The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) REPORT NO.: RES37584 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF FIP: ENVIRONMENTAL REGULARIZATION OF RURAL LANDS IN THE CERRADO OF BRAZIL APPROVED ON JULY 21, 2015 TO FEDERATIVE REPUBLIC OF BRAZIL ENVIRONMENT & NATURAL RESOURCES LATIN AMERICA AND CARIBBEAN Regional Vice President: Axel van Trotsenburg Country Director: Paloma Anos Casero Senior Global Practice Director: Karin Erika Kemper Regional Director: Anna Anna Wellenstein Practice Manager: Valerie Hickey Task Team Leader: Bernadete Lange The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) ABBREVIATIONS AND ACRONYMS APP Áreas de Preservação Permanente (Permanent Preservation Areas) CAR Cadastro Ambiental Rural (Rural Environmental Cadaster) CIF Climate Investment Funds CPF Country Partnership Framework ESMF Environmental and Social Management Framework FIP Forest Investment Program FM Financial Management GoB Government of Brazil IBRD International Bank for Reconstruction and Development/The World Bank M&E Monitoring and Evaluation MAPA Ministério da Agricultura, Pecuária e Abastecimento (Ministry of Agriculture, Livestock and Food Supply) MDB Multilateral Development Bank Mha Million hectares M&E Monitoring and Evaluation MMA Ministério do Meio Ambiente (Ministry of Environment) PCU Unidade de Coordenação do Projeto (Project Coordination Unit) PDO Project Development Objective POM Project Operational Manual PRA Programa de Regularização Ambiental (Environmental Regularization Program) PRADA Plano de Recuperação de Áreas Degradadas (Plan to Rehabilitate Degraded Areas) RL Reserva Legal (Legal Reserve) SCF Strategic Climate Fund SCF-FIP Strategic Climate Fund–Forest Investment Program SFB Serviço Florestal Brasileiro (Brazilian Forest Service) SICAR Sistema Nacional de Cadastro Ambiental Rural (Rural Environmental Cadaster System) WBG World Bank Group The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) BASIC DATA Product Information Project ID Financing Instrument P143334 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 21-Jul-2015 28-Feb-2020 Organizations Borrower Responsible Agency Federative Republic of Brazil Ministry of Agriculture, Livestock and Food Supply Project Development Objective (PDO) Original PDO The Project Development Objective is to enhance the capacity of the Borrower’s MMA and nine SEAs to receive, analyze and approve rural environmental cadaster entries and link them to SICAR; and support, in selected municipalities, landholding registration in the CAR. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-19211 21-Jul-2015 22-May-2017 18-Aug-2017 28-Feb-2020 32.48 1.76 30.72 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Brazil Investment Plan (BIP), endorsed by the Forest Investment Program Subcommittee in May 2012, seeks to promote sustainable land use and forest management improvement in the Cerrado, contributing to reducing pressure on the remaining forests, reducing GHG emissions and increasing CO2 sequestration. The BIP coordinates efforts by the Ministries of Environment (MMA); Science, Technology and Innovation (MCIT); and Agriculture, Livestock and Food Supply (MAPA), with the aim to maximize impact of sectoral policies to reduce deforestation in the Cerrado biome by improving environmental management in anthropized areas and producing and disseminating environmental information. 2. The FIP: Environmental regulation of rural lands in Cerrado of Brazil (FIP CAR Project) acts in synergy with the other BIP projects and contributes to the achievement of objectives of the BIP. The Project supports the implementation of the Brazilian Forest Code (Law 12.651 of 2012), which requires private rural landholders to maintain a percentage of native vegetation as Legal Reserves (Reservas Legais, RLs), as well as keep Areas of Permanent Preservation (Áreas de Preservação Permanente, APPs), such as riparian forests along watercourses, steep slopes and mountain tops. The Forest Code also obliges landholders to be registered in the Rural Environmental Cadaster (Cadastro Ambiental Rural, CAR), an electronic register maintained by environmental agencies that monitors private rural land use and compliance with reforestation requirements. The FIP CAR Project includes three components: i) Component 1: Strengthening the environmental agencies’ capacity to implement the CAR system. This component aims to: (i) empower the State Agencies to receive, analyze and approve rural environmental cadastre entries and link them to the national electronic system (SICAR); and (ii) establish the necessary conditions to implement or connect to the SICAR, in terms of staff training, maps, imagery and thematic bases, and operational infrastructure, including equipment and technical tools. ii) Component 2: Registration of Landholdings in the Selected Municipalities. This component aims to obtain up-to-date environmental cadastral data that contains information about smallholders, their landholdings, and their enrollment in the CAR system of the State Agencies, focused on selected municipalities. iii) Component 3: Project Management, Monitoring and Evaluation. The component supports project coordination, management and monitoring activities, including technical assistance and equipment. 3. The US$ 32.48 million Forest Investment Program Loan was approved by the Board on July 7, 2015, during a very complex political period, where all Senate approval processes were put on hold until a new government took office. As a result, the agreement was only signed on May 22, 2017 and became effective on August 18, 2017. 4. After almost two years of implementation, the Project’s disbursement rate is still very low at only 5.4%. The project budget allocation has been impacted by the National Budget Freeze implemented by the Federal Government that determines that no federal institution can have additional budget for the coming 20 years. As a result, the Ministry of Environment (MMA) was not able to allocate sufficient funds to implement the project, although the budget was doubled from 2018 to 2019. The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) 5. In January 2019, a new Government took office, which restructured several ministries and moved the Brazilian Forest Service, responsible for the implementation of the FIP CAR Project, from MMA to MAPA. MAPA has a much larger budget and, consequently, more flexibility to allocate and manage funds among different activities. It already requested additional funds for the project this calendar year – this is the first window of the year to request the Ministry of Economy for additional/reallocation of funds within the MAPA’s budget. Their current allocation is BRL 10 million, and they are asking for additional BRL 2.8 million, which is the maximum they are allowed to ask, considering the original allocation. There are four procurement processes for the use of these funds being finalized, and contracts should be signed by October to ensure all available funds are committed. 6. Despite the low disbursements, the progress towards achievement of the Project Development Objective (PDO) and Overall Implementation Progress were both rated Moderately Satisfactory in the latest ISR (June 2019). The electronic registry system for CAR (SICAR) has been implemented, including user interface, offline registration modules, automated analysis and detection of inconsistencies among submissions, which is constantly being improved. Staff from State environmental agencies are being trained and participate in events that foster partnerships and exchanges of experiences. 7. In the project selected municipalities, more than 120,000 rural landholders have been registered, counting for about 22.5 million hectares. These remarkable numbers surpass the original targets and most PDO indicators have been exceeded. This is mainly due to the considerable decrease costs of registries, more competition among contractors responsible for registries, and improvements in the SICAR, which has made registration process easier. In addition, SFB has used own resources to fund some project activities. As a result, more municipalities have benefitted from support and the States of Piauí and Bahia were added to the original nine States. 8. Project Management and Monitoring and Evaluation has also been rated Satisfactory, and Financial Management, Procurement and Counterpart Funding were rated Moderately Satisfactory. The overall safeguards compliance is rated Satisfactory, and no major safeguards issue has been identified. B. Rational for Restructuring 9. Although the project has made considerable progress, to achieve the Project objectives, the project needs to continue to support the analysis and validation of registries, resolve data conflicts and address inconsistencies and implement forest restoration plans. The CAR registration process needs further support and assist small landholders to comply with the environmental legislation to allow them to access rural credit lines and technical assistance services. This will help improve land use and natural resource management systems and, ultimately support their livelihood, food security, income, and quality of life. 10. The request for Closing Date extension of 22 months, from February 28, 2020 to December 31, 2021, will be considered at a later date upon implementation progress. II. DESCRIPTION OF PROPOSED CHANGES C. Proposed Changes 11. This is the first restructuring for this project and will include the partial cancellation of US$8 million due the considerable devaluation of the Brazilian Real compared to US Dollar. The restructuring will also include the institutional changes as a result of the move of SFB from MMA to MAPA and the reallocation among Loan Categories The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) – to adjust the amount due to the cancellation. The results framework will also be adjusted to reflect the current reality and lowering costs and ease of registration. 12. The following intermediate results indicators will be adjusted: i) Staff in targets State Environment Agencies trained to use SICAR and to analyze and validate data. The end target will be increased from 200 to 451 people. While the registration process has been mastered and State Environmental Agencies are capable to review CAR registries and reject low quality entries. Further training will focus on strengthening the validation of CAR entries, issuance of CAR certificates, preparation and analysis of restauration plans, and monitoring and evaluation of CAR compliance. ii) Small landholding applications to enroll in the CAR system. The end target will increase from 57,942 to 160,600 landholders. While the results so far have surpassed the original target, the focus will now be on beneficiaries living in traditional peoples and communities’ areas, including quilombos (rural Afro- descendant communities) and babassu coconut gatherers and processors, whose territories are collectively managed and recognized by Brazilian law. These communities have historically be marginalized by federal government programs. iii) Small landholding with liabilities provided with support to prepare plans to rehabilitate degraded areas. The indicator unit will change from percentage to numbers. iv) A new intermediate indicator is being proposed “share of beneficiaries satisfied with services provided by the project”. 13. Considering the partial cancellation of US$8 million, the categories and components’ amounts will be revised as follows: Category Original Proposed Reallocation (1) Goods, Non-consulting services, consultants’ services, works, 6,146,304.00 7,500,000.00 Training and Operating Costs under Part 1 of the Project (2) Goods, Non-consulting services, consultants’ services, works, 25,178,219.00 15,750,000.00 Training and Operating Costs under Part 2 of the Project (3) Goods, Non-consulting services, consultants’ services, Training and 1,155,477.00 1,230,000.00 Operating Costs under Part 3 of the Project Cancelation as of July 31, 2019 8,000,000 TOTAL AMOUNT 32,480,000.00 32,480,000.00 The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) 14. The restructuring fully complies with the Bank Directive for Investment Project Financing. The project is not subject to suspension of disbursement and the Borrower does not have any outstanding audit reports and none are unsatisfactory to the Bank. The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) I. SUMMARY OF CHANGES Changed Not Changed Implementing Agency ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Institutional Arrangements ✔ DDO Status ✔ Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_IA_TABLE IMPLEMENTING AGENCY Implementing Agency Name Type Action Ministry of Environment Implementing Marked for Deletion Agency Ministry of Agriculture, Livestock and Food Implementing No Change Supply Agency OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current PDO The Project Development Objective is to enhance the capacity of the Borrower’s MMA and nine SEAs to receive, analyze and approve rural environmental cadaster entries and link them to SICAR; and support, in selected municipalities, landholding registration in the CAR. Proposed New PDO The Project Development Objective is to enhance the capacity of the Federative Republic of Brazil's Ministry of Agriculture, livestock and Food Supply, through Brazilian Forest Service, and nine SEAs to receive, analyze and approve rural environmental cadaster entries and link them to SICAR; and support, in selected municipalities, landholding registration in the CAR. OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Strengthening State Strengthening State Environmental Agencies’ Environmental Agencies’ 6.15 Revised 7.50 Capacity to Implement the Capacity to Implement the CAR. CAR. Registration of Landholdings in Registration of Landholdings in 25.18 Revised 15.75 Selected Municipalities. Selected Municipalities. Project Management, Project Management, 1.15 Revised 1.23 Monitoring and Evaluation. Monitoring and Evaluation. TOTAL 32.48 24.48 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' S REQUEST TF-19211- Effectiv USD 32,480,000.00 8,000,000.00 31-Jul-2019 24,480,000.00 FOR 001 e COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-19211-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GO, N-CS, CS, CW, TRG, & OP - P. 1 6,146,304.00 635,980.56 7,500,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GO, N-CS, CS, CW, TRG, & OP - P. 2 25,178,219.00 76,402.03 15,750,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GO, N-CS, CS, TRG, & OP - P. 3 1,155,477.00 10,539.64 1,230,000.00 100.00 100.00 Total 32,480,000.00 722,922.23 24,480,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2016 0.00 0.00 The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) 2017 0.00 0.00 2018 0.00 760,000.00 2019 2,000,000.00 1,000,000.00 2020 10,000,000.00 16,720,000.00 2021 19,720,000.00 6,000,000.00 . The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) . Results framework COUNTRY: Brazil FIP: Environmental regularization of rural lands in the Cerrado of Brazil Project Development Objectives(s) The Project Development Objective is to enhance the capacity of the Borrower’s MMA and nine SEAs to receive, analyze and approve rural environmental cadaster entries and link them to SICAR; and support, in selected municipalities, landholding registration in the CAR. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Enhance the capacity of the Federative Republic of Brazil’s Ministry of Environment (Ministério do M Govt institutions provided w/ capacity buildg to improve mgt 0.00 4.00 8.00 9.00 9.00 9.00 of forest resources (Number) Support, in selected municipalities, landholding registration in the Rural Environmental Cadastre (C Land area where sustainable land mgt. practices were 0.00 500,000.00 3,000,000.00 5,000,000.00 6,653,472.00 6,653,472.00 adopted as a result of proj (CRI, Hectare(Ha)) Direct project beneficiaries 0.00 5,000.00 20,000.00 36,000.00 57,942.00 57,942.00 (Number) Female beneficiaries 0.00 10.00 10.00 10.00 10.00 10.00 (Percentage) Medium and large landholdings registered in the 0.00 1,400.00 7,000.00 8,000.00 9,403.00 9,403.00 CAR system (Number) The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Medium and large landholders - female 0.00 10.00 10.00 10.00 10.00 10.00 landholders (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Strengthening State Environmental Agencies’ Capacity to Implement the CAR. SICAR implemented and integrated to the SEA's systems 0.00 4.00 8.00 9.00 9.00 9.00 (Number) Staff in targeted SEAs trained to use SICAR and to analyze 0.00 100.00 200.00 200.00 200.00 200.00 and validate data (Number) Female staff targeted SEAS trained to use SICAR and to 0.00 15.00 30.00 30.00 30.00 30.00 analyze and validate (Number) Registration of Landholdings in Selected Municipalities. Small landholdings' applications to enroll in the 0.00 5,000.00 20,000.00 36,000.00 57,942.00 57,942.00 CAR system (Number) Number of small 0.00 10.00 10.00 10.00 10.00 10.00 landholding applications to The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 enroll in the CAR system: female (Percentage) Small landholdings with liabilities provided with support to prepare plans to 0.00 10.00 30.00 50.00 80.00 80.00 rehabilitate degraded areas (Percentage) IO Table SPACE The World Bank FIP: Environmental regularization of rural lands in the Cerrado of Brazil (P143334)