of the budget, MOOE 27% and CO 10%. There i s a significant difference between Fund 101 - regular program, and Fund 102 - foreign assistance, in regard of these shares. Whereas under the regular program 74% of expenditures are for PS, this proportion is only 1% under FAPs. Conversely, FAP spending is 46% on CO and 53% on MOOE. Inabsolute terms the FAP contribute more to CO than the regular program (337 vs. 268 million pesos). FAPs also account for one quarter of MOOE expenditures despite a modest 12% share in the overall budget. This underscores that FAPs and not the DENR regular budgets i s the main source development spendinginENRM. Consideringthat all of PS, some 20% of MOOE as well as peso counterpart contributions to FAP are non-programmable, the programmable budget share of DENRin2006 i s 1.7 billionpesos (US$32 million) or 30% of the budget. The breakdown of the DENR budget by administrative unit, mostly along major activity clusters, is o u h e d in Table 4 and Fig6. FAPs 731 12,3 Total 5.923 100 97 Table 4: NEP BudgetAllocation by Administrative Unit 2006 - Flg 6 %Share of 2006 DENR Budget byCategory FAPs, 12.3 TO, 6.3 26. The largest fund-absorbing budget line i s for Forest Management, using nearly 1.6 billion pesos in 2006, over one quarter of the entire DENR budget. Most of it (677 million pesos) is spent on Forest Management Services (which are not further specified) including the services of forest guards and their administrative and technical support personnel for the maintenance of some 15 mikon hectares which are currently classified as forest land. This is for protection against illegal logging, squatting, fires and other damaging interference. Other activities under the globalheading of Forest Management include plantation establishment, forest protection, community forestry promotion,boundary demarcation and similar activities. Under the MFOresults-oriented approach all budgeted forest management activities have been reduced to three. Second in funds absorption i s land management. Again, non-specified land management services absorb the greatest share of funds. Some of the funding is for surveys paid for by DAR in preparation of land transfer to private farmers. Again, salaries for field staff are the most important expenditure category. The chief CO expenditure in forest and land management categories i s for forest plantation and soil conservation works. Like in forestry, the corresponding increase in land value i s an important part of asset formation inthe balance sheets of DENR. 27. Overall, about one third of DENR expenditures are incurred at the central offices of OSEC and of the line agencies in Manila and two thirds in the Regions. The regional budget allocation i s fairly balanced. Moderate expenditure peaks are present in Regions I1 (Cagayan), I11 (Central Luzon), I V a (Calabarzon), IVb (Mnnaropa) and XI (South Mmdanao). It is unclear if the expenditure distributionreflects objective ENRMneeds or follows other criteria. Regional differentiation will tend to increase with more geographical priority setting in future, e.g., following a critical watershed approach inNRM. 5. DENR Budget and Expenditure Structureby MFO 28. Since 2004 GOP/DBM have been promoting the OPIF following a log frame approach, using Major Final Outputs (MFO) and objectively verifiable (performance) indicators (OVIs) and targets. This is to introduce a results based system of budgeting where managers are accountable for 98 outputs and outcomes rather than micro-management of costs and inputs. Activities that are not consistent with the MFO framework or cannot be appropriately monitored and evaluated are supposed to be eliminated from the PAP. The DENR has three main MFOs around which the PAPactivities have been organised. Fable 5) Table 5: DENRMajor Final Outputs K e y Result Area Major Final Output Planning MFO1: Plans and policies developed, promoted, implemented, monitored and evaluated Implementation MF02: Ecosystems and natural resources developed, protected, conserved, enhanced and degraded ones rehabilitated Regulation M F 0 3 : Appropriate and comprehensive legislation, regulations and standards developed, implemented, monitored and enforced 29. Compared to the conventional presentation MFO-based budget lines remain nearly unchanged, that is, budget allocations to the different Bureaus and to major activity categories are nearly the same with and without MFO consideration. In a few instances the number of activities under a major budget line has been reduced, however generally without affecting the overall allocation. The comparative Annex 4 shows that in the course of MFO structuring of the budget the number of activities to be undertaken by the Forest Management Bureau have been reduced from six to three and the number of activities of the Land Management Bureau from five to three and that coastal and marine resources management has been moved from Ecosystems R&D to Protected Areas and Wildlife Management. 30. Throughout the budget presentation activity lines have been split into two or three MFOs (while remaining unchanged in respect of total fund allocation). Forest Management, for instance, still absorbs 1,591 million pesos of which 1032 falls under MFOl and 559 million under MF03. Land Management has an allocation of 886 million pesos divided between MFOl- 867 million, MF02- 13 million and MF03 - 6 million. Some 731 million pesos for FAP are split into 192 million for MFO1,455 million for MF02 and 84 million for MF03. Over one half of expenditures fall under MFOl, 22% under MF02, 8% under MF03and 18%, those for GASS, are unlinked. (Fig7) 31. The high share of MFOl seems to indicate a preponderance of ENRM planning and policy development over implementation and regulation and enforcement. This i s unexpected since most DENRexpenditures are stillincurredinthe Regions and a highMFOl wouldimply a large amount of decentralized planning and policy-making. Budget detail shows that nearly all forest and land management operations, the traditionally largest budget-absorbing activities of DENR, are termed MFO1, as are all STO. Large budget allocations are proposed for no further detailed monitoring, assessing and supervising forest and land management operations (e.g., budget lines IIIal,2 and IIIB1,5), eachinthe order of 600-700 millionpesos. 99 Fig 7:2006 Budget byMFOand GASS(Billion Pesos) 32. The stipulation to `implement' plans and policies under the MFOl (in addtion to `develop, promote, monitor and evaluate' them) could explain the ambiguity. MFO-basing budget h e s may need clearer definitions and choices in order to assign substantive operations. 33. Reference to Annex 2, further suggests that various and indvidually under-funded activities are being promoted simultaneously. Budget lines IIIc, 1-10 (Protected areas, d & f e and coastal zone management), for instance, propose a total of pesos 237 d o n to be spent on 10 activities ranging from pesos 134 milhon for general protected areas management to under 1 d o n pesos for Development and Rehabfitation of Mt. Apo Park. 34. It i s hkely that the observed inconsistency results from the MFO structure and log-frame approach being grafted upon an existing budget and corporate structure in an attempt to subsume all tradtionally evolved activities under the new MFO headmgs. Results-based budgeting in DENR needs to be completed by assigning OVI to all activities and eliminating all those found unverifiable, superseded or transferable to more appropriate actors. T h i s screening process i s still to be done. Itwould need to be h k e d to an agency development and rationahationplan. Table 6 indicates the 2006 NEP by major expenditure category. Table 6 DENRNEP 2006: MFO by ExpenditureCategory Expenhture categories I PSI MOOEl COI Total mllltonDesos II MFOl 2.152 I 8001 921 3.0441 M F 0 2 II 4821 353 I 4921 1.327 I M F 0 3 273 208 13 494 GASS 781 248 27 1.056 total 3.688 1.609 624 5.921 35. Table 6 lllustrates that the formal introduction of results-based budgeting does not by itself assure greater programmability. The share of mandatory PS expenditures remains hgh in MFO based activities (6Ofl/0) thoughless so than inunlinked activities like GASS (73'0). Successful results-based 100 budgeting requires flexibility for re-deployment and skills upgrading of the civil service and the availability of attractive retirement options. `Soft' DENR activities like those under MFOl and MF03will continue to needa highproportionof trained and skilled personnel. After civil service reform the needed personnel would be expected to be composed of a mix of civil service staff and outsourced personnel (private consultants and h e d term contracts). The key to regaining the strategic initiative in ENRM i s therefore to act in the PS expenditure category. An expenditure rationalization effort must look especially into the responsibilities and efficiency of field operations of the forest and land management services. Itwould require an assessment of the extent to which these services perform useful functions given the shrinkingland resources under their auspices and factual control and of the duplication with concerns and competence of other agencies (LGU, DAR, etc.) and determine the continued relevance of keeping these functions within DENR. It would also be of importance to determine the scope for PS shifts between different tasks and region and the staff reduction potential through attrition and early retirement against compensation. The DENR Rationalization Plani s expected to address these concerns. 36. The NPS ENRMloanwould be a catalyst inspeeding up the implementation of the DENRreform agenda. Inparticular it would: concentrate on selected highpriority activities and budget h e s ensure availability of a ready cash flow when needed to achieve efficiency gains and cost savings introduce stability of funding over several years opposed to constricted work programs through uncertainty and short-term nature of annual appropriations and allocations fund agreed DENR activities under the agencies regular program and consequently strengthen ownership of the Program smooth intra-annual shortfalls under NCA and non-timeliness of the cash flow that disturb orderly implementation of approved annual budgets 37. A major rationale for a Program loan through DENR budget support i s also to assist DENR to advance its rationalization plan and reform program that will enable the Department to more effectively meet future challenges. The loan will provisionally cover the period 2007-2010, in line with the timeframe for the MTPDPand the President's ten point agenda. 6. Issues 38. DENR needs to adapt to upcoming environmental issues. The Bank Program will provide an opportunity to assist DENR to evolve more strategically. DENR historically has been focused on forestry and forest conservation. However, demographic changes and growing pressures on resources due to poverty require a more dynamic and flexible approach to land classified as forest. Demography i s driving the brown and blue agendas even more strongly than the green. Over the last 50 years the urban population in the Philippines has increased tenfold, while the rural population has only doubled. At the same time, populations have moved to coastal areas: coastal population growth i s considerably higher than overall population growth. EMB, responsible for the brown agenda, has a budget of 316 million pesos (5% of the DENR budget). Coastal and marine resources management under OSEC, co-responsible for the blue agenda, has a budget of 39 million pesos (0.6% of DENR). Even though other actors, especially LGU, are chiefly responsible for implementing the brown and blue agendas the growingimportance of a central oversight role inthe brown and blue areas would suggest that the imbalance between the three agendas needs to be redressed. 101 39. Within the green agenda the need for rational land use in hilland mountain areas poses another challenge. There are 18 million people l i h g in such areas, or over half of the rural population, whose land use practices are critical for success of the green agenda and who are, unassisted, potentially in conflict with ENRMgoals. They and their communities require accelerated issuing of property rights to land, access to appropriate technologies (e.g., SALT), and financial incentives to adopt them and support services on a much larger scale than i s presently happening. There i s no or only minimal support to legal occupants of A&D land (DAR and DA limitingthemselves largely to servicing agricultural land) and most users are not even officially recognized. Stabilizing and making farming systems of these settlers sustainable requires a multi-agency effort. To succeed, the forestry mindset, where it still prevails, needs to be broadened into a multiple-use view of upland, hillandmountainland. 40. There is an urgent need for a better valuation of services rendered by ENR and for an appreciation that such services cannot be free or under-priced if the environment i s to be safeguarded. Proper costing of environmental services would at the same time improve the revenues of responsible agencies and institutions. T h i s requires extra efforts in developing the necessary scientific, technological and economic tools for appropriate valuation, legislation and enforcement to employ such tools and advocacy and public relations development in order to raise the awareness of the public. DENRcapacity to address these issues needs considerable strengthening. 102 Annex 12:SafeguardPolicy Issues PHILIPPINES: NationalProgram-Support to Environment and NaturalResources Management Priority Activities to be financed 1. The Program will finance a slice of the DENR's core priority activities to meet its mandates and strategic goals in managing, conserving and protecting the country's environment and natural resources. The Project will not finance any activities related to miningof mineral resources. Itwill, however, assist Government address the legacy of the past by supporting the preparation of a comprehensive mine rehabilitation and remediation plan and implementation of interim measures to contain immediate risks posed by the abandoned mines to the environment and the community. The Program will also support activities to strengthen enforcement of environmental and social policies for current and future mining. 2. For this Program, year 1 priority activities are well defined while priorities for years 2-5 are indicative and will be re-visited and agreed with the DENR and its Bureaus and LGUs beginning each calendar year under an annual Program Agreement. All year 1activities, with the exception of the interim measures in the abandoned Bagacay mine site, will only involve preparatory activities such as stakeholder mobilization and consultations, surveys and mappings, trainings and capacity building, seedling collection and establishments of nurseries for indigenous tree species, formation of Water Management Councils in priority watersheds, formulation of watershed management plans, advocacy and IEC works, review of programs and policies, among others. 3. Component 1:Year 1activitieswill include: a Prioritization of existing policies and legislationsinto a Strategic Action Framework; e Review, revision and streamlining of regulatory policies on ENR and PA devolution; e Development of an MIS to link various databases to facilitate management, planning, budgeting and implementation; and strengthen provisionof online access to key databases; a Identification of opportunities to operationalize and institutionalize a Payment for Ecosystem Services (PES) system in DENR; and as a plow-back system in GEF priority watershed and wetland sites; and adopt ENRA as management decision-making tool; a Identification of training needs, preparation of training plans and actual conduct of Integrated Ecosystem Management (IEM) and Integrated Watershed Management (IWM) and devolution trainingof LGUs and other local stakeholders; e Development of a Plan of Action to strengthen DENR results monitoring and evaluation system through baseline studies and preparatory activities, M&E data gathering, policy advocacy, capacity building, and upgrading of M&E facilities. The plan will include a study on clients' satisfaction with DENRinformation service delivery; e Assessment of BMS and IWM database and monitoring needs, establishment of database for priority watersheds (including GEF areas), development of BMS and IWM monitoringsystems in watersheds and of linkage protocols with other systems at community, LGUand national levels; a Development of local communication systems - exchange and collaboration inGEF-areas; a Review and assessment of DENR IEC strategy and framework, structure, roles and functions; and development of an institutionalization plan for rational IEC performance and actions; 103 e Design of advocacy and awareness campaigns and appropriate multi-media packages targeting private-public sector partnership in ENRM (primarily LGUs, the private sector and other key stakeholder groups); e Integration and rationalization, monitoring and evaluation of the impact of donor-project supported IEC plans and Programs. e Supportthe continuingreview and fLrmingup of DENR'sstrategic framework plan; e Refinement of DENR`sMFOs to better reflect the core functions and priority Program outputs; e Strengthening the analytical skills of the budget and planning division to support rational expenditure planning and management; e Formulation of a comprehensive budgeting guidelines/strategy that includes the following elements: a soundbudget forecast, planning and budgeting framework, macroeconomic parameters, performance indicators with baselines/benchmarks and targets, transparent resource allocation and firmbudget envelopes; e Preparation of a comprehensive competency profiling of all DENR units and personnel and formulate a phased retooling and redeployment Program consistent with the DENR's rationalization plan; e Creation of high level awareness on the critical importance of ENRM by mounting a high level advocacy forum as well as field activities with DBM, oversight agencies and Congress on DENR's strategic Program and budget; e Strengthening project development and investment Program to support plan implementation. 4. Component 2: Year 1activitieswill include: e Stakeholder mobilization (mobilization of LGUs, local agencies and communities, formulation of inter-departmental MOASand mobilization policies, development and implementation of local IEC plans and of IWMGuidelines; e Formation of multi-sectoral Watershed/Wetland Management Council (WMC) or expansion/ strengthening of PAMB following adoption and implementation of collaborative approach to watershed management; Capacity-building of local DENR,LGU, communities, and of WMC inIEM; Formulation of a comprehensive IWM/PA Management Plan; Training and pilot testing of a participatory IWM Monitoring System interlinked with the development of local communication systems (see Component 1) and increased law enforcement and protection (see Component 3); e Establishment of partnership/ collaboration with other sectors in enforcement; e Conduct of watershed and wetland surveys and validations to determine key areas for interventions; Development of local rehabilitation plans linked to IWMmanagement planning; IEC introducing the principle of "rain-forestation" with local, native species unique to the area; Capacity buildingcourses for local DENR and LGUand communities on" rain-forestation'"'; Establishment LGU-owned nurseries with native, local plant species and bamboo; Collection and propagation of seeds and seedlings unique to the local forest/wetland habitat; Identification of target beneficiaries following the local poverty index and assess the poorest segments of households dependent on natural resources; a Development a local alternative livelihood strategy and options; e Establishment of a joint LGU-ENRM Livelihood Facllity based on exiting LGU structures; 104 e Preparation of overviews for communities outlining existing and innovative options for optimizing economic benefits from sustainable natural resources management; e Analyses of eco-tourism development potentials including investor identification; e Formulation of an ecotourism business plan inthe context of PES to sustaining IWM e Implementation; e Surveying and mapping of abandoned mines for rehabilitation (Bagacay); e Review and evaluation of pre-mining conditions and define primary measures that need to b e taken; e Implementation of interim measures for the Bagacay mine site to reduce the environmental impact of the mine site while the final rehabilitation plan is being prepared, including construction of diversion channels and limestone channels to reduce the irnpact of acidic water from mine area flowinginto the main river, slope stabilization and construction of drainage canals, construction of fences and berms and installation of waming/safety signages in strategic areas; e Assessment of accident risks (pits, tailingdams, waste rock dumps, natural geohazard); e Detailed Environmental Assessment of implementation risks and impacts (social, health and environment); e Stakeholder analysis and consultation; e Formulation of measures for rehabilitation; e Geo-hazard mapping of highrisk areas for landslides and flood-run-off; e Planning and preparation for groundwater surveys and mapping of selected sites to facilitate more the sustainable management of groundwater resources. 5. Component 3: Year 1activitieswill include: e Promoting sustained participation of LGUs, communities, regional and multi-sectoral bodies in protection and law enforcement in forest and coastal areas for GEF and non-GEFsites; e Formation and capacity-building of multi-sectoral enforcement teams; e Formation and training of voluntary enforcement teams at community level in GEF sites, and identification of incentives for continued participation; e Training in environmental law for communities and Barangay officials, including conflict resolution skills; e Strengthening the implementation/enforcement of regulations relating to air, water, solid wastes and EL4 (antismoke belching campaigns, industrial air quality standards enforcement, water quality monitoring, public disclosure, TA to LGUs, Environmental Impact Assessment Strengthening, trainings) SafeguardPoliciesTriggered The following safeguard policies apply to the Project: 6. Environmental Assessment Policy (OP/BP 4.01): W e the Program i s envisaged to have significant environmental benefits, there may be some priority activities that, if not planned and managed properly, would cause some negative environmental impacts. These may include but not b e limited to livelihood activities in critical watersheds as part of the NRM interventions and the interim measures to be implemented at the abandoned Bagacay mine site to contain the immediate risks posed to the environment and the communities. 105 7. Natural Habitats (OP/BP 4.04): While the impacts on natural habitats would be positive due to habitats rehabilitation and restoration activities, among others, there may be some activities that may affect natural habitats such as the type of species selected and planted for restoration, perverse reforestation activities such as introduction of exotic of and/or monoculture of species, among others. 8. Forest Policy (OP/BP 4.36): Activities under the integrated ecosystem management, inparticular the livelihood activities and support facilities, may impose added pressure on the forest resources. 9. Safety of Dams Policy (OP 4.37): The project will not finance construction of any dams. However, the interim measures for the Bagacay mine site include works to support the stabilization of the tailingimpoundments includingmaintenancelcleaning of drainage canals and construction of drainage canals. Most tailingimpoundments are small at a height of 3m to a maximum of 8m high. 10. Indigenous Peoples Policy (OP/BP 4.10): Indigenous communities are known to inhabit some of the prioritywatersheds to be covered by the Project. 11.The Program is not expected to cause involuntary resettlement nor land acquisition nor will it restrict access of forest settlers and indigenous peoples to forest resources. Site Descriptions 12. The Project will have a nationwide coverage, particularly in terms of the reforms to be effected. However, there are two (2) components of the Project which will be implemented inselected areas. The whole of Component 2 and the sub-component on rehabilitation of abandoned mine site under Component 3 will be implemented in selected priority areas. Component 2 will be implemented inthe prioritywatersheds located within the Southern Sierra Madre Watershed Cluster that includes the Angat watershed reservation, Ipo watershed, D o n a Remedios Trinidad-General Tinio watershed forest reserve, Umiray watershed forest reserve and Kanan watershed all in the island of Luzon. The other two areas to be covered under the Component will include the Libmanan-Pulantuna watershed in the Bicol Region (Region V) and the Liguasan marsh in Mindanao. These areas were selected based on their global and local biodiversity sipficance, rate of degradation and the existing activities and interventions currently being undertaken. The rehabilitation of an abandoned mine site to be supported under Component 3 will be carried out in the Bagacay mine inthe island of Samar inthe eastern Visayas. 13. Dona Remedios Trinidad -General Tinio Watershed Forest Reserve: This i s located under the territorial jurisdiction of the Municipality of General Tinio, Province of Nueva Ecija and the Municipality of D o n a Remedios Trinidad, Province of Bulacan. The reserve covers 20, 878 ha and i s classified as Forest Land, with about 200 individuals residing of which 75% are "Agta", an indigenous peoples (IPS)group. However, in bordering barangays there are a minimum of 1,000 households or 6000 individuals deriving livelihoods out of minor forest product gathering (rattan) and small-scale loggingwithin the Reserve. The area to the northoverlaps with the Fort Magsasay Military Reservation, and an issued IP Certificate of Ancestral Domain Claim (CADC) and the Minalangao Reforestation Project. The topography i s moderately rolling along the Sumach0 River to very rugged terrain along the Sierra Madre Mountains. Elevation ranges from 100 - 900 masl. The soil i s characterized by Annam loam derived from volcanic tuff. The rocks consist of alternate series of metamorphosed sediments and lava. Moderate to severe erosion including landslides in steep terrains occur in areas under informal logging and kaingin. The vegetation i s dominated by 106 lowland Dipterocarp Forest (9lY0) including tree species of Red and White Lauan, Palosapis, Guiso, Yakal, Tangde and Bagtikan; and commercial volumes of Rattan species. The reserve is drained by two rivers: Sumacho and Rio Chic0 Rivers with numerous tributaries flowingwestwards. The water inflow inthe wet season (April) i s 643 million cubic meters and 106 million cubic meters in the dry season (October). The Sumacho River is the major source for the Penaranda River Irrigation System. T h i s area i s proclaimed as Watershed Forest Reserve based on Proclamation No. 230, March 23, 1988. 14. Angat Watershed: The Angat Watershed declared as reservation under Proclamation No. 71, series of 1927, covers an area of 62,309.10 ha. It i s located within the municipalities of SanJose del Monte, Norzagaray and Doiia Remedios Trinidad, in Bulacan Province; and E. Rodriquez (Montalban) in Rizal Province. The Angat Watershed has two distinct topographic features: (a) moderately rolling dissected mountains with rounded crests and ridges, which are typical of the western half of the area from the middle part of the watershed; and @) steep slopes characterizing the central portion to the eastern Bulacan-Quezon boundary. For the entire watershed, elevation varies from 40 m. to 1,300 m. There are more than 200 perennial and intermittent rivers and streams drain the Angat Watershed feeding the reservoir of Angat. Magsuong River has the highest number of streams at 50, followed by Matulid River at 45. Sapang Anginan River has only three streams. The Angat Reservoir has the highest constancy of channel maintenance value of 1,490 m and Angat River has the lowest value of 87.9 m. Three major soil types are dominant: Clay loam, Novaliches soil and Sibul soil. These types of soil are rich in clay content. Severe soil erosion will occur on these areas, if cultivated. The forest floor i s covered with thick litter particularly inthe old growth Dipterocarp forest. Dark decomposed organic matter characterizes the A-horizon. Soil in Angat Watershed i s generally dark brown, reddish brown to dark reddish brown. Texture i s clay to silt clay. Wide areas of Angat Watershed Reserve are characterized by limestone. This limestone shows extensive and typical karst form. The limestone outcrops are made up of mollusksand algae. These outcrops appear as elongated ones oriented north-south and lying adjacent to the volcanic ranges. Limestone i s used by nearby cement plants. About 55,891 a (87.3 "0) of the watershed area are still covered with forests. Dipterocarp forest, which includes old growth and residual forest, covers about 76.1% of the total land area; mossy forest covers about 5.4% and sub-marginal forest occupies about 5.70%. Plantations, together with brush land cover about 2.5% of the total area. The non-forested portion of the area covers 6,418 or 10.3%. Other land uses are open lands where settlements are located. Itincludes open-slides, cultivations, villages, and water surfaces. 15. Ipo Watershed: The Ipo Watershed is located within three municipalities: Norzagaray and San Jose del Monte in Bulacan, and E.Rodriguez (Montalban) inRizal. The watershed i s approximately 6,600 ha in size; and was created by a Presidential Proclamation No. 391 of April 30, 1968. The municipalities of Norzagaray and San Jose D e l Monte have jurisdiction over 2,403 ha (33.5%) and 4,445 ha (62%), respectively while E. Rodriguez (Montalban) covers about 328 ha or 4.5% of the area. The Ipo Watershed has a rolling to moderately rollingterrain at the western and southwestern portion and very rugged at the eastern portion along the Sierra Madre Mountains. The lowest elevation of the Watershed i s about 90 masl at the site of the Ipo D a m while the highest elevation i s about 1,188 masl located at Mt. Oriod, with an elevation difference of 1,098 masl. The geologic type at the lower portion of the watershed i s represented by Cretaceous-Paleocene (igneous rocks) which covers about 4,831.55 ha (66.75%). The remaining area i s composed of Oligocene-Miocene (Sedimentary & Metamorphic Rocks), Oligocene (Igneous Rocks), and Neogene with respective area of 48.465 ha, 15.005 ha and 2,282 ha. The soil type of entire watershed i s Tropodults with Tropodalfs, Tropepts and Oxisols. Generally, the soil texture i s of clay to clay loam, deep porous and brownish in color. The Ipo Watershed serves as the source of domestic supply for nearby 107 communities and Metro Manila. There are 4 sub-watersheds representing the major river/creek draining to the Ipo Reservoir. Sub-watershed 1i s the largest with drainage area of about 3,590 ha. I t s major tributary i s the Ipo River, which i s the largest river located on the southern portion of the watershed. The tributaries come from Mt. Maranas and Mt. Holong Ipo, and the total stream length i s about 28 km. Sub-watershed 2 i s the drainage area of Pakong Maliit Creek and has an approximate area of 540 ha, and a total stream length of about 6.5 km. Sub-watershed 3 has an approximate area of 1,554 ha. I t s major tributary i s Pako River; the largest river located on the central portion of the watershed. I t s tributaries come from Mt. Maranat and Mt. Oriod. Total length of streams i s about 14 km. Sub-watershed 4 i s the drainage area of Sapang -Angman River located at the northern portion of the watershed, covering about 691 ha. And 7 km total length of streams. The watershed has three land cover types: cultivated area; forest area; and grassland. About 31% of the watershed area (2,210 ha.) is closed canopy. Satellite imagery interpretation (2003) shows that there was an increase of forest cover inside the watershed from 31% (1987) to almost 76% (2003). Most part of the watershed i s adequately covered with forest vegetation, and in general; soil erosion i s not a serious problem. However, slight to moderate erosion occurs in open/grassland and some kainginareas. More severe erosion including landslides occurs inpatches of cultivated areas with very steep slopes. 16. Kanan Watershed : The Kanan Watershed i s located in General Nakar, Quezon. It covers an area of about, 39,160 ha. It i s bounded to the south by Agos River, to the north by the Umiray Watershed Forest Reserve, to the east by the Pacific Ocean (Barangays of Maligaya and Sablang), and to the west by the Province of Rizal. Patches of cultivated land are found in the watershed; primarily along the river banks: These lands are allegedly owned (claimed) by in-migrants while areas to the north of the watershed and along the river are ancestral domains of indigenous people (Agta). The watershed i s dominated by the north-south trending Sierra Madre Range. The watershed has an undulated terrain ranging from mountainous to moderate terrain: the mountain slopes are steep and descend gradually on the west towards the plain of Gen. Nakar Municipality. Elevation ranges from Agos River (35 masl) to Mt. Malabito (1,334 masl). Soil in the Kanan Watershed area belongs mostly to Antipolo series; at the southwestern flanks of the catchment are the soil type falls under the Alimodian series. These soils are deep, red to yellowish red and well drained. The soil pH i s extremely acidic, low in organic matter and deficient in phosphorous. There are 204 streams inKananWatershed with a combined total length of 329.5 km. The streams have an average width of 10 m. or wider. Stream depth varies from less than one meter during dry season to several meters deep duringrainy season. 17. The watershed is characterized as primary lowland to upper mountain tropical rainforest. Among dominant vegetation are Lauan, Apitong, Bagtikan, Yakal, Palosapis, Tangude and other species of family Dipterocarpaceae. There are also various species of rattan (Calamus sspl. Narra, Kalantas, Tuai, Katmon, Kalabaw, Malabayabas, Batikuling, and other hardwood species are widely found in the watershed together with important minor forest products. Among the agricultural crops planted are coconut, palay, jack fruit and other seasonal crops. A total of 70 globally threatened or near-threatened species of wildlife are known from the Sierra Madre Mountain Range, including 13 species of mammals, 46 species of birds, 7 species of reptiles and amphibians and 4 species of shellfish. Few other areas in Asia contain a similar high concentration of globally threatened species. Recent baseline biological surveys north of the proposed intervention area have documented several new species unknown to science. K e y flagship species include Dipterocarp tree species such Red and White Lauan and Philippine Eagle, Philippine Macaque and Philippine Deer. 108 18. Libmanan-Pulantuna Watershed: The Libmanan-Pulantuna Watershed covers an area of 70,920 hectares and i s one of the major sub-watersheds of the Bicol River Basin. The watershed includes 6 municipalities inCamarines Sur (Del Gallego, Cabusao, Libmanan, Lupi, Libmanan-Pulantuna, and Ragay) and 2 municipalities in Camarines Norte (Basud and San Lorenzo Ruiz). Total watershed population i s 313,186 individuals represented by 56,943 households. The watershed i s a low-lying watershed located at elevation of 500 masl and below; except for some 400 ha. The highest elevation i s at 1,036 masl and the lowest at 2 masl. Around 90% of the watershed has gentle slopes of not more than 30%. Only 8,000 ha of the watershed have slopes over 30%. The areas with steep slopes are found only in the municipalities of Imelda and D e l Gallego while the areas covered by other municipalities are generally flat to rolling to moderately steep. The watershed i s predominantly clay loam types: Luisiana clay loam and Alimodian clay loam are the most dominant soil types inmore than 55,000 ha. Of the watershed Faraon clay, Balongay clay and Pili clay loam are found inmore than 15% of the watershed. Soil samples have shown that soil texture i s basically clayey, and highly acidic with pH of 4.2- 4.55. Mt. Tangcong Vaca and the Libmanan Caves are generally limestone structures. The soil texture in these areas i s clayey, and pH i s generally neutral to basic. Macronutrients are generally low. Almost 70% of the watershed consists of alienable and disposable lands (48,000 hectares) and only about 25 Yo i s classified as Forest Reserve (18,200 hectares), with another 6 Yo classified as National Park (4,380 hectares). 19. The watershed is located along typhoon paths and an average of two typhoons visit the area every month. Libmanan-Pulantuna Watershed has two major rivers, the Pulantuna andLibmanan Rivers. Three smaller rivers that drain the Bicol National Park feed into the Pulantuna River. Libmanan River originates from the peak of Mt. Lab0 and flows southeasterly to the San Miguel Bay. The streams and rivers of the watershed have a total length of streams of about 635 km with an equivalent drainage density of 9 mper ha. The total average daily and annual groundwater recharge of the Lower Bicol River Basin is about 0.18 MCM and 65 MCM, respectively while that of the Upper Libmanan Basin i s about 0.33 MCM and 122 MCM, respectively. The watershed i s dominated by agriculture and other non-forest uses (90Yo) covering 64,000 ha. The remaining i s 6,700 hectares of forest. However, the entire coastal area north and south of the Bicol River i s a near-intact and diverse coastal wetland that extends 4.5 km inland and 20-25 km along the coastline of the watersheds. The wetland includes at the least 177 ha of mangroves ingood condition. A floral inventory done in 2003 showed 416 species recorded in four sampling sites. These 416 species represent 290 indigenous species of which 86 are endemic to the Philippines (20.67% endemicity),. Lowland Dipterocarp forest found in Bicol National Park (BNP) covers 3,217 ha., but a sizable portion of original forest is also found at nearby Mt. Kolassi. There are about 190 faunal species known to occur in the watershed of which 58% are endemic to the Philippines. This i s a highnumber interms of endemicity. Non-endemic and non-migratory fauna represents 23%. 20. Ligawasan Marshes: The largest swamp and marsh complex in the country, the Ligawasan Marshes comprises of about 288,000 hectares of wetland ecosystems within the flood plains of the Cotabato River Basin. The marsh system includes the Ligawasan, the Libungan and the Ebpanan Marsh within the provinces of Maguindanao, North Cotabato and Sultan Kudarat). The total population within the entire marsh complex and which i s directly or indirectly dependent on the resources of the marshes i s about 1.1 million of which more than 60% rely on fishing and agriculture. The areas remain a stronghold of insurgents and access i s restricted. The Ligawasan Marshes are at the confluence of the Pulangi, Maganoy, Buluan and Allah Rivers; the Libungan Marsh lies at the confluence of Libungan and Mindanao Rivers. The wetland system i s a complex of river channels, freshwater lakes and ponds, freshwater swamps, and swamp forest (5,000 ha). It i s mostly flooded during heavy rainfall periods, but some 140,000 hectares are dqmg up during the 109 dry weather periods. They are now semi-permanent cultivated areas. A floral study under a Protected Area Suitability Assessment (PASA) revealed 194 species. These are generally common species found elsewhere in the country with 6% of the species identified endemic to the country. However, the Terminahacopelandii, once an abundant species in the remaining swamp forests of the country, i s now subjected to pressures leading to probable local extinction.. Typical composition of the three component marshes pbungan, Ebpanan and Ligawasan) includes sedges, grasses, legumes and aquatic hydrophytes such as water lily, water, hyacinth, water cabbage and cattails. The forested areas are dominated by bangkal, (Natlclea obentahs) and putat (Bamhgtonia racemosa). The marshes are classified as an Important Bird Area, and they support primarily relatively large congregations of resident or non-breeding waterbird populations including herons and egrets, rails, shorebirds, and duck species. A few terrestrial threatened and restricted-range bird species also occur. These include as a minimum 11Philippine endemics. Most of the endemic avifauna species are associated with the forest habitats within the marsh or its peripheral swamp forests. Six species of reptiles and four amphibians have been reported, and the marshes are one of the last strongholds for the endemic and endangered Philippine Crocodile (Cmco~$lmmindorensis), and the Estuarine Crocodile C. pomstls. It also supports at least 33 species of freshwater fishes. Nine (9) species of mammals have been recorded with only one species being a Philippine endemic; the Jagor's fruit bat (Ptenocbimsjagon) . 21. The land use is dependent on the annual and seasonal floodingpatterns inthe marshes. As a result, the area and duration of the cropping season vary every year and so with production which inturn affect the economic condition of the marsh population. The classification of the land area and land uses is: agricultural land, forest land, resettlement/built-up area, and original marsh/swamps. The estimated total agricultural land area i s 56,500 ha; the forested land i s about 5,300 ha. And the settlement/built-up areas totals approximately 38,600 ha. The aggregate fishpond areas are 15 ha. There are a number of dams used for irrigation and fishing; the largest of the dams are 140 and 150 ha respectively. The Mindanao River i s the principal drainage for the Cotabato River Basin, which traverses the Ligawasan Marsh Complex. It i s formed by the confluence of three major tributaries, namely the Pulangi River ('joined by the smaller Kabacan, Maridagao, and Malitubog Rivers) where the main source of water comes from the Province of Bukidnon; the Libungan River and the Allah River. In the southeastern part of the Ligawasan Marsh proper i s also the Buluan River that flows directly into the Ligawasan Marsh. Other smaller rivers flowing from the mountain in the eastern part of the marsh proper includes the M'lang, Malasila, Alep and Kapingkong Rivers. Generally, the parent material of the soil inthe marshes i s derived from coral limestone. The water i s loaded with sediments w e s t o n e materials) carried through the erosion process. Through the waterways draining into marsh, soil residues (alluvial soils) are deposited (siltation) on the flood plains. The soils in the marsh are characterized by the hydrosol, clay loam, and clay soils. The hydrosols cover 18% at the western and eastern portions of the Ligawasan Marsh. The clay loam soil types are all over the area. 22. Bagacay Mine Site: Bagacay Mine i s located in Barangay Bagacay of the Municipality of Hinabangan, Western Samar. The mine was previously operated by Philippine Pyrite Corporation and i s currently managed by Privatization and Management Office (PMO), formerly known as the Assets Privatization Trust (APT) of the Department of Finance. From 1956 - 1985, Marinduque Mining and Industrial Corp. (MMIC), who previously own the property, operated the mine primanly for copper minerals. In 1986 MMIC then entered into a Memorandum of Agreement with Philippine Phosphate Fertilizer Corp., which in turn entered into a Memorandum of Agreement with Philippine Pyrite Corporation (PPC), a subsidiary of PHILPHOS, who operated the mine from 1986 to 1992 for pyrite concentrates. PPC ceased operation in 1992 due to the 110 risingoperational cost of recovery, which was also aggravated by a labor dispute. Bagacay Mine has two (2) types of ore deposits, the complex massive sulfide ore and the carbonaceous sulfide ore. Both contain abundant sulfide minerals such as pyrite, marcasite, chalcopyrite, bornite, chalcocite, digenite, coveuite, sphalerite, galena and trace minerals such as tetrahedrite, tennantite, gold, silver- gold and arsenides. Aluminum inthe form of bauxite have been reported to lie within limestone sinkholes in flat, uniform floors inBarangay Concorde, about eight (8) kilometers south of Bagacay mine area. Coal i s also known to exist in the area and has been mined in the past by the former Marinduque Mining and Industrial Corp. (MMIC). Both Bagacay Mine and Philippine Pyrite Corporation utilized open pit mining method where the ore i s mined by drilling, blasting, loading and hauling. Milling method on the other hand involves the use of the standard sulfide flotation method in which the ore i s crushed, ground, classified and then subjected to flotation by metallurgical reagents. 23. Records of the DENR Regional Office No. 8 revealed that in 1990 and 1991 prior to PPC's closure in 1992, the DENR had twice issued a Cease and Desist Order (CDO) to the company due to the pollution of Taft River caused by tailings leakages. The same Office as a result of their monitoringin 1992 disclosed that the water from the Guila-@a Creek, which traverse through the miningareas of PPC and drains to Taft River did not meet the DENR drinkingwater and effluent standards. The result of the assessment of DENR - MGB Regional Office No. 8 in 1999 revealed that Taft River, from the downstream PPC area going to its mouth are silted allegedly due to run- offs from PPC's Tailings Pond, mine pit and immediate creeks with exposed loose soil cover conducive to erosion. The silt build-upin some stretch of the river caused shallowing of the river- bed resulting to the overflowing/diversion/deviation of the flow of floodwaters to adjoining low areas. In the same year, the Municipal Council of Taft, Eastern Samar, as a result of their study in the area and through Resolution No. 6, Series of 1999 endorsed to the DENR the revival of Taft River interms of reforestation, assisted natural regeneration and agro-forestry seeking P17 W o n fromits budget. This however didnot materialize. 24. From the year 2000 and onwards, various environmental assessments and monitoring by the DENR Regional Offices were conducted. Their reports revealed the following: the mine affected area i s devoid of vegetation; the tailings contained in the pond are already compacted but surfaces covered with impoundedwater were relatively soft; a part of the Waste Dump southeast of the mill plant were eroded and slumping towards Taft River; creeks have been narrowed down; and the mine and mill facilities had deteriorated. Tetra Tech Em, Inc., a consulting firm commissioned by MGB Central Office to conduct semi-detailed assessment of Bagacay Mine or PPC, reported the following: dilapidated mill and laboratory facilities; unstable slopes of Mine Pit and the walls of Tailings Ponds that might collapse causing siltation of drainage systems. The report of the DENR -MGB inthe river assessment and water quality monitoringconducted at Taft River in2003 showed a neutral pH and clear water both at the discharge point of the settling ponds and the recipient Taft River downstream, although such will turn murky during rainy season. Also the condition of the Taft River system showed appreciable recovery from previous ecological alteration brought by siltation as a result of run-off from collapsed tailings dam and mine waste dumps of PPC. Environmental Impacts ofYear 1Priorities and MitigatingMeasures 25. Two separate environmental assessment (EA) studies were undertaken by the proponent as part of the Program preparation. The first EA assesses the impacts of year 1priority activities, whereas the second EA focuses on the interimmeasures for the abandoned Bagacay mine site. 111 26. Impacts of year 1priority activities: Year 1activities will mostly involve "soft" activities, with the exception of the interim measures for the Bagacay mine. As such, year 1priorities are assessed to have no negative environmental impacts. 27. Impacts of implementing the interim measures for the Bagacay mine site: The purpose of the interim measures at Bagacay are to reduce the environmental impacts of the existing mine site while data i s being gathered and the final mine rehabilitation plan i s being prepared. Ingeneral, the interim measures (construction of diversion and limestone channels, drainage canals, fences and berms, slope stabilization measures and installation of signages) will cause generation of silt materials mainly from the construction of diversion and limestone channels, drainage canals, berms and fences and, to a little extent, slope stabilization measures. However, the silt materials will be contained by the silt traps/ponds to be constructed within the drainage channels and downstream of the limestone channels and other strategic areas. To further prevent the silt materials from movingdown to Taft River, implementation of the interimmeasures will be carried-out during the dry months. Regular monitoring, de-silting and maintenance activities will also be provided to ensure efficiency of the silt traps/ponds. Silt materials collected from de-siltation and maintenance activities will be deposited in the interim at the tailings ponds until full measures and disposal options are identified. 28. The construction of proper drainage canals as well as stabilization of the tailings dam will prevent any movement of tailings materials downstream. Most of the tailings materials are already compact thus eliminating movements downstream. Possible tailings materials that will be moved by the flow of surface water duringrainy days willbe contained along the silt traps constructed downstream of the limestone channel thus preventing them from flowing to Taft River. Again, regular monitoring, de-silting and maintenance activities will be provided to ensure efficiency of the silt traps. 29. The possibility of tailings ponds ("s) failure i s highly unlikely. T h i s i s due to the already compacted tailings materials, the absence of water impounded along the TI? structures which reduces the pore pressure in the dam, the lower height (3-8m) and gentle slopes of pond embankments and the construction of proper drainage canals within the tailings ponds which strengthen its stability. This i s confirmed by a separate geotechnical assessment report of the T P s conducted by the Mines and Geosciences Bureau. Ina remote event that the dam failure will occur, there will be no community that will be immediately and severely affected since the there i s no existing immediate community that lives downstream of the dam. The areas that will probably be affected, though in a lesser degree, will be the existing small riparian community along the Taft River about 20 kilometers away from the miningarea. 30. Impacts of acid mine drainage and interim options considered: The increase of acid mine drainage (AMD) volume i s considered remote, particularly during the dry season. However, it can be different during the rainy season. As such, any excavation required in the construction of diversion channels, limestone channels and slope stabilization activities will be done during the dry seasonlsummer period. Upon completion of the interim measures, the volume of acidic water willbe reduced since allneutralwater fromthe different tributaries willflow directly to Taft River and only the rainwater which falls into the surfaces of the miningareas will form acidic water. Any acidic water generated from the rainwater that gets in contact with the areas will, however, be subjected to neutralization process through the constructed limestone channels before this flows into the Taft River. 112 31. AMD i s generated from the previous miningarea due to the interaction of sulphide minerals with the natural precipitation. The resulting acid, metal-bearing water goes with the drainage to the nearby Taft River where, according to previous investigations, it i s neutralized and a major part of the metals precipitated. This seemingly effective neutralization is an effect of the limestone bedrock in the area and the generally high pH (7-8) of natural waters in the region. This i s consistent with the experience from other limestone-dominated mining areas in the world. Consequently, it appears that the situation i s far from acutely dangerous regarding AMD contamination. Furthermore, intensive monitoringwill be needed to learn exactly the character of the problem, ;.e., pH conditions, identification of metals and the concentrations, suspended solids, water flow channels and rates, seasonal distributionof precipitation, etc. T h i s information does not exist today but will be collected as part of the preparation of a comprehensive rehabilitation and remediations program of the abandoned Bagacay mine. Presently, there i s no basis for devising a water treatment plant, nor the design of it or its capacity34. Such plant i s usually set up at active mines or in previous areas of miningwhere there i s ample information regarding the character and extent of the problem, as well as an existence of necessary infrastructure (electricity, roads, etc.), and the means and rationale for runningsuch installation inthe long term. 32. AMD i s a very obvious problem within the circumference of the mining area, mainly because it prevents re-vegetation and the use of the area for other purposes. Measures for counteracting this problem include: (i) diversion of clean water from the surrounding areas so that it does not enter the miningarea and becomes contaminated; (ii) relocation of certain waste dumps to minimize their weathering and contribution to the formation of AMD; and (iii)covering of ground within the miningarea with a layer of limestone. These measures would help inreducing the general rate of AMD generation from the area, provide a highpH substratum for the planting of trees and aid in preserving some of the previously planted trees and grasses on the site. The measures would have the two-fold purpose of attaining certain amelioration and also to provide practical experience of how to remodelthe landscape and cover miningwaste inan efficient manner. 33. A particular AMD related issue i s the erosion and transport of miningwaste with surface water in the form of suspended solids, which in the downstream villages, quite possibly could represent a somewhat bigger problem than the AMD metals in solution. However, even this issue would have to be monitored and evaluated in detail in order to allow for a long term and more sustainable solution. What needs to be done as part of the landscaping discussed above is the creation of pockets or depressions to allow for the settling of solids and partial clarification of drainage water. 34. Limestone for the covering of waste can be taken from a number of nearby quarries previously run by the mining company. The natural setting is such that it should be possible to make such exploitation without negatively affecting the nature. As a matter of fact, such activities, if well planned and carried out, could even improve the presently non-rehabilitated quarries. The cost of quarrying and spread of limestone in a layer of 0.2-0.3 m in thickness should be in the order of magnitude of US$20,000 per ha. Experiments with a thin layer of clay acting as a seal between the miningwaste and the limestone is also recommended. 35. A monitoring system of 10-15 main points of registration will be established and be in use well before the onset of the indicated measures (to provide baseline values for later comparison) and during the whole period of the project. In this way, the effect of measures will be recorded, and 34However, it can be foreseen that the capacity of such a possible treatment plant would have to be considerable due to the sometimes very intensive rainfalls inthe area with heavy precipitationover short periods o f time. 113 information will be provided for the modification of methods and procedures. Parameters to be recorded should include field determinations of physico-chemical data (precipitation, flow, pH, conductivity, suspended solids) and laboratory determinations of metals in solution (all important metals and a number of other relevant elements analysed by ICP-MS in a certified laboratory abroad). Water sampling and laboratory analysis should be done before the start-up of measures, then monthly, and finally after a year on a quarterly basis. Field measurements of physico-chemical properties should initially and during certain periods of frequent precipitation, be done daily, otherwise weekly. Table 1shows the anticipated impacts of the interim measures for Bagacay and the mitigatingmeasures. Table 1:EnvironmentalManagement Plan for the InterimMeasures Phase Activity Impacts Measures Responsible cost Party Construction Constructionof - Silt generationand - Constructionof silt Contractor and - Part ofthe diversionand siltationofTaft traps/ponds to the Mines and Programcost. limestone riverandits contain silt materials Geosciences Cost details to be channels, - Undertakingthe Bureau(MGB) knownduring drainage canals, -tributaries Increase constructionduring of the DENR appraisal. fences and berms generationof acid the dry season mine drainaee Slope - Siltgenerationand - Constructionof silt Contractor and - Partof the stabilizationof siltationofTaft traps/ponds to MGB Programcost. selectedareas riverandits silt materials Cost details to be tributaries -contain Undertakingthe known during - Increase construction during appraisal. generationof acid the dry season mine drainage Installationof None None Contractor and - Part of the safety signage the MGB Programcost. Cost details to be known during appraisal. Operationsand De-siltingof silt - Environmental - Silt materials to be MGB - Part of Maintenance traps/ponds contaminationdue temporarily Operationsand to improper depositedin Maintenance disposal of silt rehabilitatedtailings cost. materials containing pondsuntil final heavy metals disposal measures are identified SocialAssessment and Impacts 36. The Program envisages having positive impacts on communities with the introduction and implementation of sustainable livelihood activities and sound integrated watershed management program. Involuntary resettlement and land acquisition are not triggered. The Program i s not expected to involve involuntary resettlement and land acquisition or restrict community access to resources. The program has opted to use OP12 (GEF) ecosystem management as opposed to OP2-biodiversity management as the focus; the underlying argument being on management by creating the right incentive structures to reduce threat to the resources. Through the implementation of demand driven alternative livelihoods activities, communities would be encouraged to participate in activities that also benefit NRM and biodiversity management - a process to increase buy-in. The program does not envisage demarcation of protected areas into strict biodiversity - no go areas - with a surrounding buffer area which would result in some restriction. Rather, by offering communities a menu of feasible alternative livelihood activities the 114 assumption would be that in the medium term the pressure would be reduced through a voluntary change in the communities' use of resources. This more "relaxed" approach i s guided by previous lessons learnt -restriction results inanimosity and limited benefits to the threatened areas. 37. Indigenous peoples/indigenous cultural communities are present in the Southern Sierra Cluster, composed of the Angat, Ipo, DRT-Gen Tinio and Kanan Watersheds and the Libmanan-Pulantuna Watershed located in the Bicol Region. The Program i s expected to benefit them by way of increased income from sustainable livelihood activities that will be developed with them as direct participants. They shall have a seat in the Multi Sectoral Council and provided with technical assistance from competent professionals to ensure the promotionof their interest inthe Integrated Ecosystem Watershed Management Plan and its implementation. Completed Ancestral Domain Sustainable Development and Protection Plan (ADSDPP) shall be integrated to overall watershed management plans. 38. The Integrated Ecosystem Watershed Management shall heavily utilize the participatory approach inprogram development and management. Towards this, the six Social Assessments prepared for the program defined and analyzed the respective key internal and external stakeholders of each watershed detailing their capacities and assets, constraints and liabilities and degree of influence. They also include respective demographic and socio economic baseline data of affected communities including a survey of current livelihood activities in the areas. Using the above, the assessment reports gave inputs for the preparation of Integrated Ecosystem Watershed Management Design which promotes greater social inclusion, a framework for micro enterprise development for equitable distribution of livelihood opportunities, accountability, transparency and greater ownership to the program of key stakeholders. The Social Assessment for the Liguasan Marsh includes a discussion of the high influence of the Moro Islamic Liberation Front (MILF) over the program particularly on policies and concepts on land tenure spawned by the long term conflict with t he Philippine government. Conflicts on use of resources are normally resolved at the clan level and those unresolved are brought to the mujahideen leaders such as the revolutionary barangay chairman or area commander. The most difficult cases are endorsed to the civil-military tribunal inthe area which resolves it with heavy use of the Muslimbody of beliefs and systems. 39. The following problems that have major implications on the Program design on the management and capability building needs of the stakeholders for this program identified common in varying degrees to all watershed areas are as follows: i. Lackofintegratedecosystemdatabase; ii.Conflicting institutional mandates with corresponding insufficient coordination among government agencies at central and local level; iii.Absenceofcohesiveprogramforforestandwatershedmanagement,lackofsectoralguidelines for ecosystem-based watershed and biodiversity management; iv. Where project exist lack of integration among DENR and LGU programs and initiative and ability to perform; v. Population growth, high level of poverty incidence and low employment opportunities except farming leadmg to increased in-migration to forest areas; vi. LowLGUrevenue generation inproposedinterventionareas; vii. Massive conservation ofwatershed forest; viii.Inappropriate practices such as slash and bum and charcoal making in forest areas and increased pollution of water bodies (waste disposal, fertilizer and chemicals in water ways in production zone); 115 ix. increasing frequency in flooding of lowland areas during rainy season and decreasing water supply duringdry season caused by a highly limited forest cover; and x. Lack of political will and incentives to laws and regulations leading to unsustainable extraction of forest and non forest products including wildlife products with corresponding loss of biodiversity and opportunities for sustainable natural resources uses. 40. A separate social assessment report has also been prepared for the measures that are going to be implemented in the interim period that the full scale Plan for the Closure and Rehabilitation of the Bagacay abandoned mine i s being prepared. It has validated the divide between the parochial interest of the upstream communities to reopen the mine and those downstream along the Taft River whose head water flows below the Bagacay Mine. The Samar Catholic Church, the academe and local officials are supportive of the closure of this and other mines in Samar. The SA report also provides recommended arrangements to ensure meaningful participation of the stakeholders and accountability of implementers in the implementation of the interim measure and factors to consider inthe preparation of the full scale rehabilitation plan. 41. The above social assessments are products of many consultations with project stakeholders and there i s even an expressed disappointment now from the stakeholders on the perceived long delay of the programlaunch. Environmental Guidelines for Years 2-5 Priorities 42. Environmental Guidelines: The EA for year 1 priorities has also formulated environmental guidelines, which are a combination of negative list of activities/subprojects and measures to address potential impacts. These guidelines will be made part of the Project's Operations Manual for the DENR and the LGUs to strictly adhere to during the planning, design and implementation of future priorities. Ingeneral, the Program dhave the followingguidelines: Livelihood activities: These will have to be consistent and/or identified in the multi- stakeholder watershed management plan, sustainable and compatible with the land use. They shouldnot impose additional pressure on the watershed and natural resource base. Livelihoods that will cause adverse negative impacts will not be financed; Negative list of activities and/or subprojects: These are the types of activities/subprojects that will cause adverse environmental impacts and these include, among others, purchase of pesticides from the Program funds; introduction/planting of exotic species in conservation areas; monoculture of species; use/adoption of destructive and unsustainable farming practices in agro-forestry sites; clearing of vegetated areas for reforestation; perverse reforestation activities within existing natural forests and wetlands; livelihood activities and any activities that are not identified or not part of the watershed management plans, etc.; Priority activities/subprojects should not affect protected areas and other sensitive areas: Any activity that will negatively affect environmentally-, culturally- and socially-sensitive areas will not be supported by the Project; Activities with adverse environmental impacts will not be funded: The Program will not supportany activity that wouldadversely affect the environment; Environmental assessment wdl be required for any activity/subproject that will be assessed to have environmental impacts; Screening of activities/subprojects for any adverse impacts and/or their eligibility under the Program shall be done during the annual programming discussions with the DENR Bureaus 116 and the LGUs. Activities/subprojects with environmental impacts but are eligible shall be required to do an environmental assessment either ina form of EMP, IEEor fullEIA. Social Development and Management Measures 43. Indigenous Peoples Policy Framework (IPPF): An indigenous peoples policy framework has been developed to ensure that IPs/ICCs are informed, meaningfully consulted and mobilized to participate in the identification, planning, implementation, monitoring and evaluation of the projects be supported by the by the ENRMP. Their participation can provide them with benefits of more certainty. The indigenous peoples inthe ENRMP priority areas are the Dumagats of the Southern Sierra Madre Cluster composed of the Angat, Ipo, D o n a remedios Trinidad-General Thio and the Kanan Watersheds and the Agta ofLibamanan-Pulantuna Watershed. 44. The Policy Framework i s anchored on the provisions of the Philippine Constitution which recognizes the rights of indigenous communities to their ancestral domains and their power of dominion over their land and resources. It is drawn from the rights of the indigenous peoples on development projects affecting them embodied in the Indigenous Peoples Rights Act (IPRA) or Republic Act 8371. These are their right to an informed participation in the formulation and implementation of any government or private project that will affect them or impact upon their ancestral domain and to receive just compensation for any damage they may sustain as a result of the project and their right to participate fully, if they so desire, at all levels of decision making in matters that affect their lives, rights and destinies throughprocedures determined by them to ensure that their own political sti-uctures are developed and maintained. The Policy Framework was prepared in the context of the World Banks Operational Policy 4.10 on Indigenous Peoples which specifies that Bank-supported projects must give protection to indigenous people from being marginalized and other negative impacts and the development of Indigenous Peoples Development Plan (IPDP) that will detail protections from potential adverse impacts and enhancement of their benefits in time with the planning of site specific Integrated Ecosystem Watershed Management Program inthe prioritywatershed where they are present. 45. The engagement of the IPSin the ENRMP shall, with absolute certainty, assure that they do not suffer adverse effects during and after the program implementation and that they receive culturally compatible social and economic benefits. It i s also premised on the full respect for the dignity, human rights and cultural uniqueness in accordance with their customary laws and practices, free from external manipulation, interference and coercion with complete disclosure of the intent and scope of the project inthe local language. 46. Consistent with these principles, the following operational strategies are specified: Provision of technical assistance for the indigenous communities so that they may participate meaningfully in the planning process. Among others, this includes the deployment of competent and committed Program partners who can work with them in ensuring that their prioritized plans and project as reflected in the Ancestral Domain Sustainable Development ProtectionPlan (ADSDPP)are incorporated into the Watershed Plan. Participation in peace building efforts by empowering them with necessary negotiation and conflict management skills to assert their own development priorities and preserving their cultural identity. 117 Use of culturally appropriate communication, media strategies and tactics for social mobilization. Strong adherence for documentation and compliance to agreements made specially those pertaining to the acquisition of Free and prior Informed Consent; and Participation in the development, monitoring and evaluation of mitigation measures. In the event that there are adverse impacts on them. 47. To ensure compliance to the above guidelines, representatives of the IPSshall participate in all levels of decision making in the site specific Multi-sectoral Watershed Management Councils including supervisory meetings and visits undertaken by DENR. The project proposal format will include screening for IP safeguard issues. Regular monitoringshall include the verification of the implementation of guidingprinciples stated above, monitoring of commitments to them including the timeliness and adequacy of disbursement of funds intended for them, and their inclusion in the implementationreview of subprojects/ac tivities. 48. To resolve complaints and grievance, a community assembly/public hearing in the presence of an outside arbiter (preferably from NCIP) shall be called. IP traditional leaders in communities with IPSas majority population shall facilitate the community assembly while Barangay Officer shall facilitate it in communities where indigenous peoples are the minority. The concerned CENRO shall serve as observer and documenter of proceedings. If unresolved at the community level, the case shall be elevated to the Provincial office of NCIP consistent with the provisions of IPRA. 49. The program design and budget provides for technical assistance for the IP capability building to include the formulation, implementation and evaluation of the IP Development Plan. 50. Livelihood Development: The program has opted to use OP12 (GEF) ecosystem management as opposed to OP2-biodiversity management as the focus; the underlying argument being on management by creating the right incentive structures to reduce threat to the resources. Through the implementation of demand driven alternative livelihoods activities, communities would b e encouraged to participate in activities that also benefit NRM and biodiversity management - a processes to increase buy-in. The program does not envisage demarcation of protected areas into strict biodiversity - no go areas - with a surrounding buffer area which would result in some restriction. Rather, by offering communities a menu of feasible alternative livelihood activities the assumption would be that in the medium term the pressure would be reduced through a voluntary change in the communities' use of resources. T h i s more "relaxed" approach i s guided by previous lessons learnt -restriction results inanimosity and limited benefits to the threatened areas. 51. The program design for livelihood development i s guided by the use of the following complementary strategies: a. Increasing the income from a given unit of source which will include soil conservation, development of agro-forestry initiatives, establishment of local processing enterprises, provision of small scale financing and improvement in linkages between the markets and the producer farmer and fishers. b. Reducing pressures on the resources by generating non resource based livelihood with corresponding funds fro reforestation and rehabilitation jobs in exchange for participation in reduced resource use, buildingawareness of human patterns of resource depletion, and lowland job creation encouraging emigration from the critical areas. 118 Some of the non resource based livelihood options are: high value products development such as cut flowers and ornamental plant, coffee and cocoa, fruits, bamboo plantations, aqua fish cage cultured production, rattan enrichment in production and communal forest and butterfly farming and beekeeping; Support to preferred and existing income augmentation activities such as hog and poultry raising, goat keeping, medicinal plant home gardening, nip. palm production, collection of fish seed to stock ponds andbasket andmatweaving may also be pursued; and 0 Tapping of private business sector (plantations and processing plants) dependent on upland water resources by LGUs to come into agreement with them inhiring upland poor dwellers for their manpower needs inproduction c. Creating incentives for management and conservation of resource throughthe provisionof land tenure for forest lands that shall link land use rights with participatory conservation management and monitoring tools with future benefits; plow back mechanisms for payment of environmental services such as being protection guards and volunteer monitors of the rehabilitation projects, Livelihood generation through ecotourism has already been seen as profitable ventures inother areas. 52. Institution Building: To promote greater social inclusion and stronger project ownership, local multiSectoral Councils shall be developed (or enhanced, ifit already exists) so that they may direct the development and implementation of the Integrated Ecosystem Watershed Management Program. For them to b e able to function well, the present problems from lack of integrated ecosystem databases and political will to enforce policies and regulations listed above i s addressed intheprojectdesignwithademanddrivenmenuofinterventions. 53. Bagacay Rehabilitation: InterimMeasure Social Guidelines: a. Disclose the implementation and their projected impact to the stakeholders; b. Use materials indigenous to areas and avoid those with scavenge value;. c. Adopt labor intensive techniques; d. Implement incentive-led or performance-based schemes for the maintenance of mitigating measure particularly on the re-vegetation scheme; e. Introduce accountability measures to avoid elite capture of benefits; and f. MGBmonitoringwith the participation of the localcommunities and other stakeholders. 54. For Fullscale RehabilitationPlanning Social Guidelines a. Effective conflict management mechanisms must be established. T h i s i s to respond to a possible volatile situation that may arise due the divergence of interests of the upstream and downstream local population of Hinabangan LGU on one hand and the LGU of Taft including barangays along the Taft River on the permanent closure of or making the mine attractive for another operation, coupled with very strong negative mining sentiments of the Samar civil society. b. Effective, timely information, education and communication program should be established with all stakeholders. This will help buildtrust as well. 119 CapacityAssessment 55. Environmental Management Bureau (EMB) of the DENR,which i s mandated to enforce the Philippine EIA, has the capacity to screen activities/subprojects for environmental impacts; review environmental assessment reports either in-house for small scale projects/activities (Category B) or through its on-call Independent EIA Review Committee (EIARC) for full EL4 for category A. Althoughimplementationrecord of EMBinregard to compliance monitoringis generally weak, the Program will support EMB and its Regional Offices to undertake its monitoring function. In addition, the Program will also support strengthening of the Philippine ELA under Component 3 of the Program. 56. Other Bureaus of the DENR (Mines and Geosciences Bureau, Forest Management Bureau, ProtectedAreas and Wildlife Bureau): The Mines and Geosciences Bureau (MGB),inparticular i t s Mining Environment and Safety Division, was assessed to have the capacity to prepare E A s and monitor compliance. The Protected Area and Wildlife Bureau (PAWB) and the Forest Management Bureau (FMB), who are members/resource persons of the DENR EIA Review Committee (EIARC), have also built their capacity to review and/or prepare EAs and monitor compliances. Nevertheless, Bureaus will be trained to undertake screening, prepare their EMPs and/or IEEs for their respective priority activities/subprojects assessed to have negative environmental impacts and to undertake self- monitoring. 57. LGUs and communities, who will be implementing activities/subprojects in priority watersheds, may not have the capacity to screen activities/subprojects for environmental impacts and prepare their respective EMPs or IEEs. They will be properly trained on screening and EMP/IEE preparation during the first year of Program implementation, including self-monitoring of the impacts of their respective activities/subprojects. ImplementationArrangements on Environmental and Social Safeguards 58. Screening: Screening of activities/subprojects for environmental impacts and environmental requirements will be done during the annual programming discussions between the Foreign Assisted and Special Projects Office (FASPO) of the DENR and the DENR Bureaus and the LGUs who will implement their priority activities/subprojects. The screening will be led by FASPO and the EMB using the Program's environmental guidelines and the environmental screening checklist of the DENR for covered and non-covered subprojects. Proposed activities/subprojects assessed to have negative impacts shall be required to undertake the assessment and prepare their respective EMPs and/or IEEs before these activities/subprojects could be implemented. Activities/subprojects covered by the Philippine EIA shall be reviewed and cleared by EMB, who will then issue the environmental compliance certificate (ECC) for the activity/subproject. 59. Impact assessment and mitigation measures: T h i s will be the responsibility of the activity/subproject proponent (Bureaus and LGUs),which will be done either in-house or with the help of consultants. But since most of the activities/subprojects are simple with minor impacts, assessment could be done in-house by the Bureaus. LGUs may need to hire consultant, if capacity does not exist yet. 60. Review and clearance will be the responsibility of EMB, who has the mandate under the law. EMBwill be assistedby FASPO. 120 61. Compliance monitoring will also be the responsibility of the EMB. The Protected Area Management Board, where present, and the Watershed Management Council in priority watersheds shall be invited to participate inthe monitoring. 62. World Bank supervision missions will monitor compliance of the DENR, LGUs and communities on the environmental and social guidelines and the mitigating measures. The Bank will conduct ex-post reviews of how the screening is done by the DENR and the LGUs and whether EMPs or IEEs or full E I A s and IPDPs have been prepared and whether mitigating measures are implemented. 121 Annex 13:Project Governance Measures PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management 1. The issue of governance in the Philippines presents a paradox. Corruption inthe ENR sector is unique in two ways: (1) negative outcomes are not immediately visible to the public eye; and (2) the stakes are higher because negative outcomes can result in s i p f i c a n t social; economic, and environmental consequences. There i s a strong presence of civil society in the country, an open media and highly capable individuals working in public administration. Despite these characteristics, corruption remains an important barrier in the achievement of good governance. Governance indicators from a cross-country database indicate that, despite democratic processes, rule of law, political stability and control of corruption are lower in the Philippines than in comparable East Asian economies (see Figure 1). About 35 Yo of Filipino f i r m s surveyed in the Investment Climate Survey reported corruption as a major constraint in doing business in the Philippines, second only to macroeconomic in~tability~~.Corruption and collusion also pose significant challenges for government expenditures. Therefore, it i s important to address how the government i s responding to corruption and what specific strategies the program has employed to help mitigate the risk of corruption. Figure 1 G o v e r n m n c e Indicators Amona East Asian Countries Rule of Law Regulatory Quollty Government Effectiveness PolilicaI StabilHy voice 8 -1 .a -0.5 0-0 0.5 perceptionsof governancyor almost 200 countries and territcrries The Mate: Thesix indicators regateseveral hundredsurvey-based variabfeson tndacatars are mmallydistn'butedwrtha meanof 0 and a standardckv~&onof 1 The nineother EastAsran ecortrwnies ere China, Hong Kong[China), Indonesia,Korea. Malaysia.Singapare.Taiwan (China).Thailand, and Wetnarn. ~ Source: CCaufmann, Kraay, and Mastruzri(2004). WEII Governance Indicatars. ~~~ ~~ 35Asian DevelopmentBank andWorld Bank, 2004; 716 Philippinefirms surveyed. 122 Government Efforts to Reduce Corruption 2. The government, with support from the Bank and other donors, is making some progress in improving governance and combating corruption This has been primarily supported through national level reforms, but innovative efforts have also been instituted at the local level. National level reforms are described as follows: 3. Office of the Ombudsman: The Office of the Ombudsman is a major anti-corruption program of the government. Among its functions to prevent graft, it has the power to investigate, prosecute and adjudicate cases involving government entities and employees. In 2003, the Office formally adopted the government's L$is&!e ChecksPmgram, which allows them to undertake life-style checks on government employees and if warranted, remove them from their positions and initiate prosecution. Further, the Government has committed to doubling their budget over the next two years, allowing for the hiring and training of a significant number of new investigators and prosecutors. 4. Procurement and FinancialManagement Improvements: As part of the national procurement reform that began with the government Procurement Reform A c t in January 2003, the Government's Procurement Policy Board was established with the mandate to establish and monitor procurement performance benchmarks, provide for protest mechanisms, coordinate training within the government and among civil society organizations who observe on bid and evaluation committees and to issue generic and department-specific procurement manuals and related bidding documents. The L a w i s an anti-corruption measures that defines criminal, administrative and civil offenses for violation of the procurement rules and imposes corresponding penalties for them, the criminal judgment could sentence a gdty person of a minimum of six years in prison. Concurrent with procurement reform, the government also instituted financial management improvements through strengthening of internal and external audit functions, enhanced timely accounting and reporting systems, and the implementation of the electmnic New Government Accounting .fystem (eNGAS), a simple bookkeeping and reporting system. The new eNGAS helps Government agencies in their financial reporting and i s now being implemented by the Commission on Audit, which i s the entity for ensuring that a good accounting system i s maintained by the Government. To date, the eNGAS i s still being rolled out, but most agencies have already adopted it in their central offices. DENRi s currently installing eNGAS at the central office and later at the field offices. 5. Increased Involvement of Civil Society in Government: The Philippines has increased transparency by recently increasing the participation of civil society ingovernment. T h i s has been achieved primarily by involving civil society observers in the public bid committees, providing greater transparency in the bidding process. Civil society groups have also initiated their own activities to fight corruption. For example, Government Watch (G-Watch) is an initiate from several civil society groups that monitors government projects and provides reliable information on project performance. Findings from the group have prompted the Office of the Ombudsman to initiate investigations into alleged corruption. World Bank Efforts to Reduce Corruption 6. As ofJuly 2004, the Bank had channeled over US $5 million ingrants to supportimprovements in governance. These grants have worked to address systemic issues such as procurement and judicial reform and increase the role of civil society inmonitoringgovernment's use of public resources. 123 7. Inthe implementationof World Bank assistedinvestment projects, a system of fiduciary controls of procurement, financial management and disbursement procedures are in place, overseen by field staff inManila and reviewed by managers inWashington. Based on a risk assessment of the project and implementing agencies, larger contracts are subjected to prior review by the Bank at each key stage of the process, while smaller expenditures are subject to post-review on a sample basis, to confirm that procurement and financial management processes adopted by the implementing agencies were consistent with Bank policies. Where government implementation capacity i s limited, consultants may be used for construction supervision or technical audit of completed works. For small local projects, community monitoring teams have proved very successful in ensuring quality and accountability. 8. Implementation review missions visit project sites and review physical achievements, funds utilization and the development impacts of project expenditures. Audit reports are required each year, and exceptions are followed up by field based FM staff. Where anomalies are noted, the implementing agencies are requested to follow up and report on remedial actions. 9. In a number of cases, anomalies or alleged fraud and corruption have been referred to the Bank's Department of Institutional Integrity for further review. Some of these cases have been identified through Bank review processes, and some from external complaints. The Department of Institutional Integrity has also provided training in fraud detection for Bank staff and government agencies, and will in future be asked to assist in developing strategies to resist collusion. The remedies available to the Bank include non-approval of procurement actions, recovery of funds not spent for intended purposes, referral for prosecution or administrative actions, misprocurement, suspension of project disbursements, and imposition of sanctions against errant firms. These remedies are sometimes constrained, however, by difficulties in proving alleged irregularities. Examples of past irregularities were those pertaining to CPPAP NGO case, ODS project cash management case, collusive biddingsinthe public works. Steps to Mitigate Corruption under the ENRMP 10. Based on the results of the agency's capacity assessments the followingmeasures wdl be carried out: 11.Anchored in the five-pronged strategy of improving political accountability, civil society participation, private sector involvement, public sector management, and limit on institutional power, and in complementing the broader effort at country program level, the following steps will be undertaken to help mitigate corruption in the project: 1. Civil Society Participation: To increase transparency, the DENR's Bids and Awards Committee will comply with the procurement law and invite civil society observers inprocurement biddings. 2. Public Sector Management: Steps will be taken inthe program to enhance transparency and accountability in procurement and financial management. Strict adherence to the Procurement Reform A c t and measures to ensure that bid notices and contracts are published in the eGPS and UNDB/dgMarket will be implemented, where appropriate. Further, there will be a full enforcement of delayed penalty provision of contracts. 124 3. Strengthen Internal Control: DENRwillinstitutionalize its internal audit unit to take the lead indetermining the adequacy of internal control, monitor and enforce policies, rules and regulations on procurement and financial management. Further, DENR will operationalize the N e w Government Accounting System in all its offices and will convert to eNGAS agency-wide within a period of two years. 4. Procurement Reviews i> Usingthe Agency Procurement Performance Indicator System, evaluate the performance of the agency based the data being monitored by the Government Procurement Policy Board -TechnicalSupportOffice(GPPB-TSO); ii) AprocurementreviewteamcomprisingoftheDENR'sInternalandExternalAuditand the Bank`s joint fiduciary team will conduct an extensive review of project expenditures and procurement processes; iii) Todetect fraudandcollusioninprocurement contracts, Picalosoftwarewillbeutilized under the supervision of the Government Procurement Policy Board Technical Support Office (GPPB-TSO) and, if needed, appropriate guidance from the Department Integrity Unitofthe Bank, will be requested; iv) Checking the integrity of contract implementation by reviewing variation orders and inspecting the quality of completed works, delivered goods and submitted outputs; v) Findings of anomalies uncovered inthe review will be referred to and investigated by the Commission on Audit, the Office of the Ombudsman and the National Bureau of Investigation. The Integrity Unit of the Bank will collaborate with the investigators; vi) Complaint of anomalies in procurement resulting from the review will be referred to the Internal/External Auditor and the GPPB-TSO, for initial investigation. If there i s prima facie evidence or sufficient proof, the auditor will refer the case to the Office of the Ombudsman and/or the National Bureau of Investigation for formal investigation. Filing of charges will be the responsibility of the NBIor the Ombudsman; vii) Blacklisting or suspension and administrative processes against erring parties will be pursued by the GPPB-TSO based on the reports of the investigators while debarment process will be handled by the Bank internally; Viii) Filingof appropriate criminal charges to the court will be handled by the NBI and/or the Office of the Ombudsman. 12. In addition to the above four steps the following policies will be adopted to mitigate corruption under the Project, 13. Communication and Advocacy. - In an open society like the Philippines, the most effective deterrent to corruption i s a well-informed citizenry. The project will promote good environmental citizenship that should not tolerate corruption of any kind, based on a clear understanding about the close link between and among corrupt practices, natural resources degradation, pollution, establishment of industries/business outside the correct land use plan and environmental dlsasters. As a result, public opinionwillbe more stronglybrought to bear for the concerned offices to more efficiently deliver mandated services and therefore contribute to achieving desired biophysical results. Ordinary citizens have shown willingness to cooperate with well-publicized programs such as "clean-and-green", waste segregation, smoke-belching and the industrial eco-watch program. Transparency-enhancing measures will include providing the public with on-demand electronic access to sector plans, programs, budgets and accomplishments and regular public disclosure of performance and/or compliance among the regulated community; 125 14. Community-Based Approach - The threat of being exposed by an aggrieved and agitated local community i s a powerful deterrent to any thought of wrongdoing. Communications and advocacy directed at the general public will be complemented at the local level with activities to enlighten and enable communities to actively participate in the campaign to fight corrupt practices. Initially, citizen participation can be in the form of enhanced civic mindedness, for example, avoiding any involvement in corruption. Later on, they can adopt a watchdog perspective and more actively campaign against corrupt practices intheir own communities, e.g., possible abuses inthe operation of checkpoints to check onillegal logging, discharges of water pollutants, emission of air pollutants, proper land zoning, etc. The project will promote "responsible fiscalizing" to prevent abuse of anti-corruption measures for instance through anonymous complaints motivated by political differences or personal conflict. 15. Multi-sector Partnerships - Effective management of the environment and natural resources requires close and continuinginteraction between and among the DENR, LGUs, local communities and the private sector. This partnership will not only lead to more effective decentralized management but will also strengthen the system of checks and balances at the local level especially in terms of disclosing possible abuse or abdication of functions. These same stakeholders can be the source of, or remedy to, corruption. Multi-sector partnerships should be based not only on gradually building trust, confidence and capacity, but also on a legal and institutional framework that more clearly defrnes the roles and relationships among the parties involved especially in forest and environmental management. 16. Independent Monitoring - The objective is to maintain a database on key institutional performance indicators, to include institutional reform and corruption indicators. Independent, impartial and credible monitoring, assessment, and reporting will exert continuous pressure on whoever intends to deviate from professional standards of performance at any level. Community and public perception on the incidence of and trends in corruption will particularly b e effective deterrents. Monitoring results will be fed into multi-level communications, advocacy campaigns and public disclosure of information and performance using a variety of mass media. T h i s will complement citizens' satisfaction surveys and ranking of government agencies currently being undertaken by private groups. 126 Annex 14: Project Preparation and Supervision PHILIPPINES: NationalProgram-Support to Environment and NaturalResources Management Planned Actual PCN review 06/30/2005 06/06/2005 Initial PID to PIC 06/30/2005 06/20/2005 Initial ISDS to PIC 06/30/2005 06/20/2005 Appraisal 03/23/2007 03/ 19/2007 Negotiations 05/03/2007 05/03/1007 BoardlRW approval 06/26/2007 06/26/2007 Planneddate of effectiveness 10/31/2007 10/31/2007 Planneddate ofmid-termreview 06/30/2010 06/30/2010 Plannedclosing date 12/31/2012 12/31/2012 Key institutions responsible for preparation of the project: Department of Environment and Natural Resources (DEW Name Title unit IdahPswarayi-Riddihough Lead NaturalResources ManagementSpecialist E A S R E M e i Wang Senior Counsel LEGEA EdwardDaoud Senior Finance Officer LOAGl Bank funds expendedto date onproject preparation: GEF funds expendedto date onprojectpreparation: 1. Bankresources: $183,097 4. Bankresources: $325,585 2. Trust funds: $ 63,218 5. Trust Funds: $40,000 3. Total: $246,315 6. Total: $365,585 Annex 15: Documents inthe Project File Philippines: NationalProgram-Supportto EnvironmentandNaturalResourcesManagement 1. Policy Note prepared by the DENR 2. SIMProject ImplementationPlan 3. GEFProject ImplementationPlan 4. EnvironmentAssessment 5. Financial Management Assessment 6. Procurement Management Assessment 7. SocialAspect and Safeguards assessments 8. SIM Operations Manual 9. GEF Operations Manual 10. WorkingPaper No. 1: Monitoringand Evaluation 11.WorkingPaper No. 2: Description ofPrioritySites 12. WorkingPaper No. 3: LivelihoodAnalyses 13. Working Paper No. 4: Rapid Risk Assessment of Tailings Ponds of the Abandoned Bagacay Mine 128 Annex 16: Statement of Loans and Credits PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management Difference between expectedand actual OriginalAmount inUS$Millions disbursements ProjectID FY Purpose IBRD I D A SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO79661 2005 PH-MANILA THIRD SEWERAGE 64.00 0.00 0.00 0.00 0.00 60.16 0.33 0.00 PROJECT PO79628 2005 PH-2ND WOMEN'S HEALTH & SAFE 16.00 0.00 0.00 0.00 0.00 16.00 0.08 0.00 MOTHERHOOD PO73206 2005 PH LAND ADMINISTRATION AND 19.00 0.00 0.00 0.00 0.00 19.00 0.00 0.00 MANAGEMENT I1 PO75184 2004 P H Diversified FarmIncome & Mkt. Devt 60.00 0.00 0.00 0.00 0.00 58.83 5.50 0.00 PO72096 2004 PH-GEF-RuralPower Project 0.00 0.00 0.00 9.00 0.00 8.66 0.66 0.00 PO70899 2004 P H LAGUNA DEBAY INSTITUTIONAL 5.00 0.00 0.00 0.00 0.00 4.95 1.20 0.00 STRENGTH PO66532 2004 PH-GEF-Electric Cooprtv System Loss 0.00 0.00 0.00 12.00 0.00 6.82 9.83 0.00 Redu PO66397 2004 PH-Rural Power Project 10.00 0.00 0.00 0.00 0.00 9.49 -0.36 0.00 PO66076 2004 JUDICIAL REFORM SUPPORT 21.90 0.00 0.00 0.00 0.00 20.53 7.24 0.00 PROJECT PO71007 2003 Second AgrarianReformCommunitiesDev 50.00 0.00 0.00 0.00 0.00 42.94 19.99 0.00 PO77012 2003 P HKALAHI-CIDSS PROJECT 100.00 0.00 0.00 0.00 0.00 82.41 31.82 0.00 PO73488 2003 P H- ARMM Social Fund 33.60 0.00 0.00 0.00 0.00 26.39 12.89 0.00 PO69491 2002 PH-LGU URBANWATER APL2 30.00 0.00 0.00 0.00 17.28 13.96 18.50 -0.30 PO69916 2002 PH-2nd Social ExpenditureManagement 100.00 0.00 0.00 0.00 0.00 31.92 3.26 0.00 PO66509 2001 PH-GEF-MMURTRIP-BicycleNwk 0.00 0.00 0.00 1.30 0.00 0.77 0.87 0.00 PO57731 2001 PH-MMURTRIP 60.00 0.00 0.00 0.00 0.00 44.89 38.97 0.00 PO39019 2000 PH-First Nat'l Rds Improve. 150.00 0.00 0.00 0.00 0.00 57.39 57.39 0.74 PO59933 2000 P H- COASTAL MARINE 0.00 0.00 0.00 1.25 0.00 0.42 1.60 1.11 PO48588 1999 PH-LGU FINANCE & DEV. 100.00 0.00 0.00 0.00 40.00 38.50 70.10 26.87 PO57598 1999 PH-RURAL FINANCE111 150.00 0.00 0.00 0.00 0.00 27.46 27.46 0.00 " PO04595 1998 P H COMMUNITY BASED R E S 0 - 50.00 0.00 0.00 0.00 12.00 11.39 23.39 11.39 PO04576 1998 PH-WATER DISTRICTS DEV. 56.80 0.00 0.00 0.00 10.73 12.00 22.73 8.52 PO04566 1998 PH-EARLY CHILD DEV. 19.00 0.00 0.00 0.00 0.00 1.26 1.26 0.27 PO04602 1997 PH-THIRD ELEMENTARY 113.40 0.00 0.00 0.00 20.10 16.85 36.95 16.85 EDUCATION Total 1,20870 000 000 2355 10011 61299 391 66 65 45 129 PHILIPPINES STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FYApproval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2001 AEI 1.00 0.00 0.00 ~ ~~ 0.00 0.75 0.00 0.00 0.00 2002 APW Trade 0.00 0.00 0.65 0.00 0.00 0.00 0.65 0.00 Alaska Milk 0.00 0.62 0.00 0.00 0.00 0.62 0.00 0.00 2000 Asian Hospital 3.30 0.00 1.00 0.00 3.30 0.00 1.00 0.00 2002 Banco de Oro 20.00 10.00 10.00 0.00 0.00 10.00 10.00 0.00 2005 Cepalco 14.59 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 DrysdaleFood 7.97 0.00 0.00 4.40 7.97 0.00 0.00 4.40 2002/05 Eastwood 12.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Filinvest 19.87 0.00 0.00 0.00 13.87 0.00 0.00 0.00 2005 FilinvestLan... 40.38 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 GlobeTelecom 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 H&Q PVIII 0.00 0.95 0.00 0.00 0.00 0.95 0.00 0.00 1989 H&QPV-I 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0.00 1993 H&QPV-I1 0.00 0.09 0.00 0.00 0.00 0.09 0.00 0.00 1992 HolcimPhil 0.00 1.97 0.00 0.00 0.00 1.97 0.00 0.00 2004 LARES 22.00 2.70 0.00 0.00 0.00 0.00 0.00 0.00 2000 MFI MEP 0.00 0.12 0.00 0.00 0.00 0.12 0.00 0.00 2001 MNTC 40.96 0.00 0.00 0.00 40.96 0.00 0.00 0.00 2003/04 MWC 30.00 14.96 0.00 0.00 0.00 14.96 0.00 0.00 2000 Mariwasa 11.45 0.00 3.20 0.00 11.45 0.00 3.20 0.00 MegaworldCOT 0.00 0.51 0.00 0.00 0.00 0.51 0.00 0.00 1993 MindanaoPower 0.00 3.28 0.00 0.00 0.00 3.28 0.00 0.00 1993 MirantPagbilao 12.00 10.00 0.00 0.00 12.00 10.00 0.00 0.00 2005 NHMFC 29.59 1.86 0.00 0.00 0.00 0.00 0.00 0.00 2001 PEDF 1.50 0.00 0.00 0.00 0.75 0.00 0.00 0.00 2005 PLGIC 0.00 0.00 1.50 0.00 0.00 0.00 0.00 0.00 1992 Filipinas Shell 0.00 1.56 0.00 0.00 0.00 1.56 0.00 0.00 2000 PlantersBank 0.00 0.00 4.65 0.00 0.00 0.00 4.65 0.00 1998 PryceGases 13.34 0.00 1.70 5.82 13.34 0.00 1.70 5.82 2000 STRADCOM 11.08 0.00 4.00 0.00 8.67 0.00 4.00 0.00 2003 SVI 0.00 4.00 0.00 0.00 0.00 2.00 0.00 0.00 1995 SualPower 21.72 17.50 0.00 54.52 21.72 17.50 0.00 54.52 1994 Walden Mgmt 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1994 WaldenVentures 0.00 0.28 0.00 0.00 0.00 0.28 0.00 0.00 Total portfilio: 333.25 70.61 26.70 64.74 134.78 64.05 25.20 64.74 Approvals PendingCommitment FYApproval Company Loan Equty Quasi Partic. 2002 Eastwood 0.00 0.00 0.00 0.00 2001 PEDF 0.00 0.00 0.00 0.00 Total pendingcommitment: 0.00 0.00 0.00 0.00 130 Annex 17: Countryat a Glance Philippines: NationalProgram-Support to Environment and Natural Resources Management East Lower- POVERTY and SOCIAL Asla & middle. Phlllpplnes Pacific Income Development diamond' 2004 Population, mid-year(mll/lonsj 83.0 1870 2,430 GNIper capita (Atlas method, US$) 150 I280 1580 Lifeexpectancy GNI(Atlas method, US$billions) 95.1 2,369 3,847 7 Average annual growth, 1998-04 Population(4 2.1 0.9 10 Laborforce (w 2.8 11 0.7 Gross primary Most recent estimate (latest year available, 1998.04) capita P0verty (%of populationbelownatlona/poverfyline)/a 30 Urban population (%oftofa/populatlon) 62 41 49 Lifeexpectancyat birth(year@ 70 70 70 I Infant mortality(per l,OOO/lve blrfhs) 27 32 33 Childmalnutrition (%ofchildren under5) 32 i5 n Access to irnprovedwater source Access to an improvedwater source (%ofpopu/aflon) 85 78 61 Literacy(%ofpopu/afionage 59 93 90 90 Gross primaryenrollment (%Of SChOOCagepopulation) 1Q 113 11Q -Philippines Male 113 10 1s . . Lower-middle-lncomegroup Female 1Q 1Q 113 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984 1994 2003 2004 Economic ratios" GDP (US$ billions) 314 64.1 77.7 84.6 Gross capitalformatiotVGDP 20.3 24.1 n.O 17.4 Exgortsof goods and services/GDP 24.0 33.8 50.5 515 Trade Gross domestic savings/GDP 8.3 l7.8 14.9 8.0 - Gross national savings/GDP 8.6 218 33.3 36.5 Current account balance/GDP -4.1 -4.8 18 2.5 Domestic Capital Interestpayments/GDP 6 2 3.3 3.7 4.1 savings formation Total debtlGDP 77.5 62.8 80.7 722 Total debt service/exports 33.5 8.0 20.4 202 Presentvalue of debt/GDP 84.2 Presentvalue of debWexports 130.4 Indebtedness 8 8 4 - 9 4 1994-04 2003 2004 2004-08 (averageannualgroMhj GDP 2.8 3.7 3.6 6.1 5.1 -Philippines GDP percapita 0.5 15 16 4.2 3.1 Lower-middle-income QroUP STRUCTURE of the ECONOMY 1984 1994 2003 2004 (%~~GDP) Growth of capital and GDP (%) Agriculture 24.8 22.0 8 . 0 8.7 T Industry 37.9 32.5 32.6 32.4 40 Manufacturing 24.6 23.3 23.8 23.5 Services 37.3 45.5 54.4 53.9 Householdfinal consumptionexpenditure 73.7 714 73.7 715 Generalgov't final consumptionexpenditure 7.0 0.8 113 0.4 Imports of goods and services 25.1 40.1 52.6 50.9 1984.S4 lSS4-04 2003 2004 (averageannualgroMh) Growth o f exports and imports (%) Agriculture 2.0 2.2 -18 5.1 industry 2 2 3.1 3.8 5.2 Manufacturing 2.7 3.4 4.2 5.1 Services 3.8 4.9 5.8 7.1 % 00 6 02 03 04 I Household final consumptionexpenditure 3.5 4.2 7.7 15 Generalgov't finalconsumptionexpenditure 3.9 16 2.5 0.0 Gross capitalformation 6.9 18 2.3 9.5 Imports of goods and services I 11.2 3.5 9.8 5.9 I --ExDorts -1noorts 131 Philippines PRICES and GOVERNMENT FINANCE 1984 1994 2003 2004 Domestic prices Inflation (%) (%change) Consumer prices 5.2 15.8 2.9 5.5 ImplicitGDP deflator 53.3 0.0 2.7 6.1 Government finance (%of GDP, includes currentgrants) Current revenue 0.8 8.9 14.9 14.8 99 00 01 02 03 Currentbudget balance 2.6 4.0 -2.0 -14 Overallsurplus/deficit -19 10 -4.7 -3.9 -GDPd#Yor -CPl TRADE 1984 1994 2003 2004 (US$ millions) Export and Import levels (US$ mill.) Total exports (fob) 5,391 UA83 35,342 38,728 50.000 T Electronics 4,984 24,989 27,787 Garments 2B75 2265 2,772 40,000 Manufactures 2.775 0,6S 32,022 35,444 30,000 Total imports (cif) 6,070 21333 40,797 4 5 0 9 Food 182 953 1340 1603 20,000 Fueland energy 1649 2,040 3,761 4,714 10,000 I I Capital goods t u 3 6,868 15,023 8.742 0 Exportpriceindex(2000=WO) 98 99 00 01 02 03 04 Import price index(2000=WO) Exports m Inports Terms of trade (2000-WO) BALANCE o f PAYMENTS 1984 1994 2003 2004 (US$ millions) Current account balance to GDP (%) Exportsof goods and services 7,033 20,251 38,641 42.829 Imports of goods and services 7.238 26,000 45,821 50,492 Resource balance -205 -5,749 -7,180 -7,883 Net income -1475 1863 -226 147 Net current transfers 366 936 8,802 9,596 Currentaccount balance -1294 -2,950 1396 2,080 Financingitems (net) 846 4;152 -3511 -3800 Changesin net reserves 448 -1802 115 -280 98 99 00 01 02 03 04 I Memo: Reserves includinggoid (US$ millions) 6,995 77,063 8,228 Conversionrate (DEC,local/US$) $3.7 26.4 54.2 56.0 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 (US$ miilions) IComposition o f 2004 debt (US$ mill.) Total debt outstanding and disbursed 24,357 40257 62,724 61042 IBRD 1865 4,855 3,445 3,377 A: 3.377 IDA 71 774 215 214 G:5,048 ~ 8:214 Total debt service 2,703 4,645 0,231 1158 IBRD 262 7 n 478 494 IDA 1 3 8 9 Compositionof net resourceflows Official grants 0 9 204 593 618 Official creditors 748 182 52 -653 Private creditors 209 870 599 0 2 Foreign direct investment (net inflows) 9 1591 SO 57 Portfolio equity(net inflows) 0 0 -1305 -1434 World Bank program Commitments 333 578 18 65 A . IBRD E- Bilateral Disbursements 301 305 202 145 B IDA - D 0th nultilatcral - F Rivate - Principal repayments 93 360 345 379 C-IMF G- Shart-term 132 Annex 18: Institutional ReformAgenda PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management 1. The program's overall development objective would be to assist the Department of Environment and Natural Resources improve efficiency and effectiveness in its service delivery. More specifically, the project would aim to strengthen the allocative efficiency of DENR's limited budget resources through better prioritization and partnership arrangements, facilitating scaling-up and better linking of plans and budgets. These lie at the heart of why the effectiveness of DENR remains an issue, in spite of the solid body of ENR related laws and regulations, its large staff complement and the assistance given through numerous foreign assisted projects over many years. The 2003 World Bank report on Governance of Natural Resources, Lessons from the Past and Directions for the Future, provides a strong underpinning for the project design. Inkeeping with that report, the NPS-ENRMP focuses only on a limited set of priority activities and a modest reform agenda, consistent with the findings that many of the previous efforts to strengthen DENR have been too ambitious and investments too widely dispersed to be effective. The following outlines the rationale and approach underpinning the institutional reform agenda and the basis for the implementationmechanisms incorporated inthe project design. 2. Institutional Responsibilities and Devolution Issues. DENR is the lead government agency responsible for environmental and natural resource conservation, management and development. However, a number of other agencies also have regulatory and management mandates on environmental and watershed protection, notably the Bureau of Aquatic and Fishery Resources (BFAR), the National Irrigation Authority (NIA), National Power Corporation (NAPOCOR) and the Philippine National Oil Company (PNOC). The respective mandates of these agencies are well defined and for the most part coordinated. The NPS-ENRMP focuses only on a limited set of activities implemented by the DENR itself, but it does require the participation of LGUs and communities for the ecosystem management activities, since this i s broadly agreed as an important direction DENR needs to follow, if it i s to improve both its efficiency and scaling-up of its operational effectiveness. But it will clearly be a challenge for DENR to devolve further, especially given the limited experience of Local Government Units (LGUs) in environmental and natural resource conservation and management to this point. This low level of involvement stems both from their limited technical and financial capacity, as well as from their lower sense of priority for such activities, given the other demands on their resources for social, infrastructural and employment creation support. The Local Government Code of 1991, nevertheless gave LGUs responsibilities for a wide range of ENR functions, including various regulatory responsibilities such as the reclassification of agricultural lands and enforcement of environmental laws, as well as inregard to the protection and management of natural resources in their areas of jurisdiction (see Box 1). Inreality, however, LGUs have generally not embraced these responsibilities, except in a relatively few cases where local leadership has taken a special interest in such matters. In spite of the devolution goals, only 4% of DENRs more that 23,000 staff has been devolved to local governments. Some 18,000 DENR staff remains stationed inregional offices. But there i s a feeling ingovernment that some further guidelines are needed on the devolutionprocess. Inthis context, it should be noted that the DBCC comments underpinning their approval of the NPS-ENRMP for Bank lending, stated that DENR should; "refine the list of ENR functions to be devolved to the LGUsto segregate the policy andregulatory functions that shouldremainwith the DENR". 133 IBox 1. ENR activities devolvedto LGUs Provincial: Compliance of laws relating to: i)community-based forestry projects, ii)pollution control, iii) small-scale miningand iv) Environment Protection. Municipal: i)Implementation of community or social forestry projects, ii) management and control of communal forests not exceeding 50 s q Km, & iii) establishment of tree parks, greenbelts etc. Barangay: Facilities and services relatedto hygiene, sanitation, beautification and solidwaste collection 3. The activities proposed under the project, therefore, especially inregard to watershed management, while very much in line with the devolution goals of government, clearly involve difficult implementation issues given that most LGUs perceive the need to address social, productive and infrastructural issues to be more pressing. It is for this reason that initially only five, priority watersheds would be supported under the project. Likewise, an important criterion inthe selection process has been the existence of active LGU and community groups supportive of watershed protection. The approach to be followed also builds on successful experiences in other watersheds. Nevertheless the effort, time required and funding difficulties likely to be encountered in supportingthis devolution process willbe considerable. The grant element of support through the GEF wdl certainly facilitate implementation. The project does provide flexibility for other watersheds to be incorporated in the project, subject to their meeting the criteria used in the selection process. Accordingly a disbursement condition provides that investment funds willnot b e allowed to flow to the newly identified watershed, namely Abulog (CAR), Matutinao (Region 7), Pola (Region 4-B), before the watershed management plans which contain a stakeholder's assessment, environmental and social safeguards have been completed. 4. Management, Planning and Budget Issues. The Secretary of DENR, together with an approved 5 undersecretaries, and 7 assistant secretaries constitute the core management team of the DENR (the number of USECs andASECs varies from time to time and at appraisalwas 8 USECs and 8ASECs). As with all government agencies, however, most management positions, including the next layer of Bureau and Unit directors can be political appointments and subject to periodic change. The combined influence of differing political agendas, special interest pressure groups and frequent changes inthe management ranks, seriously undermine the effectiveness of the institution in following through on medium to longer term strategic plans and institution building. This coupled with a high degree of crisis management indealing with frequent natural (e.g., floodingand mudslides) and man-made (e.g., pollution and encroachment) disasters, results in a chronic disconnect between annual plans and budgets. This contributes to there being little accountability for results, lack of transparency in where funds are spent, and to widely perceived governance issues. The credibility of DENR has suffered both from the public perspective and within government. Core functions, essential for ENR management, are typically under-funded and given lower priority, particularly in such areas as data and information accessibility, mapping and land/resource use issues, regulatory services and enforcement. 5. Inreality, therefore, implementation of the project goals will be difficult and only modest outcomes should be expected within the project time frame. The changes inways of doing business within such a large and dispersed institution will take years of determined management effort to achieve. Vested interests and entrenched rent-seeking behavior surrounding some functions will be difficult to overcome, and will continue to work against DENR's best efforts, especially inregard to its goal of becoming more service oriented inimplementing its core functions. That said, the institutional 134 analysis suggests that, within the political economy of the Philippines, the approach being supported by the project of using budgetary mechanisms to encourage institutional change, while seeking to strengthen the existing management structure and processes, appears to offer the most effective instrument available at this time. 6. Therefore, while there is a strong consensus with the merits of providing regular budget support through the SIM, and with utilizingDENR's existing management structures and mechanisms, the realities are that considerable problems exist in trylng to ensure that the activities identified for funding through the NRS-ENRMP will in fact be given the same priority by the implementing bureaus and units. The reasons for this need to be viewed from the perspective of the bureaus and regional directorates responsible for implementing the project: Firstly, there i s a culture of "projectized development" in DENR, built on many years of external assistance, whereby new activities/priorities are expected to come with incremental funds. This i s not the case with the budget support SIM loan. Nevertheless, unless carefully guarded against, implementing entities could, quite rationally, be expected to try to use the NPS-ENRMPprioritized activities as a means to leverage a reallocation within DENR to gamer incremental funding, Secondly, the fact that allocated budgets are typically neither fully funded nor available until "a cash allotment" i s issued, means that generally it will be the ongoing activities and "special interest" activities that will receive the "available cash" in the first instance. So in spite of the agreed importance of other activities, and even the ability of the Bank to provide the "cash" from the loan, it is what the "cash allotments" are released for that determines what i s implemented. This problem, which has been encountered and i s exacerbated by budgetary processes unique to the Philippines, has required specific attention in the design of the project. The mechanism for the flow of funds i s described elsewhere in Annex 7. But the basis for the design is two pronged; i)to avoid any differentiation between project funded and other regular budget funded activities at the implementing unit level, except that funds would be tagged for use on NPS-ENRMP activities, and ii)toensuretheissuanceofthe"authority tospend" (NCA)isusedforthepurposeintended,to minimize perverse behavior inhow funds are utilized. The process of annual work plan and budget preparation of implementing units would therefore follow normal DENR processes, but with an interim step designed to provide an opportunity for the Oversight Agencies, the Bank and DENR to assess and modify draft work plans and budgets to help ensure NPS-ENRMP activities are adequately provided with budget cover (refer to dated covenant requiring a joint review meeting between DENR,DBM, NEDA and the Bank by March 31 each year). The source of funds for such plans and budget, however (i.e., regular budget or SIM funded), would only be identified at the national level where it would be managed by FASPO in coordination with the Planning and Financial Services (PPSO and FMS), and where achievements would be monitoredby the Planning and Policy Studies Office, drawing upon the normal reporting requirements from the regions and supplemented as necessary by field visits. 7. Organizational and Reform Agenda issues. DENR`s organization, although at first glance complex (Figure 1) because of numerous ``committees/task forces" and "special units" created over time (but seldom disbanded), i s basically composed of the Office of the Secretary (OSEC), four staff bureaus, two line bureaus, 16 Regional offices, 74 Provincial Offices and 170 Community Environment and Natural Resource offices. The four staff bureaus comprise: i)Forest Management (FMB); ii)Land management (LMB); Protected Areas and Wildlife (PAWB); and Ecosystem Research and Development (ERDB). The two h e bureaus are: i)Environmental 36The World Bank supported DFIMDproject of the Department of Agriculture 135 Management (EMB); and Mines and Geosciences (MGB). The DENR also has two attached agencies, namely: i)the National Mapping and Information Authority (NAMRIA); and ii)the National Water Resources Board (NWRB). The NPS-ENW would support activities in all of DENRs staff and line bureaus, but for reasons given above, would be limited initially to watershed activities in selected Regions. 8. In line with the Government wide "rationalization program" aimed at streamlining agencies and clarifying core functions, the DENR had at the time of appraisal, submitted a plan to DBM, proposinga number of changes designed essentially to achieve: i)Organizational Rationalization by; a) organizing units along functional, rather than sub-sectoral lines, b) strengthening unity of command inthe field, c) strengthening budget and planning processes, d) strengthening career path and career development of DENR officials and employees, e) enhancing coordination with other line agencies, and f> supportinggovernment corporations dealing with natural resources utilization. And ii)Rationalizing Priority Programs, Thrusts and Policies, specifically in regard to: a) protection of the environment and conservation of natural resources, b) sustainable exploration and development of the country's natural wealth, c) protection of social equity and protection of communities, and d) promotion of good and green governance. Implementation details for the proposed structural changes, for the most part, have not been developed, and clearly some of the proposed streamlining activities will be controversial and difficult to implement. There i s also a view that the plans do not go far enough e.g., in terms of realigning staff capacity from forest management to coastal zone management or in shifting the focus of activities from a sub-sectoral approach to more functionally-based delivery of ENR services. Nevertheless, the Rationalization Plan as it stands at appraisalwouldbe an ambitious undertaking. 9. The Rationalization Plan evolved as the NPS-ENRMP was being prepared. Accordmgly, in formulating the design of the NPS-ENRMP, care was given to ensuring broad consensus that the proposed reform agenda and activities were well supported by DENRs management, implementable in the medium term, and consistent with the longer term strategic directions of government in regard to devolution of responsibilities and convergence (removing overlap) with responsibilities of other agencies. Therefore, while the implementation of the NPS-ENRMP i s not directly linked to the implementation of the Rationalization Plan, the key reform agenda thrusts and targets under the NPS-ENRMPare fully consistent with the rationalization Plan. This Institutional ReformAgenda and key milestones to be achieved under the project are given inTable 1and this i s an integral part of the Results Framework (Annex 3). 10. The key thrusts of the InstitutionalReformAgenda under the SIMloanwouldbe to: i)InitiatereformsidentifiedbyDENRtostrengthenitsorganizationandoperationswithaview to enhancing overall effectiveness inENRmanagement; ii)Strengthenthe service delivery functions and transparency of DENRto better enable its support to LGUs,private sector and other entities; iii) Enhance prioritization and effectiveness inthe implementation of environmental management, while facilitating compliance with regulations, rather than through dependence on enforcement mechanisms; iv) Expand influence and impact of DENR through devolution of functions to local authorities supporting integrated watershed protection, beginning with the selected priority watersheds under NPS-ENRMP; and v) Strengthen DENR`s overall project management processes by implementing the project within the regular structure of DENR, establishing closer linkages between plans and budgets, and improvedmonitoringand evaluation feedback into management processes. 136 Table 1 InstitutionalReformAgenda and Milestones Reform Agenda Reform Agenda, Milestones and Responsible entities Initiate key reforms identified by Reform Actions DENRto strengthen its i)By December 31, 2007 an Administrative Order would be issued establishing the organization and operations with Procurement Unit consistent with RA9184. a view to enhancing overall ii)ByDecember 31, 2007, anAdministrative Order would be issuedprovidingfor the effectiveness inENR Internal Audit functions to report directly to the Secretary of DENR, inline with broader management Government anti-corruption initiatives. iii)ByDecember31, 2009, anAdministrative OrderwouldbeissuedrestructuringEMBs into function-based divisions. Milestones i)ByDecember 31, 2009, a framework would developed for the rationalization of ENR policies and legislation which inter aka would identify overlaps and inconsistencies as a basis for clarifymg and guiding the operations and core functions of DENR. Strengthen the service delivery Reform Actions functions and transparency, i)ByJune30,2007,abaseline surveywouldbeundertakenwhich, interaka,wouldprovide especially inregard to the measures o f client satisfaction with DENR's service delivery and transparency in the provisionof data and access to data and information, and in regard to regulatory processes and fees. By June information to better enable its 30, 2012, a follow-up survey would be done to provide a measure of how client support to LGUs, private sector satisfaction has changed. and other entities ii)ByDecember31,2007,anMISstrategicplanandbudgetwouldapprovedandthereafter implemented which inter alia would establish the action plan for improving the quality, public accessibility and links between the key databases o f the DENR Milestones i)ByDecember31,2010, thekeydatabasesrelatingtoi)industrialuse,ii)forestsandiii) protected areas would b e available on-line for public access, including links to forms, procedures and fee schedules relating t o regulatory processes and service contracts. Expand influence and impact o f Milestones DENRthrough devolution of i)ByDecember31,2008,WMCs,andMOAwithLGUs,NGOsetcwouldbeinplacefor functions to local authorities all watersheds selected for priority action under the N P S - E N W which, inter aka, would supportingintegrated watershed clarify the devolution o f functions related to a) watershed & ecosystem management, b) protection, beginning with the management of communal forests, and protected areas. selected priority watersheds ii)By June 30, 2009, watershed Management Plans would be agreed and thereafter under NPS-ENRMP implemented for each of the selected priority watersheds. Enhance prioritization and Milestones effectiveness inthe i)By December 31, 2009, procedures and responsibilities for issuance o f implementation of environmental CBRMA/CBFMAs would be standardized and streamlined. management, while facilitating ii)ByDecember31,2010, proceduresandresponsibilitiesforissuanceofNIPAS-IRRwould compliance with regulations, be standardized and streamlined. rather than through dependence iii) By December 31,2009, a management planwould be agreed and thereafter implemented on enforcement mechanisms which inter aka would include improvements leading to better collection of ENR related service fees and retention of higher proportions of such fees and royalties inthe sector. Strengthen DENR's overall Reform Action project management processes by i)ByDecember31, 2008, a 3-year ForwardPlanningandBudgetingstrategy wouldbe implementing the project within developed which, inter aka provides a vision and benchmarks for key reforms inDENRs the regular structure of DENR, operations. establishing closer linkages Milestone between plans and budgets, and ii)BySeptember30andApril30ofeachyearoftheprojectcommencingin2007, M&E improved M&E. reports on progress under the N P S - E N L W would be provided to the Executive Project Steering Committee (PSC) and to the Bank. Responsibilitv: Planning Service through FASPO and the implementing bureaus and regional directorates 137 11. Ingivingits approval for the NPS-ENRMP,the DBCC stated that DENR should"flesh-out" and "implement" its Rationalization Plan under the loan. In line with this, a Rationalization Plan Framework has been developed (Table 2) which identifies the specific actions and outcomes expected under the project, and how they are linked to and supportive of the broader Rationalization Plan of DENR. Table 2 also identifies the "Actions already taken by DENR or Pending Issues", in recognition that some aspects of the Rationalization Plan will require further consultation and analysis before being implemented. Progress inimplementing the Rationalization Plan would be reviewed annually as part of the oversight agency and Bank review of DENRswork plan and budget, and i s included as a dated covenant under the loan. 138 rn rn rn rn rn ' L.4 U :a ci m 'ii L I m -&r - Annex 19: STAP Roster Review AND RESPONSESTO WORK-PROGRAM ENTRY QUESTIONS PHILIPPINES: NationalProgram-Support to Environment andNaturalResources Management Project Reviewer: Michael P Wells Overview 1. This STAP review has been based on a draft World Bank project appraisal document (PAD) received on March 10,2006. 2. The proposed project aims to considerably strengthen the systems and operational capacity of the Department of Environment and Natural Resources (DENR) and enable the agency to play a key role in the decentralization of environmental and natural resource management to local government units. The project would help introduce an integrated ecosystem approach to rural conservation and upland development focused on watersheds, insome cases including protected areas. There i s a strong focus on integration and sector-wide approaches. The project would also aim to build the capacity of the local government units and other local stakeholders who wouldbecome key partners inavariety of localconservation and development initiatives at selected pilot sites. 3. The proposal makes a good case that this approach is consistent with national policies, with the Bank`s Country Assistance Strategy and with analyses of environment and natural resource priorities both inthe Philippines and elsewhere. 4. The US$ 57 million project is to be financed by an IBRD Loan of US$50 million, a GEF grant of US$7 million, and a contribution from the government of US$30 million. More than $6 million of the GEF funding would be used in selected watershed areas including protected areas contaking biodiversity of global significance. 5. D u e to the financing instruments selected, the Bank-funded activities would take the form of a framework agreement, where the components would not b e identified or designed in detail before loan effectiveness, while all of the GEF activities for the 5-year grant would be fully developed in advance. The arguments in favor of such an approach (e.g., page 14) seem convincing. Critical local partnership arrangements for on-the-ground implementation ``will be worked out during appraisal". Inaddition to localgovernment units, potentialpartners identifiedinclude other donors and projects, power and water utilities, and some NGOs. 6. The project i s submitted under GEF Operational Program (OP) #I2 (Integrated Ecosystem Management) and will support capacity building and on-the-ground investments, two key elements of OP12. 7. The project certainly fits with GEF priorities, it is an exciting and ambitious project, and i s clearly based on a considerable amount of work. The amount of funding requested from GEF appears modest, and the cofinancing from World Bank i s substantial. There i s a lot to like about this project, not least the high degree of care and detail with which it has been prepared and the extensive stakeholder consultations that have taken place. 145 8. However, there are three main concerns: i) While the project plans to build DENR's capacity, DENR has a central role in the project and there appears to be insufficient evidence that the agency has the capacity to fill this role. Response: This is an important point and the project design has taken it into consideration by: (a) implementation of the project, in particular the GEF components would not be through DENR only; rather the LGUs will play an important part, including having direct access to financing resources for activities they are responsible for - linked to performance indicators; @) both GEF and IBRD resources wiU be used for capacity enhancement in the project - at all implementation levels - but in a coordinated manner; and (c) the project makes provision for NGOsto participateinimplementationand provides a list inC.1 (mainsection of the PAD) of potential NGO partners in each targeted watershed area. ii) The proposed field-based activities appear diverse, complex and ambitious in relation to the capacities of DENR and its local government partners (even with support from local NGOs who appear to have a relatively minor role), to such an extent that the prospects for successful implementation seem limited. Response: It is important that the project is ambitious. DENR and the Philippines in general have benefited from substantive support already on the part of biodiversity conservation and NRM, but what has not happened much is scaling-up of good practices and results. The project puts emphasis on this point. Also, it i s important to note that a large majority of the activities proposed for implementation are not in themselves complex, and are to an extent already being applied - the complex angle i s to more systematically plan on an integrated scale with the watershed as the "landscape" - where partnerships are built from the beginning, but that they are also accountable -without which success would be limited. iii)Itseemsquestionablewhethertherelativelylargeprojectfundingandtherelativelyshort5-year implementation period are compatible with the absorptive capacity of DENR and its partners. Any government commitment to increasing the budget resources to DENR, which project sustainability will partially depend upon, shouldbe elaborated. Response: This i s the key for choosing to fund through a SIM instrument. The budget analysis that we carried out, shows that at least 70°/o of the Department's budget goes to personnel service, 20% to mandatory spending for rent and other fixed costs and the remaining 5% to capital outlay. Looking at the way the money actually flows, the 5% needed to implement flows very erratically so that planned activities are rarely implemented on time. The IBRDloanwouldgo to ensuring that the budget arrives when it is needed, according to agreed plans and based on firm performance indicators. As such the loan i s not over and above what they would have expected to receive to implement, but represents the funds they would have received - all things being equal. The money shouldhelp them implement on time. iv) While biodiversity and rural resource management inthe Philippines are too important and too threatened to "do nothing", experience suggests that a simpler project focused on a narrower set of DENR priorities spread over a longer period with an expanded NGO role may have greater prospects for success. A performance-based project with intermediate benchmarks for DENR seems advisable. 146 Response: T h i s is the approach to be followed - the loan would be funding priority budget lines (targeted expenditures) - which have been agreed as helping the Department achieve its Major Final Outputs, which i s the basis of the new performance-based budgeting system being implemented in the Philippines. The GEF resources would capitalize on this enabling environment and provide the additional support to achieve set goals. During the pre-appraisal and Appraisal stage the GOP and the Bank will agree on the final outcomes/indicators to be monitored and ensure a strong linkage to the expenditure lines funded. T h i s may result inan even narrower focus - especially as the fundingi s limited, inrelation to the agency's mandates. Discussion of Key Issues GEF FocalAreas 9. The proposal states that the project will support the GEF's "focus on integration across focal areas, and the proposed program would therefore serve as a priority national initiative under OP12 with benefits for biodiversity and land degradation and potential also for benefits in climate change and international waters" (page 4, para 3). It i s suggested that these potential benefits inclimate change and international waters be elaborated. Response: W e have deliberately focused on benefits inbiodiversity and land degradation and kept as secondary, potential benefits in climate change and international waters, hence these benefits would not explicitly measured. Activities such as above and below ground carbon under different management scenarios (i.e., primary forest, managed forest, shifting cultivation or Kaingin in the Philippines case, tree-crop based systems, crop/fallow systems, continuous annual cropping systems, pastures, and grasslands) have already been extensively studied under alternatives to slash- and-burn agriculture (ASB) and the results have been published. ASB was a global project (funded by GEF) that measured carbon stocks in soils and vegetation in 94 sites in 3 benchmark countries (Brazil, Cameroon, Indonesia). The critical lesson learned from ASB data i s that soil carbon stocks differ very little among various land uses. In fact the time-averaged carbon stocks for land use types (i.e., primary forest, managed forest, shiftingcultivation, tree-crop based systems, crop/fallow systems, continuous annual cropping systems, pastures, and grasslands) across the benchmark sites was very similar (roughly 50t C/ha). But the above ground vegetation carbon varied greatly between the different land use systems. If necessary, the project could use these comparators. W e have also included in the preparation of this project, a study of synergies and trade-offs, typically not accounted for in OP12 projects, which may help inidentifying appropriate climate change and international waters benefit. DENRCapacity 10. There i s a refreshingly realistic appraisal of DENR's limitations on page 3, which also mentions that the agencies problems have been compounded by having an inadequate operating budget. 11.While part of the project aims to improve DENR's financial and budgeting systems, it is not completely clear that the agency, which has previously been starved of resources, has the capacity to absorb the significant project funds, especially if most of these funds will pass throughthe existing, deficient systems. Response: In addition to the justification provided above on the absorptive capacity, it is important to note that the actual mechanism transferring money to LGUs in the DENR has not 147 been the problem - rather there has not been much to download. Despite this, the project design willallow for the direct transfer ofresources -particularly GEFfundingto beaccessed directly by LGUs (and then to communities fromLGUsto limitthe number of SpecialAccounts). 12. While many of the capacity buildingaspects described inthe proposal appear worthy, iti s clear that many of DENRs problems are deeply ingrained in the organization. Perhaps there shouldbe less emphasis on acquiring cutting-edge technical skills and more emphasis on basic organizational priorities like human resources management, personnel development, changing the organizational culture, improving recruitment practices, basic training, giving promising employees meaningful career opportunities, improvingtransparency, reducing opportunities for corruption, etc. Response: Valid point. In this respect, the project will achieve some of these goals through Component 1 and joint IBRD and GEF funding. On the personnel aspects, GTZ and AUSAID have also been puttingmoney inimprovingpersonnel management and basic skills, as have USAID inthe field. Through the project's capacity buildingassessment we would buildon these efforts. W e are however, also aware that the lack of money has also starved any basic activities being achieved and recognize the importance of having a parallel strategy of operations on the ground as well as "retooling" of the agency's manpower to plan and implement better which they can only do throughactual work -which shouldbe possible with the availability of resources. DENRFinancialResources 13. Itwould be useful if the proposalincluded data on the recent and projectedfuture operating budget for DENR, to show how the government's renewed political and institutional commitment to DENR (described onpage 4) is to be translatedinto increased resources. Inparticular, itwouldbe important to know how the performance-based budget (page 4, footnote 2) i s expected to operate. IfDENRwere to continue with operating budgets that are more or less similar to recent levels, i.e., totally inadequate, it i s difficult to see how this project could be effective. The proposal states that the project: "would fund a time-slice of DENR's core functions and would support agreed targeted expenditures within the Department's regular programs" (page 4). It i s not clear what this means in practice. Response: The project has done a comprehensive budget analysis and the information i s available -andwe may indeedinclude itas anAnnex. At the very leastitwouldbelistedas one ofthe documents in the project file. The problem of DENR's lack of budget i s government wide due to the fiscal issues. The project helps the government and DENR to smooth the cash-flow problem that makes for a very erratic planning and budgeting cycle. But because the SIM project will not fundresources set aside for counterpart fundingof other projects, personnel salaries; which already l i m i t s the amount the departments can access from the SIM - that i s already a constraint to how much can be injected in the project. Also, for absorptive capacity reasons - both financially and HR wise - it is best if only a portion of the eligible funds are covered by the SIM. Furthermore, DENR has a very diverse number of mandates and because the SIMleverages some movement in the reform agenda of the agency, its best again to "slice" what i s covered under any part of the program -incrementality approach to reform. 14. It is possible that DENRs budget needs may eventually be mitigated by the decentralization of some of the agency's functions to local governments (who willpresumably need larger budgets 148 themselves) and it i s possible that some conservation activities may eventually receive support from innovative fmancing mechanisms such as payments for ecosystem services (PES); however, these types of savings are not only uncertain butwill surely take some time to be realized. Response: Yes - and the project will be supporting devolution and decentralization - one of the key reasons why the project envisages fundingat the central level as well as at the LGU level - and through to the communities. Larger budgets to the LGUs for these activities are unlikely in the short-term, also due to the fiscal issues. In the short-term, there i s more to be gained from closer aligning planning and implementation between the national and LGUs levels - there i s room for better cost-effectiveness even under the present funding levels - something the project i s looking into under Component 1. W e agree that the concept of PES will take time -but there are success stories - a couple of which have been presented inthe project - C4: Sustainability and replicability. It's important that these cases are streamlined into normal practice, where possible. Complexity ofApproach 15. While the project's ambition is in many ways admirable, its complexity i s a cause for concern. It seems questionable whether the project's objectives can be achieved by launching a significant capacity-building initiative focused on DENR while simultaneously preparing and implementing a very diverse and complex set of conservation and development activities at multiple field sites that will depend on DENRleadership as well as significant roles from local government units with new responsibilities but little experience or capacity. Response: Capacity buildingwill be at all levels - national, LGU and community level. For the on-the-ground implementation parts of the project this i s included as a planning and implementation package under Component 2 - a deliberate decision not to separate out field operations from the capacity buildingfor the agency as a whole which i s inComponent 2. 16. The breadth of different on-the-ground approaches contemplated by this project i s a further cause for concern, particularly when these are largely to be implemented by a relatively weak institution undergoing reform and in partnership with local organizations with limited capacities. Experience suggests that the prospects for success are limited. Response: Just to reiterate that the majority of these activities are already to one extent or another under implementation by the agency and or the LGUs. However the project would seek, in addition to replicating these, cost effectiveness, better integrated planning by the various stakeholders and accountability for the results. Furthermore, partnerships for implementing on- the-ground activities will be sought with experienced NGOs inthe respective targeted sites. Innovative LocalManagement Arrangements 17. Component 2 of the project, where GEF support is concentrated, would plan and implement a variety of innovative conservation initiatives that may have shownpromise in certain circumstance, but seem far from proven and ready to be replicatedwidely by inexperienced organizations or their staff. Response: Again, we don't think that capacity alone i s the issue; there are others such as lack of resources; the multiplicity of stand-alone project approaches; the fact that many projects are designed to work in new areas each time - all the factors that influence what DENR must 149 implement - given its high dependence on foreign funding sources. By funding the budget expenditure lines of the DENR, and by also using an integrated GEF/IBRD loan - some of these conflicts are hopefully resolved. Moreover, it seems sensible to largely build on conservation initiatives and local management approaches that have been successfully implemented elsewhere in the Philippines, but which would be validated in the targeted areas, rather than rely on new untried ones. A detailed study was conducted as part of preparation to identify such initiatives, for example, from the GEF Small Grants Program, USAIDEco-Gov project, CEPF and others. 18. Some of the proposed activities for component 2 lead to further questions: 19. Page 51: Does DENR have the legal and administrative power as well as the experience to enter into the types of co-management agreements contemplated here? Response: Yes - this i s not a problem. They have several instruments: the Community Based Forest Management Agreements; they can also enter into Memorandum of Agreements and or they can use an Executive Order to mandate them. 20. Page 51: The different types of agreements listed in footnote 14 that are suggested as viable co- management tenure instruments should be individually described and assessed in this proposal. This i s surely not a detail to be worked out later. Response: These agreements are all in use at the present by the DENR and various stakeholders and will not need to be redefined. 21. Page 51: Sub-component 2.1.1, activities (i) (vii) could surely take many years to complete if done to ina participatoryway, especially agreeing onboundaries andgetting communities to agree to zoning plans. I s this built into the project time plan? Response: The project builds on what DENR i s already doing and will continue to be involved in as part of their mandate. Inaddition, the project i s actually envisaged on a programmatic approach whereby the GOP can access additional resources inthe future. 22. Page 52: Sub-component 2.1.3: "Integrated Watershed Coordination Committees would be formed through the above planning process". What will be the legal authority of these bodies? How will they be sustained after the project i s completed? Response: These Committees are formed around an area of interest - they can be registered, as are cooperatives to give them a legal basis. However, the idea i s not to create more structures that draw on resources, rather to capacitate communities to form viable groups that then have better access to technical assistance and can viably seek funding as needed. 23. Page 55: Subcomponent 2.3.4: While promising, payments for ecosystem services models are described as if they are ready to be widely replicated. That may indeed be the case, although elsewhere PES schemes have not proven a universal panacea and have only started workingwell in a limited number of cases. Response: W e agree, and we don't envisage that they will be the all in all here too - but there i s sufficient evidence that they can work well incertain areas and it's a worthwhile objective to seek. 150 Local Participatory Processes 24. While the proposal frequently mentions participatory approaches, some of the planned implementation seems rather technocratic (e.g., page 47): field a team, raise awareness, learn the techniques, develop the plan, and implement it. Experience suggests that participatory development processes don't often work that smoothly, especially when they involve new partners of variable and often low capacities, including localcommunities. Response: The Philippines in general has very an excellent knowledge base when it comes to participatory approaches and they generally do it well. When dealing with watershed approaches consensus building i s primordial essential to successful implementation and to gaining public acceptance and ownership. The team agrees it will not b e easy, but please note that DENR has done extensive consultations already inthese areas, and the project will not be starting from scratch. The Annexes on the livelihood aspects and that describing what can be done in the watersheds gives you an idea of what DENRhas been doinginthese areas. 25. Some of the activities described here (e.g., page 48-9) seem as if they would be a radical departures from DENR business as usual. While that could be positive, it stretches the imagination to visualize DENR leading this process better than a well-qualified NGO. Iti s not clear why local and national NGOs do not have more prominent roles in this project. Response: NGOs will have a role - but the model will not follow that from the CPPAP experience. However, NGOs will be invited, on a competitive basis, to work with the LGUs to implement some of these activities. Many of these potential partners have already been identified and a list was presentedinC1 -Partnership Arrangements. 151 Annex 20: Site Description PHILIPPINES: NationalProgram-Supportto Environment andNaturalResources Management 1. The priority sites selected for focused strategic attention under the SIM and GEF grant funding cover the range of resource management issues where through strong partnership between the DENR and LGUs there is potential for sustainable management of critical watersheds and protection of biodiversity. The sites were selected based on a set of criteria developed by the DENRandwhere convergence between the department's different bureaus is needed. 2. Generally, the sites represent three major ecosystems and require specific socio-institutional, economic and technical interventions. These major ecosystems are the Southern Sierra Madre range (Angat-Ipo watersheds, Kanan watershed, and the D o n a Remedios Trinidad watershed), Bicol River Basin pbmanan-Pulantuna watershed) and the Ligawasan Marsh. 3. The following tables describe the key ecological and socio-economic characteristics of the priority sites. SIZE OFAREA FORTHE PROPOSEDWATERSHED AND WETLANDS SITES FOR WB-GEF Southern Sierra Madre Watershed Cluster Name of Watershed Area (ha) Aneat Watershed Reservation 11 55.709 Anan Watershed Other Areas: IBicolRiver Basin: Libmanan-PulantunaWatershed 1 70.924 I Ligawasan Marsh 4,.798 Sub-Total 117,723 GrandTotal 239,953 152 Southern Sierra Madre Mountains Ecosystem, River Basin and Southern Sierre Madre Mountains Bio-geographic Zone Pampanga -Agos River Basin Greater Luzon Bio-geographic Zone Administrative Region Region I11and Region IVA " Provinces where GEF D Nueva Ecija, Bulacan, Rizal and Quez6n activities are proposed to be implemented Status as Critical Under the Philippine NBSAP- PBCP portions of the Southern Sierra Madre Mountains Conservation Areas (Bulacan) are classified as a Category Iareaunder urgentneed for conservation actions. Other portionsincludingAngat and Mt. Irid-Mt. Angdo (Bulacan-Rizal-Quezon) are classified as Category I1intervention areas @tremely HighCritical). Other vital paas of the contiguous forest areas are data deficient but probably of similar high conservation importance. The Angat Watershed and Mt. Irid-Mt. Angilo includingthe watersheds of Umiray River and Agos River areglobally recognizedas ImportantBirdAreas @A No. PH019andPH020). Agos River drains the Agos watershed into the Pacific Ocean and feeds south of the coastal town Infanta a relatively large coastal mangrove and tidal costal wetland. T h i s habitat i s in a relative pristine condition. Based on satellite image interpretations wetland qualifies for conservation management and needs to be integrated into overall ecosystems management approaches. Large portion o f the proposed intervention are presidential proclaimed Watershed Forest Reserves such as Dona Remedios- Gen. Tinio Watershed (20,800 ha.), Angat Watershed Reserve (55,700 ha) and Ipo Watershed Reservation (6,600 ha.) Several areas show conversion as critical watersheds as well as critical conservation areas and have undergone Protected Areas Suitability Assessments. They are initial components for possible inclusion under the NIPASAct. The southern portion o f the landscape i s within the boundary of the BURIQUELA National Park proclaimed in 1977. A Mt. Irid-Angdo Protected Landscape initiative i s proposed by DENR Region IVA in collaboration with a local NGO supported by CEPF and Conservational International. The proposed PA covers 171,201 hectares and encompasses the provinces of Bulacan, Rizal, and Quezon. At the least 5 C d c a t e s o f Ancestral Domain Claim and Titles are issued to i n k n o u s - eople invarious pomonsof the forestlands. Key watersheds and wetlands bonaReme&osT&dad Watershed (47,600 ha.), .ingat-Ipo Watershed (62,300 ha.),Kanan - - Watersheds (39,160) Main ecosystemsprofile The landscape includes at the least 6 maior types of natural habitats. ,- The most includingvegetation cover I important of the habitats are the contiguous old growth mossy and lower montane forest and the lowland evergreen dipterocarp rainforest. Other key habitats are the numerous pristine streams and rivers and man-made dams and towards the Pacific Ocean estuaries and costalmangrove swamps. The total estimated forest cover up i s to 80%. The landscape contains most of the remaining closed canopy forest inSouthern Luzon and of the vicinity of Metro Manila. The proposed intervention area connects with dense forest cover to Aurora National Park inthe north. 153 Principal biodiversity features A total of 70 globally threatened or near-threatened species of wildlife are known from for critical conservation areas the Sierra Madre Mountain Range, including 13 species o f mammals, 46 species of birds, 7 species o f reptiles and amphibians and 4 species o f shellfish. Few other areas inAsia contain a similar high concentration of globally threatened species. Recent baseline biological surveys north of the proposed intervention area have documented several new species unknown to science. K e y flagship species include dipterocarp tree species such Red and White Lauan and Philippine Eagle, Philippine Macaque and Philippine Deer Watershed significance and More than 7 major rivers drain the landscape. Principal rivers include Sumacbao and principalfeatures Rio-Chic0 River, Magsuong River, Ipo River, and Agos River. The watersheds and their draining river systems are of critical importance for maintainingmajor irrigation systems that sustains rice productioninfor example the Central Luzon rice granary. In addition i s the entire water supply of Metro Manila and all hydro-electrical energy supplygenerated out o f the water supply coming from the watersheds ofAngat-Ipo. The watersheds draining into the Agos River are the main source for irrigation and water supply for the coastal population of the towns o f Real, Infanta and General Nakar inQuezon. Main threats/ challenges incl. Mainthreats to the environment and challenges to ecosvstems management are: mainland, watet resource degradation issues (i) ofanintegratedecosystemdatabasesystem; Lack (ii)Conflicting institutional mandates with corresponding insufficient coordination among government agencies at central and local level; (E)Absence ofcohesive programinwatershed and solidwaste management; (iv) Lack of cross sectoral guidelines for ecosystem-based watershed and biodiversity management; (v) Where projects exist, lack of integration among DENR, DPWH and LGU programs and initiatives and inadequate ability to perform; (vi) Population growths, high level of poverty incidence and low employment opportunities except farming leading to increased in-migration into the forest areas; (vii)LowLGUrevenue generation inproposedinterventionareas; (Viii)Massive conversion of lowland forest and beginning conversion of watershed forest caused by in-migration, population growth, illegal logging and road construction; (ix) Inappropriate practices such as slash and burn and unsustainable extraction of non-timber forest products including wildlife products leading to loss of biodiversity; and waste disposal inwater ways; (x) Increased frequency insoil erosion, land slides and siltation of waterways and dams caused by a combination of indiscriminate logging, slash and burn practices and natural hazards such typhoons with torrential rains (xi) Lack of political will and incitements to enforce laws and regulations, inparticular illegal logging controlled by influential individuals from private sector and local political systems; This i s leading to loss o f biodiversity and sustainable resource use opportunities. Evidence of Degradation Increasing population in the lowland periphery and in-migration into forest lands in degradation of land and gentle terrains and near roads has lead to alarming degradation of vegetation cover. vegetation F o r example i s the reduction of closed canopy forest in Bulacan estimated to 47% cover from 1981 to 1992 and lowland forests are increasingly being fragmented. In watersheds nearest t o Metro Manila such as Marikina Watershed about 80% of the forested areas have been converted to agricultural practices or lay idle as unproductive grassland. 154 Soil erosion There are no detailed studies covering the entire proposed intervention area. In general soil erosion i s minimal in the northern and central part o f the proposed intervention area although moderate erosions occur along forest roads and along riverbanks and creeks. Slight to moderate erosion also occurs in open/grassland and some kaingin areas. More severe erosion including landslides occurs in patches o f cultivated areas with very steep slopes. There are severe incidents of larger scale landslides in the southern portion. For example along steep slopes and logged-over areas in Quezon Province. In 2004 this lead to a calamity situation where several hundred people died and thousands lost their homes and income opportunities. Agos Watershed falls furthermore under the Philippine Fault Zone and may be considered a geo-hazard area. Sediment Water sources are naturally loaded with some level of sediments carried through load of erosions processes o f the mountains. However, where forest along streams and rivers streams and has been converted into open areas the sediment load has increased. There are noted lakes (dams) increased sediment loads in the water reservoirs for irrigation and the water reservoirs of Metro Manila. Dimension Land area Estimated 280,000 ha. (ha) ~- Proposed 125,800 ha, includmg Dona Remedios - Gen. Thio Watershed Forest Reserve, -Ingat- - I intervention I p o Watershed Forest Reserve, Kanan Watershed and Infanta Marsh area Land resource Slopes The landscape characterized from west t o east i s moderate sloped to very rugged condition terrains over three mountains ridges. Altitude Altitude span i s from 30 -100 masl (Agos, D o n a Remedios and Angat) to mountain peaks at 1,200 masl and 1,530 masl pt.Irid) Rainfall 2,400-3,200 mm annually with probably as much as 6,000-7,000 mm rainfall at exposed (mm) east-oriented mountainridges. Current Areas with Overall the landscape i s characterized by closed and open canopy forest covering from natural natural 75- 82% of the landscape. A sizable costal wetland between Real and Infanta resources and vegetation represents the area's largest mangrove and intertidal wetland land uses Cultivated An estimated 15% represents cultivated land mixedwith brushland and grassland, 2% and build-up are plantations and reforestation areas, 3 '/a represent water reservoirs and built-up areas areas are around 1%. Land tenure hlost of the proposed intervention area falls under stricter protection classification as Watershed Forest Reserves or Protected Areas (Kanan) or general forest protection areas. There are several smaller ancestral domains titles issued within the area: DRT \VFR C-\DC (RO3-079) - 17,833 ha, Ipo Watershed Resenradon - 1,160 ha, and Kanan Watershed ((RO4-090) - 3,011 ha. Within the .Igos River Watershed the coastal portions between Real, Infanta and Gen. Sakar are Alienable and Disposable Land with private titles mixed with mangrove areas and foreshore areas under principal protection and DESR /LGV/D-I BF-IRmanagement responsibilities. Current The app&imately 22,660 ha, o f C-ADCs under IP management are largely being managemen managed for minor forest product extraction. Watershed reserve areas of 62,300 ha. t practices are protection forest to maintain water sources for irrigation, hydro-power generation and water supply purposes. C-IDC instruments are generally being managed by the tenured C - I D C Holders; often on an IP Clan basis or through Tribal Councds. The .ingat area i s under management responsibility of the National Power Cooperation and the Ipo Reserve i s under the authority of the Metro Mads Waterworks and Sewerage Systems. Kanan Watershed i s part o f jurisdiction o f the PALIB of the P-I Proclamation 1636 while the Infanta Marsh is under mixed management by private title holders(A&D land) and DENR/ DA BFAR 155 Current There i s currently no unified watershed management approach in place. DENR has managemen untilrecently developed its own plans for protection and rehabilitation within forest t approach lands under its jurisdiction. C A D C holders, N A P O C O R and MWSS have done the same for their areas of jurisdiction. However, inthe case of Kanan, recently the LGUs have taken a muliti-sectoral initiative and formed a Forest Management Council overlapping with some of the responsibilities of the PAMB fro the same area. Although there are variations with Bulacan Province being in forefront o f integrated planning processes and actual LGU decentralization taking place down to barangay level, each municipal LGU develops i t s mandatory CLUP in isolation o f the DENR process. Most of the LGU development plans do address many of the development aspects needed to be inplace for more sustainable management (education, livelihood, health, housing, energy, water supply and infrastructure. However, plans are often developed in isolation of each other and remain on paper due lack o f funds and sometimes because of political rivalry between the ruling political classes and the opposition. Socio- Human A fullcensus inthe area has not been carried out. Based on available information with Economic population the Forest Management Bureau o f DENR i s the population density within the Features residing proposed intervention watersheds and adjacent forested areas very low in a Philippine withinor context and minimum 10,000-12,000 individuals; most households are located along primarily the border of the DRT WFR in Nueva Ecija and along the border of south-eastem using Angat-Ipo in Rizal. Of these are at the least 3,,000 indigenous people residing within watersheds the forest interiors o f DRT WFR and Angat-Ipo. The number of IPSresiding within and key the Kanan Watershed i s not known but estimated to be lower than 1,000 individuals. priority conservation Inthe southern part of the landscape are major coastal build-upareas along the Pacific Ocean. These includes the towns of Real, Infanta and General Nakar with a total population o f over 105,000 individuals. A national highway under construction between Marikina and Infanta i s likely to course expansion of the build-up areas along the new highway into the forest interior Poverty There i s significant variation in poverty incidents within the proposed intervention Index areas. Based on the severity of poverty expressed inproportion to the poverty line of families with income below the poverty threshold, the provinces of Bulacan and Rizal have the lowest number of poverty incidences. In Bulacan for example favorable employment opportunities and investments programs has reduced the poverty index from 17.3 Yo (1994) to 5.4 Yo (2000) compared to 8.YainRizal, 23.7 inNueva Ecija and 34,l ?'a inQuezon (Year 2000 figures). Unemployment rate within the intervention areas i s relative low and half of the countries average unemployment rate in the Nueva Ecija-Bulacan portion (7.5-9.1Oh in 2005 figures) but highinthe coastal area of for example Quezon. Several upland barangays in the remote portions of the municipalities are without electricity and barangays within the forest areas are normally without infrastructure or regular transport systems. 156 Key K e y stakeholders include the Provincial Government of Nueva Ecija, Bulacan, Rizal stakeholders and 8 associated municipal LGUs in the proposed intervention areas, ,provincial and community-level DENR (PENROs and CENROs), the Irrigation Agency PIA) at national, provincial and municipal level, the National Power Cooperation (NAPOCOR inAngat, Metro Manila Water and Sewerage Systems Authority (MWSS) inIpo),locallevelnationallineagencies suchasDepartment ofAgriculture, theArmed Forces of the Philippines (DRT WFR and Angat-IPO) and the Philippine National Police.. At municipal level participating community CBRM holders, and Peoples Organizations needs to b e further identified inthe key intervention areas. Other stakeholders include Indigenous People's organizations and representations, agricultural and fishing cooperatives and women and youth federations. A number of NGOs such as Yakap Kalikasan Tungo sa Kaunlaran ng Pilipinas, Inc. (Yakap) are active inthe area but more NGOs needs to b e identified o n a qualification basis. Mainnatural Small-scale slash and bum farming, agricultural production of coconuts and rice and resource and fishing (costal areas). Secondary livelihoods include small-scale logging, gathering of land use rattan, and gathering o f wildlife products and hunting. characteristi cs and livelihoods Current local Restoration and protection of the Pampanga River Basin and forest areas inQuezon i s political are high priorities and listed in the country's Medium-term Development Plan and environment consequently a top priority of DENR and other departments. (including c o m m i t m e n t -it local levels the enabling political environment and buy-in commitment by andpossible stakeholders on a demand-driven approach was confirmed during a series of resistance of consultation in April-May and October 2006. However, this commitment still needs k e y to be fine-tuned further in the case o f the Province of Rizaland in the case DEKR in stakeholders Quezon Province (more verifiable commitments and ENRN track-records). to the .iddiuonal consultations also have to include the Sadonal Irrigation .igency (NLi), at proposed Central and local levels. support) 157 Resource Partnershim: management opportunities A number of stakeholder consultations have taken place as part of the now terminated and options JICA Watershed Characterization Project and as part of the ProtectedAreas Suitability Assessment process of DENR. Detailed consultations have also taken place as part of the N P S - E N R M project preparation at two levels: 1. Co-Management/partnership consultations between the DENR, the National Power Cooperation (NAPOCOR), the Metro Manila Water and Sewage Authority (MSWW) and the Provincial LGUsNational Irrigation Agency (NIA), 2. Consultation at DENR PENRO and CENRO level with municipal LGUs, NGOs, Church Representatives and some forest occupant; primarily residing Indigenous People inkey watersheds areas of Kanan. In addition, Yakap a local NGO grantee of CEPF under partnership MOA with DENR Region IVa have held several stakeholder consultations and secured endorsements from the barangay captains and mayors of affected barangays and municipalities within the proposed Mt. Irid-Mt. Angdo Protected Landscape located within the proposed GEFinterventionarea. Decentralization/devolution/co-management During implementation Watershed Management Councils or expanded Protected Areas Management Boards will be set up. It will include LGUs with jurisdiction over the areas, relevant local government line agencies, cultural leaders and Indigenous Peoples, People's Organizations and NGOs. Donor 2006 JICA Forest Management Bureau (F'MB) DENR Watershed Data Base and projects and Characterization Project NGOs active inthe area NGOs: The Critical Ecosystem Partnership Funds-Philippines has provided U S D 100, 000 to a local NGO Yakap Kalikasan Tungo sa Kaunlaran ng Pilipinas Foundation, Inc. (Yakap) to boost advocacy for protection and ecosystem management of 171,000 has o f the landscape in which GEF support is suggested. The initiative includes Public- Private Partnership arrangements t o fund for example livelihood. Health and education activities Yakap Kalikasan Tungo sa Kaunlaran ngPilipinas, Inc. (Yakap): MtIrid-MtAngdo Proposed ProtectedArea Advocacy Program; Mt. Irid-Angdo New ProtectedArea Establishment: An Example o fPublic- Private Partnershim 158 BicolRiver Basin: Mt. Labu-Libmanan-Pulantuna River Watershed & BicolRiver Estuary Ecosystem, River Mt. Labu- Libmanan-Pulantuna RiverWatershed Basin and Bio- geographic Zone Bicol River Basin Greater Luzon Bio-geographic Zone Administrative Region V Region Provinceswhere Camarines Sur and Camarines Norte GEF activities are proposed to be implemented Status as Critical Under the Philippine NBSAP- PBCP the proposed intervention area i s classified under a Category Conservation k e a s I11area under very highfor conservation actions (lower concern). However, portions of the area overlap with the global Important BirdArea Mt. Labo: IBA N o . PH029. A portion of the proposed intervention area overlaps with the degraded Bicol National Park to the north. Other portions include the Libmanan Caves NationalPark and the Abasig-Matgodon- Manap Watershed Forest Reserve (1,032 ha.). Key watersheds and Libmanan-Pulantuna Watershed (71.000 ha.) which i s one of the maior sub watersheds of the Bicol wetlands River Basin and Bicol River Estu&'(min. 6,000 ha.) Main ecosystems The extensive Mt. Lab0 Range including Mt. TancongVaca and the mainwatershed area include profile including mainly mountain forest with blocks of &sed canopy forest of the higher elevations. Portions of vegetation cover forest transitions to lowland to evergreen dipterocarp rainforest also exists (3,100 ha.) The lower laying forest i s fragmented. Other key habitats include ultramafic and limestone forest, a h e s t o n e cave system and some pristine streams and smaller rivers. The total estimated forest cover i s up to 25%. The landscape contains one out of several small and isolated mountain forest ecosystems remaining inSouthern Luzon. Biological inventories in adjacent areas have shown that many of these ecosystems host a surprisinglyhighnumber of endemic mammals; some of these are confined to the Bicol Region. The Bicol River Estuary comprises of one of the largest intact and most diverse wetlands on Luzon including pristine and relatively undisturbed coastal salt meadows, extensive mangrove areas and brackish reed bed swamps on both sites of the Bicol River. Principal A recent floral survey reveals a minimumo f 416 plant species ofwhich 21% are endemic to the biodiversity Philippines. Although comprehensive inventories have not been carried out, the intact forest features for critical systems are likely to host near same highlevel of globally threatened and near-threatened species as conservation areas nearby Mt. IsarogNationalPark. T h i s indicates the presence of at the least 16 threatened species of birds and among mammals the local endemics Isarog Shrew-Mouse and IsarogShrew-rat as well as the Southern Luzon Giant Cloud Rat are likely to occur. Indicative threatened endemic reptiles and amphibians include Gray's Monitor Lizard and Isarog Forest Frog. K e y flagship species also include some of the last stands o f endemic lowland dipterocarp tree species with 45 species recently recorded. Initialvisits to the Bicol River Estuary indicates presence of a high number of migratory waterbirds (ducks, herons and egrets and shorebirds) and congregations of some national threatened and rare wetland species 159 Watershed Within a catchments area of 600 km2 the landscape includes five major rivers including the significance and Pulantuna and Libmanan Rivers. Three rivers that originate from Mt. Lab0 flows throughBicol principal features National Park and drainsinto Pulantuna River and flows southeasterly to the San MiguelBay. The streams and rivers of the watershed have a total length of streams of about 635 km. The upper part of watershed i s ina fair ecologicalcondition and the watershed and the draining river systems are of critical importance for maintainingthe local irrigation systems that sustains rice production. Inaddition, the water quality of Pulantuna River i s very highwith potential for increased use as water supply to nearby towns and cities. The river may also be suitable for provision o f electricity to the most isolated upland barangays throughestablishment of minihydro- power facilities. Mainthreats/ Mainthreats to the environment and challenpes to ecosystems manaEementare: challenges incl. land, water and (i) ofanintegratedecosystemdatabasesystem; Lack main landand resource (ii)Conflictinginstitutionalmandateswithcorrespondinginsufficientcoordinationamong degradation issues government agencies at central and local level; (iii) Absence o f cohesive program inwatershed and solid waste management; (iv)Lack of cross sectoral guidelines for ecosystem-based watershed and biodiversity management; (v) Where projects exist, lack ofintegration among DENRand LGUprogramsandinitiatives and inadequate ability to perform; (vi)Populationgrowth, highlevelof poverty incidence andlowemployment opportunities except farming leading to increased in-migration into the forest areas; I (vii)L o w LGUrevenue generationinproposedinterventionareas; (viii)Massiveconversionofwatershedforest; (ix) Inappropriate practices such as slash and bumand charcoal makinginforest areas and increased pollution of water bodies (waste disposal, fertilizer, and chemicals inwater ways in production zones); (x) Increased frequency inflooding of lowlandareas during rainy seasons and decreasing/unstable water supply duringdry season caused by a highly limited forest cover; (xi) Lack of political will and incentives to laws and regulations leading to unsustainable extraction of forest and non-timber forest products includingwildlife products with corresponding loss o f biodiversity and iportunities for sustainable natural resource-uses. Evidence of Degradation Increasing population inthe lowland and in-migration into forest lands ingentle degradation of landand terrains and near roads has lead to alarming degradation of vegetation cover. vegetation cover Opened up areas are not used intensively due to poor soil quality and low soil cover. For example i s about 60% of the converted forest a mix of brush land, grassland and coconut plantations. The estimated forest cover i s about 20% withclosed canopy forest only remaining at the highest elevations. Most of the areas was logged over from 1960-1980 and illegal logginghas removed most of the lowland forest of Bicol NationalPark. Soil erosion There are n o detailed studies covering the proposed intervention area and studies needs to be carried out as part of appraisal. However, soil erosion i s known to occur along forest roads and along denuded river banks and creeks. No incidents o f larger scale land slides have been reported. Sediment load Water sources are naturally loaded with some level of sediments carried through o f streams erosions processes o f the mountains. Where forest along streams and rivers has and lakes been converted into open areas the sediment load has increased. However, the upper portions of Pulantuna River are stiu fairly free of sediment loads. 160 Dimension Land area Estimated 71,000 ha. (ha) Proposed Minimum20,500 ha. defined as protection zones located ineight municipalities intervention ( Cabusao, Del Galleo, SL Ruiz, Libmanan, Lupi, Ragay, Sipocot and Basud). area A s part o f appraisal opportunities to expand the intervention area to include a larger portion of key biodiversity areas within the Mt. Lab0 watersheds and the Bicol f i v e r Estuary under integrated ecosystem management. Land resource Slopes The landscape i s generally flat to rolling to moderate step with 80% condition characterized as gently to undulation to rolling slope conditions. Moderate steep to very steep slopes occur towards the landscapes key mountainpeaks. Altitude Altitude span i s from near see level with must o f the watershed located below 500 masl. Upper portions reaches 1,000 masl and extending towards Mt. Labu _ - - (1,539 masl) Rainfall (mm) 2,350 mm annually with higher rainfall occurring around the mountainpeaks. Current natural Areas with The watershedi s dominated by agriculture and other non-forest uses (goyo) resourcesand land natural covering 64,000 ha. The remaining i s 6,700 hectares of forest characterized by uses vegetation generally open canopy forest and secondary forest. However, a block of about 3,500 ha. o f closed canopy forest has recently been identified at the nearby slopes of Mt. Lab0 along the boundaries of Camarines Norte and Camarines Sur. InBNP and extendinginto the adjacent Mt. Kulasi there i s at minimum 785 ha., of lowlands old growth forest ina god condition. The entire coastal area north and south of the Bicol River i s a near-intact and very diverse coastal wetland that extends 4.5 kminlandand 20-25 km along the coastline of the watersheds. The wetland include at the least 177 ha. of pristine Mangroves. Cultivated Of the proposed key intervention area an estimated 70% represents cultivated areas and land mixed with brush land and grassland o f which 40% is located in Alienable build-up areas and Disposable lands. Extend ofbuilt-upareas are not known. Main natural Land use Zones: Protection Zone 20,900 ha., and ProductionZone 50,000 ha. resource and Classification of forest land: Forest Reserve 22,800 ha. NationalPark 4,400 ha. land use and Communal Forest 400 ha. characteristics and At the least 70% of the populationis engaged infarming and primarily in60% o f livelihoods the watershed (variation from 84% inthe lower portions and 18% in the upper portions); inupper portion of the watershed small-scale slash and burnfarming occur. Inthe coastal portion mainland and resource uses are marginal fishery, cattle grazing and rice production. Agricultural productioni s mainly of coconuts, corn, sugar and rice. Secondary livelihoods include small-scale logging, chair coal-making, gathering of forests andwildlife products and subsistence hunting. Land tenure Upto 60% of the landscape is classified as Alienable and Disposable landunder private ownership: Farm owners 42%, Tenants 37% and Landless 21%. Average farm size i s 2.9 ha. Current The landscape i s managed under different laws and land classifications: Forests Management and Forest lands under DENR Forestry and PA and Wildlife Sectors. A minor structure portion is managed under the Local Government Code (Communal Forest). Landuse planningand management falls mainlyunder the Comprehensive Land Use Planning schemes (CLUP) by LGUs, Forest LandUse Plans (FLUPS) by DENRandProtectedAreas Management Plans by the DENRPAWSector. 161 Current There are no unified watershed management approaches. DENRhas until Management recently developed its own plans for protectionand rehabilitationwithin forest Approaches lands under i t s jurisdiction. Each municipal LGU develops its mandatory CLUP inisolationofthe DENRprocess. MostoftheLGUdevelopmentplansdo address many of the development aspects needed to be inplace for more sustainable management (education, livelihood, health, hosing, energy, water supply and infra-structure, However, plans are often developed inisolation of each other and remain on paper due lack of funds and sometimes because of political rivalry between the rulingpolitical classes and the opposition. Socio-Economic Human The upland watershed population i s 65,500 (2003) individuals with a tendency to Features population out-migration from the area. Annual growthrate i s 1.39 Yo and well below the residing Philippine average growth rate. within or primarily A minimumof 170individuals inthe municipalities ofBasudandLupiare u s i n g cultural communities of Agta origin. These people are currently without tenure watersheds instruments, and they are known to have been involuntarily removed from the and k e y forest interior by the L G U s (inthe case of Lupi). priority conservation Poverty I n d e x The poverty incidents are among the highest inthe country: Camarines Norte: 52.7% and Camarines Sur: 42.6% (year 2000 figures). The unemployment rate within the interventionareas is up 13.7% and above the national average (2005) 40% of the barangays are without electricity and 37 barangays are without infrastructure or regular transport systems. K e y K e y stakeholders include local level national line agencies with projects and stakeholders technical assistance inthe watersheds: Provincial Local Government Units, NIA, DENR, andDA; at municipallevel8 participatingLGUswith expressed willingness to participate and co-fmance. Other stakeholders include agricultural cooperatives and women and youth federations and the out of 10 NGOs active inthe area. POs' and best performing NGOs have to be fmally identified during inception based on a qualifying approach and best practices project implementation track-record. Current local Bicol Regionhas the second highest level poverty incidence inthe country and at political the same time represents the region one o f the most ecologically depleted environment landscapes. Consequently, restoration and protection of the Bicol River Basin (including LGU watersheds i s a highgovernment priority and listed inthe country's Medium- c o m m i t m e n t and term Development Plan. possible resistance of key stakeholders At local levels the political environment is characterized by 1. The traditional to the proposed local political dynasties or clans that form strong alliances with their SUPP4 constituencies by grantingo f favors and 2. Professional-entrepreneurialpolitical leaders that works on demand- driven approaches of local residents. 162 Resource Partnershim: management opportunities and Detailed stakeholder consultations have previously taken place at all levels as part options: o f the DENRpreparation of a comprehensive development and management plans for the watersheds inBicol River Basin. T h i s i s a part o f the Water Resources Development Project of DENR. As part of the N P S - E N R M preparations, the local enabling political environment and buy-incommitment by stakeholders was confirmed during a series of consultation inApril-May and October 2006. The consultations included all stakeholders at two levels: 1. Co-Management/partnership consultationsbetween the ProvincialLGUsand DENR;and 2. Consultation with Municipal LGUsof Camarines Norte and Sur, NGOs, POs, and a number of barangay officials. Decentralization/devolution/co-management Duringthe consultations itwas agreed to create a Watershed Management Council for the watershed. T h i s willinclude representation o f the Bicol National Park and the PA of the Libmanan Caves, LGUswith jurisdiction over the areas, relevant local government line agencies, IP and C B F M A Representatives and qualifying People's Organizations and NGOs. Donor projects and DonorProiects: NGOs active inthe No projects identified. area NGOs and POs: Of ten NGOs reportedby DENRto have providedassistance to different PO'S and barangays inthe area, only two or three were during pre-appraisal foundto be active inthe area. Assistance from NGO to POs inthe past have included (i) activities related to springdevelopment, reforestation and tree planting, (ii) livelihood and business related activities and (ii) related to activities improvement of the barangay's environment profile (clean and green) and infrastructure. Previously active NGOs include (many of these are not active in the area by 2006): Philippine Rural Reconstruction Movement (PRRM) Center for People Empowerment inthe Uplands (FAI) Prime Movers for Development Foundation (PMDI) Bicol Upland RuralDevelopment Foundation, I n c (BURDFI) Philippine Federation for Environmental Conservation (PFEC) Bicol National Park Foundation (BNFI) POs selected under CBFMpromams for DENR Concerned Environmentalist Group o f Sigamot (CEGSI) Tible Bantay Kalikasan Organization (TIBKOI) Pag-asang Samaan Para sa Kalikasan ngTancongVaca (PASAKAT) 163 LigawasanMarshes Ecosystem, Rver Ligawasan Marshes Basin and Bio- geographic Zone Mindanao River Basin Greater Mindanao Bio-geographic Zone Administrative Region XI1 Region Provinces where NorthCotabatu, Maguindanao and Sultan Kudarat GEF activities will be implemented Status as Critical Classified as a Category I1area under extremely high critical conservation need under the Philippine Conservation Areas NBSAP- PBCP and as Global ImportantBirdArea (IBA N o . PH 102). A portion of the marshes was declared as a Game Refuge and Bird Sanctuary in 1941. Proposed by DENR in 2004 for inclusion under the N I P A S A c t Key watersheds The marshes consist of a conglomeration o f three marshes (Ligawasan, Libungan and Ebpanan) located in two adjoining marshy basins. Ligawasan Marsh and Libungan Marsh have different water regimes: Ligawsan at the confluence o f Libungan, Maganoy, Buluan and Allah Rivers and Libagan at the confluence o f Libungan and Mindanao Rivers. All located within the lower section o f the Mindanao River Basin Main ecosystems The marsh complex i s the larges freshwater swamp and marsh area within the Philippines. It i s a profile including vast complex of river channels, small lakes and ponds, extensive marshes and arable land subject to vegetation cover seasonal floodingin the basin of Mindanao River. The marsh habitats include Swamp Forest (8,500 ha., including 800 ha., old growth forest), Herbaceous Swamps, Mangrove forest (1,100 ha.), open water bodies and runningwater bodies. Principal The marshes are classified as an Important Bird Area, and they support primarily relatively large biodiversity features congregations of resident or non-breeding waterbird populations including herons and egrets, rails, for critical shorebirds, and duck species. A few terrestrial threatened and restricted-range bird species also conservation areas occur. These include as a minimum 11Philippine endemics. Most of the endemic avifauna species are associated with the forest habitats within the marsh or its peripheral swamp forests. K e y wetland species under threat with national extinction include Spotted Whistling-Duck, Comb- crested Jacana, Glossy Ibis, and Woolly-necked Stork. Philippine Pelican i s presumed locally extinct. Thirteen species of reptiles and four amphibians have been reported, and the marshes are one of the last strongholds for the endemic and endangered Philippine Crocodile (Crocodylus mindorensis), and the Estuarine Crocodile C porosus. It also supports at least 33 species of freshwater fishes. Nine (9) species of mammals have been recorded with only one species being a Philippine endemic; the Jagor's fruit bat (Ptenocbimsjugon). A large part of the original plant communities have been altered by human impact but the marshes still represents some of the largest remaining portion o f unique wetland habitats in the Philippines. Although the plant species composition i s relatively low (minimum 194 species) with 6% o f the species identified endemic to the country. The endemic species has now has become extremely rare. The forested portions of the marshes are particularly rich in orchids. The Terminah copebndii, once an abundant species in the remaining swamp forests o f the country, i s n o w subjected to pressures leading to probable local extinction. Waterbody The marsh i s a wetland ecosystem within a wider floodplain. Its key significance i s the function as a significance and natural flood control, and natural filter o f sediments loads and organic water components. principal features Mindanao River i s the principal drainage which traverses the marsh complex but with numerous smaller rivers flowing into the marshes from mountain ranges within the provinces and nearby vrovinces. 164 Main threats/ Up to 140,000 ha. of the marshes dry out during dry seasons and are subject to increased challenges incl. conversion to meet agricultural production needs. Denudation of upland forest cover (illegal main land, water logging, gold miningand slash and bumpractices) are causing heavy erosion which again i s the root and resource cause to heavy siltation of the marshes. The sedimentation has increased the built-up areas resulting degradation issues inincreased conversion of the marshes for agriculture and human habitation. As a results of the increase inhumanpopulation the pressure on the marshes natural recourse base i s rapidly increasing Mainthreats to the environment and challenges to ecosystems management include: (i) increase in build-up areas, (ii)illegal fishing practices, and overfishing and high increase in introduction non- native fish, (iii)massive land conversion, (iv) pollution of water bodies (waste, fertilizers and chemicals), (v) unsustainable extraction o f riverine forest and swamp forest and (vi) hunting, gathering of wildlife and its products and disturbance of the wildlife intheir key habitats. Main off- site threats include slash and burn practices in upland watersheds and excess chemicals from Y Y Evidence of Degradation of Based on satellite image interpretation old growth swamp forest had degradation land and declined from app. 5000 ha. to less than 900 ha. Most forest habitats are vegetation cover now fragmented and large portions oforiginal riverine forest galleries gone. Sediment load of Water sources are loaded with sediments carried through erosions processes streams and lakes of nearby mountains. Through the waterways drainage in to the marshes, soil residues are deposited on the flood plains. The quantity and quality of the water i s complex as a direct function of the state of the river basin (accelerated erosion of degraded watersheds) that has increased the siltation of large portionsof the marshes. The increased sediment loads have contributed to increased nutrients input and increased eutrophication of the marshes water bodies Increased sediment loads has a severe impact on the fish population and i t s natural regeneration Dimension Land area (ha) App. 487,500 ha. comprising 10%o f the Mindanao River Basin Proposed Maximum 47,000 ha. ( to be determined during appraisal) interventionarea Landresource Slopes The marsh complex i s located at in a flat or nearly flat terrain. condition Consequently slope erosion does not occur in the area but increasing slope erosion i s reportkd from most watersheds in surrounding mountains and - has a major negative siltation impact o n the marshes' ecosystem. Altitude 10-30 mas1 Rainfall (mm) 2100-2500 mm annually. T h e relative high rainfall in combination with the " marshes dense and complex drainage system maintainsthe water level inthe core of marshes. Current natural Areas with natural Forested areas including swamp forest (9,600 ha.), semi-permanent resourcesand land vegetation converted wetlands (min. 90,000 ha.), permanent wetlands (31,000-38,000 uses ha.) and scrubland/grassland (estimated 72,000 ha.) and grassland (16,000 ha.) Cultivated areas At the least. 90,000 ha. are semi-permanent wetlands drying up in dry and build-up areas season and used for rice production. 3,000 ha. are considered build-up areas 165 Main natural The land uses i s dependent on the annual and seasonal flooding patterns in resource and land the marshes. As a result, the area and duration o f the cropping season vary use characteristics every year and so with production which in turn affect the economic and Livelihoods condition of the marsh population. The estimated total permanent agricultural land area i s 56,500 ha.; the forested land i s about 5,300 ha. And the settlement/built-up areas totals approximately 38,600 ha. The aggregate fishpond areas are 15 ha. There are a number o f dams used for irrigation and fishing; the largest o f the dams are 140 and 150 ha. respectively. Livelihoods: Farming, fishing and livestock/poultry production. Secondary livelihoods includes handicraft-making (6 Yo of population) and huntingandgathering ofwildlife products (less than 3% o f the population) Land tenure Up to 51% of the landscape is agricultural land but data details o n land tenure are not available. Current Area management is deeply rooted in traditional Moslem management management systems and deeply anchored on the principles under Shariah L a w and the structure Quran. From a formal legal perspective the landscape is managed under different laws and land classifications: Existing areas under protection are in effect only under municipal ordinances. The area's inclusion as initial component under the N I P A S Act has yet to be decided on. Land use planning and management falls mainly under the Comprehensive Land Use Planning schemes (CLUP) by LGUs. Current Management approaches including new efforts to protect and implement management integrated ecosystems management principles i s and must b e based o n the approaches political- religious -institutional dynamics of Ligawasan. The management system i s per tradition autocratic and chieftains possess ruling power over the residents. Hence, management structures are divided between the political-administrative system of the Philippine Government and the system of Islam. T h i s includes property rights issues. Utilization of natural resources falls under a mix o f customary laws, Islamic precepts and laws under the Philippine Government. Conflicts over resource or landlwetlands resources are solved by clan leaders or elders. Disputes are ultimately solved by Bangsamoro mujahideen leaders. Socio-Economic Human population Total population (2000 census) 468,000 of which an estimated minimumof Features residing within or at the least 100,000 people may be directly dependent on the marsh system primarily using (fishingand agriculture). watersheds and key priority conservation Population Poverty Index The annual income o f the majority of the population (58%) is around U S D 115 and only half of the poverty threshold (USD 245 pro annum-NEDA 2000). Poverty incidents (55.1% in 2000) are among the highest in the country and the unemployment rate within the proposed intervention areas i s also very high; the Ligawasan population i s considered to b e among the poorest o f the poor inthe Philippines. 166 Key stakeholders Four Local Government Units were identified by DENR and WB inJuly 2006. They are located inmunicipalities around the "waterline" priority part of the LigawasanProper Complex inthe eastern section of the marshes: Municipalities of Sultan Sa Barongis, S K Pendatun, MLang and Paglat. However, t o encompass the ecosystem within the key area of global conservation significance, the Municipalities of Pikit, Pasalungan, and Datu Montawan needs to b e included. Other key stakeholders are local Moslem Datus and Faith Leaders under Islamic tradition, the Bangsamoro Movement, Agricultural and Fishing Cooperatives, Women and Youth federations. Current local political During previous stakeholder consultations conducted under a UNDP environment funded DENR Protected Areas Suitability Study and initial DENR (including consultations with the LGU sector 10 municipal LGUs, traditional Moslem commitment and D a t u leaders and the local leaders of the Bagsamao Movement expressed possibleresistance level o f commitment and interested in participating of the development of of key stakeholders an integrated conservation and development model for the marshes to the proposed support) 167 MAP SECTION IBRD 33466R2 I Ilocos X Northern Mindanao 1 Ilocos Norte 58 Bukidnon Batan 2 Ilocos Sur 59 Camiguin PHILIPPINES Islands 3 La Union 60 Lanao del Norte BascoBasco 4 Pangasinan 61 Misamis Occidental 62 Misamis Oriental 1111 SELECTED CITIES CAR Cordillera Admin. Reg. 5 Abra XI Davao Reg. Luzon Strait 20šN PROVINCE CAPITALS 6 Apayao 63 Compostela Valley 7 Benguet 64 Davao del Norte REGION CAPITALS 8 Ifugao 65 Davao del Sur 9 Kalinga 66 Davao Oriental 10 Mountain Province NATIONAL CAPITAL Babuyan XII SOCCSKSARGEN Islands II Cagayan Valley 67 North Cotabato RIVERS 11 Batanes 68 Sarangani Babuyan Channel 12 Cagayan 69 South Cotabato MAIN ROADS 13 Isabela 70 Sultan Kudarat 14 Nueva Vizcaya RAILROADS 15 Quirino XIII Caraga Laoag City Laoag City 1 6 71 Agusan del Norte 12 12 III Central Luzon KabugaoKabugao PROVINCE BOUNDARIES 72 Agusan del Sur 16 Aurora 73 Dinagat Islands BanguedBangued 17 Bataan Tuguegarao uguegarao 74 Surigao del Norte REGION BOUNDARIES Vigan igan 18 Bulacan 75 Surigao del Sur 5 9 19 Nueva Ecija CAR Tabuk abuk II INTERNATIONAL BOUNDARIES 20 Pampanga ARMM Autonomous Reg. in 21 Tarlac Muslim Mindanao I BontocBontoc 10 10 IlaganIlagan 22 Zambales 2 76 Basilan LagaweLagawe 13 13 125šE 77 Lanao del Sur 8 Luzon NCR National Capital Reg. 78 Maguindanao ** San Fernando 3 San Fernando La Trinidad La rinidad CabarroguisCabarroguis 79 Shariff Kabunsuan IV-A CALABARZON BaguioBaguio BayombongBayombong 80 Sulu 7 23 Batangas 81 Tawi-Tawi 1414 15 15 LingayenLingayen 24 Cavite 25 Laguna 1616 4 26 Quezon **Shariff Aguak (Maganoy) and BalerBaler III 27 Rizal Sultan Kudarat serve as co-capitals of the province. PalayanPalayan Tarlacrlac 1919 IV-B MIMAROPA IbaIba 2121 PHILIPPINES 2222 IV-A 28 Marinduque San Fernando San Fernando 29 Mindoro Occidental 1818 Polillo 2020 30 Mindoro Oriental MalolosMalolos Islands 31 Palawan * BalangaBalanga QuezonQuezon 32 Romblon 1717 PasigPasig NCR MANILAMANILA AntipoloAntipolo Trece Martires ece Martires 2727 34 34 V Bicol 24 24 Santa Cruz Santa Cruz V 33 Albay CalambaCalamba25 DaetDaet 25 26 26 34 Camarines Norte 2323 35 Camarines Sur Lubang LucenaLucena 35 35 3636 36 Catanduanes BatangasBatangas Catanduanes Islands PiliPili 37 Masbate Virac irac 38 Sorsogon CalapanCalapan BoacBoac MamburaoMamburao 28 28 30 30 Marinduque LegaspiLegaspi VI Western Visayas 33 33 SorsogonSorsogon Philippine 39 Aklan Mindoro Sibuyan Burias 40 Antique 29 29 Sea 3838 41 Capiz Mindoro RomblonRomblon Sea 42 Guimaras Ticao CatarmanCatarman Tablas MasbateMasbate 43 Iloilo 32 32 Sibuyan 5252 Samar 44 Negros Occidental Busuanga Strait 3737 Masbate VII Central Visayas Semirara 53 53 Visayan 45 Bohol Culion Islands KaliboKalibo CatbaloganCatbalogan VIII 46 Cebu Roxas City Roxas City Sea BoronganBorongan 47 Negros Oriental Linapacah 39 39 NavalNaval 49 49 50 50 48 Siquijor Panay 4141 Tacloban acloban VIII Eastern Visayas Cuyo Islands 4040 51 51 49 Biliran 4343 Leyte Leyte 50 Eastern Samar San Jose de San Jose de IloiloIloilo JordanJordan Cebu Gulf 51 Leyte BuenavistaBuenavista BacolodBacolod 52 Northern Samar Dumaran 42 42 46 46 53 Samar Cebu Cebu 54 54 Dinagat 54 Southern Leyte MaasinMaasin IV-B VI Negros VII 73 73 San Jose 10šN IX Zamboanga Peninsula Bohol San Jose Siargao 4444 4545 55 Zamboanga del Norte Puerto Princesa Puerto Princesa Tagbilaran gbilaran SurigaoSurigao 56 Zamboanga del Sur 3131 74 74 47 47 57 Zamboanga Sibugay --- Zamboanga City Palawan DumagueteDumaguete SiquijorSiquijor Mindanao MambajaoMambajao Sea XIII 71 71 48 48 Siquijor 59 59 Camiguin *Executive Tandag ndag Order 429, May 23, 2005, provides for the transfer of Palawan X ButuanButuan 75 75 province (#31) from Region IV to IX CagayanCagayan Region VI; Administrative Order 129 Sulu Sea DipologDipolog OroquietaOroquieta de Oro de Oro ProsperidadProsperidad holds EO429 in abeyance until an 62 62 implementation plan is approved 7272 by the President. Bugsuk 61 61 55 55 IliganIligan MalaybalayMalaybalay 6060 58 58 Balabac PagadianPagadian MarawiMarawi Tubod bod IpilIpil Mindanao 77 77 63 63 5757 56 56 6464 NabunturanNabunturan CotabatoCotabato Ta um Tag 66 66 Cagayan 6767 KabuntalanKabuntalan DavaoDavao XI Sulu ZAMBOANGA CITY ZAMBOANGA CITY Moro 79 79 MatiMati ZamboangaZamboanga Sultan Kudarat Sultan Kudarat 78 78 KidapawanKidapawan IsabelaIsabela Gulf Shariff Aguak Sharif Aguak DigosDigos CityCity (Maganoy)(Maganoy) ARMM Basilan 76 76 IsulanIsulan Davao 7070 KoronadalKoronadal Gulf This map was produced by 6969 65 65 the Map Design Unit of The JoloJolo Sulu Alabel Alabel World Bank. The boundaries, MALAYSIA colors, denominations and XII 6868 any other information shown on this map do not imply, on 80 80 the part of The World Bank 0 50 100 150 Kilometers Tawi-Tawi Group, any judgment on the 81 81 Celebes Sea Sarangani legal status of any territory, PanglimaPanglima or any endorsement or 5šN SugalaSugala 0 50 100 Miles 125šE a c c e p t a n c e o f s u c h 120šE boundaries. MARCH 2007