PROJECT INFORMATION DOCUMENT (PID) (FCPF READINESS FUND) CONCEPT STAGE Report No.: 83503 (The report # is automatically generated by IDU and should not be changed) Project Name Nicaragua FCPF Readiness Preparation Grant Region Latin America and the Caribbean Country Nicaragua Sector Agriculture, fishing and forestry sector: Forestry (100%) Lending Instrument Carbon Offset/TF Grant Project ID P 120657 Parent Project ID N/A Borrower(s) Government of Nicaragua Implementing Agency MARENA Environmental Screening [ ]A [X]B [ ]C [ ]FI [ ]TBD (to be determined) Category Date PID Prepared June 20, 2013 (updated on December 10, 2013) Estimated Date of Appraisal N/A Completion Estimated Date of Participants N/A Committee Assessment of Readiness Package Concept Review Decision June 27, 2013 Introduction and Context With a Gross National Income (GNI) per capita of US$1,510 in 20111, Nicaragua is one of the poorest countries in Latin America. Although the situation has improved recently, approximately 42 percent of the country’s 6.0 million inhabitants2 still live below the poverty line and one out of every seven live in extreme poverty. Indigenous peoples and ethnic communities, who account for approximately 5 percent of the total population, have particularly experienced deprivation and social exclusion along the country’s history. More than half of Nicaraguans live in urban areas (57 percent), yet poverty remains largely a rural phenomenon. Importantly, the country’s economic performance has improved over the last decade resulting in moderate growth of roughly 3.2 percent per annum. Following the 2008-2009 global economic crisis, Nicaragua has had a stronger economic recovery than its Central American neighbors, and at 5.4 percent in 2011, its growth rate was the second highest in a decade. In 2012, the Nicaraguan economy grew 5.2 percent3. The challenge over the longer term is to sustain higher growth rates to accelerate poverty reduction through sustainable improvements in productivity and consequently income growth across the population. 1 Estimate in current US$ (Atlas Method), World Development Indicators database 2 Estimated total population (National Institute of Statistics, INIDE, June 30, 2012) 3 According to the Central Bank of Nicaragua. Also, Nicaragua is highly vulnerable to disasters and other external shocks, which threaten recent development gains. Nicaragua ranks second among countries most affected by tropical storms and 30th among countries most affected by earthquakes, according to the UN’s Global Report on Reducing Disaster Risk. Nicaragua has the 26th highest economic risk exposure to two or more hazards, according to the Natural Disaster Hotspot study by the World Bank. It is estimated that 10percent of Nicaragua’s territory is exposed to natural hazards, including low frequency, high-impact events such as earthquakes, volcanic eruptions, hurricanes, and high- frequency, but lower-impact events such as floods and landslides4. Nicaragua has an important stock of forests. Approximately 30 percent of the country is covered by forests (approximately 3.5 million ha)5. Of that share, 98 percent are natural forests (of which 90 percent are broad-leaf forests, and 10 percent are coniferous forests) and only 2 percent are forest plantations. A third of the natural forests are within protected areas, and 81 percent are in Jinotega(it is worth noting that much of the remaining forest in Jinotega is in the Special Zone of Alto Wangki-Bocay, with a unique administrative and juridical status), and mainly on the Caribbean coast6 within the Northern-Atlantic and Southern-Atlantic Autonomous Regions7. Almost half the forests are in the possession of indigenous communities, while 35 percent are held by private owners. Importantly, much more than 50 percent of the recent deforestation in Nicaragua has occurred in Indigenous Territories. Nonetheless, the forestry sector contributes only 1 percent to national GDP. Since 2006, the contribution of silviculture to the economy has remained relatively stable representing 1.2 percent of Gross Domestic Product (GDP). However, wood products have been declining as a share of industrial production from 3.8 percent in 2006 to 2.1 percent in 2012. The economic potential for the forestry sector is expanding rapidly. After declining steadily from US$18 million in 2002 to US$5 million in 2009, exports of wood products (including sawed wood) have increased sharply through 2011 to reach US$12 million. In 2012, this increase was slightly moderated with exports of US$11 million. Meanwhile, Foreign Direct Investments (FDI) in the forestry sector has grown almost seven-fold during 2008-10, albeit from a low base. In addition, there is substantial, but not yet quantified, illegal and informal forestry production and exports. 4 Disaster Risk Management in Central America: GFDRR Country Notes. The World Bank 5 Nicaragua REDD+ Readiness Preparation Proposal, R-PP, (May 31, 2013), based on the data of the National Forest Inventory (2008-2009). 6 Nicaragua is a unitary republic (Article 6 of the Political Constitution). Pursuant to Article 175 of the Constitution the national territory is divided into regions, departments and municipalities. There are 15 departments and two self- governing autonomous regions. Departments and regions are then subdivided into 153 municipalities. Law 28 is the governing law for the two autonomous regions “Región Autónoma del Atlántico Norte” and “Región Autónoma del Atlántico Sur”. It clearly states that the two regions enjoy their autonomy within the constitutionally defined parameters of a unitary state. In other words, an express delegation of power from the central government to the regions is a necessary prerequisite for the latter in order to exercise any powers. The municipalities within the regions need to respect the traditional communal structures to the extent possible (Article 7 of Law 28). It is noteworthy to point out that a similar provision does not exist for the municipalities in the rest of the country where, pursuant to Article 176 of the Constitution, the municipality is the basic unit of local government. Put differently, there is no legal equivalent to Law 28 requirement in the rest of the country to respect traditional communal structures. as it is the case in the two autonomous regions. 7 As identified in the R-PP, the Autonomous Regions, the place where most indigenous and afro-descendent communities live, are one of the main stakeholders of the REDD+ initiative in Nicaragua. On the other hand, agriculture remains fundamental for Nicaragua from both a macroeconomic view and a social view. It is one of the largest sectors of the Nicaraguan economy (19 percent of Gross Domestic Product); it remains the single biggest employer with around 30 percent of the labor force, and generates 20 percent of exports. Including processed foods, like meat and sugar, agriculture then accounts for around 40 percent of total exports. Nicaragua’s agriculture sector is particularly vulnerable to external shocks and natural disasters. Despite these vulnerabilities, the sector was Nicaragua’s second-largest contributor to overall growth behind manufacturing. However, today’s forces for agricultural growth are not sustainable thus adding pressure on other natural resources, such as land, forests, and water. Agricultural productivity has been stagnating; the use of improved technologies in agriculture production is still limited and Nicaragua still faces a large gap in terms of the quality of its infrastructure and logistics services that raise costs for its agricultural producers. The socioeconomic importance of Agriculture in Nicaragua is larger than its direct contribution to national income. Poverty in Nicaragua has a largely rural face and malnutrition remains one of Nicaragua’s key human development challenges. Agricultural income is vital for poor households and poverty alleviation. Poorer households with income from agriculture experienced higher growth in their incomes between 2005 and 2009. The important role that the agricultural sector has played both in economic growth and social welfare in Nicaragua has been critical in shaping agricultural policy and public expenditures over the last decade. As described in the R-PP, the agricultural frontier, where most of the poor forest dependent peoples and communities live, has been the main interface between forest and agricultural economic activities and would be one of the main target areas in any future REDD+ initiative. A. The overarching development plan of the Government of Nicaragua is the National Human Development Plan 2012-2016 (PNDH). In one of its twelve pillars, the PNDH sets forth policies to (i) protect “Mother Earth”, (ii) promote climate change adaptation and mitigation. Amongst others, the PNDH aims to contribute to human development by reinforcing respect for Nature and restoring lost habitats by educational means and instruments that help build accountability, solidarity and equity. To achieve this goal, cross-cutting themes in the PNDH are: (i) environmental life education; (ii) environment life advocacy and protection; (iii) forest development; (iv) water preservation, recovery, catchment and harvesting; (v) disaster risks mitigation and adaptation in the face of climate change; (vi) sustainable land management; (vii) environmental pollution regulation and control to preserve ecosystems and human health; and (viii) prevent environmental impacts from in-country economic activities. Responding to PNDH, the National Policy on Adaptation and Mitigation to Climate Change (PNAMCC) is another policy instrument related to REDD+. This policy aims to reduce vulnerability and improve adaptation to climate change by (i) reducing poverty, (ii) reducing land use change in agriculture, and (iii) contributing to change the energy matrix to broader use of renewable sources. The PNAMCC is complemented with the National Environmental and Climate Change Strategy (ENACC) established for the period 2010-2015. The ENACC is the immediate strategic reference to the National Strategy of Avoided Deforestation (ENDE) under which Nicaragua proposes to develop a REDD+ Strategy; the ENDE-REDD+ strategy that is described in the R-PP. The proposed grant would support Nicaragua’s objectives, policies and strategies in the sector and in the territories where deforestation and forest degradation is a key issue. According to Nicaragua’s R-PP, besides the general objectives of a REDD+ process8, the ENDE would include activities to improve sustainable livelihoods (such as agro-forestry, silvo-pastoral systems, ecological agriculture, and community forest management) and to promote co-benefits from the forests, and other goods and services produced by these ecosystems. In its R-PP, Nicaragua proposes to strengthen national, sector, and territorial development plans, as well as focus on a non-market approach that restitutes the rights of those who preserve the forests (including indigenous peoples), and help improve resilience for adaptation to climate change. Given the nature of the drivers of deforestation and forest degradation in Nicaragua, it is expected that the ENDE-REDD+ builds on the efforts of other sector policy instruments, such as the main public program for the agricultural sector, the PRORURAL sector-wide approach Program which includes the National Food Program, the National Agro-industry Program, and the National Forestry Program (NFP)9. At territorial level, the ENDE-REDD+ that would be supported by the proposed grant will take into account: (i) specific territorial strategies on climate change being developed by the governments of the North and South-Atlantic Autonomous Regions, and (ii) the Development Plan of the Caribbean Coast of Nicaragua. Deforestation and forest degradation represent the leading environmental problem in Nicaragua. Annual deforestation rate is calculated around 76,000 Ha/year. According to the Readiness Preparation Proposal10 (R-PP) prepared by Nicaragua, the country has lost more than 20 percent of its forest cover since 1990. The R-PP identifies the following main drivers: (i) clearing for agriculture and cattle grazing, (ii) forest and agricultural fires, (iii) environmental emergencies due to natural disasters (hurricanes, mud slides, flooding, drought, forest plagues), (iv) illegal logging or illegal extraction of forest products (wood and firewood), (v) social pressure over natural resources, and (vi) invasion of indigenous territories by colonists11. The continued expansion of low-productivity, slash-and-burn systems across the agricultural frontier eastward the country - the place of the largest forests and protected areas mainly located in indigenous territories - is increased by social pressure over natural resources by poor families without land, and settlers’ invasions of indigenous territories and protected areas. Nearly two million hectares are being overused by farming activities across the country. In terms of potential use or land use change, it is estimated that agriculture has seized approximately 40 percent of forest soils. The R-PP proposes to address these drivers by developing the following strategic options: 8 Eligible activities are: reducing emissions from deforestation and forest degradation; conservation, sustainable management of forests and enhancement of forest carbon stocks. 9 Programa Forestal Nacional del Poder Ciudadano 2010-2014. MAGFOR/INAFOR 2010. 10 Nicaragua Readiness Preparation Proposal (R-PP), updated version of May 31, 2013. 11 As identified in workshops with 17 indigenous territories and in the joint Management Plan of the BOSAWAS Biosphere Reserve. 1. Strengthening institutional capacities and forest governance structures 2. Harmonizing the policy and regulatory framework 3. Promoting technological reconversion of the agriculture, fishery, and forest productive systems 4. Developing incentives for forest protection and conservation, and to avoid land use change 5. Strengthening the commercial linkages and value chains of the main productive systems that are related to deforestation and forest degradation 6. Improving territorial governance and further supporting the land regularization process in indigenous peoples’ territories The proposed grant is consistent with the World Bank Country Partnership Strategy (CPS) for the period of FY2013-2017 (Report No. 69231-NI) which was discussed by its Executive Directors on November 13, 2012. One of the two strategic objectives of Nicaragua’s CPS is to raise incomes by sustainably improving productivity, competitiveness, and diversification. Under this strategic objective, the FCPF grant would contribute to promote policy alignment between the agricultural, forest, and environmental sectors. This would contribute to the dialogue on a future operation included in the CPS to continue the Bank’s traditional engagement with the agricultural sector (focusing on productivity and competitiveness of agricultural exports), as well as the preparation of a project to support food security and agriculture in the Caribbean Coast, if the project proposal is approved by the Global Agriculture and Food Security Program (GAFSP). In addition to this, the proposed REDD+ Readiness grant would complement and coordinate with other ongoing operations supported by the Bank, such as the Second Land Administration Project12 (P121152), the Second Agricultural Technology Project (P087046), and the Hurricane Felix Emergency Response Project (P108974). Being implemented by MARENA, this project would continue building on the recent experiences and lessons learned from the GEF-financed Corazon Transboundary Biosphere Reserve Project (P085488). Proposed Development Objective(s) The overall, long-term objective of the proposed World Bank/FCPF engagement in Nicaragua is to help Nicaragua reduce carbon emissions from deforestation and forest degradation, sustainably manage forests, and conserve and enhance forest carbon stocks in a socially and environmentally sound manner, while accessing sources of international financial incentives for local forest users, thereby helping mitigate climate change at a global level. 12 Note that the first Land Administration Project (P056018) helped demarcate and title 15 out of 23 indigenous territories and other complementary areas in the Caribbean Coast of Nicaragua. The REDD+ initiative would build on this experience. From a longer-term perspective, the key results expected from the future implementation of REDD+ in Nicaragua would likely include the following (though by nature, this list would need to be refined during the readiness preparation phase): a. Reductions in emissions resulting from the implementation of ENDE-REDD+ strategy; b. Additional income accrues to participating indigenous peoples and other forest- dependent communities and private owners; c. Continued monitoring and mitigation of environmental and social impacts (ESMF); d. Enhanced cross-sectorial coordination in areas dealing with REDD+; e. Continuous consultations with and enhanced participation of relevant stakeholders including indigenous peoples, afro-descendant communities, campesinos and other local communities and civil society in REDD policy-making. f. Enhanced capacity for monitoring and measuring GHG emissions from the forest sector and assessing the key drivers of deforestation. The Forest Carbon Partnership Facility (FCPF) is assisting developing countries in their efforts to reduce emissions from deforestation and forest degradation, and promote the role of conservation, sustainable forest management and enhancement of forest carbon stocks (REDD+) by providing value to standing forests. The FCPF was announced at CoP13 in Bali in December 2007 and became operational in June 2008. The FCPF is helping build the capacity of developing countries in tropical and subtropical regions to reduce emissions from deforestation and forest degradation and to tap into any future system of positive incentives for REDD+. The aim is to enable countries to tackle deforestation and forest degradation to reduce emissions, as well as develop capacity for assessment of measurable and verifiable emission reductions. The FCPF’s initial activities relate to strategic planning and preparation for REDD+ in IBRD and IDA member countries in the tropics across Africa, East Asia and Pacific, Latin America and the Caribbean and South Asia. Specifically, countries prepare for REDD+ by: i. assessing the country’s situation with respect to deforestation, forest degradation, conservation and sustainable management of forests and relevant governance issues; ii. identifying REDD+ strategy options; iii. assessing key social and environmental risks and potential impacts associated with REDD+, and developing a management framework to manage these risks and mitigate potential impacts; iv. working out a reference level of historic forest cover change and greenhouse gas emissions from deforestation and/or forest degradation and REDD+ activities, and potentially forward-looking projections of emissions; and v. designing a monitoring system and strengthening capacity to measure, report and verify the effect of the REDD+ strategy on greenhouse gas emissions and other multiple benefits, and to monitor the drivers of deforestation and forest degradation, as well as other variables relevant to the implementation of REDD+. These preparatory activities are referred to as ‘REDD+ Readiness’ and are supported in part by the Readiness Fund of the FCPF. This FCPF Readiness Preparation grant activity (referred to as “Project” in the R-PP Assessment Note) will fund only a portion of the R-PP activities, but will help the Country towards achieving REDD+ Readiness, even though the Country may not reach this stage until well after the grant closes; it will not finance any implementation of REDD+ activities on the ground (e.g., investments or pilot projects). Project Development Objective (PDO) of this Grant The Bank’s REDD+ engagement with Nicaragua will focus on preparing those elements that are currently viewed as indispensable to any future agreement on REDD13 in a way that optimizes the likely social and environmental outcomes of REDD+ and emphasizes the learning and knowledge-sharing dimensions. From that immediate perspective, the PDO of the Bank/FCPF supported preparation phase would be: The PDO is: to help Nicaragua become ready for future REDD+ implementation by preparing those key elements, systems, and/or policies needed, generally referred to as the “REDD+ Readiness Package”, in a socially and environmentally sound manner. The REDD+ Readiness Preparation grant will provide additional funding to support Nicaragua in carrying out some of the activities outlined in its R-PP, as assessed in this Note. The grant will fund only a portion of the R-PP activities, but will help Nicaragua progress towards achieving REDD+ Readiness, even though the country may not reach this stage until well after the grant closes. Based on the activities outlined in the R-PP, it is expected that the country would be able to participate in future REDD+ mechanisms. The key result from the proposed REDD readiness preparation grant would be the development of Nicaragua’s “REDD Readiness Package” (R-Package)14 which would include the following:  the ENDE/REDD+ strategy15 has been developed based on consultations with relevant public institutions, key stakeholders, indigenous peoples and local communities and is supported by its authorities/representatives at high political level  the Country has made progress towards the establishment of a National Forest Reference Emission Level and/or a Forest Reference Level by preparing an evaluation of existing 13 Fundamental elements of a future REDD mechanism were defined at the 16 th session of the Conference of the Parties to the UNFCCC in Cancun, December, 2010. See Cancun Agreements, UNFCCC Decision 1/CP.16 Section C and Appendix I. 14 The R-Package is sometimes presented as including four main elements, which basically refer to the same content (UNFCCC decision 1/CP.16 Section C, paragraph 71): (a) “A national strategy or action plan”; (b) “A national forest reference emission level and/or forest reference level”; (c) “A robust and transparent national forest monitoring system”; and (d) “A system for providing information on how the safeguards… are being addressed and respected throughout the implementation of the activities.” 15 REDD strategic options can be defined as policies, programs or other interventions that reduce emissions from deforestation and forest degradation, sustainably manage forests, and conserve and enhance forest carbon stocks. information of forest carbon emissions and of country’s capacity to reduce them, as well as by developing a methodology for a reference scenario;  progress has been made towards the establishment of a National Forest Monitoring System (NFMS) by designing a national planning system and an information system for the measurement, reporting, and verification (MRV) of Greenhouse Gases (GHG) emissions reductions and multiple benefits from REDD+ activities;  the Strategic Environmental and Social Assessment (SESA) has been carried out and the Environmental and Social Management Framework (ESMF) is prepared;  the country has put in place and is operating a cross-sector coordination body for REDD+, and a participation platform that involve a broad range of key stakeholders. It is expected that the proposed grant would contribute for the Country to put in place these key elements at the end of the readiness preparation phase, thereby providing the foundation for the country’s participation in any future REDD+ mechanism under the UNFCCC which Nicaragua may consider. Preliminary Description Nicaragua is a participant of the FCPF. The FCPF Participants’ Committee has endorsed the R- PP presented by Nicaragua. Since August 22, 2011, the Ministry of Environment and Natural Resources of Nicaragua (MARENA) is implementing a grant16 to formulate the country’s R-PP. The country submitted its R-PP for formal consideration at the 13th meeting of the FCPF Participants Committee (PC) in late June, 2012. The R-PP received positive evaluation and the PC issued a Resolution with final recommendations to improve the document and granting access of Nicaragua to the REDD+ Readiness Implementation grant (additional US$3,6M), once the country adjusts the R-PP and submits it to the FCPF for completeness check. The FCPF Facility Management Team (FMT) confirmed the completeness check in late March, 2013, and the Bank carried out its multi-disciplinary due diligence process to proceed with the REDD+ Readiness Grant, including the drafting of the current Assessment Note, the Integrated Safeguards Data Sheet (ISDS), and the Project Information Document (PID). The REDD+ readiness process in Nicaragua will seek to align public institutions, civil society organizations and the private sector within a coherent national strategy to reduce forest degradation and deforestation, namely the ENDE/REDD+ Strategy. To achieve this objective it will trigger a trans-sectorial dialogue process involving all relevant sectors and actors affecting forests, raising awareness and providing information to highest political and societal decision makers to harmonize sectorial policies and regulations towards the goal of reducing deforestation and forest degradation. Coordination and complementarity will be pursued to enhance the presence of all layers of the government at territorial level, improve governance and law enforcement, as well as to design a Compensation for Environmental Services (CES) scheme for forest owners that conserve and use them in a sustainable way. 16 Nicaragua already received a US$200,000 grant from the FCPF (TF 099264), as seed money to formulate the R- PP. This formulation grant closes in September 30, 2013. The policies, programs and other interventions to reduce emissions from deforestation and forest degradation and promote the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks will be defined through studies and consultations during the readiness preparation phase. The specific REDD preparation activities Nicaragua intends to carry out in preparing its Readiness Package are described in the R-PP, and include: strategy development through stakeholder consultations, analytical work, capacity building, a Strategic Environmental and Social Assessment (SESA), and technical work to establish a national forest Reference Emission Level/Reference Level and monitoring system. These activities are funded by the FCPF Readiness Preparation Grant of $3.6 million. Other support is expected by Nicaragua from the GIZ-REDD+ Program for Central America and the Dominican Republic (approx. US$345,000), and support from the USAID Regional Climate Change Program for Central American17 to support REDD+ (approx. US$500,000), in addition to the national government and possibly other donors18. Also, Nicaragua is interested in accessing additional FCPF funding (up to US$5 million) after the mid-term review, as established in the FCPF, based on the assessment that significant progress has been made in the preparation of the ENDE-REDD+. Activities to be financed by the FCPF would not include any physical investment or the implementation of any REDD program on the ground. Safeguard Policies that might apply 1. The table below presents the safeguards policies which are being triggered at Concept Stage. The environmental safeguards category proposed at Concept Stage is: B. Safeguards Yes No TBD Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X Tentative financing Source: ($m.) Borrower/Recipient IBRD 17 This program is part of US development policy on the Global Climate Change Initiative (GCCI). Support to REDD+ initiatives is under the component on Sustainable Landscapes. 18 Based on its ongoing negotiations with the GIZ and USAID programs, MARENA expects that total contributions over the period 2012-2017 would reach US$1.5 million per donor. IDA Forest Carbon Partnership Facility 3.6 Total 3.6 GIZ US$ 345,000 (estimated for the first 18 months) USAID US$ 500,000 (estimated for the first 18 months) Contact point World Bank Contact: Augusto Garcia Title: Senior Operations Officer Tel: (505) 2270 0000 Email: agarcia2@worldbank.org Borrower/Client/Recipient Contact: Juanita Argeñal Title: Minister, Ministry of Environment and Natural Resources Tel: (505) 2263 1273 Email: For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop