Document of The World Bank FOROFFICIAL USEONLY ReportNo: 28968-EC PROJECT APPRAISAL DOCUMENT O N A PROPOSED LOAN INTHEAMOUNT OFUS$34MILLION TO THE REPUBLIC OFECUADOR FOR A SECOND INDIGENOUS AND AFRO-ECUADORIAN PEOPLES DEVELOPMENT PROJECT MAY 21,2004 Environmentally andSocially SustainableDevelopment Department Bolivia, Ecuador, Peru and Venezuela County Management Unit LatinAmerica andthe Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = US$ FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AIP Annual Implementation Plan CAS Country Assistance Strategy CODAE Afro-Ecuadorian Development Corporation (Corporacidnde Desurrollo Afroecuatoriuno) CODENPE Council for the Development of Nationalities and Peoplesof Ecuador (Consejode Desarrollo de las ~acionalid~esPueblos del Ecuador) y CPAR Country ProcurementAssessmentReport FA0 Foodand Agriculture Organization FE Facilitatingand Coordinating Entity (usually an OSG or OTG) FMR Financial Management Report GDP Gross Domestic Product GOE Government of Ecuador IDB Inter-American Development Bank FAD International Fundfor Agricultural Development INDA AgrarianDevelopment Institute (InstitutodeDesarrolloAgrario) LG Local government MEF Ministry of Economy andFinance NGO Non-Governmental Organization O M Project OperationalManual OSG Second-Tier Organization (Organizacidnde Segundo Grado) OTG Third-Tier Organization (Organizaci6nde Tercer Grudo) PDL Local Development Plan-LDP (Plande Desarrollo Local) PIP Project ImplementationPlan PIU Project ImplementationUnit POP PersistentOrganic Pollutant RPIU Regional Project Implementation Unit SOE Statement of Expenses TA Technical assistance TOR Terms of Reference Vice President: David de Ferranti Country ManagerDirector: Marcel0 Giugale Sector Manager: John Redwood Task Team Leader: David Tuchschneider FOROFFlcLALUSEOM,Y CONTENTS A STRATEGICCONTEXTAND RATIONALE . 1. Country and sector issues .................................................................................................... 1 2. Rationale for Bank involvement................ ......................................................................... 2 3. Higher levelobjectives to which the project contributes..................................................... 2 B PROJECT DESCRIPTION . 1. Lendinginstrument.............................................................................................................. 3 2. [IfApplicable] Programobjective andPhases.................................................................... 3 3. Project development objective and key indicators .............................................................. 3 4. Project components.............................................................................................................. 4 5. Lessonslearned andreflected inthe project design ............................................................ 5 6. Alternatives consideredandreasonsfor rejection............................................................... 6 C IMPLEMENTATION . 1. Partnershiparrangements(if applicable) ............................................................................. 7 2. Institutional andimplementation arrangements................................................................... 7 3. Monitoring and evaluation of outcomeslresults ................................................................. ;9 4. Sustainability ..................................................................................................................... 10 5. Critical risks and possible controversial aspects............................................................... 10 6. Loanconditions andcovenants.......................................................................................... 12 D APPRAISALSUMMARY . 1. Economic andfinancial analyses........................................................................................ 12 2. Technical............................................................................................................................ 12 3. Fiduciary ............................................................................................................................ 13 4. Social ................................................................................................................................. 14 5. Environment ...................................................................................................................... 15 6. Safeguardpolicies.............................................................................................................. 17 7. Policy Exceptions andReadiness...................................................................................... 17 . This document hasa restricteddistribution andmay beused by recipients only in 1 theperformanceof their official duties I t s contents may not be otherwise disclosed . without World Bank authorization . Annex 1:Country and Sector or ProgramBackground .......................................................... 18 Annex 2: Major RelatedProjectsFinancedby the Bank andlor other Agencies ..................21 Annex 3: ResultsFramework and Monitoring ......................................................................... 23 Annex 4: DetailedProjectDescription ...................................................................................... 35 Annex 5: Project Costs................................................................................................................ 57 Annex 6: ImplementationArrangements .................................................................................. 58 Annex 7: Financial Managementand Disbursement Arrangements ...................................... 61 Annex 8: Procurement ................................................................................................................ 66 Annex 9: Economicand FinancialAnalysis .............................................................................. 74 Annex 10: Safeguard PolicyIssues ............................................................................................. 84 Annex 11:Project Preparationand Supervision ...................................................................... 87 Annex 12: Documentsinthe Project File .................................................................................. 88 Annex 13: Statementof Loans and Credits ............................................................................... 90 Annex 14: Country at a Glance .................................................................................................. 91 Annex 15: LegislativeFramework for Indigenousand Afro-Ecuadorian Peoples ................92 Map: IBRD28022 ECUADOR SECOND INDIGENOUSAND AFROECUADORIANPEO PROJECTAPPRAISAL DOCUMENT LATINAMERICA AND CARIBBEAN LCSEO Date: May 21,2004 TeamLeader: DavidTuchschneider CountryDirector: Marcel0Giugale Sectors: Other socialservices (75%);General Sector MangerDirector: John Redwood agriculture, fishing andforestry sector (25%) Themes: Indigenouspeoples(P) ProjectID: PO77257 Environmentalscreeningcategory: Partial Assessment LendingInstrument: SpecificInvestmentLoan Safeguardscreeningcategory: Limitedimpact [XILoan [ ]Credit [ ]Grant [ ]Guarantee [ 3 Other: For LoanslCreditslOthers: Total Bankfinancing (US$m.): 34.00 INTERNATIONALBANKFOR 31.81 2.19 34.00 RECONSTRUCTIONAND DEVELOPMENT LOCAL FARMER ORGANIZATIONS 4.92 0.00 4.92 Total: 42.77 2.19 44.97 Borrower: Republic of Ecuador Ecuador Responsible Agency: CODENPE-Consejode Desarrollode las Nacionalidadesy Pueblosdel Ecuador Ecuador CODAE-Corporacionde DesarrolloAfroecuatoriano Ecuador hnnual 5.00 10.00 11.00 12.00 6.97 0.00 0.00 0.00 0.00 hmulative 5.00 15.00 26.00 38.00 44.97 44.97 44.97 44.97 44.97 Doesthe project depart from the CAS incontent or other significant respects? Ref. PADA.3 [ ]Yes [XINO Does the project require any exceptions from Bankpolicies? Ref. PADD.7 [ ]Yes [XlNo Havethesebeen approvedby Bank management? ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Doesthe project include any critical risks rated "substantial" or "high"? Ref. PAD C.5 [XIYes [ ] N o Doesthe project meet the Regional criteria for readinessfor implementation? Ref. PAD D.7 [ ]Yes [XINO Project development objective Ref. PAD B.2, TechnicalAnnex 3 To promote the empowerment and improvedaccess to natural and financial resourcesfor indigenous andAfro-Ecuadorian communities within the framework of their own development and interculturalism. Project description [one-sentence summary of each com~onen~] Ref. PAD B.3.a, Technical Annex 4 A. Strengthening Social Organizations This component would strengthenindigenous andAfro-Ecuadorian membership organizations with the following TA and training activities: (1) managementcapacity building; (2) strategic and local participatory development planning; (3) legal, management, andtechnical training; and (4) equity ingender andgenerations. B. Knowledge andCulture for Development This component will help target groups improve their humancapital as well as their knowledge base and cultural assets, thus contributing to increasedincomes. It will include: (i) a scholarship programfor higher education (ii) trainingandtechnical assistancefor culture-based initiatives, among others, intourism and handicrafts. C. Natural Resources This component will helpthe target population improve managementof natural resources through increasedaccess andcontrol of land, water and other natural resources vital for their livelihoodthrough: (i) landtitling; (ii)pilot programs inmangrove management; and (iii) a a pilot programincommunity natural resource management. D. RuralInvestments This componentwill finance demand-driven small-scale investmentslsubprojects by eligible communities for: ((i) investment studies; (ii) investments; (iii) social communityproductive investments; (iv) and environmentallnatural resource management. E. Project Management andInstitutionalStrengtheningof CODENPEandCODAE This component will increaseGOE's capacity to formulate intercultural policies andprograms taking into consideration the concerns of indigenous andAfro-descendant peoples. Itwould provide specialized technical support to CODENPEand CODAE for the implementationof their public role. As part of this component, the project will also include support for aProject Implementation Unit, including a central coordinating office andup to sevenregional implementing units. Which safeguardpolicies are triggered, if any? Ref. PAD D.4, Tec~niculAnnex 10 The World Bank SafeguardPolicies applicable to this project are Environmental Assessment, Natural Habitats, Forests, PestManagement,CulturalProperty, and Indigenous Peoples. Significant, non-standardconditions, ifany, for: Ref. PAD C.7 Boardpresentation: None Loadcredit effectiveness: -Adoption of an operational manualsatisfactory to the Bank; -Staffing of the Project ImplementationUnit satisfactory to the Bank; Covenants applicable to project implementation: As acondition of disbursementfor the loanproceeds allocated to landtitling: (a) issuanceof the revisions to the regulations to the Agrarian Development Law covering requirements for the titling of Indigenous lands under ancestralpossession [or equivalent measuresatisfactory to the Bankto institutionalize the procedures], (b) agreementbetween CODENPEKODAE andINDA satisfactory to the Bank signed, and (c) agreementbetweenCONDENPElCODAE and the Ministryof the Environment satisfactory to the Bank signed. A. STRATEGICCONTEXTAND RATIONALE 1. Countryandsectorissues As a result of ahistory of social, economic andpoliticalexclusion, the ruralindigenous and Afro-Ecuadorian communities are the largest social groups suffering from poverty in Ecuador. Ineffect, while on anational levelpoverty strikes 56% of all Ecuadorians, 86 of every 100indigenous persons are impoverished. While the overall country illiteracy index is 10.8 %, this indicator reaches42.5 % inindigenous populations and53.2 5% amongindigenous women. Consequently, indigenous and Afro-Ecuadorian people havethe worst living conditions, the lowest schooling levels with inappropriate educational systems, serious unemployment levels, minimalaccessto health services, andoftensuffer from social andeconomic discrimination. These groups lack secure access to landandwater resourceswhich restrains investment opportunities and creates conditions for social unrest. The Government's statedtarget i s to reducepoverty to 31.0% andextreme poverty from 25.0% to 10.3% of the population by 2007. However, the poorest groups have almost no access to the Government's centrally-managed, productivity-enhancing public services. Their local communities are usually poorly organized anddependent on centralized services that are seldom delivered. There is a general recognition that the current systemdoes not work well and cannot be fixed, andthat proper decentralization i s the most likely answer. Although Congress passeda law in 1997 which lays out the framework andprinciples for decentralization, no regulations have been written andunfortunately the new political and administrative modelhas not been devised. Public policy regardingindigenous andAfro-Ecuadorian peopleshas beenbetter defined with the adoption of anew Constitution in 1998recognizing Ecuador as a multicultural and multiethnic country. This instrument is one of the most advancedof Latin America, recognizing a series of collective rightsto indigenous andAfro-Ecuadorian peoples inthe realms of culture, landor territory, and self-determination. Shortly thereafter GOE createdthe Consejode Desarrollo de las ~acion~lidudes y Pueblosdel Ecuador (CODENPE) and the Corporacidn de Desurrollo Afroecuatoriuno (CODAE). Their policy objectives center on implementingkey constitutional rights, broadening access to resources and improvingthe delivery of services for indigenous and Afro-Ecuadorian communities. Upon takingoffice inJanuary 2003, the Government announceda medium-termprogram aimingto reducepoverty through coordinated advancesoneconomic and social fronts, ina three-pronged strategy: (i) Promoting economic growth andcompetitiveness; (ii) Reducing poverty and promoting social inclusion; and (iii) Improving governanceto fight corruption and increase security. Since then, it has been more successful inimplementingstabilization measuresthan inlaunching longer-term reforms; particularlygiventhe break-up of its electoral coalition, the increasedpolitical instability and the opposition of a restive indigenous movement. Recognizing this, the Ecuadoriangovernment has embarked on an effort, led by the Ministry of Economy andFinanceandwith the support of international donors, to define the National Strategy for Poverty Reduction. This Strategy provides a key focus inthe effort to reduce poverty, by aimingto improve the quality andquantity of social investments, andits focalization on the poorest sectors of the population. One of its policies is to support special development programs for the most vulnerable groups. 1 2. Rationalefor Bank involvement During 1997-98GOE, supportedbythe BankandFAD, developedaninnovative project called the Indigenous andAfro-Ecuadorian PeoplesDevelopment Project (PRODEPINE I) channelingassetsandservicestoimpoverishedindigenousandAfro-Ecuadorian for communities. I t went largely outside the centralized government system, usingethnic affinity groups to transform dependentcommunities into proactive groups empoweredto address their development problems directly. PRODEPINE 11i s meant to buildon the success of its predecessorbut with improvements to take into account institutionalchanges andlessons learned. The PRODEPINEmodel of participatory development has proven to be an effective mechanism for fightingpoverty, but it was able to only reach a third of the target communities, which make up only a quarter of the population. PRODEPINE11's strategic value will lie in improving CODENPE and CODAE's capacity to helpthe Ecuadorian Government to focus on the poorestruralinhabitants while adding ethnic, gender andspatial considerations to fight againstpoverty. The project thus focuses on ethnicity: a dimension of poverty that permeatesthe whole country. Like its predecessor, it articulates a modelof development with cultural identity or ethno development. It builds on the positive qualities of indigenous and Afro-Ecuadorian peoples such as their highsocial andcultural capital to promote activities that lead to higher employment, production, improveddelivery of services, and growth. PRODEPINEI1will buildon the lessons learned inthe first project by: (i) deepeningits involvement inthe most successfulareas (community investments, landtitling, training and institutional strengthening); (ii)expanding into related areas (natural resourcesmanagement); (iii)mainstreaming attention to indigenous andAfro-Ecuadorian issuesin selectednational sectors and local governments; and (iv) approaching key issuesof ethno development (community tourism, culturalassets, ethno biologicalproduction and handicrafts) innew ways. The Bank hasbeenone of the few lendersldonors directly involvedinhelpingthe Ecuadorian Government efforts to reduce indigenous andAfro-Ecuadorian poverty. Ithas accompanied--through PRODEPINE I-- the process of legal and institutionalreform and the focusing of aspirations on local level demands. The Bank has played akey role engaging inthe development dialogue with indigenous andAfro-Ecuadorian organizations as well as with government institutions createdto serve their needs. This model has proven so successfulthat GOE with Bank financinghasdeveloped a similar project (PROLOCAL) in2001to focus on ruralpoverty outside the areas covered by PRODEPINE for indigenous and Afro-Ecuadorian people. The project also complements efforts by the SpanishCooperation to strengthenmunicipalities managedby indigenous mayors and IDB's financing of FISEinthe province of Esmeraldas, which will be targeted at the afro- descendantpopulation of the province. 3. Higher levelobjectives to which the project contributes The Government's medium-term program, announcedin2003, aims to fight against poverty through coordinated advances on social andeconomic fronts. Iti s organized along three thematic areas. On the economic front, the Government's priorities are to consolidate the fiscal situation, increasecompetitiveness andefficiency, promote a more flexible anddynamic labor market, and strengthenthe banking system. On the social front, it aims to improve the provision of social assistance and reform the education and health sectors. Inthe area of governanceit proposesto fight corruption and increasethe transparency of public services. 2 The Bank's strategy mirrors the Government's through actions inthree areas: (i) consolidating the macro framework and layingthe foundations for growth; (ii) broadening access to resourcesandensuring reforms are socially sustainable; and (iii) strengthening governance to ensure accountable, efficient and accessiblepublic services (World Bank 2003. CAS). The project i s included inthe current CAS andwill contribute fundamentally to the secondarea, but its strategic value lies intacklingthe lack of social inclusion which constitutes one of the key obstacles to poverty reduction inEcuador, To reducepoverty, sustainedeconomic growthneedsto be complementedwith reforms that address inequality andincreasethe access of the poor to basic services. The project will contribute to this objective by increasing the capacities and assets of the target groups, by decentralizing decision-making to the level of the communities themselvesandby helping the Government raise the profile of indigenous and Afro-Ecuadorian issuesin selectedsector ministries. B. PROJECT DESCRIPTION 1. Lendinginstrument The proposedproject largely repeatsthe objectives anddesign of the first PRODEPINE project, so it is to be financed with an BRDLoan. The Borrower selectedthe option of aU S dollars fixed spreadloan with graceperiodof 4 years and a total repayment term of 18 years. The Borrower choseto keep all conversion options open. The FSLloan was chosenbecausethis type of loan would allow the Republic of Ecuador proactive debt management makinguse of all embeddedoptions whenever the Republic would like to exercise such options. 2. [If Applicable] Programobjective and Phases NIA 3. Project developmentobjective and key indicators To promote the empowermentandimprovedaccess to natural andfinancial resourcesfor indigenous and Afro-Ecuadorian communities within the framework of their own development andinterculturalism. (See Annex 3). Key PerformanceIndicators The success of the project will be measuredby following indicators (additional indicators .withThe which to measure progress of eachof the Project's components are found inAnnex 3): Institutional Capacity Index of the facilitating entities (EEs)has improvedby an average of 25% .. The communities' share of cofinancing for the subprojects i s at least 27%. . 80% of the FEsthat are facilitatingsubprojects have receivedfavorable technical audits. 30% of the FEs have receivedadditional funding from other institutions and the total investment received by the FEs is increasedby 25% to meet the demands of the Local Development Plans (PDLs) The total investment of local governments andNGOs, inrelationto the demands of the PDLs, has increasedby an averageof 20 %. 3 . 35% of the,PDL demandshavebeenfinanced by different sources during the execution of PRODEPINE 11. . Of all the subprojects financed, 10%were executedby women's groups and40% incorporated a gender equality focus. .. 95% of the investment subprojectshave favorable environmental audits. Government adopts National Development Policy for Nationalities and Peoples. 4, Project components A. Strengthening SocialOrganizations ($2.2 million) This component will benefit indigenous andAfro-Ecuadorian membership organizations with the following TA and training activities: (1) managementcapacity building; (2) strategic and localparticipatory development planning; (3) legal, management, andtechnical training; and (4) equity ingender and generations. Finally, (5) it will provide technical assistanceto local governments inorder to help them improve their targeting andparticipatory practices and increasecofinancing of investment subprojects. Intercultural relations, gender and other equity issueswill be incorporated systematically inall these programs. B. Knowledge and Culture for Development ($2.7 million) This componentwill helptarget groups improvetheir human capital as well as their knowledge base andcultural assets, thus contributing to increasedincomes. It will include the following activities: (i) a scholarship program for higher education; and (ii) and training technical assistancesubprojectsfor culture-based initiatives intourism andhandicrafts among others. C. NaturalResources($2.6 million) This componentwill help the target population improve managementof naturalresources through increasedaccess andcontrol of land, water and other natural resources vital for their livelihood. It will support the following TA activities: (i) landtitling; (ii)pilot program in a mangrove management; and (iii)pilot program incommunity natural resource managementfor a the improvedhandling of soils, water and reforested areas. Investments associatedwith these pilot programs would be financed as subprojects under the Rural Investments Component. D. RuralInvestments($25.9 million) This componentwill finance demand-driven small-scale investment subprojectsby eligible communities for: (i) investment studies; (ii) investments; (iii) social community productive investments; (iv) and environmentallnatural resource management. Beneficiaries of this componentmustbe residentsof theparroquias includedinthe Operational Manual(OM), butnon-target peoplelivinginthe project areas may partiallybenefitfrom project investments. Financing of subprojects would be on a grant basis matchedby varying amounts of community labor or co-financing sources. E. Project Management and Strengthening of CODENPEand CODAE ($9.3 million) Thiscomponent will increaseGOE's capacity to formulate interculturalpolicies and programs takinginto consideration the concerns of indigenous and Afro-descendant peoples. It would provide specializedtechnical support to CODENPE andCODAE for the implementation 4 of their public role. The component will aim to increasepublic participation inpolicy-making, improve transparency and accountability, and increasethe shareof the GOE's budget targeted at these communities andpeoples. The Component comprises three programs to be implemented in bothgovernment institutions: (i) policies anddevelopment management; (ii) Public Legal development in selectedareas; and(iii) Institutional Development and Intercultural communication. As a complementary part of this component, the project will also include financing of staff, training and goods for aProject Implementation Unit (PIU), including a central coordinating office and up to sevenregional implementing units (RPIU). 5. Lessonslearned and reflectedinthe project design The ICR for PRODEPINEIrated it fully satisfactory. Key lessonslearned are incorporatedinto the project design as follows: a) Strengthening of Social Organizations. Givenchangesinthe legal framework and the political evolution of the indigenous movement, the project would explore the ways to operationalize the vision of nationalities and peoples as new forms of social organization, inaddition to the existing organizations. As a consequence,besides localdevelopment plans, the project will support the formulation and implementation of strategic development plans for selectednationalities andpeoples. A project design which emphasizes decentralized implementation is crucial for successfully dealing with ethnic andcultural diversity of beneficiaries. Insuch instancesthe designcannot rely on "one size fits all" methodologies, but proceduresneedto be tailored to different cultures, types of organizations, and settings. Designof this project differentiates its methodology indealing with coastal, Sierra andjungle cultures. Capacity buildingandinstitutional strengthening ingeneral require systematic monitoringof inputs which may affect social relationships within communities andbetween them and their higher organizations. A project focused on empowerment should monitor ina systematic way how its own inputs may affect the relationships between communities and their higher level organizations, becausewhen the latter handle implementation they should remain accountable to their members. Financing for national andregionalorganizations will be focused on improving transparency, accountability andparticipation. Participatory planning can increase the capacity of beneficiaries to define and implement their own vision of development; inparticular, localparticipatory plans can provide communities and their organizations with a key instrument for negotiating priorities with government and development organizations. The project designencouragesthe expansion of linkages with those local governmentsand agencies which share this vision of empowerment, by rewarding them with training and technical assistance, if they participate inimplementation. b) Knowledge andCulture for Development. Any successfulmodel of "development with identity'' mustovercome atraditional basic- needs approach and must facilitate opportunities to generate wealth through productive initiatives basedon culture. The design of this project expands the eligible activities to include handicrafts, tourism, ethno biological products andtheir marketing. Experience shows that cultural producersreside inbothruralandurbanareas and often provide basic linkages between the two. Thus indigenous and afro-descendantproducer groups located outside of the project area will be eligible for participation inthis component. 5 Participation andsocial capital do not guaranteethe absence of discretionality. For example, when administering scholarship programs, care should be taken to design checks and balances inthe process of beneficiary selection inorder to reduce favoritismand co-option by indigenous and Afro-Ecuadorian elites. The design of this project changesthe operation of the scholarship program so that it will be subcontractedto a specializedentity which will follow transparentprocedures and strictly defined rules for selection of candidates. c) NaturalResources. Lessonslearned at the international level show that, inorder to be sustainable, natural resource managementpracticessuch as soil recovery, water managementand reforestationmust be linkedto income generation. The project will carry out a pilot program of inter- and intra- community contests, accompaniedby technical assistance, to develop such opportunities. d) RuralInvestments. An integrated participatory approach applied at grassroots level can create in beneficiaries a sense of ownership and responsibility for self development; yet the sustainability of public infrastructure will ultimately depend on the availability of public budget resources to maintain it. This project has increasedits TA budget so that more TA will be providedduringthe investment phase in order to help consolidate operational capabilities and to establish cost- recovery mechanismsat the community level. The concept of social capital andthe notionof community, when applied to development issues, should be temperedby the reality of differing income levels and personal interest imperatives. Inparticular, the mechanismsof reciprocity do not seemto extend easily into the managementof community micro-enterprises. Consolidated organization, productiodmarketing experience andpersonal commitment are key elements for greater success. The project will require an increaseinlocalcounterpart for community micro enterprise subprojects from 30% to 40%. 6. Alternatives considered and reasonsfor rejection Giventhe success of PRODEPINEI, Government of Ecuador requestedthe Bank to the preparea repeaterproject to continue successful activities andto finance the subprojects of communities not reachedby the first project. Duringthe identificationphase, the possibility of having separateoperations for indigenous and Afro-Ecuadorian peoples was considered. This option was rejected after representatives of beneficiary organizations expressedstrong opinions infavor of aunifiedproject that emphasizedaninterculturalapproach. The Project's Consultative Committee will use proceduresto reinforcethis approach. The first project's model of participatory development usingethnic affinity groups was reaffirmed with the recognition that links to all levels of government neededto be strengthened, as the latter provided valuable normative, technical and financial assets. Likewise more TA for CODENPEandCODAE will be tailored to their respective needs, so they can more effectively representthe policy interestsof their primaryconstituents inthe public sector. Inordertoimprovethesustainability of investments, theProjectwouldalsoplacemore emphasison naturalresource managementand subprojects that merge cultural assets (handicrafts, tourism, etc.) andincome generation. Inthis context financingfor the rehabilitation of archaeological sites was considered, but i t was dropped. 6 C. IMPLEMENTATION 1. Partnershiparrangements(ifapplicable) Only Bank andlocalcounterpart financing are contemplated. 2. Institutionalandimplementationarrangements Implementing Agencies The Project will be carried out by the Republic of Ecuador through the Councilfor the Development of Nationalities and Peoples (CODENPE) and the Corporation for Afro- EcuadorianDevelopment (CODAE). The former was established by GOE in 1998 as a decentralized agency within the Presidency, to encouragethe participation of nationalities and peoples inall levels of planning anddecision making of the State. Iti s a NationalCouncil, with representativesof eachpueblo andnationality, and an Executive Committee. CODAEwas established in 1998 as a decentralized agency to attendto Afro-Ecuadorian affairs buthada slow start, as its constituency was less well organized. It is linkedto the Presidency of the Republic, andempowered among others: (a) to promote the organization of its Afro-Ecuadorian communities andto carry out capacity buildingprograms; and (b) to carry out studies relatedto Afro-Ecuadorians and carry out its recommendations.The delegate representing the Ecuador's Presidencyi s the legal representativeof the agency. Directorate and Consultative Committeeof PRODEPINE Both institutions are formally dependenton the office of the Presidenciade la Repu'blica, andfor the purposesof the project it will createaDirectorate (JuntaDirectiva), conformedby CODENPE's Executive Secretary andCODAE's PresidentialDelegate. The PIU's Executive Director will participate inthe Directorate as Secretary, without a vote. Decisions will be taken by consensus; incase such is not possible, the decision will be taken by the SecretarioNacional de laAdministracibn Pbblica. The project's directorate will approve the project's annualbudget and operational plan, delegate its implementation to the PIU, and supervise regularly its execution. CODENPE andCODAE have createda Consultative Committee (Comite`Consultivo Am~liado)which, at the moment, includes representativesof the largest national ethnic and rural organizations, inter alia, CONAIE, FEINE,FENOCIN, FEI, CNA, Consejo Regionalde Palenques, Coordinadora Nacionalde Mujeres Negras, five representatives of CODENPE's Executive Committee and three representativesof CODAE's Directorate. The Consultative Committee will meet four times per year, providinga forum for the participationof the target population's key representativeorganizations. Its mainfunctions will be: i) to provide strategic guidancefor project implementation; andii) to ensurethat the project allocates funding under clear andtransparentrules, basedon the LoanAgreement andthe Operational Manual. The compositionandfunctionsof the Directorateand ConsultativeCommitteewill be establishedinthe OperationalManual. Project Implementation Unit (PIU) A project unit, reporting to the Directorate, with core fiduciary and technical staff will be establishedinQuito with upto sevenregional offices located inEsmeraldas (Costa Norte), Ibarra (Sierra Norte), Riobamba (Sierra Centro), Cuenca (Sierra Sur), Tena (Amazonia Norte), Macas (Amazonia Sur), and La Libertad(Costa Sur). The Project ExecutionUnit (PIU) has maintained a satisfactory record inFinancial Management (FM)and procurement duringthe implementation of PRODEPINE I;however, as a result of the FMand Procurement Assessments described inthe 7 PartD-2of this report, time-bound action planshavebeenagreedand are being followedup closely. Such unit will be staffed with key members to the satisfaction of the Bank as a Condition of Effectiveness of the Project. Coordinating1Facilitating entities (FEs) Followingthe successfulexperience inPRODEPINEI, project will provide training the and technical assistanceto second- andthird-tierorganizations (OSGs and OTGs) which group the target's population basecommunities. FEs will also assume the role of coordinating activities inthe benefit of beneficiary communities through the implementationof subprojects, after signingtripartite Beneficiary Agreements with the PIU. Eligibilityrequirements and implementation arrangementsfor the different activities involvingthe close to 250 existing FJ3s andbeneficiary communities are detailed inAnnex 4. Other agencies Other agenciesinvolvedinthe implementation of the Project are: the Agrarian Development Institute (INDA), responsiblefor the landtitling activities to be carried out as a subcomponentof the NaturalResourcesComponent, and the Ministryof the Environment (MA), responsible for the conservation andmanagementof forested areas, includingthose where indigenous peoples are located. These agencies will fulfill their respective roles under ImplementationAgreements (convenios), similar to those under the first Project, to be entered into with CODENPEKODAE for the secondProject. Signing of such agreements will be a Condition of Disbursement for the LandTitling activity. OperationalManual The Operational Manual (OM), which i s substantially the same as that used inthe first project, shall include all rules andregulations for implementation of all project components and operation of the PIU(project planning, monitoring, evaluation, institutionalarrangements, environmental review, reporting, communication, human resources, risk, coordination, procurement, andfinancial management). Updates to the O M would require the no objection of the Bank. Adoption of such Manual,satisfactory to the Bank, will be a Condition of Effectiveness for the Project. Project Implementation Plan (PIP) The Project ImplementationPlan (PIP) will be brokendown into AnnualImplementation Plans (AIP) andwill include four sections: i)description of project activities to be executed duringthe time period; ii)Gantt Chartlproject schedulewith timingof activities, relationship with other activities, facilitatingentity responsible; iii)budget plan; and, iv) procurement plan. The AIP will be the principal tool for coordination between the PIU andthe regional units. AIPs would be preparedby the PIUand regional units, approved by CODENPE and CODAE and presentedto the Bank for no objection before the beginningof the budget year. isb burs em en^ and Procurement Disbursementswill betransaction based (Le. against Statements of expenditure (SOEs), full documentation,direct paymentsor special commitments). Uponreceipt of notificationfrom the Bank allowing the establishment of the Special Account, the Borrower may, for purposes of the Project, open and maintain a separatespecial deposit account. The Special Account will be maintained and operated by the PIUinthe Central Bank inUnited States dollars (TE Account). 8 Deposits into the Special Account andreplenishmentsupto the authorized allocation set out in the legal agreement would be made on the basis of applications for withdrawals preparedby the project and accompaniedby the supporting documentation inaccordance with Bank disbursement procedures. To facilitate paymentsandreceipts of funds Regional Offices will open localcurrency T- Accounts. Paymentsto F E s andproviders will be effecteddirectly from the PIU's central office. Accounting and financial reporting will be done by the PIUunder Bank rules spelled out inthe Operational Manual. Audits will be carried out under TOR andby firms acceptable to the Bank, which will be hiredby the ContruEoriaof Ecuador. The project includes financing for audits. Most relevant capacity constraints relate to the decentralized approachto procurement anddisbursement for implementation of relatedinvestment subproject components and a weak capacity inPRODEPINEto assist facilitatingentities (second- and third- tier organizations) in dealing efficiently with managementof their procurement processes, and for the PIUto put in place mechanisms so as to ensure effective oversight andproject supervision at boththe pre- contractual andcontractual stages. To strengthencapacity the PIUwill delegate clear responsibilities for technical assistance, oversight and supervision to its Regional Offices (RPKJs) andreinforce the quality andquantity of technical and administrative staff assignedto them. Bankprocurement trainingof RPIUstaff may also help them to assistfacilitating entities inmanagingefficientlyprocurementprocesses. As for the ImplementationAgreements tobe enteredinto with facilitating entities, PRODEPINEwill specify minimumcapacity requirements to be metby said entities, inparticular, inmanagementof procurement and contract administration functions for an efficient and timely contracting and execution of works, goods and consultant services to be procured under such agreements. Whenever an facilitatingentity can not meet minimum requirements, the beneficiary implementation agreement should include provisions for the entity to incorporate experts to assist them inthose tasks. Further details on the implementation arrangements are inAnnexes 4 and6 of the PAD. 3 Monitoringandevaluation of outcomedresults DuringPRODEPINE I, M&Esystemwas developedandimplemented to track the an physical and financial implementation of the project. The systemhasbeenevaluatedby an external consultant and recommendations made for improvingthe system to function as a more useful day to day managementtool and to institute performance-basedbudgeting. Recommendationshave also beenmade to increase the capacity for planning, monitoring, control andevaluation at the regional units, PJU, CODENPE and CODAE. This capacity buildingwill take placewithin the first six months of project execution. The M& Esystemwill monitor the indicators inthe project's Results Framework, see annex 3. The systemwill consist of four aspects: (i) a Management Information System (MIS), which will track the Project's progress on a set of results indicators, financial performance and feed into management'sdecision-making; (ii) baseline study and annualbeneficiary assessments, which will provide the target group's perceptions of and reactions to Project progress; (iii)impact evaluation studies, which will quantify the midterm and final impact which canbe attributed to the Project; and (iv) standardauditing and supervision missions, which will review the technical andfiduciary aspects twice a year or more oftenifrequired. The regional units would monitor directly their operationsand localfacilitating entities would provide monitoring inputsto the regional units. The PIUwill aggregateall monitoring andevaluation inputsfor project-level decision makingandreporting. The baseline, beneficiary assessments andthe impact evaluation 9 studies will be contracted out, and the PIUwill be incharge of the coordination andtechnical supervision of the studies, CODENPE and CODAE will provide overall project oversight and World Bank staff and consultantswill be responsiblefor periodic supervision missions. Once per year, and before the Mid-Term Review, incoordination with MEF, a specialized firm will carry out an independent technical and financial evaluation of the project. Specific procedures for carrying out project monitoring and evaluation will be included inthe OM. 3. Sustainability The previous Government of Ecuador requesteda follow up to PRODEPINEI, before the Bank's loanclosed. This commitment was confirmed by the present Government through the project's inclusioninthe CAS and continued engagementwith the Bank duringpreparation. Enforcement of the Ley de ~ e ~ ~ o ~ ~ u b Fiscal d i z i d uhasmeant that counterpart fundingfrom the Government must now include the PTu's operating costs, which implies a substantial increasein Government's historical share of financing. Giventhe effect of spending restraints on the overall budget, this requirement will be hardto satisfy. PRODEPINEIhas demonstratedhow the project's participatory process at every level will helpmakethe sustainability of its benefits likely. The project design respondsto issues that are apriority for indigenous andAfro-Ecuadorian peoples. The project beneficiaries play a key role indecision-making, implementation andcost-sharing, thus increasing ownership. This project will implement procedures to require government institutions or communities to cover recurrent costs of rural investments when feasible. TA i s designed to create a cadre of experiencedtechnicians infacilitatingentities andbeneficiaries at all levels to carry on the development process. CODENPEandCODAE will help their constituent organizations in mainstreaming indigenous demands and viewpoints into the operation of selectedgovernment institutions. A key element of the institutional strengthening activities for CODENPEAND CODAE is to enhancetheir capacity, by the mid-termreview, to start to transition and ultimately assume all operational functions and fundingof the RegionalOffices. The objective i s by the endof the project to have all 7 regional offices completely integrated into CODENPE and CODAE. BothInstitutions have agreedto prepare a proposed Institutionalizationand Sustainability Plan for 7 regional offices by end of year 1and submit to the Bank for no objection. Duringthe Mid-termReview the Bank will assess advances inthis institutionalization plan andagreeto any changesinthe institutionalframework. Ina few words, the project will havebeenlargely appropriated by the beneficiaries andgovernment andits longterm impacts ensuredbythe focus on an enabling policy andinstitutionalenvironment. 4. Critical risksand possible controversial aspects Risks that may affect the achievement of the projects development objective are economic andpolitical. On the economic side, the ability of the government to sustaina fiscally responsibleframework and generate economic growth are key to the success of project investments. On the political side, tensions between the indigenous movement and the governmentmay derail commitments on either side to make the project work. Key implementation risks are derived from the fact that operational costs will befinanced with governmentcounterpart provisions. Due to the provisions of Ecuador's Fiscal Responsibility Law, the government must cover the estimated operating costs of the PlU (totaling about US$6 million over five years andequal to 13% of Project costs ). Inorder to accommodateto the government's fiscal restrictions, the salary scale for PIUpersonnelhasbeen 10 lowered and operating costs calculated tightly. The new salary scale may restrict hiringof qualified personnel with a potential knock-on effect on quality duringimplementation. In addition, given Ecuador's poor track record of counterpart disbursements, there is a risk that the PIUmay at times be forced to paralyze activities due to the lack of funding. Mitigation measures for this risk include: (i) ensuring that selection andevaluation o f personnel be carried out by private firms, following procedures includedinthe OM and under the supervision of MEF; (ii) allocating a proper budget for training of PIUpersonnel; and (iii) ensuring that counterpart funds are available immediately after the project's Boardapproval. Agreement would be reached during negotiationsthat GOE will meet its annualfinancial obligations inthis respect, and that the number and quality of stafffor the PIUwill be maintainedas agreed. Risk Risk Rating Risk MitigationMeasure From Outputsto Objective communitiesand government H community participation inidentification institutions do not cover recurrent and investmentandformal agreements with costs responsiblegovernmentinstitutions strengthenedorganizations and local H active participation of local leadersin governments do not maintain trained project evaluationsto demonstrateresults personnel selectedGOE institutions maintain S capacity-building of CODENPE, CODAE current budget allocation principles and social organizations to demand improvement of rules From Componentsto Outputs Lack of GOEbudget meansPIU H Loan covenant ensuringyearly counterpart cannot function properly fundingamountsof US$1.2 million. Socialorganizationsprioritize non- H Continuous involvement inthe Consultative project specific objectives Committee anddirect dialoguewith organizations Social organizationscarry out N training andtechnical assistanceto social activities that go againstproject organizations andtheir membersto objectives emphasizetransparency andaccountability selected local governmentsandNGOs H provision of technical assistanceand continue investing outsideLocal training; cofinancing for local governments DevelopmentPlans andorganizations project slips into discretional M Cornit6 Consultivo exercisesproper allocation of resources oversight and adequate Banksupervision Overall risk: HIGH. The project requires intensive supervision, and continuous dialogue with GOEandindigenous andAfro-Ecuadorian organizations. 11 5. Loanconditionsand covenants EffectivenessConditions: 0 PIUstaff hiredby anexternal firm, with the endorsementof MEFandunder aprocedure included inthe OM, to the satisfaction of the Bank. 0 Adoption of an Operational Manual, endorsedby MEFand satisfactory to the Bank. Disbursement Conditions: Loanproceedsallocated to landtitling: (a) issuanceof the revisions to the regulations to the Agrarian Development Law covering requirements for the titling of Indigenous lands under ancestralpossession [or equivalent measuresatisfactory to the Bank to institutionalize the procedures], (b) agreementbetween CODENPEKODAE and INDA satisfactory to the Bank signed, and (c) agreementbetweenCONDENPElCODAE and the Ministry of the Environment satisfactory to the Bank signed. D.APPRAISAL SUMMARY 6. Economic and financial analyses PRODEPINE IIactivities include (i) TA for buildinghuman, social, andinstitutional capital; and (ii) resource andphysical capital associatedwith rural investment natural subprojects. Cost-benefit analysishas beencompleted for the ruralinvestments component, makingup 58% of Project costs (Annex 9). The ICR for PRODEPINEIprovidedeconomic andfinancial return estimations. Based onrecent ICR revisions, FAO-CPestimated that this component had an economic rate of return (ERR) of 24% andafinancial rate of return (FRR) of 37%. Duringthe preparation for the secondproject, the old operation manual procedures andthe process of beneficiary selection of subprojects were reviewedwith the aim to increasethe share of successful subprojects andto improve their return duringthe secondproject. These changes should be includedinthe proposedproject's OM. Assumingnew quality control procedureswould be implemented inthe future andthat the costs of subprojects would be increasedby 10%to account for higher TA costs to improve outcomes, FAO-CP calculated that the ERRfor the RuralInvestment Component for PRODEPINE 11will be about 39% andthe corresponding FRR would be about 53% Basedon analysisresults, every dollar investedinPRODEPINE 11is estimated to generate an Economic and Financial Net Present Value (NPV) of US$1.46 andUS$2.36 respectively. Ifoverall rural investments amount to US$25 Millioninconstant prices (US$4 Millionfrom beneficiaries), the aggregate economic and financial NPV would be around US$36 Million andUS$59 Millionrespectively. These net benefits safely cover other associatedcosts (around US$3 Million), such as: investment technical assistance, supervision services and training. 7. Technical The community demanddriven approach of PRODEPINE i s inline with government strategy, international standards andbest practices of ruraldevelopment. Community priority- setting of rural investmentsi s commonly used inmanydevelopment projects. However, PRODEPINE Iexperience with participatory schemes for subproject preparation, execution and 12 evaluation has substantially contributedto the development of new international standards. Multilateraldevelopment agencieslprojects such as FA0 and RUTA have systematizedand promoted this experience inother LatinAmerican and African countries. The revised O M will incorporate latest developments on this front. Associated technical and environmental guidelines for subproject preparation would be substantially enhanced. Based on lessonslearned, CODENPE will differentiate intervention methodologies for Andean, Afro-Ecuadorian, Amazonian and coastal groups. The meaning of community and the forms of social capital vary between these groups requiringthe project to provide adequate ways of servicing these distinct populations. 8. Fiduciary Procurement issues The overall procurement risk of Ecuador's portfolioi s ratedHighinthe Country ProcurementAssessment Report (CPAR). Consequently, the GOE and the Bankhave agreedon specific issuesandnecessaryreforms that are essentialto achieve transparency, competition, economy, andefficiency inmanaging the public contracting system. These are included inthe CPAR's Action Planthat was acceptedby the GOE in2000. Procurement inthis project will follow the Bank's guidelines. The overall risk assignedto eachproject implementation agency i s HIGH. Basedon the project implementation experienceof PRODEPINEI, issues identified as potentially affecting project implementation andoverall quality of procurement managementandcoordination tasks at the PIUwere closely related to the lack o f i)clear and adequate responsibility lines to manage procurement andcontract administration functions; ii)clarity on whether organizational and staffing arrangementsused at project preparation stage will be maintained at the subsequent implementation stage; iii)experiencedand capable staff to implement Bank-financed project procurement; iv) a professional andreliable project filing system; and v) an integrated project managementinformation systemto enable a more efficient coordination and decision-making. For the mitigation of the identifiedrisks: i) the PIU's organizational structure and project staffingmustbedefined; ii) responsibilities andtasks shall be assignedto the Procurement clear Officer, the BiddingCommittee, andthe Executive Director, includingthe latter's ability to awardcontracts incases when the PIUi s responsible for the management of procurement processes inthe OM; iii)a capable Procurement Officer with professional experience inthe implementation of Multilateral Development Bank-financed projects will be hiredbefore effectiveness; iv) the PIU will implementa professional project filing system at boththe central andregional levels of PRODEPINE; andv) PRODEPINEwill implement anIntegratedProject ManagementInformationSystem (PMIS) 6 months after effectiveness. The PMIS will have the capability to record each of the project procurement and administrative transactions so as to monitor and follow up management of procurement andfinancial transactions ina timely fashion andto provide on-line informationfor reportingand decision makingpurposes all of which would helpincreasequality of project coordination andresponsiveness. Financialmanagement issues The Project Execution Unit (UEP) has maintained a satisfactory record inFinancial Managementduringthe implementation of PRODEPINEI.The FMrisk profile is considered substantial, nevertheless, becauseof a mix of inherent risks andcontrolrisks that havebeen demonstratedinthe first phase and which continue to be relevant inthe new project. The 13 principal inherent risks are (1) the decentralized natureof funds flow arrangementsand the participation of multiple facilitating agenciesinsubprojects, and (2) uncertainties surrounding the extent to which existing institutional and staffing arrangementswill continue in the second phase. The most important capacity constraints that give risk to controlrisk are inthe areas of (1)Programming andFinancialPlanning (2) Proceduralanddesignweakness inthe transfer of funds to regional offices andsubprojects which resultedinnoncompliance with disbursement rules inphaseone, (3) insufficient supervision of regional activities and (4) limitations inthe accounting andfinancial reporting system. As aresult of the assessment, a time-bound Financial Management (FM)actionplanhas been agreed. Successful implementation of the action plan would result inadequateproject FM arrangementsinplace by the effectivenessdate. 9. Social On the basis of estimates madeduringimplementationof PRODEPINEI, the beneficiary population of PRODEPINEI1is approximately 1.53 millionrural people, the overwhelming majority of whom are indigenous (1,445,000) and the rest afro-descendants (85,000). The definition of the concept "indigenous" is basedon self-identification, membership inrural organizations identifiedas beingindigenous and acceptance as such by other members of these organizations. The definition of "afro-descendant" i s basedon self-identification and membership inan organization known by others as Afro-Ecuadorian. The beneficiary population is found in 19of the 21 provinces of Ecuador, 94 cantones and323 ruralparroquias. It is important to note that indigenous andafro descendantpeoples, with a few exceptions, do not live inisolation; rather they are usuallyliving inareas where there i s also people of white and mixedracial backgrounds. Ecuador is characterizedby a great cultural diversity, particularlyamong indigenous peoples. Thus, the country recognizes the existence of 13 indigenous nationalities (socio- linguistic groups). The Kichwa nationality is the largest, comprising 14peoples, bothinthe Sierra andAmazon regions. Inaddition to severalevaluations of PRODEPWEI, analyzedproject performance which intermsof goals andobjectives met, duringpreparation of PRODEPINE 11,a social assessment and participation process (SA) was carried out by an external contractor, an NGO specializing in rural and agricultural development (for details, see listing of project documents). The SA methodology was essentially basedon a desk review of available project documents and field work usingqualitative methods, including interviews with key informants, work with focal groups and regional workshops to validate the information gatheredby the desk reviews and fieldwork. The aforementioned activities includedrepresentativesof grassroots organizations, secondand third-tier organizations (most of the implementingagencies of PRODEPINE I), project staff, and local authorities. According to the SA and Consultation, PRODEPINE 11should maintain the main objectives of the first phase. Thus, it should aim to reducepoverty among indigenous and Afro- Ecuadorian peoples, by strengthening productive activities to improve family income, as well as by promoting localself-managementcapacities, the rescue and appreciation of cultural identities, health, education, landregularization, and natural resources management. Somekey additional findings of the SA are: (a) a demand by national indigenous and Afro-Ecuadorian organizations for the creation of a Project National Executive Board; (b) second and third-tier organizations demandthe decentralization of the project, givingautonomy to 14 regional offices inthe approval of sub projects, managementof financial resourcesand simplifying administrative procedures; and (c) community organizations demandsfor their active participation the localplanning process andinthe entire project cycle through a Subproject Administration Committee. Some of the social risks identifiedby the SA for PRODEPINEI1are the following: (a) the exclusion of some national indigenous federationsdue to an excessive focus on ethnic organizations (representedby CONAIE); (b) politicizationof the implementing agency andlack of project continuity; (c) fragmentation of secondand third-tier organizations along religious lines and inan effort to access project benefits; (d) duplication of efforts; (e) lack of consideration to cultural andregional diversity; (e) insufficient traininginadministrative and accounting topics, thus affecting sub project implementation: and (f)undue influence of project staff on procurement decisions, affecting project credibility. Besides the social assessmentdone inpreparation of PRODEPINE11,project design has also benefitedfrom other evaluations of the first phase, among them the case studies of 17 completed subprojects inthe three mainregions of the country (Doughty, 2003). Some of the mainrecommendationsof the study are: InPRODEPINEII,isessentialto builddirectly uponthe foundations already laidinthe it OSGcommunities. The next phaseinthe work can solidify the experience gainedby OSGs and their constituent membersinorder to institutionalize a "culture of development" within local organizations. This again, would constitute an innovative break with past tradition where so many programs simplydie after their first years, andcommunity levelprojects are one time, chance events. Learning any culture requires repetitive experience and consistent patterns of behavior that allow for prediction with reasonablepotential for attaining the outcomes expectedand desired. It i s the cumulative experiencethat will coalesceas a "culture of development" with ameaningful set of operational values andprinciples to support it and basedupon repeatedexperience that validate the process. If effect, this kindof processwould parallel that described as a "business culture" beingdeveloped amongthe ranksof PRODEPINE's sponsoring agencies. The logical goal of the overall program itself with respectto the Indigenous andAfro populations, if not all Ecuadorians. Severaldesignfeatures of this project seemparticularlyrelevant for other operations of this kind. First, the design should reflect the capacity of indigenous peoples andethnic or racial minorities to mobilize social capital and include efforts to consolidate and strengthenthis capacity, includingits cultural dimensions. Second, the design should incorporate a range of complementary inputs, includingthe formation and strengthening of human, environmental and physical andfinancial capital. The exact specification of interventions inthese fields should take into account how they interact with and complement existing forms of social capital. Third, to ensure relevance of the activities financed under the project, its investments should reflect priorities establishedinlocal development plans elaborated ina participatory fashion. Fourth, to ensure ownership and ultimatelythe sustainability of the investments financed under the project, the institutionalizing of self-managementshould be the guidingprinciplefor project implementation. 10. Environment As part of the Mid-termReview for the PRODEPINEIProject, an independent consulting firm, OIKOS, carried out an audit (Znforme de Verificacion y EvaluacionAmbientul 15 de 10s ~ ~ b ~ r ~ y eJanuarys2001) of how environmental criteria andprocedureshadbeen c t ~ , applied to a diverse rangeof subprojects. Basedupon the OIKOS andWorld Bank recommendations, the Borrower has produced a new Environmental Manual, Politicu y Procedimientos de GestionAmbientul: C ~ ~ E N P E - C O ~ A ~ - P ~ O(March~2004). The ~ E P N E Environmental Manual indicates the environmental requirements for all relevant project activities, particularly inComponents 3 (Natural Resources) and4 (Rural Investments). It specifies the criteria and proceduresfor environmental management (including screeningand follow-up mitigation and supervision, as needed) of all PRODEPINE11subprojects. It incorporates the environmental lessonslearned from PRODEPINEI, as prohibiting support such under PRODEPINE11for forestation ofpdrumo areas with pines or other non-native trees. The Environmental Manual will be incorporated within the PRODEPINE 11OperationalManualprior to loan effectiveness. The Environmental Manualalso serves at the free-standing Environmental Assessment (EA)report for PRODEPINE11,aCategory Bproject. Priorto appraisal, the EAreport was sent to the Banks Infoshop; the report is also available orpublic review inPRODEPINE's National Office inQuito, as well as each of sevenPRODEPINERegional Offices throughout Ecuador, PRODEPINE I1ruralinvestment andnatural resource managementsubprojectswill be relatively small (most less than $30,000 and none over $90,000). PRODEPINE's Environmental Manual specifies the types of environmentally sensitive subprojects that are ineligiblefor PRODEPINEI1financing, includingthose involving (i) deforestation or other clearing of natural habitats (including mangrovesandpdrumos); (ii) new roadconstruction; (iii) improvements road within natural forests; (iv) dams which would flood areas of forest or cultural property; (v) use of risky (potentially invasive) non-native species; or (vi) activities adversely affecting protected areas. PRODEPTNE I1subprojects are expectedto be largely benign or positive from an environmental standpoint. At least 10percent of Rural Investment subprojects are expectedto be primarily environmental intheir focus (see Annex 4); many NaturalResourcessubprojects will also emphasize environmental improvements. Some subprojects should leadto the improved protection and managementof forests and other natural habitats on indigenous and Afro-Ecuadorian community lands. The proposedmangrove restoration subprojectswould work exclusively with native species. PRODEPINEI1activities to improve landtenure security for indigenous and Afro-Ecuadorian communities (part of Component 3) are expectedto be largely positive from an environmental standpoint; lands within Ecuador's NationalProtectedAreas Systemwould not be titled. The Bankhas reviewed the institutional capacity of PRODEPINE(including CODENPE and CODAE) to (i) apply the Manual'scriteriaandprocedures effectively and (ii) otherwise ensure that good environmental practices will be followed throughout the project. The existing environmental managementcapacity within PRODEPINEi s adequate; however, it will be important for the project to maintain a sufficient number and quality of natural resources specialists inthe NationalandRegional Offices. These natural resources specialists will also coordinate the environmental review and follow-up environmental management(including mitigation, enhancement, and supervision) of relevant natural resourcesand ruralinvestment subprojects. The project includes funds for training within eachcomponent; this will include environmental training when requestedby project staff, service providers, or beneficiary communities. Project monitoringwill include environmental audits of subprojects of all types (see Annex 3). 16 11.Safeguardpolicies All safeguards, other thanindigenous, are addressedinthe environmental guidelines (Forests, Cultural Property, Natural Habitats, andPestManagement) included inthe Operations Manual. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPIBPIGP 4.0 1) [XI [I Natural Habitats (OPIBP 4.04) [XI [I PestManagement (OP 4.09) [XI [I CulturalProperty (OPN 11.03, beingrevised as OP4.11) [XI E l Involuntary Resettlement(OPIBP 4.12) [I [XI Indigenous Peoples(OD 4.20, beingrevised as OP 4.10) 1x1 E1 Forests (OPIBP 4.36) [XI 11 Safety of Dams (OPIBP 4.37) [I Ex1 Projects inDisputedAreas (OPIBPIGP 7-60)" [I [XI Projects on International Waterways (OPIBPIGP 7.50) [I [XI 12. Policy ExceptionsandReadiness 0 The financing plan for the project establishes that GOE will cover 100%of operational costs (personnel and incremental operating expenditures) incurred by the PIU, and the Bank's loan will cover 100%of all investment costs, including taxes, This i s consistent with the country financing parametersfor Ecuador. 0 The first year's procurement planwill be approved before negotiations. 0 The project is ready to implement about 200rural investment subprojects. 0 All disclosure requirementshavebeenmet including Environment andSocial Safeguards. * By supportingtheproposedproject, the Bank does not intend toprejudice thefinal determinationof theparties' claims on the disputedareas 17 Annex 1:Country and Sector or ProgramBackground Indigenous andAfro-Ecuadorian peoplesinEcuador face chronic poverty levels which dateback to the colonial period, which initiateda history of social exclusion, inequality anddiscrimination which persistsuntiltoday. Facedwith this situation, indigenouspeopleshave spawned well- organized and increasingly articulated political movements which are having a growing voice in setting national policy and raising the profile and situation of their members and leaders on the national stage. Though hamperedby the social, economic andpoliticalcrises of the last decade, Government policy with respectto the target population has evolved since the Constitutional Reformof 1998 into better focusing on the sourcesof indigenous andAfro-Ecuadorian poverty: low levels of education, insufficientassets and legal rights; and a new found emphasis on the positive qualities of the target population: its social capital and organizational strength andthe income-generating capacities of its cultures. The first project facilitated this shift inpolicy. PRODEPINE 11aims to support government policy by helpingto consolidate this new vision while at the same time providinga solidtargeting mechanism for the fight againstruralpoverty. Indigenousand Afro-Ecuadorian poverty Inthe last 20 years, Ecuador has sufferedfour severerecessions,three hyperinflationary periods, anda banking and exchangecrisis inwhich led to the adoption of the US dollar as the nationalcurrency. These crises havedeepenedpoverty andincreasedinequality. Between 1995 and 1999, the overall population below the poverty line (measuredby consumption) increased from 34% to 56%. The situation inruralareas deteriorated even more dramatically, with 77% of the populationbelow the poverty level, hittingover 90% inindigenous communities. Ecuador has one the highest Ginicoefficients of income inequality and of inequality inlanddistribution inthe world. Thewealthiest 10%of the population earn42% of GDP, while the poorest lo%, control 0.6%. The trendhas persistedeven during the recovery of the last years, when the Gini coefficient increasedfrom 0.52 to 0.54. Interms of income, in2001one-third of the urban population and 60% of the rurallived on less than $2 per person per day. Close to half a million Ecuadorianshave migrated abroadsince 2001 (CountryAssistance Strategyfor the Republic of Ecuador. The World Bank, 2003, Report No. 25817; andEcuador, UnaAgenda Econdmicay Socialdel Nuevo Milenio. V. FretesCibils et al reds.], The World Bank, 2003.) The situation is mirroredinaccess to basic needs. Although 52.8% of the Ecuadorian population lack access to basic services, this reaches92.7% of all indigenous andAfro- Ecuadorian communities. Ineducation, while the overall country illiteracy index is 10.8%, this indicator reaches42.5 % inindigenous populations and 53.2 % among indigenous women. Similarly, although the nation-wide average for schooling i s 7.6 years, indigenous people have an averagelevel of 2.4 years andindigenous women barely 1.7. Inhealth, 30% of the Ecuadorian populationhave no access to basic health care services. Inshort, indigenous and Afro-Ecuadorian people tend to have the worst living conditions, the lowest schooling levels with inappropriate educational systems, minimal access to health services, and often suffer from social and economic discrimination. Ruralindigenous andAfro-Ecuadorians communities lack secure access to landand water resources, restraining investment opportunities and creating conditions for social unrest. The situation differs by region andsocial group. Inthe Amazon, indigenous groups struggle to achieve clear titles to communal lands which are under increasedpressure from oil exploration andproduction. Inthe highlands, peasant communities face shortages of land andincreasing 18 degradation due to agricultural intensification andunregulated expansion into the upper reaches of water basins (pdramos). Inthe coastal regions, communities face growing encroachmentover their lands from large landholdings as well as degradation of mangrove swampsdue to unsustainableexploitation by commercial shrimp producers. Government policy Publicpolicy regardingindigenous andAfro-Ecuadorian peopleshasbeenbetter defined with the adoption of anew Constitution in 1998 recognizing Ecuador as a multiculturaland multiethnic country, andwith the creation of the Consejode Desarrollo de las Nacionaljdadesy Pueblos del Ecuador (CODENPE) andthe Corporacio'nde Desarrollo Afroecuatoriano (CODAE). The 1998 Constitution is one of the most advancedinLatinAmerica, recognizing a series of collectiverights to indigenous and Afro-Ecuadorian peoples inthe realms of culture, landor territory, andself-determination. CODENPE andCODAE's policyobjectives center on implementing key constitutional rights, broadening access to resources andimprovingthe delivery of services for indigenous andAfro-Ecuadorian communities. Upontakingoffice inJanuary 2003, the Government announceda medium-term program aimingto reducepoverty through coordinated advancesonthe economic and social fronts. It announced a three-pronged strategy: (i) Promoting economic growth andcompetitiveness; (ii) Reducing poverty andpromoting social inclusion; and (iii) Improving governance to fight corruption and increasesecurity. Since then, it has been more successful inimplementing stabilization measuresthan inlaunching longer-termreforms; particularlygiven the break-up of the electoral coalition, the increasedpolitical instability andthe opposition of a restive indigenous movement. Recognizing this, the Ecuadorian government has embarked on an effort, ledby the Ministryof Economy andFinance andwith the support of international donors, to define the National Strategy for Poverty Reduction (NSPR). (Propuestade EstrutegiaNacional para la Reduccidnde la Pobreza MEF, Febrero, 2004.) The NSPR provides a key focus inthe effort to reducepoverty, by aimingto improve the quality andquantity of social investments, and its focalization on the poorest sectors of the population. One of its policies i s to support special development programs for the most vulnerable groups. The Government's stated target is to reduce poverty 31.O% and extreme poverty from 25.0% to 10.3% of the population by 2007. However, these groups have almost no access to centrally-managed, productivity-enhancing public services such a technical assistance, market information, transport infrastructure, etc. Their local communities are usually poorly organized anddependentoncentralized servicesthat are seldom delivered. There is a generalrecognition that the current system is broken andcannot be fixed, andthat decentralization i s the most likely answer. Although Congress passeda law in 1997 which lays out the framework and principles for decentralization, no regulations have been written andunfortunately the new political and administrative model has notbeen devised. PRODEPINEI(and now 11)goes outsidethe current systemto a large extent, to work directly with ethnic affinity groups to channel GOE resources. As with its predecessorproject, PODEPINEI1attempts to transform dependentcommunities into proactive groups, empowered to address their development problems. Project's contribution The project i s includedinthe Bank's Country Assistance Strategy (CountryAssistance Strategyfor theRepublic of Ecuador.The World Bank, 2003, Report No. 25817). The Bank's strategy mirrors the Government's through actions inthree areas: (i) Consolidating the macro 19 framework and laying the foundations for growth; (ii) Broadening access to resourcesand ensuring reforms are socially sustainable; and(iii) Strengthening governance to ensure accountable, efficient and accessible public services (World Bank, 2003). PRODEPINEI1will contribute fundamentally to the secondarea, though it touches on all three; its strategic value lies intackling the lack of social inclusion which constitutes one of the key obstaclesto poverty reduction inEcuador. PRODEPINE I1is also consistentwith the mainobjectives of NSPRin that it helps the government to target ruralsocial, productive and infrastructure investment on the poorest population inthe country through means of anon-traditional channel To reach the government's ambitious poverty-reduction goal, sustainedeconomic growth needsto be complemented with reforms that address inequality and increase the access of the poor to basic services. The project will contribute to this objective by increasing the capacities andassets of indigenous andAfro-Ecuadorian communities andtheir higher levelorganizations, by decentralizing decision-making to the levelof the communities themselves andby helping the Government raise the profile of indigenous issues inselectedsector ministries. It will contribute to the sustainability of the reforms by broadening indigenous and Afro-Ecuadorian access to resources and services andby improvingthe dialogue betweensocial organizations and central andlocalgovernments. A key contribution of the project will lie inits capacity to shift decision-making to communities, involving them inprioritizing, implementing andoperating investments and services. Generalizing a demand-driven approachwhich involves communities andlocal governments is seen as a key measureto improve the lot of the ruralpoor. The project aims to broadenthe asset base, improve the capacities of organizations andindividuals, and help diversify the ruraleconomy. The project will link up with municipalgovernments inthe rural areas where it operatesinorder to help them improvethe efficiency andeffectiveness of local expenditures. Finally, it is expectedthat the project will help Ecuador to channel the demands from the indigenous andAfro-Ecuadorian movements for greater participation inpolitical strategy setting anddecision making, thus contributing to socialpeace andto the sustainability of reforms. 20 Annex 2: MajorRelatedProjectsFinancedbytheBankandlor other Agencies PROLOCAL The project supports localdevelopmentby improvingthe quality of local services and increasing the access to productive assetsbythe ruralpoor insix micro-regions of the country. As inPRODEPINE, PROLOCAL aims to empower localorganizations to establish a demand- driven modelfor public investment and services. PROLOCAL initiatedimplementation on June 2002 andcurrently is beingimplementedinthe following micro region: Cuencaaltadelrio Jubones, Sur de Manabi, Los Nos, Oriental de Loja. The total loan amount is ~ ~ $ m. 5 2 PDO andImplementationprogress ratings: S. PRAGUAS The project aims to improve water sector performance, by strengthening the sector institutions and increasing the service coverage in about 40 rural municipalities, as well as six smalltowns. PRAGUAShas beenimplemented since November 2001 The total loanamount is ~ ~ ~ $m. PDO and Implementation progressratings: S. 3 2 MODERSA The purpose of the project is to contribute to the improvement of the health status of the poor in the medium term, particularly that of mothers and children under five years of age. The project seeks to expand access to and improve the quality and efficiency of ambulatory and hospital services, by developing new health care organization, financing and managerial programs in selected municipalities. The loan amount i s us$ 45 m. The project has been implementedsince November 1998. PDO andImplementation progressratings: S. SICA The development objective i s to improve the availability, consistency, validity andtimeliness of information of the Ecuadorianagricultural Sector so us to facilitate decision-making by the public andprivate sector. The total loan amount i s ~ ~ $ 2 4million andhasbeen implemented . 7 through Minister of Agriculture and INEC (Instituto NacionalEcuatoriano de Estadisticasy Censo). The project has beenimplemented since August 1998. PDO and Implementation progressratings: S. NATIONALSYSTEMOFPROTECTEDAREAS The objective of this project is to ensure conservation for a sustainable development through strengthening of the National System of Protected Areas. This GEF donation supports the institutional strengthening and participatory management of two protected areas (Machalilla and Cotacachi - Cayapas). The GEF donation totals $ 8 m. PDO and Implementation progress ratings: S. CONSERVATIONOFBIODIVERSITY INPASTAZA This $763.000 GEF donation has beenimplemented since April 2003 through local NGO's. I t aims to manageecosystemsin situ and the biodiversity of the Amazonian forest. Three indigenous community of the PastazaProvince carry out the territorial planning andissue the managementplans for their communities. Inits approach and beneficiaries, this project plays a complementaryrole to PRODEPINE. PDO andImplementationprogress ratings: S. 21 Other development agencies PRODECO PRODECO's targeted population are indigenous people settled in the Province of Cotopaxi. The seven million Euro donation currently i s in its second year of implementation. The project implementing agencies are the Cotopaxi parishes which were affected by a seismic movement in 1997.The focus of the investments are public services provision (health education, and sanitation) and supporting community productive initiatives. PRODECO's governmental counterpart is CODENPE. FORMIA FORMIA's targeted beneficiaries are the so called "Indigenous Alternative Municipalities" at national level. The focused of the 300 thousand Euros donation is to support human capital formation for Indigenous Municipalities management and administration. The three year project is in its second year of implementation and CODENPE i s the government counterpart. 22 Annex 3: Results Framework and Monitoring Results Framework Project Development Useof Outcome Objective Outcome Indicators Information To promote the empowerment and 4 The Institutional Capacity Index The results of the Institutional improved access to natural and of the facilitating entities(EEs)has Capacity Index will be used to financial resourcesfor indigenous improvedby an average of 25% determine areas of training and andAfro-Ecuadorian communities technical assistance. and organizations within the framework of their own FEs that improve their capacity developmentand interculturalism. sufficiently will be eligible to executeprojects larger than US$30,000. 1 The communities' share of This is measuredto confirm that zofinancingfor the subprojectsis at the community is meeting its least 27%. commitments. Every year the methodology for community co- financing will be reviewed and adjustments made as necessary. Duringyears 3 and5 of the project 80% of the FEs that are there will be an assessment of Facilitatingsubprojecthavereceived whether the investmentshavebeen Favorable technical audits. used and administeredadequately. This will supportthe process of accountability. It will also be used to adjust the capacity building methodologies. 30% of the FEs have received FEs that have achievedthe goal additionalfunding from other will receive support for institutionsand the total investment strengtheningallianceswith other :eceived by the FEs is increasedby development actors. 25% to meet the demands of the PDL. I The FEs that cannot attain the expectedobjective will be reinforced with the necessary technical assistance and training. The total investment of local The successfulexperiencesshall ;overnments and NGOs, in relation to be replicated amongother local he demands of the Local Development governmentsandNGOs ?lam(PDLs), has increasedby an iverageof 20 %. 35% of the PDLs demands have At the project midtermthe Ieenfinanced by different sources strategy to consolidatealliances luring the execution of PRODEPINE will be evaluated 23 Of all the subprojectsfinanced, Weasure the participationof 10% were executedby women's groups Nomeninthe project. Reviseand md40% incorporatedagender equality 3djust the methodologyof :ocus. women's participationduring the :xecution of subprojects 95% of the investmentsubprojects Monitor compliancewith the lave favorableenvironmental audits. xvironmental norms of the ?reject Governmentadopts National levelopment Policy for Nationalities indPeoples. Intermediate Results ResultsIndicators for Each Use of ResultsMonitoring Oneper Component Component ComponentOne: Strengtheningof ComponentOne: ComponentOne: Indigenousand Afro-Ecuadorian Nationalities,Peoplesand Organizations 50% of the FEsare trained in FEsthatrequire training and Improved managementcapacityof participatory planning and auditing strengtheningwill be identified. Indigenousand Afro-Ecuadorian throughtheir technical specialists. nationalities,peoples, communities, and organizations,using their own 100updatedPDLs and 10new Will permit measurementof the type of organization, to promote PDLs paceof execution and services to their members with a adjustments. equality focus and to negotiatetheir demandswith governmentaland 20 subprojectsfor training and The level of organization and nongovernmentalinstitutions technical assistance in management participation as well as the systems carried out with national capacityof the participating and regional organizations. organizationsis determinedand better assistanceprovided for those that need it. 10%increase inthe number of The level of advancement and women with director levelposts in incorporation of women inthe the FEs. developmentprocess is determinedand FEcapacity building activities reorientedas needed. 20% of the women's Measurefulfillment of goals and organizationsclassified as B and C make necessary adjustmentsto the are upgradedto a higher category training strategy.Women's groups incategoryA areeligibleto execute subprojects I PRODEPINE conductstechnical Programimplementation assistance activities with at least 40 mechanismsand localgovernment localgovernments. requirementswill be reviewed. 24 ____ Component Two: Understanding Component Two : Component Two: and Culture for Development Consolidate the development of Graduationof 150technicians [fprogresstoward the targetgoals human resources and recoverboth and university students. is insufficient there will be a tangible and intangible cultural review of the administration, heritage, thereby helping to distribution, and selectionprocess strengthenidentity and improve for scholarships. incomes. 250 cultural promotersreceive The results will be usedto technical assistance incultural promote successfulexperiences production'and strengthening activities. 60 training coursesfor promoters Ifprogresstoward thedesired in cultural initiatives objective is not sufficient the strategy and operationof the programwill be reviewed. Iftheresultsareasexpectedthis will spur the creation of networks of cultural promoters.Inaddition the linkswill be formed between the cultural promotersand the F E S . Component Three: Natural Component Three: Component Three: Resources Improvecapacityto managenatural . 300,000 hectaresof INDA y M A Ifthereisinsufficient progress, the resourcesthrough better access and lands legalized strategiesand principle actors in control of soil, water, and other land titling will be examinedon a natural resourcesfor the yearly basis. development of the target population. 15,000 hectares of mangroves Ifthereis insufficient progress, the grantedto communities. program strategy will bereviewed andlor adjustedtwice a year. At least 2,000 families Inyears 2,3, and4, ifthe program sustainably managetheir does not progressas expected, the community resources. methodologies, technical assistance, incentives, and location of the communities will be reviewed. Component Four: Rural Component Four: Component Four: Investment Improve the management capacity 700 investment studies Pace of execution will be of rural indigenousand Afro- measuredtwice a year and Ecuadoriancommunitiesand corrections made if necessary. improve their access to goods, services, and markets, thereby 1,800 km. of community Inyears 2 and 3 studies considered diversifying their sourcesof income. irrigation channels have action for financing by PRODEPINEwill plans. be identifiedand partnershipswith other organizationswill be supported to carry out the other studies. 25 70,000 families benefit from 803 [fthereis insufficient progress community investmentsubprojects. :owardquarterly goals, the type of xojects executed, their I listribution, the role of the FacilitatingFEs, and communities w i l l be examined, and monitoring mechanisms andtechnical assistance will be improved. 80% of the subprojectsare in operationafter a year and have Every year the sustainability of been ratedsatisfactoryby the subprojects by type and category beneficiaries. andthe quality of pre-investments will be checked, andtechnical assistanceand monitoring improved. ComponentFive: Project ComponentFive: ComponentFive: Administration and Institutional Strengtheningof CODENPEand CODENPE CODAE Systemof Social Indicators for Compliance measuredannually. CODENPE will establish Managethe project and improved IndigenousNationalities and developmentpolicies and focus institutionalcapacity of the State to Peoples (SIDENPE) updatedbased population . formulate policies, laws, plans and on national statistics starting in programsandprojects oriented 2001. Updatedinformation to generate towards the Nationalities, Pueblos and guide developmentpolicies and indigenousorganizations and for indigenouspopulations afro-Ecuadorian. available to civil society. Reformulation of Indigenous I nyears 1,2, and 3 the pace of JusticeLaw, and Collective execution is measuredand Intellectual PropertyLaw, CODENPEadjustsits consultedand presentedto methodology for drafting legal Congress. proposals. 1 CODAE Systemof Social Indicators for Compliance is measuredin year 1. Afro-Ecuadorian Nationalities and CODAE establishesdevelopment Peoples(SISPAE) updatedbased policies and focus population. on national statisticsstartingin 2000. Draft Collective Rights of Afro- Inyear 1 the paceof executionis EcuadorianLaw, consult and measuredand CODAE adjusts its presentto Congress. methodology for drafting legal proposals, PROJECTCOORDINATINGUNlT Informationon performanceand achievementsof the project will Sevenregional offices and one be reportedto the principal actors central office inoperation involvedand serve as an input for the systemization of experiences. 26 Administration and monitoring The functionality andutility of the systems operating systems will be checkedand updatedtwice a year. Five auditscompleted Ifrequiredbythe audit results, administrative systems and training for Coordinating Unitand FEs will be strengthened. Personneland midterm The recommendationsand evaluationsconducted findings of theevaluationswill be incorporatedinto the program strategy, which will be adjustedas necessary. Five beneficiary evaluations Every year the evaluationsand completed. opinions of the beneficiarieswith respectto the executionand results of the project will be used to reorient project programs. Arrangements for results monitoring The monitoring and evaluation process will functionas a mechanismfor assessing project impacts and as a day to day managementtool. The M& Esystem will provide accountability and incentives at both the national and regional field offices levels, and strengthenbothCODENPE's and CODAE's capacity for planning and monitoringof overallproject activities. The M& E systemwill also support the project supervision processby ensuring that baseline and follow-up data for the key performance indicators are collected andmade available on an ongoing basis and at strategic times includingproject start-up, mid-termreview andproject closing. A baseline study will be required at inception. Follow-up evaluations at both mid-termandproject closing will include impact andimplementation assessments and will be carried out incoordination with MEF Specific project monitoringdatawillbeprovidedon agreeduponreport formats, included inthe operationsmanual, andwill berequiredfor the 6-monthly supervision missions. The proposed monitoringprogram i s basedon the monitoring systemdeveloped duringPRODEPINEIandwill require significant participation at allregional field leveland national level (PTU andCODENPE and CODAE). The system will also be modifiedto allow for greater accesses to planningand monitoringdata for more day to day managementof the project. The project will have assignedstaff to accomplish the monitoring andevaluation function inthe national andregionalcoordination units. They will havethe responsibility to collect, analyze, archive anddistribute relevant andtimely information to assist ineffective decision makingfor project managementat the national andregionallevels. These unitswouldbein charge of M&Eactivities and will have inplace an updatedand improved monitoringsystem which would monitor the financial andprocurement management, planning, physical implementation includingsubprojects, performance of national and regional coordination units andlocaltechnical assistanceserviceproviders anddevelopment objective indicators from the project's Results Framework. The project will have regional andnational administrative units to monitor the financial management for the project as a whole includingthe national andregional coordination units. 27 Financialinformation on inputs, outputs, budgeting, treasury, accounting and audits would be monitored. The financial information neededfor the quarterly financial managementreports would be providedfrom the financial managementmodule of the monitoringsystem. Monitoring and processing of procurement of services, goods, works and subprojectswould be carried out by the procurement system andalso by the subprojects informationsystem module. The procurement managementreports will be generatedfrom this module. Both the annualplanning processesfor the coordination unitsand local development planning would be monitored with specific indicators on planningperformance defined inthe Results Framework. The physical implementation of the project would be monitoredbasedon the specific outputs and monitoringindicators for the project components as defined inthe Results Framework below. The subprojects module would be designedto provide most of the information neededto monitorthe actual progresson the implementation of eachcomponent, The project progressreports would be preparedutilizing the above output monitoringindicators. The overallperformance of national and regional coordination units andtechnical assistance service providers would be monitored from various modules of the informationsystemof the project, Le., project personnel, communications, planning, riskmanagement, beneficiary and external evaluations of the project. Additionally, information on the development objective indicators will be housedinthe subprojectsmodule with one of the indicators. Regional coordination unit staff would be responsible for obtaining physical implementation progress, localprocurement andfinancial informationon subprojects and maintainingthe informationinthe subprojects, financial andprocurement informationsystem. This informationwould be sent electronically every week to the nationalcoordination unitfor review, approval andaggregation. Informationfrom the monitoring system would be analyzedby project managementand disseminatedaccording to the project's communication strategy to appropriate stakeholders. The project would provide project progressreports quarterly and an update on legal covenants compliance every six months to the Bank. Performanceand impact indicators will play a much greater role inday to day project managementand modification to the existing M& E systemto linkphysical progress with financial monitoringwill be needed to introduce performance-basedbudgeting. Currently there i s limitedroutine datacollection and analysis at the Indigenous institutionallevel and one expectedoutcome of the M& Eprocesswill be the institutionalizationof the monitoring system inbothCODENPE andCODAE. Key elements of the monitoringprogram include: e Incorporationof a set of agreeduponperformance indicators that are relevant for the regional operations, the PIUand CODENPE andCODAE that enable the project and facilitating agenciesto assess their own performance and to specify desired interventions andallow aggregationof project datafrom the regional to national level. 0 Implementation of a regular and timely reportingmechanism which would be linkedto the CODENPE andCODAE's planningprocess. e Assurance that a minimumamount of data required by the project Results Framework will be included inthis M& E system. For evaluation purposes, the M& Esystem will utilize a datacollection strategy at project inception, midterm andproject closeout. A program of intermittent and intensive data collectionwill be established and institutionalized at CODENPE and CODAE. The resulting time-series data will be of 28 benefit to the regionalfield offices, the PIUfor project execution and CODENPE, CODAE, the Ministry of Finance, the World Bank and other donors for project oversight. The baseline study, midtermandproject closeout impact evaluation studies, utilizing the indicators inthe ResultsFramework, will be contracted out to an independenteconomic researchorganization or University, for an independentandrigorous assessment of project impacts. The baseline study will be underway before project effectiveness. The principal data for the project's outcome andresults indicators will from formulated laws and regulations, participative evaluations of impact, annual reports on localmember organizations, audit reports, project monitoringreports, Environmental Ministry, CODENPE, CODAE, reports on facilitating agencies advancementsand project evaluation. The regional field offices will be responsible for collecting ongoing monitoringdata from their respective areas and the PIUwill have the mainresponsibility to aggregatethe datafrom all regions andaugment it with specific monitoringdata at the national level. CODENPEand CODAE will have responsibility for monitoringoverall project performance data. By incorporating CEDENPE and CODAE into overall project monitoring andoversight, the project will strengthenGOE capacity to use indicators by managers andpolicy-makers to assessthe project' s effectiveness duringimplementation and after the project is completed. The proposeddesign modifications to the existing M& Esystemare basedon a review of the capacity of regional office and PIUstaff. Past workloads were assessed andrecommendations madeto reducethe burden of excessive data collection and reporting. Project execution staff capacities for project planning, monitoring, control andevaluation were examined and a planfor strengtheningthesecapacitieshasbeenpreparedfor implementation duringthe first six months of project execution. 29 g g e 3 - % 52 F. N s e m M 3 m e, 3 2E a E m 2 E aB am 892 IU. - E I- d Y s f 0 5 R R 0 0 I- 2 2 s2 0 0 g 2 % EQ / B m m 0 1 -.-.-8 d Q 3ci 8 3 e Annex 4: Detailed Project Description Target Population On the basis of LocalDevelopment Plans (PDLs) preparedby indigenous andAfro- Ecuadorian organizations inPRODEPINE Ianda censusconducted by an independent NGO CODENPE and CODAE haveestimatedthe total ruralindigenous andAfro- Ecuadorian population at approximately 1,342,127, out of whom 1,172,174 are indigenous and 169,953 are Afro-descendants, respectively. "Indigenous" is defined as pertaining to membersof a socio-culturalunit who affirm that they belong to an indigenous community andor organization. Afro-Ecuadorian" i s defined by members' " self-identification as belonging to acommunity that i s recognized as Afro-Ecuadorian. The Project's target population featurestremendous culturaldiversity, throughout the coastal, highland and Amazon regions of Ecuador. The indigenous peoples describe themselves as nationalities andpeoples. There are 12indigenous nationalities of which the Kichwa nationality is the most widespreadinEcuador, inboth the highlandsandthe Amazon region. According to the Inter-Cultural BilingualEducationDirectorate, the Kichwa population (both urbanandrural) numbers approximately 3.9 million. According to the information providedby the census conducted by PRODEPTNE, the rural Kichwa communities of the Ecuadorian highlands comprise a population of 1.1 million. The nationalities of the Ecuadorian Amazon regionare: Secoya, Siona, Cofrin, Huaorani, Zripara, Shiwiar, Shuar andAchuar. The Amazon peoples share a geographical region that is tropical rainforest. They all have at least an organization on the basis of their nationality. They occupy territories that are rich inbiodiversity. At present, there are multipleinterestsintheir territories' renewable and non-renewable resources, which have enteredinto conflicts with their traditional uses of these resources e.g. petroleum and miningversus huntingandfishing. . At present,most of the Afro-descendant populationof Ecuador is concentratedin the province of Esmeraldas, inthe Chota-Mira River Basin, and inthe provinces of Imbabura and Carchi. There i s also a large concentration incities such as Guayaquil in Guayasprovince, Quito (Pichincha) and smaller populationgroups inthe provinces of El Oro, Los Rios, andSucumbios. It is not possible to indicate an accuratenumber of the total Afro-Ecuadorian population, partly becausethe data from the national census are not itemized by ethnic'or racial composition, although this was supposedly "corrected" in the last (2001) census. These last figures estimate the Afro populationat some 420,000. InEcuador'spoverty maps, basedonlevels of incomeand satisfaction of basicneeds, the cantonswith amajority Afro population are among the poorest. They lackbasic services, feature highinfant mortality and under-nutrition rates, andhave deficient health and education services and infrastructure. For the Afro-Ecuadorianpopulation, especially in ruralareas, the greatestthreat to their ability to make a sustainable livingis the rapidloss of their natural resourcebase: land(territory belonging to them by ancestralrights), forests with great biodiversity and mangrovesteeming with marinewildlife. Intheir situation of poverty, marginalization andmanifold vulnerability, the Afro-Ecuadorian peoplehave few resourceswith which to stave off the pressures of contemporary society, as itplunges into a globalized world. 35 REGION NATIONALITY PEOPLE BASEPOPULATON SORTHERN Kichwas of the Amazon KichwaSapo 30.273 AMAZON Region Kichwa Orellana 11,621 Kichwa Pastaza 11,000 Kichwa Sucumbios 15,000 CofAn 730 t IHuorani 1Secoya I I 2,100 400 IShiwiar I I 686 ISiona 350 Zipara 150 SOUTHERN Shuar 39,067 AMAZON INORTHERN I 1Afro - Esmeraldas I 68,608 I COAST Chachi 8,040 Eoera 283 Tsachila 1,338 SOUTHERN Manta 91,673 COAST Huancavilca 104,798 NORTHERN Afro Imbabura-Carchi 32,782 HIGHLANDS Awa 3,500 Kichwas of the Sierra Natawela 3,832 Karanki 27,733 Otavalo 75.301 Kayampi 62,079 Kitu-Kara 57,471 Afro - Chota Mira 16,513 CENTRAL Salasaka 12,365 HIGHLANDS Tomabelas 21,232 Quisapinchas 8,759 Puruwa 255,677 Pilahuines 15,160 Panzaleo 260,629 Chivuelo 45,702 Waranka 58,662 SOUTHERN Kaiiari 146,629 HIGHLANDS I IISarakuros 1 37,290 ITOTAL 1,532,064 I I I * A definitive list will be included in the Operational Manual I 36 SocialOrganization The indigenous andAfro-Ecuadorians have formed national, regional andlocal organizations, which have encourageda gradual reinforcingof their ethnic identity. There are at present 3695 ruralindigenous grassroots organizations and 251Afro- Ecuadorian grassroots organizations (communities, centersand cooperatives). These grassroots organizations have grouped together into 231second levelorganizations (OSGs -- 205 and 26, respectively). These OSGs are known as associations, unions, federations, and so on, and often belong to the provincial, regional andnational organizations. These apex organizations are also known as thirdlevel or third-tier organizations (OTGs). Indigenous ruralorganizations share their sense of belonging to a community, territorial ties, solidary mutualassistancethrough collective work activities, and community festivity schedules. The Afro-Ecuadorian population has had, historically, a lower degree of organization than the indigenous peoples. The mainagenda of the Afro- Ecuadorian organizations often involves defenseof their territory. More than community societies, Afro-Ecuadorian grassrootsorganizations are family networks of actual relatives andfriends. The community i s the basic level of ethnic social organization legally recognized by the government, andhas become the core of cultural and social reproduction for the indigenous andAfro-Ecuadorian peoples. Inthe context of development OSGs and OTGs, these two levels have several advantages: (i) gather grassroots organizations they together; (ii) they bringtogether the political andtechnical groups of the indigenous and Afro-Ecuadorian peoples who have significant experience andaction capacity for development; (iii) they work on a micro-regional scale; and (iv) the nature of these organizations is closely linkedwith localdevelopment. Moreover, OSGs belong inturn to national organizations, which facilitates indigenous andAfro-Ecuadorian organizations' participation innegotiations with the government andwith other societal anddevelopment organizations. The mainbeneficiaries of this project are members of community-based organizations that havejoined OSGs or OTGs, though unaffiliatedcommunities will be able to have access to project resourcesand activities if they comply with the eligibility requirements. This project will work mainly with communities grouped into OSGs, and with local governments. LegalFramework The legal framework for implementation of the Project i s one of the most advancedinLatinAmerica, and consists of the Constitutional provisions that grant extensiverightsto the indigenous and Afro-Ecuadorian peoples, including landrights, natural resourcesrights, and cultural andintellectual property rights, ratification of ILO Convention No. 169and subject specific laws such as the landtitling law. (See legislative framework Annex 15) Potential,Limitationsand Strategies The indigenous and Afro-Ecuadorian peoples, despite their great diversity, comprise one of the country's relatively most homogenous sectors, sharing a collective identity and culture: the existence of biodiverse natural resourcesintheir respective territories (land, water, forests, etc.); organizational capacity and social assets. Important 37 additional elements couldinclude the decision to face the challengesof managing development; traditional knowledge; negotiating andconsensus-building capacity. Nevertheless, indigenous andAfro-Ecuadorian peopleshave suffered the consequencesof their historical social exclusion and are at a disadvantage within Ecuadorian society. For instance, in 1998,85.8% of the ruralindigenous population living inindigenous communities was under the poverty line (defined as a monthly per capita consumption under US $48.30, representinga monthly household income under US $243). Interms of unmet basic needs, boththe indigenous and Afro-Ecuadorian population groups have higher percentagesthan the rest of the population, inat least 6 out of 10indicators. To summarize the issuesfacing the indigenous andAfro-Ecuadorian peoples and their organizational and development managementcapacity inthe ruralareas, the project's intervention strategy will take the following goals into account: 0 To develop participatory, consensus-basedorganizational processesinevery phase. 0 To support the strengtheninganddevelopment of Afro-Ecuadorian andindigenous identities within the framework of interculturality, understood as organized action with respectfor diversity. 0 Todevelop the necessary aptitudes, skills and abilities to enablethem to take part in and contribute fully to improvingtheir own communities andon a regional and national levelunder conditions of equality. 0 Todevelop an awarenessof the implications for development of the genderissue, that i s to grant due attention to the particular issuesof indigenous women in contexts of internal and external exclusion anddiscrimination. To emphasize sustainabledevelopment wherein resourceuse follows the organizational model andproduction process of communities as a whole, strengthening their culturalcontents. Tofoster sensitization of national society, to contribute to promotingand disseminating the Afro-Ecuadorian and indigenous cultures and identities as a way of eliminatingpractices of social exclusion and buildinga more equitable society on the basis of recognizing differences andrespectingdiversity. Duringimplementationof PRODEPINEI, Development Plans (PDLs) were Local formulated with consensus-building leadership, materializingactions that have contributed to sustainabledevelopment with identity inEcuador. PRODEPINE2 will continue institution-building with the project's Facilitating Entities (EEs), and will emphasize the project's sharedvision of objectives, pursuingeminently democratic, inter- cultural consensus-building processes, decentralized and participatory, on the basis of localinstitutions or an integratedlocalmanagement system. Basic Characteristics of Development with Identity The vision of development among the indigenous andAfro-Ecuadorian peoples of Ecuadorhas grown up inthe context of development with identity or ethno-development. Untilabout 1990, the indigenous andAfro-Ecuadorian perspective hingeduponfour fundamental postulatesof ethnic development: (i) strengthening of their own culture, (ii) identityas peoples andnationalities; (iii) self-determination and territoriality, and (iv) self-reliant management. 38 Inrecentyears, however,thisperspectivehasbeenrenewedinthefollowing terms: a) Interculturality: Originating inthe needto strengthentheir own culture, with a clear identity that would enablethemto encouragethe indigenous or Afro-Ecuadorian peoples or nationalities, ininteraction with national society. b) Politicalautonomy andco-management: The principleof self-determination of peoples and territorialityhas progressedtoward political autonomy, which i s synonymous with decentralization of public administration, resourcemanagementandindigenous I Afro-descendant representationon the national level and inagencies empowered by law to administer indigenous and Afro-Ecuadorian territorialcircumscriptions. c) A viable development model: Although insistingearly on that the development model mustincorporateidentity, now elements may be adoptedfrom exogenousmodels when they are culturally appropriate, includingproject managementand evaluation, new technologies, socio-economic growth objectives andthe involvement of multiple stakeholders inthe process. d) Generation of well-coordinated governmental policies: Gradually, the redefinitionof relations with the State has resulted inthe adoption of State policies that still needbetter enforcement. e) A nationwide approach: New indigenous and Afro-Ecuadorian approaches are relevant for national society as a whole. This change i s because indigenous and Afro- Ecuadorian organizations have realized that changes infavor of the indigenous andAfro- Ecuadorianpeoples are not workable without coordinating with the non-indigenous. f) Redefinitionof identity: The originalproposal defining "identity" interms of an individual member of an ethnic group has made it possible to approachthis idea of a person'sbelonging to an ethnic group more flexibly, but also defines "Indianhood" in terms of a rural-indigenous continuum, recognizing the existence of indigenous persons who do not belongto a specific ethnic group. Project Activities Component 1. Strengthening SocialbOrganizations(US2.2 million) The mainobjective of this component i s to improve the capabilities of indigenous andafro descendantpeoples andcommunities, through their ownforms of social organization, so that they provide services to their memberswith equity, and help themto negotiatetheir demands with governmental andnon-governmental organizations. To achievethis objective, the component supports the provisionof technical assistanceand trainingfor participatory planning processes at various levels andfor improvedself- development skills (autogestio'n). The componentpursuesessentially the same activities as the first project and includes the following programs: (1) strengthening facilitating entities (OSGs and OTGs); (2) strategic andlocaldevelopment planning; (3) technical assistance (TA) and training to national and regional organizations; (4) equity ingender and generations; and (5) relations with local governments. Technical supervision of this Component will be carried out by a national level consultant andeight regional levelconsultants who, working as a team, will be incharge 39 of planning, coordination and systematizationof activities, as well as technical assistance and training, Strengthening the managementcapacity of facilitating agencies The Project provides technical assistance andtrainingto FEs for among other things to increasetheir managerial,technical andimplementation capacity. Among the activities supported by this program are: 0 traininginparticipatory implementation andaccountability methodologies 0 training of OSG andOTGpersonnelinadministration andmanagement 0 training of community membersininvestment implementation andoperation The regional PIU will select andthe central PIUwill pay entities to provide the TA for this activity. Strategicand local developmentplanning Most FEs that participated inthe oldproject prepared local development plans (LDPs) as aconditionfor the formulation andimplementation of subprojects, so PRODEPINEI1will finance activities to updatetheir LDPsand, inafew cases, formulate new ones during the first two years of project implementation. Through TA subprojects, participating FEs will take responsibility for implementing these activities and receive tranche payments from the central PIUbasedon accomplishments. Technicalassistanceand training to national and regional organizations Technical assistanceand training will also providedto national and regional organizations that have formally agreedto collaborate with the project. The following organizations are among the potential beneficiaries of this program: CONAIE, FEINE, FENOCIN, FEI, CNA, CONAICE, CONFENIAE, ECUARUNARI, CANE, CONAMUNE andWarmikunapac JatunTantanukuy (Dolores Cacuango). Newly formed nationalities and peoplesorganizations will also be eligible for this activity. Many of these organizations received TA from the old project, but can benefit from additional, more focused help with clear deliverables and incentives to complete them. For this purpose, these organizations will submitproposals oriented, among others, to strengthentheir capacity for strategic planningand project administration, including accounting and financial management. Those organizations that get their proposals approvedwill be financed through TA subprojects. They will sign an agreement with the Project stating the proceduresfor selecting consultants, their commitment to obtain the expectedoutcomes and to provide periodic reports. Only when they make satisfactory progressinthese outcomes will the consultants they have hired receive additional payments. Inaddition, the PIUwill organize trainingactivities, directly or through consultant firms, focused on strengthening Afro-Ecuadorian organizations. Equity in gender and generations Although the project has incorporated a gender dimension inall components, this activity concentratesonly on women as a target group for: 0 formal training of young women leaders 0 strengtheningof women's organizations 40 The central andor regional PIUwill select entities to provide this training; payments will be handledby the central PIU. Supportfor Local Government Local Governments (LGs)could play an important role inhelping target groups achieve project objectives, as they may havejurisdiction regardingphysicalplanningof their territories, rural property and population rosters, basic infrastructure works, policy- makingandcanton-level norm-setting. They may alsoberesponsiblefor meeting their communities' requirements for basic services: water supply for domestic use, electrification, health centers, feeder roads, etc. Insome cases local governments are politically controlledby indigenous or Afro-Ecuadorian organizations, inothers they may share the vision and respectthe values of these constituencies. Insuchcases the Project would co-finance consulting services for establishing links betweenthese governments andthe participatory planning andimplementationprocessessupportedby the project. Municipalities inthe project area would receive trainingand TA provided by consultants selectedandpaidby the central PIU. SuchLGs would be encouragedto co-finance rural investments prioritizedby beneficiaries inLocal Development Plans. Component 2. Knowledge and Culture for Development (US$2.7 million) This component will helpindigenous and Afro-Ecuadorian peoplesimprovetheir humancapital as well as their knowledge base and cultural assets, thus contributing to increasedincomes. Itwill include the following programs: (i) a scholarship program for higher education (ii) training and technical assistancesubprojects for culture-based initiatives, among others, intourism and handicrafts. S ~ h o l a r s h ~ programfor higher education PRODEPINEIprovided scholarships for a total of 1351university students; however, at the time of the project's closing date, only 67 had managedto graduate (21 women and46 men), though 300 were still inschool by March 2003 (121 women and 179men). The large attrition rate is mostly related to the dryingup of funds after the project closed, showing that the initial design was unsustainable. Discussions with beneficiaries duringfield evaluations also showed that FEs hadmanagedthis program with discretionality, not ensuringthat those who received scholarships were the best among the neediest. Programdesign inPRODEPINEIIaims to tackle these issuesby subcontracting management of the program to an existing specialized entity, which will select and support indigenous and Afro-Ecuadorian students on the basis of merit and need, under simple, clear andexplicit rules. The entity would select scholarship beneficiaries after eligible candidates (who posses a minimumaverage schooling grade and arepromoted by a OSG or OTG) pass an entrance exam. Program activities will be timed insuch a way as to ensure that those who receive scholarships can be supported untilgraduation. Itisexpectedthat theexperience will also permit the entity incharge to widen the scope of usual practice to include the target populationafter project closing. A total of 150students will receive a scholarship, 120of these inZicenciuturu programs (bachelor degrees) and a further 30 intechnologist degrees. A wide rangeof careerswill be supported, includinglocalmanagement, computer science, nursing, engineering, and administration. 41 Students will receivea scholarship that includes tuition, andsustenance. The central PIUwill makeperiodic paymentsfor this purposeto the managing entity basedon student accomplishments. Terms of referenceand a model contract will be included in the OM. Trainingand technical assistancefor culture-based initiatives PRODEPINEIdidnot try to work directly with culturalproducers andso lost an important opportunity to merge income generation objectives with cultural strengthening ones. Some of these groups, by necessitymay be located inurbanareas not included the project area, so it will have aprovisionthat treats suchgroups as exceptions for the purposesof this activity. The project will deploy a pilot schemeto co-finance technical assistance subprojectsfor producer or marketing groups dealing with: handicrafts, community and culturaltourism, andethno biological products. Other areas of support may be included, depending on demand and viability. Eligible beneficiaries would request specific technical assistanceservices on the basis of a businessplan. The expectedresult of the technical assistancewill be measuredinincreasedincomes or profits. Cofinancing will be awardedon a competitive basis, as demand from these groups is expected to exceed supply of funds. The project will transfer funds to abeneficiary group for payment of a TA contract intranches, following certification on the partof the beneficiaries that the service hasbeenprovided according to contractual terms. Beneficiaries will provide their counterpart financing upfront, upon approval of the TA, andwill be eligible for up to 3 rounds of contracts. Administration of this program may be contracted by the PIUwith a specialized entity. The project will also providetrainingthrough workshops ina set of identified subjects, includingformulation of simple businessplans, basic accounting for small initiatives, marketing techniques, contract management, and export rules as well as technical training indesign, production, etc. This training will be administeredby a specializedconsultant entities to be selectedby the PIU. Terms of reference and a model contract will be included inthe OM. Component3. NaturalResources (US$2.6 million) Ecuadori s a country with highbiodiversity, which representsan enormous potential for conservation and sustainabledevelopment. However, due to a high populationdensity andpredatory methods of natural resource use, many natural habitats are beingdegradedand destroyed, with the consequentloss of biodiversity andreduced options for the populationthat depends on the use of some of those resourcesfor their livelihoods. This componentwill help the target populationto improve the managementof natural resourcesthrough increasedaccess and control of land, water, forests andother natural assets vital for their livelihoods. To achieve these objectives, it will support the following programs: (1) securing landtitling and userights; and (2) TA for mangrove concessions; and(3) TA for the improvedhandlingof soils, water and reforestedareas. This componentcontinues the work on landregularization andwater resources begunby PRODEPINE I, creates a stronger emphasis on environmental but management. The processof landtitling includes a requirement that the applicant include an integratedlandmanagementplan andthose covering areas managed by the Ministry of the Environment mustbe approved by this ministry inaccordance with a 42 recent agreement betweenINDA andthe MAE. The previous project financed these managementplans as part of the titling process, but experience showedthat beneficiary groups placed little emphasis on implementation of their plan. The new project will include an activity to train andpromote communities to carry out these plans which could also qualify for financing under the RuralInvestment Component. The previous project included an activity to finance the purchaseof landin special cases, but the new project will not include it. The new project would continue to support the preparation of additional action plansto improve community-owned irrigation systems but this time as part of the investment studies of Component4, Rural Investment. This component would also promotepilotTA activities innatural resource management which would seek to demonstratehow best practice can yield economic, cultural and social benefits to the target groups. Activities identifiedas pilots would include: (i) concessioning andpreservationof mangrove swamps with afro-descendant communities inthe coastalregion, and(ii) community natural resourcemanagement with selectedindigenous groups inthe Sierra. Successfuloutcomes would helpto demonstrate their feasibility for financing from other sources such as GEF inthe future. Technical supervision of this component i s the responsibility of a national level consultant and sevenregional level consultantswho, working as a team, carry out planning, supervision of implementation, technical assistance and training, coordination within the team and with outside institutions working on relatedareas, as well as monitoringandevaluation. Land titling The landtitling subcomponent, covers demarcatiodtitlingof indigenous and afro peoples landsunder two possibilities contemplated inthe existinglaw: (i) titling of lands of ancestralpossessionby indigenous and Afro groups inthejurisdiction of INDA; (ii) regularization of rights of indigenous and Afro peoples inareas declared~ a ~ r i m o n ~ u ~ (patrimonio forestal del estado) within thejurisdiction of the Ministryof the Environment. All titling activities underthe Project will follow proceduresthat only authorize titling when the boundaries are mutually agreed among of claimants, and there i s no possibility of involuntary resettlementunder such procedures. The AgrarianDevelopmentInstitute (Instituto Nacional de DesarrolloAgrario, INDA), establishedby the Agrarian Development Law of 1994(the AD Law), is the only agency or institute authorized to adjudicate State lands (mostly vacant or expropriated landsor those inpossessionof farmers for a specified periodof time). INDAis authorized to issue titles under three different procedures, one exclusively applicable to the indigenous and Afro communities in ancestralpossession, the second after a 5 year possessionandthe last with no prior possessionrequirement. The Ministryof the Environment assumed the powers andresponsibility for forests heldby the Ecuadorian Institute for Forests and Natural and Wildlife Areas (Instituto Ecuatoriano Forestal y deAreas Naturalesy de VidaSilvestre)(INEFAN), and owns the national forest patrimonium(Patri~onioForestal del Estado) and the protected areas (Patrimonio deAreas Naturales). The Patrimonio Forestal del Estado i s constituted by the forested lands that according to law are owned by the State, andthe natural forests, andthe flora and fauna therein. Forest lands that are acquired or revert to the ownership of the State are also included. Of these lands, the Ministerof the Environment i s authorized, free of charge, 43 to set the boundaries of the landsinownership or possessionof indigenous andAfro- Ecuadorians. The Bank will only finance titlingof landsinancestralpossessionwhich is granted by INDA through adjudication, free of charge, to the communities and ethnic groups. Such adjudication can be done subject to the conditions specified inthe AD Law that: (a) the traditions, cultural life, and social organization of suchpeoples are followed; and (b) incorporating, in addition, under INDA's responsibilities, measures aimed at improvingtheir production systems, the ancestraltechnologies, recovering and diversifying the seeds anddeveloping other elementsthat would enablethe indigenous groupsto raise their standardof living. All the applicable proceduresandinstruments to achieve the above, are to preservethe environment. Requirements for ancestral landstitling are: e The communities or ethnic groups mustbe part of the indigenouspeoples, ~ontubiosor Afro-Ecuadorian. e The territory to be adjudicated shouldbe the one originally heldby the ancestors of those claimingthe titling incontinued occupation. e The community should provide evidence of peaceful and uninterrupted possession of four generationsfor the Afro-Ecuadorian and~ o n t u ~andtwo generations ~ o s for the indigenouspeoples. e The community mustprovide the written consent by the neighbors to the lot to be titled. e The communities must maintain their mother tongues. e The Afro-Ecuadorians and ont tub^^^ mustmaintaintheir folklore. e The communities or ethnic groups must maintainancestralcultural practices relatedto the preservation of the ecosystem. e At least 90% of the inhabitants of the communal lands claimed shouldbe indigenous, ~ o n t u ~or i oAfro-Ecuadorian. e The sizelareato be titled wouldbe related to the number of people andcultural practices maintained on the lands claimed. The socio-cultural andhistory study required for eachadjudications reviews: e The physical characteristics of the land. e A census of the membersof the communities. e History of the Community. e Cultural practices. e Language. e Traditions. e A proposalto rescue andmaintain their identity within the national development. As a Condition ofDisbursementfor the Land Titling activity: (a) issuanceof the revisionsto the regulationsto the Agrarian Development Law covering requirements for the titlingof Indigenous and Afro-Ecuadorian lands under ancestralpossessionor equivalent measure satisfactory to the Bank to 44 institutionalize the procedures; (b) CODENPEKODAEwill enter into an agreement with INDA for the implementation of the titlingcomponent. Two types of areas would be subjectto demarcation of indigenous and Afro landsunder the Project, ForestedLands and ProtectedAreas which at the time of its establishment had already excluded the areas ancestrally occupied by communities. Inorder to enable titling inforested areas the Ministry of the Environment needs to "release" those lands from its patrimony andmakethem available to INDAfor titling. Inbothcases, through MinisterialResolution the Minister of the Environment: (a) approved the demarcated boundaries; (b) separatedfrom its patrimony, and from the ProtectedAreas, the areas demarcatedby the Project; and (c) orderedthat INDA be notifiedto proceedwith titling. Ifthe areaswere tobemaintainedforested, theMinistryoftheEnvironment would approve the managementplans of the forests. An inter-institutional agreementwas signedinMay 2002 and amendedlater inJuly 2003. The agreementsets forth norms for the approval of managementplans of incases where INDA intends to adjudicate titles to landcovered with native forests or native vegetation ecosystems. Insuchcases the Ministry of the Environment decides whether; (a) that planmeets the requirements for sustainable forestry and(b) the forested landcouldbe separatedfrom the Ministry's domain. The agreement foresees a systemof public or private forested lands. As a Conditionof Disbursement for the LandTitlingactivity: anagreement will be signed between CODENPEKODAEand the Ministry of the Environment setting forth their respective responsibilities inthe demarcationhitling process. Although the first project exceededits goals intitling landsunder ancestral possession, with titling andregistration of 252,424 hectares benefiting93 indigenous andafro communities of the Coast andAmazon regions, demand for these services from target groups remainshigh.Recent studies by the Project estimate that there remain about 1.1millionhectares (excluding lands near international bordersof 588,247 hectares) that could be transferredto target groups with possessionof ancestralrights. PRODEPINE11 would aimto title an additional 260,000 ha under thejurisdiction of INDA and40,000 ha controlled by MAE. The PIUwill hire consultants to evaluate landtitling demands andto assess their viability. Inaccordancewith current legislation, the project will then support land tenancy regularization activities under the patrimony of INDA, under service contracts managedby the PIU. These contracts may specifically cover: i) technical assistancefor indigenous and afro organizations and communities, to obtain legal status whenever needed; ii) preparation of inspectionreports; iii)demarcation activities; iv) preparation of managementplans and trainingfor their implementation; v) technical assistanceto obtain certificates from MAE and the institutionresponsible for coastal lands, whenever needed; vi) inscription inthe Property Registry; vii) preparation of socio-historical assessmentsto prove ancestralrights. Landregularization activities will be organized undertwo implementation agreementsamongCODENPE, CODAE, INDA and the Ministry of the Environment (dependingonjurisdiction over the land) and will be implemented by contractors (including NGOs) selectedby the PIU. The componentincludes financingfor a study, carried out by the PIUin coordination with INDA and MAE, to evaluate the impact of titling over landuse, incomes andwelfare of beneficiary communities. 45 Mangrove SwampsRecovery Mangrove swamps are a valuable sourceof biodiversity for coastalregions. Mangroves inEcuador are also essentialfor the livelihoods of many coastal communities, who gather mollusksand crustaceans, as well as non-forest products bothfor their internal consumption and for the market. Unfortunately over halfof these coastal mangroves have beendestroyedor severely degradedby the establishment of shrimp farms over the last 20years. Mostrecently many of these farms havecloseddown operations due to the White Spot disease. Afro-Ecuadorian communities inthese areas express strong interest inrestoring some of the degradedmangrove swamps. The potential for mangrove recuperation is very high, potentially reaching an estimated 135,000 hectares. The project aims to helpabout 3400families (mostly Afro-Ecuadorian) restore about 15,000 ha of highpriority mangrove swamps inthe Northern Coast project region. B y national law, title to coastallands such as this cannot be transferred from Government, but only concessionscanbe grantedby the Ministry of Environment (MAE). This activity would provide financing for TA subprojectsto obtain the required concessions. Investment studies andinvestments to recuperatethe productive capacity of mangroves andrepopulate themwouldbeeligible for financing from the Rural Investment Component 4. Improved~anagementof communi^ Natural Resources Preparation activities for PRODEPINE I1included preliminary natural resource managementassessmentsfor a sample of communities inthe various project areas. This work confirmed that the pressureof poverty and a low level of awarenessof sustainable production techniques inmany communities results in acontinuingdeterioration intheir environment and livingstandard. This activity would develop pilot interventions with selectedgroups of communities to demonstrate that their traditionalculture and social capital canbe mobilized to raise awareness and change behavior. Consultants would use participatory techniques to train communities innatural resource managementpractices at the locallevel such as sustainableforest production, soil conservation, water source protection, etc, which can reverse deterioration or preserve their environmental assets. The project will finance TA subproject to selectedFEs who will explore a variety of methodologies under the guidanceof the PIU. These TA alternatives would be explored before project mid-term, and will include competitive mechanisms for access to grant financing for subprojects inthe RuralInvestment Component 4. Component 4 RuralInvestments (US$25.9 million) - This component will finance subprojectsdriven by the demandof grassroots communities. It will finance subprojectsof publiclcommunitybenefit, through matching grants. Basedon the results of PRODEPINEIthe most demanded investments financed by this component are expectedto be: micro irrigation, potable water, agro-industry, eco- tourism, spot improvement of roads, pedestrianbridges, healthposts, and school buildings. This component's objectives are to: (i) respondto the perceivedneeds of indigenous and Afro-Ecuadorian communities; (ii) involvebeneficiaries inimplementing investmentsinorder to promote their empowerment and sense of ownership; (iii) diversify andor intensify ruralproduction; and (iv) improve beneficiaries' access to 46 services and markets. Activities underthis component will be governedby the provisions established inthe Public InvestmentsRegulations section of the OM. The expectedresult for this componentis: improvedcommunities' management capacity and access to assets, services, markets thereby improving anddiversifying sources of income. The target indicators would be: (i) FacilitatingEntities involved inthe preparation of at least 700investment studies; and (ii) around 70,000 families receiving benefits from the execution of at least 800 community investment subprojects. It is expected that: (i) least 10%of subprojects will executedby women groups anda total at of 40% will incorporate a gender focus; (ii) at least 95% of subprojects will have successfully implemented environmental measures; and (iii) at least 75% of subprojects will be inoperation after one year of implementation andevaluatedas satisfactory by beneficiaries. Criteriafor Eligibility :1)Forbeneficiaries: Indigenous andAfro-Ecuadorian communities living inrural areas are the target group for the RuralInvestment Component. This important factor will guaranteea focus on poverty andon beneficiaries' organizations. Peoplewho are not indigenous or Afro-Ecuadorian, living insurrounding areas, may alsobenefit partiallyfrom this component. 2) Eligibility criteriafor subprojects are: (i)focus on a specific geographical area (see Table 1)as defined and revised inthe Operational Manual andon the target group, as defined above (note: eligible production or marketing groups involvedinculturalhandicrafts, tourism, etc may by necessitybe located inurban and rural areas not included inthe Table below); (ii) throughparticipatory,demand-drivenmechanisms(PDLs,Management selection Planfrom titling process, Mangroveconcession); (iii) possibilityto be managedby beneficiaries or by the designatedFacilitatingEntities; and (iv) technical, economic, social and environmental feasibility and sustainability. PRODEPINEIwas able to finance 663 subprojects for an average cost US$20,000, while PRODEPINE IIaims to finance 792 subprojects at an average cost of (US$24,000). The increaseinaveragecost i s accounted for by inflation and additional budgeted technical assistancefor each subproject. Table2. InterventionArea" REGIONALOFFICE NATIONALITYIPEOPLE CANTON 1. Northern Amazon Siona, Secoya, Cofiin, Huaorani, Archidona, Coca,El Chaco, Tena, Shuar, ZApara, Shiwiar,Kichwa of Aguarico, LaJoya de 10s Sachas, the Amazon, Afro-Ecuadorian Loreto, Orellana, Arajuno, Pastaza, Sacha, Shushufindi 2. SouthernAmazon Shuar, Achuar Gualaquiza, Huamboya, Limbn, Indanza,Logroiio, Mtndez, Morona, Palora, Santiago, Suciia, Taisha 3. Northern Coast Afro-Ecuadorians, Tsiichila, Atacames, Esmeraldas, Muisne, Eloy Epera, Chachi Alfaro, San Lorenzo, Quinindt, Rio Verde, Santo Domingo de 10s Colorados 47 4. SouthernCoast Manta, Huancavilca, Afro- Guayaquil, 24 de Mayo, SantaElena, Ecuadorian Jipijapa, Manta, Montecristi, Puerto Lopez, Portoviejo 5. Northern Highlands AwA, Afro-Ecuadorian, Bolivar, Mira, TulcAn,Antonio Ante, Natabuela, Karanki, Otavalo, Cotacachi, Ibarra, Otavalo, Pimampiro, Kayampi, Kitu Urcuqui, Cayambe, Mejia, Pedro Moncayo, Quito 6. Central Highlands Panazaleo, Kichwas of Cotopaxi, Chillanes, Chimbo, Echendia, Kichwas of Tungurahua, Guaranda, SanMiguel, Alausi, Chibuleo, Salasaca, Waranka, Chambo, Chunchi, Colta, Guamote, Puruhi Guano, Pallatanga,Riobamba, La Man& Latacunga, Pangua, Pujili Salcedo 7. SouthernHighlands Kichwas of Azuay, Kaiiari, Cuenca, Gualaceo, Nabbn, Oiia, Saraguro Azogues, Biblian, Caiiar, ElTambo, Suscal, Loja, Saraguro, ElPangui, Nangaritza, Zamora *A definitive list will be.includedinthe OperationalManual. As inthe first project, this one will finance upto a maximumof US$90,000 per subproject, though bigger investments may be contemplated incases where several communities join their efforts to scale upimpact or local governments express interest in co-financing subprojects. To enhance equity, a yearly limit of US$800per beneficiary will be applied as before, not counting transport expenses, subject to review over time and considering the component's overall expenditures. Subprojects will be selectedand prioritizedaccording to participatory, demand-driven mechanisms andidentifiedinthe respective LDPs or ManagementPlans. Subprojects with a total investment amount underUS$30,000 will be approvedby the regionalprojectoffices (RPIU), whereasthe Central Project Office will approve subprojectsfor over US$30,000. Allocations will be basedon three criteria: (i) indigenous andAfro-Ecuadorian population; (ii) poverty indicators; and (iii) an indicator of the FEs' managementcapacity. Beneficiaries must participate insubproject financing and will be able to contribute (inlabor, localmaterials, cashor inkind)from 10to 40% of the subprojectscosts (see Table 3). Additional contributions can also be madeby local governments or other partners. These differences inco-financing contributions havebeenset as anincentive for training, technical assistance and investment studies. Inorder to increasethe efficiency of the Investments component, the project may introduce 2 new forms of financing of subprojects: (i) lump sum, fixed price contracting of communities and(ii) co-financing of municipalities and NGOs ("partner institutions") which are investing indemandsgeneratedthrough PDLs. Table 3. Co-Financing Matrix for Rural Investment Subprojects 48 Type of Subproject Project Contribution (%) Beneficiary Contribution (%> Training, Technical Assistance and Investmentstudy 90 10 TA for ProductionandMarketing 80 20 SocialInfrastructure 80 20 Community Productive 80 20 Infrastructure EnvironmentalandNRM 90 10 CommunityMicro-Enterprises 60 40 Eligibility criteria for FacilitatingEntities (EEs). Ifthe beneficiary community doesnothavesufficient capacity to implement a subproject, PRODEPINE11will enter into a tripartite agreementswith the beneficiary communities and a FEs inorder to channel funds for subprojects. FEs mustmeet the eligibility criteria outlined inthe Investment Regulations inthe OM, including technical andfinancial capacities, as well as experiencewith the community andthe beneficiary region. For those FEs that cannot meet these requirements, an agreement may be made with a local NGO to provide technical assistance. If the entity has no prior experience in implementing subprojects, the size of the first subproject will be limited to US$30,000. OrganizationandManagement The Project Implementation Unit (PIU) and up to seven Regional Units (RPIUs) would be involved with different levels of responsibility in subproject selection, appraisal, approval, implementation, disbursement, technical follow up, monitoring, and evaluation. Beneficiaries will be the primary parties responsible for subproject quality. Beneficiaries will be guided by technicians through a participatory planning exercise, duringwhich they will receive support inattaining quality subprojects. Responsibility for evaluating whether subproject proposals respectthe principles establishedin the Investment Regulations inthe OM will be as de-concentrated as possible. Inview of modest local-level experience, evaluation of a subproject costing over US$30,000will be reviewed by the central PIU, who will check the evaluation by the RPIU. The operational management of this component will be thus be sharedby the central andregional PIUs. Two specialists ineachregional office will be engaged-one specialist insubprojects andone inspector, for day-to-day operations, andthey will be responsible for administering and operating the entire component. The Operations Manualsets forththe central andregional-level functions andresponsibilities. Participatory Planning,Follow-up andEvaluation PRODEPINE 11will support active participationby the beneficiary populationin identifying, planning, designing, negotiating, implementing, supervising, following up on and evaluationrural investments. Participatory planningi s designed to enable grassroots communities to be effective stakeholdersintheir own development. The objectives of this planning processare to: (i) contribute to decentralizing decision-making; (ii) encourage societal participation inlocal planningand ingenerating demand; (iii) help 49 rural communities formulate development strategiesandinvestment plans; (iv) enhance the sustainability of each investment by intensifying the participants' commitment to implementing and supervising ruralinvestments; and(v) facilitate investments by other institutions inlocal development priorities. Methodologies for Participatory Planning, Follow-up andEvaluation have been very well developed by PRODEPINE 1and are basedon the practical experiences attainedina number of countries, such as the procedures developed by the Rural MunicipalitiesProject inNicaragua, the RuralDevelopment FundinBolivia and Objective-Oriented Project Planning by GTZ (ZOPP). Community workshops will be organized to plan, prepare, implement andsupervisesubprojects. Inworkshops, field promoters from the FacilitatingEntities (EEs) will help communities formulate and update their development strategy, by applying group dynamics methods. Workshop participants will be community delegates, representativesof development organizations and other interested individuals. The outcomes of workshops will be madeknown through the communities inorder to buildconsensus. Participatory Planning, Follow-up andEvaluation will be applied inthe area of influence of the FEs, which averages two parishes each, over seven stages: (a) PreparatoryPhase. PRODEPINEIhada census of FEs, which contains an indicator gauging managementcapacity and outlining eachorganization's legal status, its membership's ethnic characteristics, the estimated population, grassroots organizations comprising it, available technical personnel, property andequipment it owns, andincome from outside cooperation and member contributions. On the basis of this information, the regional office will assist each FEinpreparingan institution-building plan, explaining the programs andproceduresincluded inthe project. (b) Promotion. LocalNGOs andlor technical experts will disseminate the project's purposesand methodology and, inparticular: (i) the eligibility criteria for subprojects; (ii) steps inthe process for eligible subprojects identified intheir corresponding Local Development Plans, includingtechnical, administrative andlegaldocumentation and timeframes; and (iii) mechanismsfor implementation and supervision; (c) Updating the Local Development Plan (PDL). All FEs have LDPs. The LDPi s a prioritizedlist of subproject ideas studied according to the local development proposal andstrategyfor institutional partnership with the various localstakeholders. LDPswere preparedin 1999and must be updated. (d) Formulation of the subproject to transform subproject ideas into fundable proposals. Preparationof the subprojectfollows three stages: (a) Subpro-iectIdealProfile. This i s a first description of the subproject, preparedina participatory way by the community with support by localtechnical assistantsfrom FEs. Itcontainsa simple explanation, with reasonsfor the activities, outcomes, effects and impacts expected, as well as the approximate cost. (b) Pre-feasibility Analysis. This is an analysis of the subproject profile, by the RPIUs, interms of the provisions of the Investment Regulations anda database containing unitcosts, and expectedenvironmental impacts according to each type of subproject. After examining the subproject profile, if the RPOfeels that it looks feasible andmeets the Investment Regulationscriteria, funds are allocated for subproject design. 50 (c) Design of the Subproject. This is adetailed technical description of the subprojects, andinvolves a technical engineering study; social, environmental and financial assessment of the subproject; aproposal for administration and managementin the operational phase; a detailed estimate of investment costs, as well as technical specifications, blueprints and legal documents. Phase Iof PRODEPINEdevelopedan electronic form that facilitates the subproject's financial assessment by FEs who also use several forms available inthe Investment Regulations. The Subproject Cycle. Proceduresfor subprojectprocessing involvethe following phases: a) Identification. The project will process subprojects originating in: (i) and(ii) LDPs eligible FEs. b) Formulation. The Facilitating Entity (EE) is mainly responsible for formulating the subproject. The preparationprocesswill follow one of the three possible courses: (i) the subproject profile is properly preparedaccording to the requirements andguidelines and requires no additional work prior to the initial evaluation; (ii)the subproject profile meets the general eligibility criteria butrequires detailed design; this designwill be fundedas an investment study; or (iii) subproject profile fails to meet the eligibility criteria and the requires for the FEto discard it or redesignit under the RPIUor PIU's guidance. (c) InitialEvaluation. PRODEPINE I1will evaluate the subproject initially, including any discrepanciesbetweenproposedunitcosts and standardcosts by project category. The initial subproject evaluation will take into account its priority-settingprocess, cost- effectiveness, focus on poverty andsustainability. Additionally, the FE's institutional capacity will be assessed and the significance of the counterpart contribution. Approval criteria include analysis of alternatives, social impact andmultiplier effect. Some subprojectsrequire an environmental analysis (see below). The PIUor RPIUmay, if ` necessary,obtain support from outside specialists. A subproject may be rejected only if it has failed to observe the requirementsset forth inthe Investment Regulations. (d) Amroval. Subprojectsare approvedbythe RegionalProjectOffice. Ifthe subproject costs over US $30,000 it will be reviewed by the PIU, who will check the evaluation done by the RPTU. Then approved subprojects are included inthe annual operational plan. (e) Implementation. Responsibility for subproject implementation is sharedby the FE andthe community. Rules for subproject implementation include: (i) PRODEPINE2 signs atripartite contract with the FEandthe participatory community. Inthis contract, among other things, the FEandthe community promise to follow the procurement proceduresoutlined inthe Investment Regulations;(ii) the target community approves contracts with consultantsI outside subcontractorsby the FE, who conduct the technical managementfor the subproject; (iii)) for subprojects requiringa Technical Manager at the worksite (such as most infrastructure subprojects), the tripartitecontract will also include that Director or serviceI goods supplier; (iv) the FEwill hire an accountant, who will present an accountingreport to the RPIUevery two months; and(v) the FEwill post abondfor the funds received andensure appropriate supervision according to its contractual obligations. (f) Disbursements. Fundswill bedisbursedwhen the tripartitecontract hasbeensigned by the RPO, the FEand the community. Pursuant to this contract, disbursementsare scheduled(the disbursement schedulei s part of the tripartite contract) and the maximum 51 advance payment will be for three months. The longest that subproject implementation cantake i s one year. (g) Subproiect supervision andtechnical oversight. Responsibilities for these activities are divided amongbeneficiaries andRPIU. Participatory supervision and societal monitoring are the mainstaysof project methodology. However, inview of the difficulty of technical issues insome subprojects (e.g. irrigation) it will be essentialfor technically trained professionals to take part. Suchcases will be coordinated with the available governmental or non-governmental bodies. Additional contracts may be required, between an independentsupervisor and the RPIU. (h) Monitoring. Subproject monitoringis shared by the FE,the target community and the project (RPIUand PIU), according to a predeterminedwritten agreement. The three parties issue a certificate of formal approval of due, appropriate perfomance of the subproject under the project. The PIUhas a planning, monitoring andevaluation system that outlines the specific instruments and responsibilities. The project's long-term goal is to emphasize monitoring, although at the beginning more intensefollow-up will be required. A list of monitoringindicators was agreeduponduringthe negotiations. (i) Operation,MaintenanceandEvaluation. Thetargetcommunityremainsmostly responsible for subproject operation. However, the FEwill remain present through this phaseinorder to ensure due, appropriate subproject operation, provision of technical assistanceservices as required, maintenanceand evaluation. Additionally, CODENPE andCODAEwill engageoutside auditors to evaluatethe success of investments funded by the project, interms of meeting subprojects' specific objectives, andtheir quality, efficiency andsustainability. Table 4. Classification, by subproject type and category Type Category Description a) Natural Resource ENV~ONMENTALAFFORESTATION, Protectionof water sources; tree planting inopenareas; Management TREE NURSERIESOR BOTANICAL flower regenerationor repopulation; reforestationof GARDENS degradedareas SOILRECOVERY AND/OR Cangahuasoilrestoration; wind-breakers; construction of CONSERVATION accumulationditches; constructionand rehabilitationof terraces andraisedfields PROTECTIONAND MANAGEMENTOFMangroverehabilitationandreforestation; management of FRAGILE ECOSYSTEMS wetlands, lakes, lagoons, estuaries,etc. WATERSHED PROTECTIONAND/OR Managementof paramos, reforestationof basinsand MANAGEMENT catchmentareas; rehabilitation andconstructionof albarradas MANAGEMENT PLANS Formulationof managementplans 2. SOCIAL INVESTMENT a) Public service IWATER FOR HUMANCONSUMPTION/Infrastructureto providewater supply for a community or infrastructure settlement. SEWERAGEAND WATER /Rehabilitationandconstruction of waste watercollection TREATMENT andtreatment infrastructure CLASSROOMS Rehabilitation, construction andequipmentof school classrooms SCHOOLDININGFACILITIESAND Rehabilitation, construction andequipmentof school SHELTERS infrastructure HEALTHCENTERS Rehabilitation, construction andequipment of centers, sub centers andposts for the provision of healthservices INTERCONNECTEDELECTRICITY Installationof electricity distribution systems; infrastructureandequipmentfor the provisionof energy b) Community social CHILD DEVELOPMENT CENTERS Rehabilitation, construction andequipmentof child care infrastructure facilities COMMUNITY DEVELOPMENT Rehabilitation,construction andequipmentoftraining CENTERS communityinfrastructure ALTERNATIVE ENERGY Rehabilitation,constructionandequipmentof systems for the provision of electricity for communities that cannotbe connectedto conventionalsources 2-WAY RADIO STATIONS HFcommunicationsystems SPOT IMPROVEMENTS OF Rehabilitationof communal roadsthroughspot COMMUNITY ROADS AND FOOT improvements; rehabilitationandconstruction of foot BRIDGES bridges TECHNICAL ASSISTANCE Healthcampaigns; maintenanceandoperation; etc. a) Support to HANDICRAFTS Rehabilitation,constructionandequipmentof community infrastructurefor the productionandsale of handicrafts ~ POST-HARVESTFACILITIES Rehabilitation,constructionandequipmentof infrastructureto facilitate storage, distributionand commercializationof agricultural products; market facilities. IRRIGATION Rehabilitationandequipment of civil works for irrigation Constructionof small community irrigationsystems. TECHNICAL ASSISTANCE TA to improve productiveprocesses,including innovatioi post-harvestandcommercialization. ORGANIC FERTILIZER Worm farming; productionof humusandcompost from organicwaste. AQUICULTURE Raisingaquatic species, e.g. fish, shrimpandfrogs. ANIMAL HUSBANDRY Raisingof sheep, goats, pigs, poultry, guineapigs, bees andother small livestock. Productionof animals indange of extinction; Andean camelidproduction. PERENNIALCROPS Crops with a life cycle of overtwo years. COMMUNITY TOURISM Tourism associatedwith appreciationof the community's culture andenvironment. SMALL-SCALE AGRO-INDUSTRY Activities for transformingagricultural products(e.g. production ofjuices, pasta, flour, cheese, frozen anddriec foodstuffs). RECYCLING Classification andtreatmentof solidwaste. RisksandMitigationMeasures The specific risks of the rural investment component are as follows: (i)low subproject quality; (ii)political interference in operational decisions; (iii)excessive emphasis on privatelindividual investments; (iv) generation of a negative environmental impact. Several measures havebeenincorporated inthe project's designto mitigate these risks: (i) investments will be accompanied by various forms of technical assistance; (ii) political interference would be reducedby the transparency of the process; and (iii)strict requirements for economic and financial justification of privatelindividual subprojects would discourage abuse. Component 5. Project Managementand Strengthening of CODENPEand CODAE (US$9.3 million, of which PIUUS$8.5 million) The Council for the Development of Nationalities and Peoplesof Ecuador (CODENPE) was createdthrough legislation inDecember 1998inresponseto the constitutional changesestablishing the State's obligationto enable nationalities and peoples to take part inplanning, prioritizingactions andmaking decisions. CODENPE's institutionalactivities havefocused on organizational reconstitution of indigenous nationalities andpeoples, inorder to achieve sustainabledevelopment with identity, At about the same time GOE createdby Decree the Corporation for Afro-Ecuadorian Development (CODAE) to formulate policies to encouragedevelopment of the Afro- Ecuadorianpeople. Havinga slower start to i s operations and a constituency that i s relativelyless politically sophisticated, CODAE faces more organizational challenges. For PRODEPINEIIto attain its strategic development objectives it must strengthenthe program andpolicy managementcapacity of CODENPE and CODAE. Lessons from PRODEPINEIindicate the need to strengthen the capacity of both institutions to work inthe formulation of development policies for indigenous nationalities and peoples; and to strengthenthe existing coordination mechanismswith provincial, andlocal government and state institutionswith the view to mainstream culturally appropriate responsesto the local development needs of their constituencies, Similarly, bothinstitutions seek to more strongly promote and createeffective coordination- for increasedresourcesandprogramimpact- with a variety of development actors working inthe same geographical area of influence of their constituencies andof PRODEPINE Continuing the work of the first project, PRODEPINEIIwill provide specialized technical support to CODENPEandCODAE for the implementation of their public role inamoreefficient, effective andtransparent way. Mainstreaming activities includedin the component will aimto increasepublic participationinpolicy-making, improve transparency and accountability, and increasethe share of the GOE's budget targeted at the poor indigenous and Afro-Ecuadorian communities and peoples. This Project Component comprises three programs to be implemented inbothgovernment institutions: (i) policiesanddevelopmentmanagement;(ii) developmentinselected Public Legal areas; (iii)Institutional Development; and (iv) Interculturalcommunication. While recognizing similarities inthe institutionalroles playedby CODENPEand CODAE inworking for the betterment of their respective constituencies, the implementation of this Project Component and its programs, takes into consideration strengths andweaknesses of eachinstitution andtailors the program's strategic priorities and activities accordingly. 54 As acomplementary part of this component, the project will include support for a Project ImplementationUnit(PIU) includingfinancing of staff, training and goods, which inaddition to the national unitincludes upto seven regional implementing units (RPIUs). Personnelandincremental operating costs will becovered with government funding. Training, goods, audits andother studies will bepaidout with loanproceeds. The PIUwill report to a Directorate madeupof CODENPEandCODAE. Public Policy Program Basedonprogress achievedandlessons learnedduringthe implementation of PRODEPINEI, program will strengthenthe capacity of CODENPE and CODAE to this promote, implement andmonitorpublic policies directed towards integrated, sustainable and culturally appropriate development for indigenous andAfro-Ecuadorians. Itwill provide CODENPE with TA to: (i) strengthenindigenous nationalities and peoplesthrough design, implementation and monitoringof public policies andpublic budgetexpenditure directed towards the indigenous peoplesandnationalities; (ii) update development indicators of indigenous nationalities and peoples- SIDENPE-; (iii) design and implement aeffective monitoringand evaluation systemof CODENPE's Facilitating Units( Unidadesfac~l~~adorasProyectos). de Inthe caseof CODAE, theprogramincludes: (i) design of Ethno-education programs the for Afro-Ecuadorians; (ii) the development of a system of social indicators for the Afro- Ecuadorian population- SISPAE-; and (iii) monitoringof public expenditure regarding Afro-Ecuadorian communities.. k g a l DevelopmentProgram This program seeks to provide CODENPEandCODAE with technical assistance so that bothinstitutions havethe capacity to formulate legal proposals for the enhancement of their constituencies rights ,incoordination with the rest of the public sector. Inthis regard, selective legal consultant assistance will be providedfor :(i) the formulation of proposalsfor the legislative framework of the indigenous nationalities and peoples; (ii)dissemination of existing legal framework andthe new legal proposals; (iii) elaboration of regulations and other proceduresrelated to the law of nationalities and peoples; (iv) the completion of the legalrecognition of the indigenous and Afro- Ecuadorian organizations. In addition, CODAE will work on: (i) the formulation and dissemination of the law of Afro-Ecuadorian development andrights ;and (ii) the validation amongits constituencies, of the Legal and InstitutionalFramework for CODAE. Insti~tionaldevelopmentprogram This program would provide TA to CODEMPE to continue the development of its administrative capacity, while CODAE isjust beginning to establish itself, so it needs a complete set of TA activities inareas of administration, accounting, finance, personnel management, internal control andmonitoring, etc. The same type of TA would be providedto CODAE's lower level grass roots community organizations. Inaddition, CODENPE andCODAE will work incoordination for the preparation, implementation and evaluation of the annualand monthly programplans. Management information systems wouldbe designedto meet GOE and Bankreportingrequirements. 55 ~nter-culturalcommun~ationprogram This programwill support the designandimplementation of anintercultural communications policy as abasisfor CODENPE and CODAE to disseminate information about their programsandactions and to facilitate coordination with relevant government and non-governmental institutions. This program will basically support: (i) the creation of a network of community communication agents; (ii) production of inter- culturalradio programs able to communicate indigenous communities andcommunity development actors; and (iii)the design and implementation of an effective multicultural communication policy for CODENPE-CODAE-PRODEPINE as abasis to strengtheninthe public view the work beingundertakenby these institutions andto share lessonslearned and accumulatedexperiences 56 Annex 5: Project Costs Local Foreign Total PROJECTCOST BY COMPONENT us$000 us$000 us$000 1. StrengtheningSocial Organizations 1,847.2 317.8 2,165.0 2. Knowledge andCulturefor Development 2,578.6 128.4 2,707.0 3. Natural Resources 2,578.6 29.3 2,607.9 4. RuralInvestments 25,872,4 57.6 25,930.0 5, Project Managementand Strengtheningof CODENPE andCODAE -CODEWE andCODAE 539.6 220.4 760.0 -Project ImplementationUnit 7,622.7 914.8 8,537.5 SubtotalManagementandStrengthening 8,162.3 1,135.2 9,297.5 Total BaselineCost 41,039.2 1,668.2 42,707.4 PhysicalContingencies 1,715.2 83.4 1,798.6 Price Contingencies 14.1 103.1 117.2 Total Project Costs' 42,768.4 1,854.8 44,623.2 Interestduring construction Front-endFee 337.0 337.0 Total Financing Required 42,768.4 2,191.8 44,960.2 'Identifiable taxes andduties are US$ 1.7m, andthe total project cost, net of taxes, is US$42,9m. Therefore, the share of project cost net of taxes is 96.1%. FinancingPlan by Financier The The World Government Bank Beneficiaries Total Amount Amount Amount us $000 Amount % US$OOO % US$OOO % US$OOO % I.ForeignI/ 0.0 - 2,191.8 100.0 - 2,191.8 4.2 11. Local (Excl. Taxes) 5,316.8 12.8 30,797.7 75.0 4,923.1 12.041,037.5 92.0 111.Taxes 125.0 42.6 1,005.8 58.1 - 1,730.8 3.9 6,041.8 13.4 33,995.3 75.4 4,923.1 12.044,960.2 100.0 I/Includesfront-endfeeintheamountUS$340,000 57 Annex 6: ImplementationArrangements The Project will be carried out by the Republic of Ecuador through the NationalCouncil for the Development of Nationalities and Peoples(CODENPE) and the Corporation for Afro- Ecuadorian Development (CODAE). Followingthe Constitutional reformof 1998(incorporating collective rights of the nationalities andpeoples) CODENPE was establishedby PresidentialDecree 386 of 1998 modifiedby Presidential Decree 1206of 2001, It is a decentralized agency within the Presidency, grantedjuridical personality and establishedto allow for the participation of nationalities and peoples inall levels of planningand decision makingof the State. It i s composedby a National Council and an Executive Committee. The Council is formed by the Executive Secretary, arepresentativeeachof the following peoples (pueblos): Saraguro, CGari, Puruhu6, Waranka, Panzaleo, Chivuleo Salasaka, Quitu, Cayambi, Caranqui, Natabuela, Otavalo Manta, and Huancavilca; two representativesof the Quichuas of the Amazon, andone representativeeach of the following peoplesthat identify themselves as "nationalities": Shuar, Achuar, Shwiviar Huaorani, Siona Secoya, Cofhn, Ziparo Chachi, Tsachila, Epera andAw6. The decree allows for other groups differentthan those listed to be recognized andincorporatedinthe Council. The Executive Committee is formed by a representative each of the nationalities of the Coast, Amazon andSierra (Highlands) andthe Executive Secretary. CODENPEi s empowered: (a) to define the policies for the strengthening of nationalities and peoplesof Ecuador; (b) to co-manage with them sustainable development programs; (c) to propose, incoordination with suchnationalities andpeoples,draft laws affecting them; and(d)to promote the legal organization andregistry of the nationalities andpeoples. CODAE was establishedby Presidential Decree 1747 of 1998 as amendedby Decree 3104of 2002. CODAE was grantedjuridical personality and is linkedto the Presidencyof the Republic. CODAE is empowered among others: (a) to promotethe organization of its Afro-Ecuadorian communities andto carry out capacity building programs; and (b) to carry out studies relatedto Afro-Ecuadorian and carry out its recommendations. The delegate representingthe Ecuador's Presidency is the legal representativeof the agency. Directorateand ConsultativeCommitteeofPRODEPINE Bothinstitutions are formally dependent on the office of the Pvesidenciade la Repziblica,andfor the purposes of the project it will create a Directorate (Junta Divectiva),conformed by CODENPE's Executive Secretary andCODAE's Presidential Delegate. The PIU's Executive Director will participate inthe Directorate as Secretary, without a vote. Decisions will be taken by consensus; incase such i s not possible, the decision will be taken by the SecretarioNacionalde laAdministracibn Pliblica. The project's directorate will approve the project's annual budget and operational plan, delegateits implementation to the PlU, and supervise regularly its execution. CODENPE and CODAE have createda Consultative Committee (Comite` Consultivo Ampliado) which, at the moment, includes representatives of the largest nationalethnic andruralorganizations, inter a h , CONAIE, FEINE, FENOCIN, FEI, CAN, ConsejoRegional de Palenques, Coordinadora Nacional de MujeresNegras, five representativesof CODENPE's Executive Committee and three representatives of CODAE's Directorate. The Consultative Committee will meet four times per year, providinga forum for the participation of the target population's key representative 58 organizations. Its main functions will be: i)to provide strategic guidancefor project implementation; and ii)to ensure that the project allocatesfundingunder clear and transparent rules, as detailed inLoanAgreement and the Operational Manual. The compositionandfunctions of the Directorate and Consultative Committee will be establishedinthe Operational Manual. Project Implementation Unit (PIU) A project unit,reporting to CODENPEand CODAE, with core fiduciary and technical staff will be establishedin Quito with up to sevenregional offices located in Esmeraldas(Costa Norte), Ibarra(Sierra Norte), Riobamba (Sierra Centro), Cuenca (Sierra Sur), Tena (Amazonia Norte), Macas (Amazonia Sur), andLaLibertad (Costa Sur). The Project Implementation Unit (PIU) has maintained a satisfactory record in Financial Management (FM) andprocurement duringthe implementation of PRODEPINE I; however, as a result of the FMandProcurement Assessments described inthe PartD-2 of thisreport, time-bound action planshavebeenagreed and arebeing followed upclosely. Staff selection will be conducted by a specialized firm, selected under terms of reference satisfactory to the Bank and endorsedby MEF. The PIUwill be staffed with key membersto the satisfactionof the Bank as a Condition of Effectivenessof the Project. The PIUwill preparea Project Implementation Plan(PIP), which will bebroken down into Annual Implementation Plans (AIP) and will include four sections: i) description of project activities to be executedduringthe time period; ii)Gantt Chdproject schedule with timing of activities, relationship with other activities, facilitating entity responsible; iii)budget plan; and, iv) procurement plan.The AIP will be the principal tool for coordination between the PIU and the regionalunits. AIPs would be prepared by the PIU andregional units, approved by CODENPE andCODAE and presentedto the Bank for no objection before the beginning of the budget year. C~~rdinuting IFu~ilitutingentities(FEs) Following the successfulexperienceinPRODEPINEI, project will provide the training and technical assistanceto second- and third-tier organizations (OSGs and OTGs) which group the target's population basecommunities. FEs will also assume the role of coordinating activities inthe benefit of beneficiary communities through the implementation of subprojects, after signingtripartite BeneficiaryAgreements with the PIU. Eligibility requirements andimplementation arrangementsfor the different activities involving the close to 250 existing FEis and beneficiary communities are detailed in Annex 4. Other agencies Other agencies involved inthe implementation of the Project are: the Agrarian Development Institute (INDA), responsible for the landtitling activities to be carried out as a subcomponent of the Natural ResourcesComponent, andthe Ministryof the Environment (MEA), responsible for the conservation and managementof forested areas, includingthose where indigenous peoples are located. These agencies will fulfill their respectiveroles under ImplementationAgreements (convenios), similar to those under the first Project, to be enteredinto with CODENPEKODAEfor the secondProject. Signingof such agreementswill be a condition of disbursementfor the landtitling activities. 59 Operational Manual The Operational Manual(OM), which is substantially the same as that usedinthe first project, shall include all rules and regulations for implementation of all project components and operation of the PTU(project planning, monitoring, evaluation, institutionalarrangements, environmental review, reporting, communication, human resources, risk, coordination, procurement, andfinancial management). The manual shall provide regulations for the coordination of Project implementation, including: (i) detailed disbursement, accounting, auditing andreporting procedures; (ii) specific procurement responsibilities, processes and internal controls; (iii) precise monitoring and evaluation plansfor the Project; (iv) appropriate standards for the design of Local Subprojects, includingeligibility criteria and selection procedures; (v) simplified proceduresfor identification, preparation, approval and supervision of Local Subprojects, includingthe Environmental Proceduresand Guidelines; (vi) applicable eligibility criteria and selection proceduresfor LocalBeneficiary Groups, Local Governments, and Local Services Providers; (vii) independentcomplaint resolution mechanisms; and (viii) effective mechanismsfor dissemination of informationrelated to Local Subprojects. Updates to the OMwouldrequire the no objection of the Bank. Adoptionof the Operational Manual, endorsedby MEFand satisfactoryto the Bank is an EffectivenessConditionof the Project. 60 Annex 7: Financial Management and Disbursement Arrangements A Financial Management (FM)Assessment was performedduringthe identification mission of the SecondIndigenous andAfro-Ecuadorian PeoplesDevelopment Project, in order to evaluate the proposedfinancial managementarrangements andthe implementing entity's capacity to provide the Bankwith accurateandtimely informationregarding resourcesand expenditures. The assessment was performed from November 7-14,2002, inaccordancewith OPBP 10.02 andthe Guidelinesfor Assessmentof Financial Management Arrangements inWorld Bank FinancedProjects. Three (3) other visits were done to updatethe assessment inMay, 2003, February and April, 2004, and to evaluateprogress on the action plan designed to addressthe important weaknesses identified. Overall Summary and Conclusion The Project Implementation Unit) (PIU) has maintained a satisfactory record in Financial Management duringthe implementation of PRODEPINE I.The projects FM riskprofileis consideredsubstantial, nevertheless, becauseof amix of inherent risks and controlrisks that havebeendemonstratedinthe first project andwhich continue to be relevant inthe new project. The principalinherent risks are (1) the decentralized nature of funds flow arrangementsandthe participationof multiple facilitating agenciesin subprojects, and (2) uncertainties surrounding the extent to which existing institutional and staffing arrangements will continue inthe secondphase. The most important capacity constraints that give risk to control risk are inthe areas of (1) Programming and Financial Planning (2) Procedural and design weakness inthe transfer of funds to regional offices and sub projects which resulted innon compliance with disbursement rules (3) insufficient supervision of regional activities and (4) limitations inthe accounting andfinancial reporting system. Major strengthsobserved Organizationand Sta@ng:- The project has an adequatenumber of skilled and qualified staff with prior experiencewith aWB financed project. Job descriptions and allocations of responsibility are clearly defined. Regular staff meetings are heldto clarify difficult accounting issues andensure that staff remainup to date with new financial requirements. Continuance of such experienced staff or the hiring of other similar people, would be crucial for project implementation. Internal Controls:- There is adequatesegregation of duties, regular reconciliations of accounting records, bank statements, transfers between the NationalAccounting Office andthe Regional bank accounts. Major weaknesses observed: Programming and~nanciazplanning. This becomes one of the most important weaknesses, bothinterms of proceduresand system facilities.:- Financialstatements analysis and comparisons between actual andbudgeted performance is not performed on a regular basis. Inadequateattention to significant variations could prevent timely, appropriatecorrective action from being taken. Transfer of funds to Regional O@ces. The procedures implemented were inefficient and involved a chain of bank transfers, beforereachingthe final beneficiary. 61 Inadequate supervision of regional financial activities. ~ ~ s ~ u r s eProcedures:- Statements of Expenditure are preparedmanually. Given ~ e n t the volume of transactions, this increasesthe risks of errors andmisstatements. Proceduresneedto be improved to monitorthe timing andefficiency of transfers to the regional levels. RiskMitigation Since the assessment, the project has continued to take corrective action to address capacity constraints, and update visits were performed inFebruary and April 2004. A draft OperationsManualhasbeen submittedto the Bankinwhich: (1)the organizational structure has beendefined; (2) the flow of funds anddisbursement arrangementsconcerning regional offices and facilitating entities implementing subprojects have beenredesigned; and (3) proposals have beenmade for the design of budgeting, programming andmonitoringof regional financial activities. Improvement to the information system will be financed by the Project Management and Institutional Strengtheningof CODENPE and CODAE component. Adoptionof the Operational Manual satisfactory to the Bank is aConditionof Effectiveness. Supervisionduringimplementation The project should be monitored on a semi-annual basis inthe first two years of implementation and thereafter through at least one supervision visit each year. Furthermore, the audit reportswill be reliedupon. The Annual Audit Report Review will highlight the adequacy of internalcontrols, integrity of financial reporting andefficiency inthe useof projects funds. Desk Reviews will also.beperformedonthe semi-annual FMRs,preparedinform andsubstance acceptableto the Bank, which wouldbe submitted not later than 45 days after the endof each six monthperiod. Audit Arrangements The annual audit reports, covering the project financial statementsshall be preparedin accordancewith terms of reference acceptable to the Bank and would be furnished to the Bank not later than four months after the endof each year. The terms of reference shall be preparedinaccordancewith current Bank regional guidelines. The process of selection andcontracting shallbe overseenby the Controller General of the Stateof Ecuador (CGE). A Memorandum of Understanding hasbeen signed by the Bank and the CGE to ensure selection of eligible audit firms, delivery of acceptable reports within the time frames set out inthe legal agreement and adequatequality control. Disbursementarrangementsandfundsflow Disbursementswill be transaction based(Le. against Statements of expenditure (SOEs), full documentation, direct payments or special commitments). The project will open a SpecialAccount (SA) which will be maintained and operatedby the project central PIUinthe Central Bank inUnitedStatesdollars (called TE Account within the Central Bank). Deposits into the SA, andpayments madefrom the SA should be made in accordancewith the provisions set out inthe Legal Agreement. To facilitate payments (if needbe) andreceipts of funds the regional PIUoffices will open bank accounts (called T- 62 Accounts) inlocal commercial banks. The project central PIUwill prepareand consolidate eligible expenditures inwithdrawal applications accompaniedby the supporting documentation inaccordance with Bankdisbursementprocedures, which will be submitted to the Bank on a regular basis. MEFwill approve all withdrawal applications. Inthe case of replenishmentsof the SA authorized allocation, the project should submit monthly withdrawal applications, or at aminimumon a quarterly basis at beginningof implementation. Use of Statement of Expenditures (SOEs) Withdrawal from the loan account couldbe made on the basis of SOEs for the following expenditures: (a) goods under contractsnot exceeding $250,000 equivalent; (b)consulting servicesfrom individuals andfirms under contracts not exceeding $50,000 equivalent respectively; (c) service contractsfor landtitling not exceeding $250,000 equivalent; (d) expendituresfor investment subprojects, includingtechnical assistance; (e) training; and (f) scholarship grants, All supporting documents for which withdrawal applications from the loan account are madeon the basis of SOEs, the borrower will retain full documentation (including contracts, purchaseorders, invoices, receipts and any other documentsevidencing such expenditures) and make them available for review and examination to Bank staff insupervision missions andto the external auditors when performingthe audit of the project accounts. Funds Flow and SpecialAccount As describedpreviously, the project will have access to funds advancedby the Bankto the SA for processingdisbursementsto beneficiariesfor those eligible expendituresunderthe project activities. Inorder for the Bank to authorize the establishmentof the Special Account the Borrowercannot have any pending refunds for SA advances madefor any other Bank loans to Ecuador. The Bank will deposit, upon borrower's request, an amount of $3,000,000 as authorized allocation. This amount should be limited to the amount of $1,500,000 untilthe disbursementsfrom the loan account exceed$5,000,000. Giventhe CDD implementation nature of this project, with more than 40% of the loan funds beingchanneledthrough second and third-tier organizations (FEs) that group severalcommunities, special attention was given to facilitate a funds flow mechanism to ultimate beneficiaries inthe most efficient manner but takinginto account the capacity and implementation arrangementswithin the central and regional PIUs, the inherent risks alreadydescribedinthe FMand Procurement capacity assessments andthe risk mitigationfor the identified areas where improvements are expected to be observed during implementation of the project. Thus a hybrid decentralization criteriafor managing the project funds, including approving and processingof payments hasbeen designedfor this project. The criteria set inthe implementation arrangementsfor managingprocurement anddisbursementsof project components are defined inthe Operational Manual indetails, but overall will be functioning as follows: Delegationfrom the central PIUto regional PIUs (up to seven intotal) for training capacity buildingand technical assistance activities relatedto: (1) strengthening the managementcapacity of facilitating agencies (FEs), (2) strategic and local developmentplanning(LDP) of the FEs, and (3) technical assistanceto local 63 governments. Procurementprocessis either delegatedentirely or sharedbetween central and regional PIUs; however, most monitoringand evaluation of satisfactory completion of such activities before payment could be madeto consultants is being delegated to the regional PIUs. Once the regional PIUcertifies satisfactory completionof the contractedactivity, the payment would be madedirectly by the central PIUto consultantsusingdirect transfers from the SA to the beneficiary account. 0 Scholarships grants would be managedby the central PIUand as such any payment for this program (i.e. to the entity administering the program andlor to beneficiaries of the programfor tuition andliving expenses) wouldbe executedby the central PIU. 0 All consulting servicesand servicecontractsfor the landtitling programwill be contracted andmanagedby the PIUincoordination with INDA. Payments would be made directly by the central PIUto the contractor bank accounts. 0 Goods andconsulting services and training activities for CODENPE and CODAE will be managedby the central PIU, including processing of paymentsfor such activities. e Technical assistancesubprojects: Activities financed by TA subprojectswill be implemented directly by the beneficiaries. InComponent 1, these activities include Local Development Planformulation or updates; and training andtechnical assistance for regional andnational organizations (including Nationalities' and Peoples' organizations). Incomponent 2, TA subprojects will be used to finance consulting services basedon businessplans and managedby the producer groupsthemselves. In component 3, selectedcommunities andFEis will manageTA subprojectsfor securing mangrove concessionsandimplementing community natural resourcemanagement activities. Incomponent 4, TA subprojects will be usedto finance investment studies. As detailed inAnnex 4, inall these cases, responsibility for selecting training and technical assistanceservices restswith the beneficiary; however, payments may in some cases be madedirectly from the central PIUto the consultant's bank account and, inother, through tranches to the bank accounts of beneficiaries. Depending on the case, either the central or the regional the PIU will verify satisfactory completion of services prior to issuingpayments. e Investment subprojects: With the exception of the global investment study for irrigation systems, the Rural Investments Component will be implemented by FEs (OSGs, OTGs, communities, and also possibly by local governments, and NGOs) under the supervision of regional PIUs which, as explained in Annex 4, involves different levels of responsibility in subproject implementation, including, among others, technical follow up, monitoring and evaluation of activities and disbursements of loan proceeds to beneficiaries by the central PIU and the seven regional PIUS. In general terms, the regional PIUs will approve subprojects with a total investment amount under $30,000, whereas the central PIU will approve subprojects over $30,000. Funds will be disbursed by the central PIU to beneficiaries when the tripartite financing agreement (Le. contract) has been signed 64 by the FE, the regional PIU and the community. It i s also important to note that the project should determine the readiness and ability of the FEs to handle and account for the funds transferred to them before funds are channeledto their respective bank accounts. Following a CDD approach, the funds would be transferred to the bank account of the entity in charge of the implementation (OSGs, OTGs, communities, local government or NGO) and will be released in tranches as described in the tripartite financing agreement (contract). These tranche payments will be released basedon a lump-sum basis as described in the agreement. The initialtranche will be released on signature of the financing agreement as an advance. This advance payment could not exceed 90 days of estimated expenditures and no additional transfers should be made to the FE account until a satisfactory physical progress report is presented and received by the regional PIU. Since funding is made on a lump-sum basis as described in the financing agreement, the periodic payments (tranches) to the FEs are eligible expenditures. The initialtranche payment (advance) could not be reported as eligible expenditure untilthe first physical progress report is received and accepted as satisfactory. The progress payments are not considered advances since they are made against physical progress reports and as such could be reported as eligible expenditures immediately when payment i s executed. It should be notedthat all transfers made to the FEs are only eligible to the extent that the work of the community subproject is completedby the closing date of the loan. Allocationof LoanProceeds Expenditure Category Amount inUS$ Financing Percentage 1. Goods 830,000 100% 2. Consultant Services andTraining 5,190,000 100% 3. Investment Subprojects(Grants) 19,390,000 100% 4. Service Contracts for titling 1,800,000 100% 5. Technical Assistance Subprojects 3,700,000 100% 6. HigherEducation Scholarships 1,400,000 100% 7. Unallocated 1,350,000 - 8. Front-end Fee 340,000 - Total 34,000,000 65 Annex 8: Procurement A) General Procurement for the proposedproject would be carried out inaccordance with the World Bank's "Guidelines: ProcurementUnderIBRDLoans and IDA Credits'' dated May 2004; and"Guidelines: Selection andEmployment of Consultants by World Bank Borrowers" datedMay 2004, andthe provisions stipulated inthe LoanAgreement. For eachcontract to be financed by the Loan, the different procurement methodsor consultant selection methods, the needfor pre- qualification, estimatedcosts, prior review requirements, andtime frame are agreed betweenthe Borrower andthe Bankproject team inthe Procurement Plan. The Procurement Plan will be updatedat least annually or as requiredto reflect the actual project implementation needs and improvements ininstitutionalcapacity. Procurement of Works: No civil works contracts will be financed underthe project, except as part of Subproject Grants, with the use Commercial Practices acceptableto the Bank. Details on the use of this one method can be found inthe procurement chapter of the Project Operations Manual. Procurement of Goods: Contracts of goods andservices will be procured under this project for procurement of vehicles, computer equipment, software andsmall office equipment as part of strengthening of CODENPE, CODAEand PRODEPINE. Vehicles will be procured by the PRODEPINE usingBank standard procurement documents under International Competitive Bidding(ICB) procedures and contracts grouped inpackages with values of $300,000equivalent or more. Goods (other than vehicles) and services costing $50,000equivalent or more but less than $300,000will be procured and awardedwith the use of National Competitive Bidding (NCB) procedures, basedon standarddocuments acceptable to the Bank. Contracts for procurement of goods and services estimated to cost less than $50,000 will be awardedwith the use of Price Comparison (Shopping) proceduresof at least three quotations obtained from qualifieddomestic suppliers, andstandardproject documentsacceptableto the Bank. Procurement of non-consultingservices: contracts for provisionof services in support of INDA Patrimony's new landtitling andMA Patrimony's activities will be awardedwith the use of NCB proceduresandgroupedinpackages estimated to cost not less than $120,000 equivalent per contract. Non-consultingservices to be financed will include also logistics services for the organization of workshops and trainingactivities addressedto beneficiary communities participatingunder Subprojects andwill be procured with the use of shopping procedures for contracts estimatedto cost less than $50,000 equivalent per contract. The PIU, insome cases incoordination with CODENPE andCODAE, will be responsible for procurement of such services. Selection of Consultants : Consulting services for employment of firms and individuals will be procured under this project inthe following areas of expertise: 66 institutionalcapacity buildingof project implementing agenciesandparticipating communities; community member training inmanagementsystems, financial management, investment management,culture-basedinitiatives specialized training to indigenous andAfro-Ecuadorian people; workshops; technical assistance; investment studies for preparationof investment subprojects; scholarship program administration; specializedlegal studies; andfinancial andprocurement audits. Total costs of consulting services are estimated to cost $5.23 million equivalent and will be procuredto the extent possible with the use of QCBS procedures andBank StandardRequestfor Proposals, regardlessof contract price. (i) Firms. All contracts for hiringof consultant firms estimated to cost $100,000 equivalent or more will be procuredusingQCBS, except for small-value and simple contractsestimated to cost less than US$lOO,OOO equivalent that will be procured usingthe QCBS, CQ andLCS methods, as agreedinthe selectionplan. Servicesfor specialized training, evaluation of beneficiaries, andproject procurement audits to be contracted with firms may be procuredwith the use of the Consultant's Qualificationmethod. Total costs of consulting services providedwith firms are estimated at $4.32 million equivalent. (ii) I~div~d~Individualconsultantsforspecializedadvisory, ~ Z s . technical assistanceand training services aimed to improve productive capacity; identification of beneficiary demands; managementof natural resources; andlocal community capacity shall be selectedthrough comparison of qualifications and CVs obtained from at least three qualified individuals, inaccordancewith the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines, upto an aggregate amount of $1.1lmillion equivalent. Under TA SubprojectsandInvestment Subprojects, selection of individualconsultantsto be employed by participatingcommunities will follow private sector or commercial practices, acceptableto the Bank.Said practices will be basedon the comparison of qualifications andthe use of criteria such as academicbackground, experience, knowledge of local conditions and language, andoverall suitability for the assignment. The comparison of qualifications will be carried out with at least 3 candidates who shall meet minimumrelevant requirements andconsultants will be selectedon the basis of the best qualifiedamongst the candidates considered for a particular assignment. Short lists of consultantsfor services estimated to cost less than $200,000 equivalent per contract may be composedentirely of national consultants in accordancewith the provisions of paragraph2.7 of the Consultant Guidelines. OperationalCosts: recurrent costs for employmentof technical and administrative staff insupportofproject coordination tasks, as well as servicesfor the PTUoperation suchas materials, office equipment maintenance, utilities, per diem and transportation, totaling US$6.04 millions will be funded only with government counterpart funds. Goods, specializedtraining, audits and other studies for the PTUwill be financed by loan proceeds. The relevant procurement methods for procurement of operational costs have beenagreedinthe procurement planalready cleared. 67 Others: Subproject Grants: under this category, civil works, goods and services, will be procured as part of Infrastructure andSocial Subprojects-included into Institutional Agreements to be enteredinto with Facilitating Entities- with the use of Community Procurement proceduresfor contractsestimatedto cost $30,000 equivalent or less inthe aggregate, inaccordancewith the provisions of paragraph3.7 of the Guidelines; and Three Quotations proceduresfor contractsestimatedto cost more than $30,000 equivalent andless than $90,000equivalent, inthe aggregate. Although not foreseen, whenever a contract priceestimatefor procurement of goods or works may be estimated to cost $90,000equivalent or more, the FacilitatingEntity will follow National Competitive Biddingprocedures to award contracts. Scholarship Grants: the project will fund scholarshipsfor a total of 150 students to be selectedby a designatedspecialized entity on the basis of merits and needunder explicit and clear rules. Studentswill be selectedupon results of a pass entrance exam. The selection method to hire a managing entity for scholarships administration hasbeen establishedinthe selection planagreedwith PRODEPINE. The scholarships managing entity will be remuneratedon the basis of student accomplishments. Terms of Reference and a model contract will be included inthe Operations Manual. TA Subprojects: Under Component 1, indigenous and Afro-Ecuadorian organizations will hire consultant services to improve their technical, managerial and implementation capacities. Under Component 2, producer groups will hire consultant services in areas of management, design, procedures and so far , as requiredto fulfill their businessplans. Incomponent 3, communities andFEs will hire consulting services to secure mangrove concessions and implement natural resourcemanagementactivities. Under the RuralInvestments component, technical assistance will be procured for consultants to help participating communities to formulate their investment studies. Contracts required for TA Subprojects for employment of firms and individuals estimated to cost $30,000 equivalent per contract or less will be awarded under Commercial Practices procedures, acceptable to the Bank, up to an amount not to exceed $3.96 million. Details on the use of this one method can be found in the procurement chapter of the Project Operations Manual. B. Assessmentofthe agency's capacity to implementprocurement Procurement activities will be carried out by the PRODEPINE's PIU on behalf of CODENPE and CODAE. The agency's Procurement unit will be staffed by one Procurement Officer to be hired before effectiveness. The Project Operations Manual will include in addition to the procurement methods to use, the Standard Bidding Documents to be sued for each procurement method as well as model contractsfor goods and consultant services to be procured. An assessment of the capacity of PRODEPINE to implement procurement actions for the project has beencarried out by Keisgner Alfaro on July 14,2003 and updated later on March 31, 2004. The assessment reviewed the organizational structurefor implementing the project and the interaction between the project's staff 68 responsible for procurement Officer and the Ministry's relevant central unit for administration and finance. Most of the issues/ risks concerning the procurement component for implementation of the project have been identified and include: i)the lack of clear and adequate responsibility lines to manage procurement and contract administration functions; ii)some uncertainty on the extent to which current organizational and staffingarrangements at project preparation stage will be usedat the secondphase and the lack of experiencedand capable staff to implement Bank- financed project procurement; iii)lack of a professional and reliable project filing system; and iv) the lack of an integrated project managementinformation systemto enable a more efficient coordination and decision-making. The corrective measures which have been agreed are i)the Operations Manual will provide a detailed description of responsibilities assigned to the Bidding Committee and PRODEPINE's Executive Director, including the responsibility of the latter for contract award. The Committee will not be entitled to award contracts andperform contract administration responsibilities, as it was the case in PRODEPINE 1; ii)a Procurement Officer with professional experience in the implementation of Multilateral Development Bank-financed projects must be selected and hired not later than October 30, 2004; iii)with technical assistancefrom an expert consultant, the PIU will implement a professional project filing system not later than July 15, 2005 at boththe central and regional levels of PRODEPINE. The selection process for hiring of the Consultant has been included in the draft procurement plan submittedto the Bank for review and clearance; and iv) PRODEPINE has decided to implement an Integrated Project Management Information System (PMIS) with the capability to record each of the procurement and administrative transactions in the project; to timely monitor and follow up management of procurement and financial transactions; and provide on-line information for reporting and decision makingpurposes. The overall project riskfor procurement is HIGH C. Procurement Plan The Borrower, at appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreedbetween the Borrower and the Project Team on April 26,2004 and i s available at the PRODEPINE's PIU offices located on Calle Bosmediano 1150, Quito, Ecuador. It will also be available inthe Project's database and inthe Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs andimprovements ininstitutional capacity. D.Priorreview thresholds Thresholdsfor Bankprior review are indicated inTable B below. They correspondto those assignedto highrisk agencies, consistent with thresholds issuedby the RPA Office for LAC Countries, per e-mail dated as of 12127/2002. 69 Table B: Thresholdsfor Procurement Methods and Prior Review' ContractValue Contracts Subjectto Expenditure Category Threshold ProcurementMethod Prior Review (US$ thousands) (US$ thousands) 1.Goods and Services Contract=>300 ICB All contracts 50 120 NCB Each contractestimated to cost $250 equivalent or more, and first two contracts 3. ConsultantServices and Training Firms Contract=> 100 QCBS All TOR, WP, short lists of firms, full review of evaluationreports, and draft contract Contract< 100 QCBS; LCS; CQ Only TORs Postreview: random sample of contracts, and annualreview of selectionplan Individuals 3 <= Contract<= 100 IC All TOR, CVs and form of agreement Contract =< 15 IC Only TORs 4. TA Subprojects Contract=<30 Commercial Practices None 5. SubprojectGrants Contract=< 30 Commercial Practices None None. 30 90 NCB sample of contractsand annualreview of procurementplan 'Thresholds generally differ by country andproject. Consult OD 11.04 "Review of Procurement 70 E. Frequency of ProcurementSupervision Inaddition to the prior review supervision to be carried out fromBank offices, the capacity assessment of the Implementing Agency has recommended one supervision mission to visit the field to carry out post review of procurement actions. 71 I W a c, e 0 U G 85a Y E?0 Y c 8 Annex 9: Economicand FinancialAnalysis Cost Benefit Analysis IIndicators I PresentValue of Flows inBase-line Scenario I Economic Analysis Financial Analysis Net Benefits US$36 million US$59 million Internal Rate of Return 39% 53% Introduction PRODEPINE activities are inessence aimed at buildingsocial, human, natural and physical capital of indigenous andafro communities. Such a wide range of activities eventually translateinto identification, preparation andexecution of investment subprojects. Thus, cost-benefit analysis of rural investments i s essential to understand long-term impacts of the project. PRODEPINEIhas operatedbasedon the principle of community demand priority-setting of ruralinvestments. To assess the effects and likely impacts of project rural investments, 50 subprojectsrandomly selectedwere evaluated with beneficiaries. Subprojectswere assessedinterms of importance (Le. priority needs addressed), operativelfinancial sustainability, beneficiaries' participation and appropriation, likely benefits or impacts andbeneficiaries' satisfaction (see EvaluationReport inProject files). Inlightof evaluation results, PRODEPMI1will maintain the participatory planning and subprojectpreparationapproach, usedduringPRODEPINE I.However, enhanced quality control measureswill be introduced to avoiddeviations. Subproject cycle The subproject cycle involves four stages, namely investment study, execution, operation andevaluation. The investment study stage involves: promotion, participatory rural assessment andlocaldevelopment planning, participatory preparation and ex-ante evaluation of subproject profiles, preliminary appraisal, detailed preparation and ex-ante evaluation of subproject proposals; final appraisal and approval. The execution stage involves: subproject contract agreements, disbursements, procurement, works, financial accounting, supervision and technical follow-up, and implementation completion report preparation. The operation stage involves the regular or recurrent service and operation of executedinvestments. The monitoring stage involves assessment of beneficiaries' perceptionsof investment subproject effects and likely impacts. 74 Eligible Investments PRODEPINEIsupportedinvestmentson: public infrastructure such as schools, feeding centers, health centers and nurserieslinfant centers; social community infrastructure such as lodging facilities, community centers, radio communication facilities, drinkingwater distribution systems, electrical energy generation facilities and information centers; productive community infrastructurelinvestmentssuch as pasture improvements, irrigationsystems, secondaryltertiary road improvements andpedestrian bridges; associativeenterprises such as plantations, agro-industries, tree nurseries, compost production, green-housesandhandicraft workshops; and natural resource investmentssuch as sustainablewatershedmanagement,community forestry andsoil improvements. Evaluation Results Inbroadterms, evaluationresultsleadto the following inferences: on average75%of resourcesrequired for subproject investments came from PRODEPINE and 25% from beneficiary communities; 95% of subprojects directly addressedpriority needs of communities; 40% of subprojects neededbudgetary increasesto face price adjustments duringimplementation; 85% of subprojects are currently inoperation; 75% of subprojectshave clear responsibilities assigned; 80% of subprojects were infact decided by the communities themselves or with the support of OSG's;for 75% of subprojects, communities express satisfaction with investments executedand services generated. Around 30 subprojectswere analyzedingreater depth to estimate net benefits to communities. The resultsof the analysis are shown inTable 1. Communities valued benefits of analyzed subprojectsinterms of different criteria. Subproject costs included purchasedinputs, contracted labor and communitylfamily labor (valued at marketwages). Flows of net benefits of analyzedsubprojects were calculated considering the expected life of maininvestment items. Annual costs for replacing subproject investments were also calculated to estimate net benefits after eventual savings for replacing investments (re-investment). Public infrastructure. Analyzed school facilities brought about some savings on transportation and feeding costs of children who usedto travel for schooling. Benefits of school facilities inisolatedcommunities were not quantified. However, they are significant insofar as these school facilities were essential inobtaining teachers and thus makingchildeducationpossible. Moreover, analyzed infant centers allowed women more time available for domestic andproductive activities. Healthcenter facilities brought about some savings on transportation costs and time of people who traveled for medical attention. Social community infrastructure. Solar energy systems brought about some savings on expenses for domestic and community lightning. Drinkingwater systems brought about some savings on healthtreatments andreduced water transportation efforts. Behavioral impacts of bothtypes of investments were particularlyinteresting, since their operation requiredenergy or water use regulations and savings for systems' maintenance. Service regulations have been gradually adopted. However, savings for maintenance seldom occur. 75 Productive communitv infrastructure. Irrigationsystems andpasture improvements brought about significant production increases. However, impact estimations provided by beneficiaries were reducedby 50% considering future price variations of agricultural production. On the other hand, pedestrianbridges brought about some savings on transportation costs associatedto commercialization of traditional products. Associative enterprises. Some associativeenterprisesgeneratedadditional income to participating partieslcommunities. Successfulexperiences included: tree nursery, cheese factory and radio broadcasting.Associative greenhousesproved to be difficult to operate inhighlands. Naturalresourcesinvestments.Soil recovery brought about modestproduction increases. Incontrast, watershedmanagementsubprojectsproved to be difficult to operate with minimumtechnical assistance. Assessedcommunities vaguely perceivedthe benefits of watershedmanagement. Considering the above-mentionedbenefits, andthe relative weight of subproject categorieswithin the whole sample (50 subprojects), the overall Internal Rate of Return (IRR) of ruralinvestmentswas around 24%. The overallIRRcouldbehigher ifnon- quantified social and environmental benefits are taken into account. LessonsLearned The Evaluation Report inproject files contains adetailed analysis of major problems observedinassessed subprojects. However ingeneral terms, the major limitations included: community involvement duringthe whole subproject cycle; technical design appropriate to the social andenvironmental conditions; and appropriate, opportune and sufficient technical assistanceand working capital, duringstart-up operations. Other major factors limiting benefit generation includedthe following: Public infrastructure. For this type of investments, the specific locationand potential demandfor facilities played a critical role. Schools and health centers constructed incommunities relative close to already existingschools andhealth centers were not supportedby concernedpublic institutions (such as Ministry of Health). Without the support of public institutions with professors anddoctorslnurses, such investmentsproved to be difficult to operate on a regular basis. Social community infrastructure. For this type of investments, the potential users' demandwas critical. Solar energy systems or drinkingwater distributionsystems for very small communities will face major sustainability problems since benefits seemto be smaller than operation andmaintenancecosts. Productive community infrastructurelinvestments and associative enterprises. For this type of investments, community or group organization for effective operation was essential. However, forced group activities provedto be counter productive. Irrigation andpastureimprovements seemed to work well since individual agricultural production and pasturemanagementresponsibilities were not affected, Group activities only involvedinputpurchases, infrastructure construction andinfrastructure maintenance. On the other hand, associativeenterprisesfor newly formed groups proved to be difficult, 76 since managementandoperation responsibilities were not clear. Sugar cane plantation andgreenhousesareconcrete examples. Natural resourceinvestments. For this type of investments, effective and clear communication with beneficiary communities proved to be critical. Weak technical assistanceduringimplementation was amajor drawback of analyzed watershed management subprojects. However, even with appropriate assistance, these investments would be conflictive as long as participating communities don't clearly understandtheir purpose and eventual benefits. Communities better valued soil recovery investments since associatedbenefits were easily perceived. These lessons learnedwould be incorporated ina revised RuralInvestments Regulation ManualandReferenceMaterials. The revised manual andreference materials would be ready prior to implementation. Major adjustments include: i)revised co- financing arrangements, so as to increasethe proportional contributionof beneficiaries for investments inassociativeenterprises such as machinery, equipment and livestock; ii) the possibility to finance working capital when no alternative sources are available; and iii)asystematicapproachforspecializedtechnicalassistanceduringinvestmentstudy, execution and operation of subprojects; v) closer guidance/supervision of community participation duringthe whole subproject cycle; vi) enhanced subproject monitoringand evaluation, includingbase-line (without project situation), ex-ante (with project situation) andex-post assessments; andvii) tighter environmental screening. Ex-anteEvaluation To forecast economic feasibility of PRODEPINE 11,a second scenario was prepared, takinginto account lessonslearned andmajor adjustments of regulation manual. The expectedeffects of these adjustmentswould be: the solution of problems mentioned above as lessons learned; and exclusion of subprojects with greater difficulties, such as greenhousesandpoorly conceivedwatershedmanagementinitiatives. Investments costs are also expectedto increaseby 1096, due to additional technical assistance requirements. Incaseof schools, infant centers, healthcenters, solar energy systems and drinkingwater distribution systems, feasible increasesof subproject beneficiaries were consideredto reflect investment decisions basedon improved communities' demandheeds analysis. School beneficiaries should be 13% more inArmenia school (73 rather than 65 children), and45% more inKayamas school (46 rather than 42 children). Infantbeneficiaries should be 30% more (39 rather than 30 children) inChinipamba infant center. Familybeneficiaries shouldbe 30% more (23 rather than 18families) in Changuaraland Campanita solar energy systems. Family beneficiaries should be 3-4 times more (220 rather than 50 families) inOcpote and Verdepamba drinkingwater distribution systems. Incase of associativeenterprisessuch as humusproduction, grain millsand plantations, increasednet benefits were considered to reflect investment subprojects better equippedwith working capital and technical assistance. Mascarillahumus production, costs and benefits should be 5 times more since current productionis only 17%of infrastructure capacity. Incase of SantaTeresita grain mill,costs andbenefits should also be 5 times more, since available equipment i s currently usedon week-ends 77 only, that is 4 dayslmonth when it could be used24 dayslmonth. Finally, Tsurakusugar cane plantation couldproducebetter yields if some organic fertilizers are used. Considering the same parameters applied for the current evaluation of PRODEPINEI, base-lineIRRfor ruralinvestments inPRODEPINE11would be the 39%. The results of the analysis are shown inTable 2. Ifnon-quantified social and environmental benefits are taken into account, the expectedoverall IRRcould be higher. For a sensitivity analysis, four scenarioswere considered: i) abase-line scenario; ii)asecondscenariowherecommunityllaborcostswerenotvalued(orsetatzerowages) andinessence constitutesafinancial feasibility analysis; athirdscenario where costsheserves for replacing investmentsare subtractedfrom net benefits over a 20-year period; and a fourth scenario, combining scenarios2 and 3. IfPRODEPINEII improvements are not effective, the expectedIRR would be similar to the one obtained in PRODEPINEI. resultingIRR's would be: 24% under first scenario; 37% under The secondscenario; 19%underthird scenario; and 27% under fourth scenario. IfPRODEPINE11improvements areeffective, theexpectedIRRof rural investments wouldbe: 39% under first scenario; 53% under second scenario; 37% under thirdscenario; and48% underfourth scenario. Higher IRRunder scenariosat zerocost for communitylfamily labor (Le. financial analysis) simply reflect that in-kindlabor contributions seem to be higher thanbenefits interms of time savings. Insummary, economic IRRfor ruralinvestments inPRODEPINEI1could range from 19%to 39%, andfinancial IRRcouldbefrom 27% to 53%. A summary of these sensitivity analysis results are shown inTable 3. Table 3. Sensitivity Analysis of IRR Scenario Analysis PRODEPINE11measures Ineffective Effective Base-line scenario Economic 24% 39% Zero in-kind labor costs Financial 37% 53% Cost or replacing investments over 20 years Economic 19% 37% Re-investmentsandzero in-kindlabor costs Financial 27% 48% Finally, basedon results shown inTable 2, every dollar invested inPRODEPINE11i s estimatedto generate an Economic andFinancial Net PresentValue (NPV) under base- line scenario of US$1.46 andUS$2.36 respectively. If overall ruralinvestments are estimatedto be inconstant prices, around US$25 Million (US$4 Millionfrom beneficiaries), the aggregate economic andfinancial NPV would be around US$36 Millionand US$59 Millionrespectively. These net benefits could easily cover other associatedcosts (around US$3 Million), such as: investment study technical assistance, supervision services and training. 78 FiscalImpact To avoidnegative fiscal impacts, specialcare should be takenduringinvestment study stage that Government resources are available and budgetedfor operational or recurrent costs for public services, to be supportedby investment subprojects such as schools, infant centers and health centers. Investment subprojects for public service provision without proper operational funding must not be approved. Ifthis control i s effective, PRODEPINEI1would have a modest butpositive fiscal impact. Fiscalrevenues would be generatedby a greater economic activity inducedby production support and income generating investments, such as irrigationimprovements and associativeenterprises. Basedon the 30 subprojectsanalyzedingreater depth, every dollar invested in PRODEPINEI1is estimatedto generatea FiscalNPV of US$0.02. Ifruralinvestments amount US$25 Million, overall FiscalNPV would be around US$500,000. 79 B ~ 0 0 "h 0 00 E d2 P13 t ' I ' c- I I r r ~~ c i l 0 0 lilr W (u Annex 10: SafeguardPolicyIssues The World Bank SafeguardPolicies applicable to this project are Environmental Assessment, NaturalHabitats, Forests, Pest Management, CulturalProperty, and IndigenousPeoples. This Annex summarizes the ways inwhich PRODEPINE11is expectedto comply fully with the letter andspiritof eachof these policies. This project has beendeterminednotto trigger the Bank policies on InvoluntaryResettlement(OP 4.12), Safety of Dams (OP 4.37), InternationalWaters (OP 7.50), nor DisputedAreas (OP 7.60). EnvironmentalAssessment(OP4.01). Thisproject is classified as Category B, consistent with (i) typesofdemand-drivenruraldevelopmentandnaturalresourcesmanagementprojects similar (including PRODEPINEI) the and (ii) guidanceprovidedinthe BanksEnvironmental Assessment Good Practices (GP) 4.01,Annex B for typical subprojects such as small-scale irrigation, small-scale agro-industries, roadrehabilitation, ruralwater supply and sanitation, and ruralelectrification. PRODEPINE I1ruralinvestment andnatural resourcemanagement subprojects will be relatively small (most less than $30,000 andnoneover $125,000). PRODEPINE's Environmental Manual specifies the types of environmentally sensitive subprojectsthat are ineligible for PRODEPINE11financing, includingthose involving (i) deforestation or other clearing of naturalhabitats (including mangroves andpa'ramos);(ii) new roadconstruction; (iii) road improvements within naturalforests; (iv) dams which would flood areas of forest or cultural property; (v) use of risky (potentially invasive) non-native species; or (vi) activities adversely affecting protected areas. The Borrower has prepareda free-standing EnvironmentalAssessment (EA) report, Politica y Procedimientos de GestionAmbiental: CO~ENPE-CO~AE-P~O~EPINE (March 2004). The EAreport also serves as this project's Environmental Manual, and will be fully incorporated within the PRODEPINE 11Operational Manual prior to loaneffectiveness. The EA report was preparedby PRODEPINE's technical staff, including some of the natural resources managementspecialistswho will beresponsible for the environmental management(screening and follow-up mitigationand supervision, as needed) of PRODEPINE 11subprojects. EA preparationtook into accountthe findings of an independent environmental audit of the PRODEPINEIproject (Infome de Verificaciony EvaluacionAmbiental de 10s Subproyectos, OIKOS, January 2001), the Bank's recommendations, andextensive prior consultations with indigenous and Afro-Ecuadorian communities and their representative organizations, along with other stakeholders. Prior to appraisal, the EA report was sent to the Bank's Infoshop; the report i s also available for public review inPRODEPINE's National Office inQuito, as well as each of sevenPRODEPINERegional Offices throughout Ecuador. NaturalHabitats(OP 4.04) andForests(OP4.36). The PRODEPINE I1Environmental Manualspecifiesthat the project will not support activities that couldresult insignificant natural habitat loss or degradation. On the contrary, many subprojects should lead to the improved protection and managementof forests and other natural habitats on indigenous andAfro- Ecuadoriancommunity lands. The proposed mangrove restoration subprojects would work exclusively with native species. PRODEPINE I1(unlike PRODEPINEI) will not support pine or other non-native tree plantations inhighland piramo ecosystems, thereby avoiding adverse biodiversity impacts and ensuringcompliance with both OP 4.04 and4.36. 84 PRODEPINEI1would support titling and related activities to regularize the status of communal indigenous lands that are under thejurisdiction of the NationalAgrarian Development Institute (INDA) or the Ministry of Environment (MAE), the latter as either Forest Patrimony ( P a t r i ~ o ~Forestal)or ProtectionForests(Bosques Protectores). The project would also i o support the granting of long-term concessionsof coastalmangrove lands by MAEto Afro- Ecuadoriancommunities for sustainablemanagement, inaccordancewith managementplans requiringMAEapproval. However, PRODEPINE 11would not support the titling or concessioning of lands within the NationalProtectedAreas System(SNAP, includingNational Parks, Ecological Reserves,Wildlife Refuges, andBiologicalReserves), which cannot betitled under current Ecuadorian law. The project's activities to improve landtenure security for indigenous and Afro-Ecuadorian communities are expectedto be largely positive from an environmental standpoint, because (i) indigenous andAfro-Ecuadorian populations traditionally tend to conserve much more forest on their landsthan most other ruralEcuadorians; (ii) all land titles andconcessionswill be for relatively large, contiguous blocks at the community level-- these are much more amenableto forest-based landuses than smaller landparcels titled to individuals; (iii) tenure gives community members a strong incentive to patrol their land secure andprevent invasions byoutsiders; (iv) indigenous andAfro-Ecuadorian communitymembers are often the only defucto forest guards inremote areas with little governmental field presence; (v) secure tenure removespossible incentives to clear forested landsimply to show possession and use; (vi) secure tenure enables indigenous andAfro-Ecuadorian communities to insist upon more favorable terms (including from an environmental standpoint) from oil and gas, timber, oil palmplantation, or other commercial interests; (vii) the issuanceof titles andconcessionsis contingent upon the participatory preparationof landmanagementplans, which are required to show that the intended land uses will be environmentally sustainable (andwill maintain most existing forest cover); (viii) PRODEPINE11will provide increased(relative to PRODEPINEI) technical assistanceto communities to improve the quality of these managementplans, including from an environmental standpoint; and (ix) other projects (including the GEFConservation of BiodiversityinPastazaMid-SizedProject andthe USAID-supportedCAIMANprogram) also rely upon the titling of large blocks of indigenous community lands as an explicit strategy to promote long-term forest conservation and sustainableuse. PestManagement(OP 4.09). Noprocurement of pesticides or pesticide application of equipment is planned under PRODEPINEII.However, some subprojects (such as small-scale irrigation) might indirectly induce relativelysmall increases inpesticide use. The Environmental Manual (Section 3 andTable 1) specifies the compounds which cannot be financed or otherwise supportedunder the project, including all those inthe World Health Organization's Class IA and IBandthoseclassified asPersistentOrganicPollutants (POPS).Whererelevant, subprojectswill include technical assistanceand training inthe proper use, handling, storage, and disposal of agrochemicals, as well as inthe principles and techniques of integrated pest management. Due to the expected small scale of any pesticide useunder the project, a free-standing Pest ManagementPlan is not required. CulturalProperty(OPN11.03). Ingeneral, the indigenous andAfro-Ecuadorian communities requesting any PRODEPINE I1subprojects are quite knowledgeable about the archaeological, historical, sacred, or other culturally significant sites or objects on their lands. Nonetheless, road rehabilitation, smallirrigationcanals, or other small civil works under the NaturalResourcesor 85 RuralInvestments componentscould conceivably uncover new items of cultural significance. The Environmental Manual(Section 7 )outlines standardenvironmental rules for all civil works contractors to follow. These rules specify the needfor chance finds procedures ineachcivil works contract, to ensure that contractorsandconstruction workers will understandthe actions they needto take incase they uncover objects of possible cultural significance. Indigenous Peoples (OD 4.20). Inaccordance with the Indigenous PeoplesPolicy, the entire project is classified as an Indigenous PeoplesDevelopment Plan. 86 Annex 11:Project Preparation and Supervision Planned Actual PCN review 05/08/2003 05/28/2003 InitialPID to PIC 04/08/2003 04/15/2003 InitialISDS to PIC 04/08/2003 04/22/2003 Appraisal 04/26/2004 05/03/2004 Negotiations 05/05/2004 0511012004 BoardRVP approval 0611012004 Planneddate of effectiveness 09/03/2004 Planneddate of mid-termreview 0210112006 Plannedclosing date 09/15/2009 Key institutions responsiblefor preparation of the project: CODENPE-Consejo de Desarrollo de las ~acionalidadesy Pueblosdel EcuadorandCODAE- Corporucidnde DesurrolloAfroecuatoriano. Bank staff andconsultants who worked on the project included: Name Title Unit Keisgner Alfaro Sr. Procurement Specialist LCOPR MarkAustin Technical Specialist LCSER M c DonaldBenjamin Country Manager LCCEC Din0Francescutti RuralEconomist FAO-CP Ana LuciaJimtnez Financial Management Consultant LCOAA PilarLarreamendy SD andCivil Society Specialist LCCEC GeorgeLedec LeadEcologist LCSEN Patricia M c Kenzie Sr. FinancialManagement Specialist LCOAA MartaMolares-Halberg LeadCounsel LEGLA Xiomara Morel Senior Finance Officer LOAG3 JonathanParker Consultant Teresa Roncal Operations Analyst LCSER Josefina Stubbs Sr. Social Development Specialist LCSEO DavidTuchschneider Task Team Leader LCSER Jorge Uquillas Sr. Sociologist LCSEO Bankfunds expendedto dateon project preparation: 1. Bankresources: $167,149.24 2. Trust funds: N/A 3. Total: $167,149.24 EstimatedApproval and Supervision costs: 1. Remaining coststo approval: $30,000.00; 2. Estimatedannual supervision cost: $100,000. 87 3. Annex 12: DocumentsintheProjectFile PRODEPINE11. Preparationstudies PRODEPINE(2004), Evaluacio'nSocial del PRODEPINE,UlrikeC (CESA). PRODEPINE(2004), MetodologiaLinea Base Seguimientoy Evaluacio'n,GrandaJ. PRODEPINE(2004), Metodologiay SeguimientoGastoPu'blico,PonceJ, LeonM,RoseroJ, CervantesR. PRODEPINE(2004), Plan de Desarrollo de las Nacionalidades,Centrode Asesoria e InvestigacionesSociales(JuliAn Quito). PRODEPINE(2004), Plan deDesarrollo Institucional del Codenpe,SangaV. PRODEPINE(2004),Plan deManejo Recursos Naturales,Van Immerzeel G. PRODEPINE(2004), Estudio TurismoComunitario,(draft). PRODEPINE(2004), Estudioy Disefio Programa deBecas, (draft). PRODEPINE(2004), Plan de Desarrollo Afroecuatoriano, (draft). PRODEPINE(2004), Plan de Desarrollo Institucional Codae,(draft). PRODEPINE(2004), ProgramadeAsistencia tkcnicay capacitacidna iniciativas de base cultural, RuthS, SaltosF, TorresJ, Vallejo M. PRODEPW (2003), Rescatey puesta en valor de sitios arqueolo'gicos,historicos y culturales, Hylalea,Alvarez M. PRODEPINE(2003), Identi~cacio'nde necesidades deAT y cupacitacidnde organizaciones nacionalesy regionales,Cedime. PRODEPINE(2003), Estudiode Facti~ilidadTkcnicay Econo'micadeRecursosNaturales, Soria P,Afiazco M, Cotacachi C, YaguacheR. (ECODES). PRODEPINE(2003), Mapeode orgnanizacionesde mujeres indigenasy a~roecuatorianas,CID. PRODEPINE(2003), Us0de tecnologiaspara las obras del PRODEPINE, Funhabit. PRODEPINE(2003), Capacitacio'ny Asistencia Tkcnicadel ComponentedeInversiones Rurales,DYA. PRODEPINEI.Studiesandevaluations FernandoL,Cobo A, GarciaM,Hernhdez E( (Heifer). 2004.Cauital Social, Ecuador Asociaci6nPlanisoc. 2002.Dianno'sticoY Plan deAccio'n deAcequias Comunitarias,Ecuador. Corporaci6nOikos. 2001. Evaluacio'nAmbiental Subwoyectos,Quito, Ecuador Corporacih Ecuatoriana de Desarrollo Empresarial (CEDE). 2002. Andisis de Cost0 y Eficiencia del Componentede InversionesRurales,Quito,Ecuador. CESA-ECLOF.2002. Evaluacidndel Componentede InversionesRurales. Quito, Ecuador. Fundaci6nAcci6n para el Desarrollo. 2002. Evalu~cio'nde Efectos e Indicios de impactos del Pronrama de Fomzacidnde recursosHumanos.Ecuador Ponce M. 2003. Evaluacio'n de la Implantacio'n de 10s Sistemas de Informacidn del PRODEPINE. Quito, Ecuador Coronel R. 1999.Dianndstico Y Censo de las Ornanizaciones de Senundo Y Tercer Grado del Prodepine,Ecuador 88 CorporacidnRedFinanciera Global (CRF). 2002. Elaboracidn del Proarama Cujas Solidarias y Elaboracidn de Estrateaias a 10s sistemas de Financia~ientorural, Quito, Ecuador. Vallejo I.2002. Estudios de cas0 sobre Identidades Y Roles de Gbnero en la Nacionalidades y Pueblos.Ecuador. Camacho M. 2002. Estudio de Impacto de las Cajas Solidarias Implementadas por el PROLIEPINE. Ecuador EspinozaM.2000. Incorporur el Enfoque de akneroen las metodoloaias del Prodepine.Ecuador Guadalupe Ledn. 2002. ~etodolo~iade Capacitacidn en dnero para Gobiernos Locales Indigenas y Afroecuatorianos,Ecuador k d nJ. 2002. Metodoloaia para control social y rendicidn de cuentus.Ecuador Ninfa P, PaucarC.2002. ~etodolo~iade capacitacidnen aknero para las Entidades Ejecutoras del P R ~ ~ E P I NQuito, Ecuador. E . AmparoE. 2002. Identidadesv Roles de Gkneroen las Nacionalidadesy Pueblos.Ecuador, Aulestia, N. 2002. Impacto de la Perspectiva de Gknero en la Pluni~cacid~Participativa Aplicada a1desarrollo local en Pueblos y Nucionalidades. Ecuador Larrea S. 2002. Incorporacidn del Enfoaue de Gbnero en metodoloaiasde Inversiones Pu'blicas. Ecuador EscobarM.2002. S~stematizaci~nde Experienciasde Gbneroen el P R ~ ~ E PEcuador. I N ~ ~ Banco Mundial.2OO3.EvaluacidnFinal ProdepineBIRF FDA. 2003. Evaluacidn Intermedia Contraloria General del Estado (CGE) 2001. Auditoria de Gestidn sobre la probabilidad de loavo de 10s objetivosdel Proyecto.Quito,Ecuador. Bankdocuments MissionAide Memoires: October31,2002; 0 April 26,2003; 0 August 22,2003; 0 November25,2003; 0 February 13,2004; 0 April 2,2004. Financial ManagementCapacityAssessment, November, 2002. Procurementcapacityassessment, July, 2003. 89 Annex 13: Statementof Loansand Credits Differencebetween expectedandactual Original Amount inUS$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Ong. Frm.Rev'd PO63644 2002 EC PowerLCommSect Modemiz.&Rural 23.00 0.00 0.00 0.00 0.00 20.26 13.46 0.00 Servi PO72527 2002 EC-Power&Comm.Sctrs Modmiz.&Rural 0.00 0.00 0.00 2.84 0.00 3.31 1.25 0.00 SrVS PO74218 2002 EC Public SectorFinancialManagement 13.86 0.00 0.00 0.00 0.00 12.18 7.68 0.00 PO39437 2002 EC RURALPOVERTY (PROLOCAL) 25.20 0.00 0.00 0.00 0.00 22.24 -2.96 0.00 PO49924 2001 ECRuralWater supply & Sanitation 32.00 0.00 0.00 0.00 0.00 22.81 18.41 0.00 Po64045 2000 ECFinSectrTALn 10.00 0.00 0.00 0.00 0.00 8.18 7.68 0.00 PO39084 1998 EC- HEALTHSERVICES 45.00 0.00 0.00 0.00 0.00 27.02 27.02 24.41 MODERNIZATION PROJ. PO07135 1998 EC AGRIC CENSUS & INFO 20.00 0.00 0.00 0.00 0.04 1.56 -3.20 0.00 PO07131 1997 EC AG RESEARCH 21.00 0.00 0.00 0.00 1.20 4.84 6.04 4.84 Total: 190.05 0.00 0.00 2.84 1.24 122.40 75.38 29.25 STATEMENTOF IFC's HeldandDisbursedPortfolio InMillions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1999 FVEcuacobre 3.44 0.00 4.00 0.00 3.44 0.00 4.00 0.00 1998103 FavontaFruti 15.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1999 LaUniversal 8.20 0.00 5.00 0.00 8.20 0.00 5.00 0.00 1993 REYBANPAC 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2004 SFE 2.00 0.00 0.00 0.00 1S O 0.00 0.00 0.00 1997 Agrocapital 3.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00 1969n3n5177181/82187 COFIEC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0198 Concessionaria 11.50 0.97 0.00 15.00 2.93 0.00 0.00 3.82 Total portfilio: 45.64 0.97 9.00 15.00 31.57 0.00 9.00 3.82 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic. Total pendingcommittment: 0.00 0.00 0.00 0.00 90 Annex 14: Country at a Glance kcuador PRICES and GOVERNM ENT FINANCE 1982 1992 2001 2002 tnflation (96) Domestic prices I (%change) 150 Consumerprices 8.3 54.3 37.7 P.5 xx) ImplicitGDPdeflator -1.3 -40.4 25.5 PA 50 Government finance (%of GDP,includescurrentgrants) 0 Current revenue 24.6 24.7 25.9 00 01 0 -50 Currentbudgetbalance 5.9 62 7.4 1 I Overallsurplusldeficil -ti -0.5 1.0 -GDPddlator -CPI TRADE 1982 1992 2001 2002 (US$ miMons) Export and import levels (USS mill.) Totaleqorts(fob) 2,08 3,102 4,678 5,000 7,500 T Oil 1257 1,260 1,900 1,839 Bananas 193 683 865 981 Manufactures 374 1247 1291 Total imports(cif) 1,981 2,431 5,363 6,431 Food Fuelandenergy 83 0 1 297 284 Capitalgoods 7 6 9l7 1661 2,022 Exportpriceindex(1995=WO) 159 108 114 115 96 97 98 99 W knportpriceindex(1995=WO) 111 86 81 83 Exports EImports Termsof trade(1995=100) ?44 P6 140 138 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ mi//ions) Current account balance to GDP ( O h ) Exportsof goodsandservices 2,489 3,718 5,697 6,081 Importsof goods andServices 2,704 3,016 6,100 7264 ~ Resourcebalance -26 702 -403 -183 Net income -783 -944 -1,772 -1,622 Net currenttransfers m P O I665 1590 Currentaccount balance -981 -e2 -50 -1,215 Financingitems (net) 642 146 404 1038 Changesinnet reserves 339 -24 x)6 m Memo: Reservesincludinggold( U S mi/lions) 429 1,034 1,074 1008 Conversionrate (DEC,/ocaVUS$) 120E-3 6.14E-2 t O 1.0 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 ~ ~ (US$ millions) Composition of 2001debt (US$ mill.] Total debtoutstandinganddisbursed 7,705 P271 t3,9x) IBRD 174 783 889 IDA 36 30 20 Total debt service 11 2,w 981 1550 IBRD 32 *37 a 9 IDA 1 1 1 1 1 Compositionofnet resourcefiows Officialgrants 14 83 73 1 Officialcreditors -155 72 31 Privatecreditors 41 -203 It3 F E,2 Foreigndirect investment 40 l78 1,330 Portfolio equity 0 0 1 WorldBank program Commitments 96 89 32 , B - IDA A IBRD - E- Bilateral Disbursements 41 63 P4 D Other mltilateral - F Private Principalrepayments 19 75 76 I C - I M F G Short-tar -- 91 Annex 15: Legislative Framework for Indigenousand Afro-Ecuadorian Peoples This Annex covers the Constitutional provisions related to Indigenous and Afro-Ecuadorian peoples, the decrees related to the national authorities in charge of indigenous and Afro- Ecuadorian affairs, and selectednatural resourcesand culturalpromotionlaws applicable to such peoples. 1. Constitutional Provisionsrelated to Indigenous and Afro-Ecuadorian Peoples The 1998 Constitution' contains within the chapter dealing with Collective Rights (covering also environment and consumer rights) a separate section dealing with the Indigenous and Afro-Ecuadorian or black peoples. Such section contains three articles, one (article 83) which states that such peoples are part of the State, and two others (articles 84 and 85) setting forth their rights. Article 83 reads as follows: "The indigenous peoples (in Spanish pueblos), who self identify themselves as nationalities (in Spanish nacionalidudes) with ancestral roots, and the black or Afro-Ecuadorian peoples, are part of the one and indivisible Ecuadorian State," Article 84 sets forth the collective rights of indigenous peoples that the State shall recognize and guarantee in accordance with the Constitution and the law, and the respect of public order and human rights. Article 85 recognizes and guarantees the same rights of Article 84 to the black or Afro-Ecuadorians peoples as they may be applicable. Suchrightsare: 1. To maintain, develop and strengthen their identity and traditions in its spiritual, cultural, linguistic, social political andeconomic aspects. 2. To maintain the imprescriptible ownership of their communal lands which shall be inalienable, indivisible andnot subject to attachment. 3. To maintain the ancestral possession of their communal lands and to obtain the recognition of such right (adjudicacidn)free of charge. 4. Participate in the use, usufruct, management and conservation of the renewable natural resourcesexisting intheir lands. 5. To be consulted on prospecting and exploration plans and programs of non- renewable resources existing in their lands and which could affect them environmentally or culturally, to participate in the benefits of such projects, to the extent possible, and to be compensatedfor the social andenvironmental damages caused. 6. To maintain and promote the management practices related to their biodiversity andnaturalenvironment. 7. To maintain and develop their traditional forms of social organization and authorities. 8. To not be displaced, as peoples, from their lands. 9. To the collective intellectual property of their ancestral knowledge, and to its valuation, use anddevelopment accordingto law. 10. To maintain, develop and manage their cultural andhistoric patrimony. 1 Publishedinthe Registro Oficial on August 18, 1998. 92 11. To access education of quality and to count with a system of intercultural and bilingualeducation. 12. To formulate priority plans and projects for the development and improvement of their economic andsocial practices, and to adequate financing by the State. 13. To participate, through its representatives, in the official institutions that the law will determine. 14. To use symbols andemblems of their identity. The indigenous identity and cultures are also recognized in: (a) Article 1providing for pluricultural and multiethnic state and deeming the quichua, shuar and other indigenous languages as official; (b) Article 62 relating to culture in a pluricultural and multiethnic State; and (c) Article 97 (20) which includes among the obligations of a11 citizens a traditional "commandment" of the indigenous peoples (spelled out in quichua, as "Ama quilla, ama llulla, ama shua" and Spanish) which requires arefrainfrom laziness, lies and robbery. Traditional medicine i s to be respected, recognized and regulated pursuant to Article 44 of the Constitution and bilingual and intercultural education is also contemplated in Articles 66 and69 of the Constitution. A political, territorial andadministrative subdivision of the State to consist of indigenous andAfro-Ecuadorian territories is contemplated inArticle 224 of the Constitution in addition to the existing provinces, cantons, and pavroquias. The organization and authorities of such indigenous territories will be establishedby law (Article 228 and 241 of the Constitution). The Indigenous justice systems as well as the authorities, norms and procedures related thereto, are applicable pursuant to Article 191 of the Constitution for dispute resolution within the communities provided they are notcontrary to the Constitution andthe law. The extraordinary rights recognized in the Constitution are supported also with the ratification of L O Convention 169 on April 14, 1998. Regarding indigenous rights, the domestic legislation has hardly changed since the enactment of the Constitution or the ratificationof ILO 169. Severaldraft laws have beenprepared by CODENPE, relatingto indigenousnationalities, indigenous communities, traditional health systems, and indigenous administrativelpolitical territories to incorporate the new Constitutional provisions but are all pending enactment*. 2. National AuthoritiesinChargeof Indigenousand Afro-Ecuadorian Affairs TheNational Councilfor theDevelopment of Nationalities and Peoples (CODENPE) Following the Constitutional reform of 1998 (incorporating collective rights of the nationalities and peoples) the Council for the Development of Nationalities and Peoples (CODENPE) was established by Presidential Decree 3M3modified by Presidential Decree 1206 of2001~. 2 The indigenouspeoples law was passedby Congressbut not promulgated by the Executive and a CustomaryJusticeLaw was passedbut challengedin its constitutionality. 3 Publishedinthe Registro Oficial of December 11, 1998. 4 Publishedinthe Registro OfciaE of February 6,2001. The modification was called for by Resolution No. 187-2000-TPof the Constitutional Tribunal dated November 21,2000 -whereby article 2 was deemed unconstitutional. 93 CODENPE i s a decentralized agency within the Presidency, granted juridical personality and establishedto allow for the participation of nationalities and peoples in all levels of planningand decision making of the State. CODENPE i s empowered: (a) to define the policies for the strengthening of nationalities and peoples of Ecuador; (b) to co-manage with them sustainable development programs; (c) to propose, in coordination with such nationalities and peoples, draft laws affecting them; and (d) to promote the legal organization and registry of the nationalities andpeoples5. CODENPE`defines indigenous nationalities as "historic and political entities forming the Ecuadorian State, which have in common an identity, history, language, and culture, live in a specified territory, with their own institutions and traditional forms of social, economic juridical andpolitical organization and own authorities".6 CODENPE also defines: - Indigenous Peoples (Pueblos Indigenas) as ``collectivities of origin (colectividades originarius) formed by centers7or communities with: (a) cultural identities distinct from others inthe Ecuadorian societies; and(b) their own social, economic, political andlegal organization"; and - Indigenous communities (comunidades indigenas) as collective entities grouped in families, with blood or affinity linkages, residing in a given territory who self identify to below to a given nationality or peoples with: (a) collective practices in their way of life; and (b) their own organizational, political, administrative, economic, spiritualand culturalsystem''.8 The Corporationfor Afr~-~c~udorianDevelopment(CODAE) The Corporation for Afro-Ecuadorian Development (CODAE) was established by Presidential Decree 17479as amendedby Decree 3104of 200210.CODAE was grantedjuridical personality and is linked to the Presidencyof the Republic. CODAE is empowered among others: (a) to promote the organization of its Afro- ecuadoriancommunities andto carry out capacity buildingprograms; and (b) to carry out studies relatedto Afro-ecuadorian and carry out its recommendations. 5 Currently juridical personality is grantedto communities as centers, communes, organizations, and associations by the Ministry of Social Welfare, Agriculture or the Environment. CODENPE is also registering "nationalities" pursuantto Decree 3104of 2002. 6 Fromthe glossary of terms use by the Nationalities for the Constitutional Reforms, as quoted in CODENPE's publication "ElementosBdsicospura la Reconstit~ci~nde lus Nucionulid~esy Pueblosdel Ecuudof' -FirstEdition, 1999,page10. 7 A form of associationfor which the Minister of Social Welfare grantsjuridical personality. 8 FromCONAIE's 1999draft law of Peoples, Nationalities andTerritories quoted inCODENPE's fublications mentionedinfootnote 6, at page 10and 11. Publishedinthe Registro Ojiciul of August 10, 1998. lo Publishedinthe Registro Ojicial of September 20,2002. 94 3. Land Remiarization (a) Applicable Laws The main lawslregulations applicable to land regularization are: (a) the Constitutional provisions described above; (b) ILO Convention 169 which recognizes the right to own or possess the lands the indigenous peoples traditionally occupy"; and (c) the following specific laws: (i) the AD Law; (ii) of the Organization and Regime of the Agricultural Communities Law (comunas campesinas) and Tierras Baldias Law12; and (iii) Forestry Law and Regulations the applicable to forest andnatural and wildlife areas conservation. (b) Institutions in Charge: INDAhIinistry of the Environment The Agrarian Development Institute (Instituto Nacional de Desarrollo Agrario, INDA), established by Article 23 of the AD Law, is the only agency or institute authorized to adjudicate State lands (mostly vacant or expropriated lands or those inpossessionof farmers for a specified period of time). The AD Law authorizes INDA to issue titles under three different procedures, one (Article 36, Legalization) exclusively applicable to the indigenous communities in ancestral possession, and the other two, one after a 5 year possessionand the other with no prior possessionrequirement. 13 The Ministry of the Environment assumed the powers and responsibility for forests held by the Ecuadorian Institute for Forests and Natural and Wildlife Areas (Instituto Ecuatoriano Forestal y de Areas Naturales y de Vida Silvestre (INEFAN), which had been created by Law No. 8 of September 14, 1992 (the INEFANLaw) and owns, under Article 12 (a) (c) and (d) of the INEFAN Law, the national forest patrimonium (Patrimonio Forestal del Estudo) and the protected areas (Patrimonio deAreas Naturales). The Patrimonio Forestal del Estado is constituted by the forested lands that according to law are owned by the State, and the natural forests, and the flora and fauna therein. Forest lands that are acquired, or revert to the ownership of the State are also included(Forestry Law, Art. 1). 11 ILO ConventionNO. 169concerningIndigenousand Tribal Peoples in IndependentCountries (Article 14). l2 Law publishedin the Registro Ofcial on October 5, 1976(hereinafter ComunasLaw); Law of Unoccupied Lands (tierrasbaldfas) and Colonization, Supreme DecreeNo. 2172 publishedinthe Registro Oficial on September 28, 1964 (hereinafter TierrasBaldias Law). 13 - Under Article 37 of the AD Law, INDAis authorized to grant title to landsto those in possessionof the land for an uninterruptedperiod of a minimum of 5 years, after paymentof the applicable assessmentprice. The exploitation of these lands also needto follow the approvedwork plan. This type of title cannot be grantedby TNDA in respectof Stateforest or natura1areas or inlands otherwise owned by INEFANnow Ministry of Environment. Itcould be applicableto landsexpropriated by INDA from owners that were not utilizing the land in a manner that would show that the social function was achieved. Article 17 of the AD Law states that the social function is achievedwhen the land is in production and exploitation and the renewable natural resourcesare being adequately preserved, the ecosystem is protected, and food for all Ecuadoriansis guaranteedand excess is generated for exports. - Under Article 38 of the AD Law, INDA is authorized to issue titles to other land that INDA may own tojuridical persons, cooperatives,enterprises, indigenouscommunities, associationsand organizations, for an efficient production with a work plan that will not becomea threat to the environment or the ecosystem. No prior possession is required, it does not relateto ancestralrights, and a price is to be paid in cashfor the land so granted. Farmers, indigenouspeoples, montubias and Afro-Ecuadorians, are, however, granteda 10year period (with 2 years of grace) to repay. 95 Of these lands, those in ancestral possession of indigenous peoples, the Minister of the Environment is authorized, free of charge, to set the boundaries of the lands in ownership or possession of indigenous and Afro-Ecuadorian communities and such lands, will not be subject to any possessionor adjudication to third parties. Such lands should have an area sufficient to enable the maintenance of an adequate standard of living according to their ethnic, customary, religious and other values to allow for development of such communities (Forestry Law, Articles 1021103). The Patrimonio de Areas ~uturulesare wilderness areas with a scientific, educational, scenic, touristic or educational value, already designatedby law or to be designatedinthe future by the Minister of the Environment by resolution. National parks, ecological reserves, wildlife refuges, and biological reserves are among such protected areas (Forestry Law, Articles 69/70). These areas are inalienable and imprescriptible and no real property rights could be vested on such areas. Private lands and the natural resources existing therein at the time the areas were declaredprotected are to be expropriated to revert to the State.14 Other forested lands canbe adjudicated through public auction or sale. 4. CulturalPatrimony CulturalPatrimony is ruledby Law 3501of 1979 (the CulturalPatrimony Law)15and the Cultural Patrimony Institute is the agency incharge of its implementation. This institute is grantedjuridical personality and linked to the Ministry of Culture. Itispart of theCulturalPatrimony ofthe Stateamongothersthefol1o~in~:l6 1. Archeological monuments such as ceramic, metal and stone objects belongingto pre-hispanic or colonial times, ruins, buildings, cemeteries, and archeological fields, as well as humanremains, flora andfauna from such years. 2. Churches and convents constructed during colonial times. 3. Old manuscripts. 4. Ethnographic objects with scientific, historic or artistic value. 5. Cultural goods subjected to awards produced by contemporary artists after the author's deathor after 30 years of production. ~ l4 The Minister of Environment is authorizedto adjudicatelands included inthe Patrimonio Forestaldel Estudo: - to legally establishednational timber companies incases of national interest, through a public auction, and provided a satisfactory managementplanis implemented (FR, Art. 65). The contract is rescindedif such management plan is not implemented (FR, Art. 82); - to ruralorganizations(cooperatives and other legally establishedagricultural associations),the mainactivity of which is a forestry activity. Demarcationsladjudicationsare to the cooperative or other organization as such and the title cannotbe subdividedandlor disposedof the thirdparties (FR, Articles 86/87). The adjudication resolution sets forth the price andpaymentconditions for the land adjudicated and the "communal" use of the forestry resources, the prohibition of sale and the obligation to maintain the resource(FR, Art. 95). All costs associatedwith the demarcatiodadjudication are to be borne by the beneficiary. Ifthe cooperativelorganizationis dissolved, such lands revert to the State without any compensation(FR, Articles 99,100). l5 Publishedin the Registro Oficiul of July 2, 1979. 16 Law 3501, Article 7. 96 6. Any object deemedto be of the Cultural Patrimony due to its artistic, scientific or historic value. The declaration of Cultural Patrimony of goods does not affect ownership rights of the owner of such goods, but has limitationinthe law as to the transfer abroadand others.I7 To that extent that the continued existence of ethnic groups with indigenous cultures shows the plurality of cultures in Ecuador, the Cultural Patrimony Institute will adopt measures conducive to the conservation of customs, language, cultural manifestations, artisan techniques, religions, musical or community based as identified by the indigenous as representative of their culture. There is some recognition of the intangible culturalheritage of indigenouspeoples in Ecuador inArticle 33 of the Law which provides that with regards to expressions of folklore, music, choreography, religion, andliterature or linguistic corresponding to culturally homogenousethnic groups, the Cultural Patrimony Institute or other institutes on its behalf, will take measuresto protect suchexpressions. The compilationof any such expressionsfor commercial purposesrequires the prior approval of the Institute. Examples of those expressions registered by the Institute are: the Guarander Carnival andthe marumba. The Ecuadorian State is the owner of the archeological sites of prehistoric and colonial times, including the human remains, regardless of the ownership of the land where the archeological goods are situated. These goods are to be held by the Institute or deposited in custody inmuseums. No person or private or public agency is authorized to undertake archeological or paleontologic excavation without written authorization from the Cultural Patrimony Institute. Technical expertise is one of the requirements for such authorization to be granted.'* 17 IbidArticle 11. 18 Ibid,Article28. 97