Document of The World Bank For Official Use Only ReportNo. 37630-ECA PROJECTAPPRAISALDOCUMENT ONA PROPOSEDGRANTFROMTHE GLOBAL ENVIRONMENTFACILITY TRUST FUND INTHEAMOUNTOF$1-99MILLIONTOREPUBLICOFALBANIA AND INTHEAMOUNT OFUS$2.56 MILLIONTOREPUBLICOFMONTENEGRO FOR LAKE SKADAR-SHKODERINTEGRATEDECOSYSTEMMANAGEMENTPROJECT April 30,2008 West Balkans Country ManagementUnit Sustainable DevelopmentSector ManagementUnit Europeand CentralAsia Region(ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 29,2008) US$ 1.56 = 1Euro Euro 0.64 = US$1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADA Australia Aide ADC Australian Development Cooperation BOA Bank of Albania CAS Country Assistance Strategy CoE Council o f Europe CETI Center for Ecotoxicological Research(Montenegro) CFA Country Fiduciary Assessment CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Report CQ Consultant Qualification DA Designated Account dgMarket Development Gateway Market DNPP Department ofNature Protection Policies EMP Environmental Monitoring and MitigationPlan EAR EuropeanAgency for Reconstruction EA Environment Assessment EIA Environmental Impact Assessment EPA Environmental Protection Agency (Montenegro) EU European Union EUR Euro F A 0 Foodand Agriculture Organization (UnitedNations) F M Financial Management FMO FisheryManagement Organizations FMS Financial Management Specialist GEF Global Environment Facility GIS Geographic Information System GO Global Objective GOA Government o fRepublic of Albania GoM Government o f Republic o fMontenegro GPN General Procurement Notice GRECO Group o f States Against Corruption (Council of Europe) GTZ Gesellschaft fur Technische Zusammenarbeit (Germany) IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion Report ICZM IntegratedCoastal Zone Management IDA International Development Association FOR OFFICIAL USEONLY ALBANIA AND MONTENEGRO Lake Skadar-ShkoderIntegratedEcosystemManagementProject CONTENTS Page I STRATEGICCONTEXTANDRATIONALE . .............................................................. 1 A Country and sector issues ................................................................................................. 1 B Rationalefor Bankinvolvement ....................................................................................... 4 C ... Higher levelobjectives to which the projectcontributes ............................................... 4 I1. PROJECT DESCRIPTION .............................................................................................. 5 A Lendinginstrument ........................................................................................................... 5 B Projectdevelopmentobjectiveand key indicators ......................................................... 5 C 6 D Lessonslearnedand reflectedinthe projectdesign ....Projectcomponents ........................................................................................................... ....................................................... 7 E Alternativesconsideredand reasonsfor rejection . ......................................................... 8 I11 IMPLEMENTATION ......................................................................................................... A.. Partnershiparrangements ................................................................................................ 9 B Institutionaland implementationarrangements ............................................................ 9 C 11 D Sustainability ... Monitoringand evaluationof outcomeshesults ............................................................ .................................................................................................................... 11 E Critical risksand possiblecontroversialaspects .......................................................... 12 F .. Loadcredit conditionsand covenants ........................................................................... 13 I V. APPRAISAL SUMMARY .............................................................................................. 15 A Economicand financialanalyses .................................................................................... 15 B Technical ........................................................................................................................... 15 C ... Fiduciary ........................................................................................................................... 16 D Social 18 E Environment .. ................................................................................................................................. ..................................................................................................................... 18 F Policy Exceptions andReadiness . .................................................................................... 20 has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 1: Country and Sector or ProgramBackground .......................................................... 21 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies ..................30 Annex 3: ResultsFrameworkand Monitoring ......................................................................... 34 Annex 4: DetailedProjectDescription ...................................................................................... 42 Annex 5: ProjectCosts................................................................................................................ 47 Annex 6: ImplementationArrangements .................................................................................. 48 Annex 7: FinancialManagementand Disbursement Arrangements ..................................... 53 Annex 8: ProcurementArrangements ....................................................................................... 63 Annex 9: Economicand FinancialAnalysis .............................................................................. 71 Annex 10: SafeguardPolicyIssues ............................................................................................. 73 Annex 11: ProjectPreparationand Supervision ...................................................................... 76 Annex 12: Documents in the ProjectFile .................................................................................. 77 Annex 13: Statement of Loansand Credit- ............................................................................... 78 Annex 14: Country at a Glance .................................................................................................. 80 Annex 15: IncrementalCost Analysis ........................................................................................ 85 Annex 16: STAP RosterReview ................................................................................................. 91 Annex 17: Map No IBRD35768 . ................................................................................................ 98 SOUTH EASTERNEUROPE AND BALKANS ALBANIANONTENEGRO LAKE SKADAR- SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: April 3,2008 Team Leader: Karin Shepardson Country Director: Jane Armitage Sectors: General agriculture, fishing and Sector Managermirector: John V. Kellenberg forestry sector (100%) Project ID: PO84605 Themes: Biodiversity (P);Environmental Focal Area: International waters policies and institutions (S); Water resource Environmental Assessment: Partial management (S) Assessment LendingInstrument: Specific Investment Grant [ 3 Loan [ ] Credit [XI Grant [ ] Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m.): 0.00 ProPosedterms: Source Local Foreign Total BORROWERRECIPIENT 0.65 0.09 0.74 Global Environment Facility (GEF) 2.55 2.00 4.55 Local Sourcesof Borrowing Country 6.57 2.00 8.57 Other Donors 0.90 5.00 5.90 Total: 10.67 9.09 19.76 Note: 1. Borrower/Recipient(AlbaniaUS$0.25;Montenegro US$0.49) 2. Other donors include(parallel financing): GTZ; REC; UNDP; USAID; NVA; KFW; SWISS) 3, Local sources of borrowingcountry include(parallelfinancing): National Parks; Privatization Proceeds; LocalMunicipalities(AlbaniaUS$0.69; MontenegroUS$7.88). Borrower: Republic ofAlbania Tirana Albania Republic of Montenegro Podgorica Montenegro ResponsibleAgency: Albania: Ministry o f Environment, Forestry, Water and Agriculture Rruga e Durresit,Nr 27 Tirana Albania Montenegro: Ministryo f Tourism and Environmental Protection Rimskitrg 46, Kancelarijabr. 8 Montenegro Tel: 38181482145 Estimateddisbursements(Bank FY/US$m) 'Y 2009 2010 2011 2012 2013 4nnual 0.40 1.10 1.50 1.0 0.55 2umulative 0.40 1.50 3.00 4.0 4.55 Project implementationperiod: Start September 30,2008 End:September 30,2012 Expectedeffectiveness date: September 15,2008 Expected closing date: September 30,2012 Does the project depart from the CAS incontent or other significant respects? Re$ PADI.C. [ ]Yes [XINO Does the project require any exceptions from Bank policies? Re$ PAD IKG. [ ]Yes [XINO Have these been approved by Bank management? N/A [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical risks rated "substantial" or "high"? Re$ PAD IILE. [XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD IKG. [XIYes [ ] N o Project development objective Re$ PAD II.C., TechnicalAnnex 3 The Project Development Objective is to help establish and strengtheninstitutional mechanisms for transboundary cooperationthroughjoint efforts to improve sustainable management o f Lake Skadar-Shkoder. Global Environment objective Re$ PAD ILC., TechnicalAnnex 3 The global environment objective i s to maintainand enhance the long-term value and environmental services o f Lake Skadar-Shkoder and its natural resources. Project description [one-sentence summary of each component] Re$ PAD II-D.,Technical Annex 4 The project is based uponthejoint Strategic Action Plan (SAP) for Lake Skadar-Shkoder, which represents a long-term program o f ongoing and proposed activities financed by the two governments and by external donors. Some o f the activities to be financed by the project will be implementedjointly by the two countries through a bilateral Lake Management Committee (BLMC) and associated Working Groups. Other activities will be carried out ineach country, but have lake-wide benefits. Component 1: Capacity Building for Improved Understanding and Joint Management of Lake Skadar-Shkoder: Total (US$3.43 million; GEF:US$1.80 million) - Establish and strengthen the institutional structures for cooperative management of Lake Skadar-Shkoder, including operationalization of the SLC, the SLC Working Groups, and the SLC Secretariat, and support the SLC Working Groups inthe implementation oftheir work programs. US$1.06 million) - Promote and support environmentally and socially sustainable approaches to Component 2: Promoting Sustainable Use of Lake Skadar-Shkoder (Total: US$4.79 million; GEF: tourism and fisheries management, including the improvement of nature and culture based facilities, and development of a lake-wide stock assessment and fishery managementplan. GEF:US$1.69 million) - Component 3: Catalyzing Pollution Reduction Investments:(Total: US$11.51 million; 1.Develop a small-scale waste-watertreatment system at Vranjina; 2. Support in the preparation of an environmental remediation plan for the KAP solid waste dump site; 3. Restoration of the lakeshore ecosystem. Which safeguardpolicies are triggered, ifany? Re$ PADIKF., TechnicalAnnex 10 Environment Assessment (OP BP 4.01), Natural Habitats (OP BP 4.04), Cultural Property (OP BP 4.1l), Involuntary Resettlement (OP BP 4.12), International Waterways (OP BP 7.5) Ref.PAD D.6, Technical Annex 10 Significant, non-standardconditions, if any, for: Re$ PAD III.F. Board presentation: NIA Grant effectiveness: Ref PAD 1ll.F. Covenants applicable to project implementation: Ref PAD 1ll.F. I. STRATEGICCONTEXTANDRATIONALE A. Countryand sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms o f water surface, i s on the border between Montenegro and Albania in the Southern part o f the Dinaric Alps. Its drainage area i s about 5,500 km2(4,470 km2in Montenegro and 1,030 km2in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists o f the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live inthe project area in seven municipalities and rural communes, withinthree Regions o f the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population o f about 250,000). Both countries have declared protected areas around parts o f the Lake to strengthenoverall lake protection, however, capacity is relatively well established in Montenegro, and inAlbania, a management authority is beingestablished only in2008. 2. Lake Skadar-Shkoder has features unique among the world's major lakes-a unique ecology and natural beauty with enormous tourist potential. The lake's complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. 0 Karstic origin - Lake Shkodra is Europe's largest karstic lake, formed relatively recently ina shallow subsidingtectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop o f a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic "Balkan lakes". 0 Short water residence timefshallow,fluctuating depth - The lake has highlevels o f water circulation and mixing-average water residence i s about 120 days. The lake i s shallow, fluctuating from 5 to 10 meters and groundwater from the lake's deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area inwet weather. Complex conditions ut the outlet - * The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient o f its channel bed.2Sediment accumulates, impedingthe lake's out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the DrinRiver and low water levels in the lake create reversehackflows. Recently landfills from new construction have narrowed the outlet. Lake total surface area varies: 353 km2 in dry periods and 500 km2 in wet periods (at maximum level, 335 km2 is in Montenegro and 165 km2inAlbania). Lake volume varies: 1.7 km3in dry periodsto 4.0 km3during wet periods. 'Floods between 1848 and 1896 diverted the Drin River (Albania), whose watershed is around 14,000 km2,towards the west into the Buna-BojanaRiver, a few hundredmeters from the lake outlet. Large volumes of sediment raisedthe river bed and increased the water level by severalmeters. Heavy flow inthe Drin river sometimes impedes the outflow from the lake in Buna-Bojana. 1 0 High water temperature Due to its low elevation, southern location, and shallow water - Lake Shkoder has highwater temperatures, causing highrates o f organic decomposition, and because the lake never freezes, it i s a primewinter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse o f many industries and large agricultural enterprises within the watershed. This was bad for people's livelihoods but good for the lake because it reduced sources o f industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resources-tourism as a major economic driver, hydropower production in both countriesY3and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania i s experiencing rapid population growth, which has been accompanied by illegal construction inlakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development o f the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation- based tourism, which depends heavily on environmental quality. Therefore tourism that i s planned and regulated i s preferable to many alternative economic activities. However, tourism i s now growing rapidly-unplanned and unregulated-in the Lake Skadar-Shkoder, threatening the lake's potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window o f opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path o f ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with EuropeanUnion (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries o f Environment signed a Memorandum o f Understanding (MoU).~ It calls for joint monitoring o f air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation o f joint regulation to control international commerce o f endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation o f working groups and an Action Plan for implementation o f the MoU. InFebruary 2008, a detailed BilateralAgreement5 was signed as the legal instrument for joint cooperation for protection and management o f the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 1) MoracaHydropowerSystem inthe MoracaRiver basininMontenegro, and 2) BushatiHydropowerPlanton the Drin River in Albania. These hydropower proposals are of bilateral interest because both countries have rising energy demands and shared water resources. MemorandumofUnderstandingfor Cooperationinthe Fieldof EnvironmentProtectionand Sustainable DevelopmentPrinciple Betweenthe Ministryof Environmentofthe Republicof Albaniaand the Ministry o f EnvironmentProtectionand PhysicalPlanningofthe Republicof Montenegro. Agreement Betweenthe Government o fthe Republicof Montenegroand the Council of Ministersofthe Republic of Albania for the Protectionand Sustainable Developmento f the Lake of Shkodra (Skadar)and its Watershed. 2 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status o f the lake's natural and economic resources including the following: 0 Proposals inboth countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, underminingthe lake's ecological integrity andwater quality. Water quality i s generally good but unless economic revitalization and growth inthe lake basin i s managed in an environmentally sustainable way, quality could deteriorate to pre- 1990sconditions or worse. Remaining pollution "hotspots" have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff o f agrochemicals and nutrients (aggravated by lost natural vegetation buffers). 0 Fish populations, including commercially valuable migratory species, are declining, perhaps due inpart to increasing numbers o f active fishermen since 1990,particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and inpart due to localized pollutionand habitat destruction. 7. Fishare the lake's most significant natural resource interms ofcontribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some o f the lake's most valuable fish species are threatened by over- exploitation and habitat degradation. Both governments have institutions and personnel inplace to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identifiedas the highest priority industrial threat to the lake, specifically as a source o f heavy metals, PCBs, and other toxic pollutants, which have been detected inthe lake water, adjacent springs, wells, and some fish.A prime source o f these pollutants i s from a large, unlined, uncovered dump site containing a mixture o f non-hazardous and hazardous wastes that have beenaccumulating since start o f production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context o f expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP)6 was prepared through a participatory process with a wide range o f stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii)Reduce and prevent Available on Government of Albania, GovernmentofMontenegro, and GEFhnternationalWaters websites. 3 lake water pollution; and (iii)Establish effective systems for sustainable management o f natural and cultural resources, includingfisheries; and promotejoint sustainable tourism development. B. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs inboth countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation o f water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project i s part o f a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EUenvironmental acquis. 11. Among GEF implementing agencies, World Bank comparative advantage i s well recognized in downstream implementation phases o f actions plans. At a regional level, the project supports implementation o f the World BaWGerman Government supported "St. Petersburg Process," which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase I1 o f this process, which focuses on South Eastern Europe. C. Higher levelobjectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides o f the lake are designated as wetlands o f international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum o f Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization o f these national strategies and plans and fulfillment o f international obligations. Project-generated information i s essential to improve understandingo f threats to the lake's waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fitto GEFFocalArea Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, jnancial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater 4 basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increasedtourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering o f water levels and pollution o f surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoder's shallowness and karstic basin geology makes it particularly vulnerable to the impacts o f conflicting uses o f the surrounding land (many recharge areas o f karstic aquifers feed the lake), and o f the waters flowing into the lake. Countries' Eligibilityfor GEF: 14. Albania and Montenegro are members o f the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection o f the Mediterranean Sea and its protocols and have developed programs within the framework o f the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use o f Transboundary Watercourses and International Lakes7 A 2003 MOU and a 2008 Bilateral Agreement provide a specific fkamework for cooperation for protection and sustainable development o f Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed duringproject preparation identifiedobjectives and highpriority issues on a lake-wide basis, and ajoint Strategic Action Plan (SAP) based on the TDA was approved by both governments. 11. PROJECT DESCRIPTION A. Lendinginstrument 15. The project is financed through two GlobalEnvironment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 millionMontenegro and $1.99 millionAlbania) will be denominated inUS dollars. B. Projectdevelopment objectiveand key indicators Global DevelopmentObjective 16. The global project development objective is to maintain and enhance the long-term value and environmental services o f Lake Skadar-Shkoder and its natural resources. ProjectDevelopmentObjective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management o f Lake Skadar-Shkoder. Key Indicators: 'In case o fMontenegro, signatory was as part ofthe Uniono f Serbiaand Montenegro 5 18. The following key outcome indicators are proposed. Specific plans for monitoringthese and subcomponent indicators are described inAnnex 3. One year prior to project close, governments budgets will support operational costs o f maintaining andparticipating inthe BilateralLake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) 0 Agreement between Government o f MontenegroKAP owners (Rusal) on solution and joint action planto manage the legacy dumpsite wastes at KAP site. (Process) 0 Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) C. Projectcomponents 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management o f the Lake; (ii) Promoting Sustainable Use o f the Lake; and (iii)Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details o f project activities and financing are inAnnex 4 and 5. Component 1: CapacityBuildingfor ImprovedUnderstandingand Joint Managementof the Lake (Total: US$3.43million; GEF: US$l.80million) 20. This component buildscapacity to establish and strengtheninstitutional cooperationto operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups o f the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks o f the four working groups such as: (a) create a predictive hydrological model o f the lake basin; (b) research and monitor to better understandimpacts o f changes ininflowing water quantity and quality; and (c) harmonize monitoring on both sides o f the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters LearningExchange and ResourceNetwork 1W:LEARNthrough project promotional materials, participation ininternational workshops, data exchange, and hosting annual donor coordination meetings. A key output o f this component will be improved informationand coordination for transboundary decision-making. This component also supports incremental project management costs ineach country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06million). 21. This component will promote adoption of sustainable approaches to economic development o f the lake (and its natural resources) by focusing on tourism and fisheries where there i s high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management 6 by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51million; GEF: US$l.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects o f village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation o f the lake's largest-scale industrial pollution "hotspot." A demonstration pilot project for wastewater treatment, based on constructed wetlands, i s proposed for the village o f Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government o f Montenegro`to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization o f on-site waste and feasibility study/preliminary design o f options study for remediation, recycling, andor disposal. The TA would include an international adviser to assist regulatory authorities' work on the K A P site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration o f lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated inAlbania. This includes: (a) Restore prioritizedlakeside groves (willows and other native trees) inerosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nurseryareas). D. Lessonslearnedandreflectedinthe projectdesign 25. Project preparation benefited from several past Bank-financed projects and programs for coordination o f transboundary water bodies and other natural areas. Specific lessons from the completed MacedonidAlbania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoringprograms and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation inproject activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholders-collaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. 7 Grant-financed projects can help leverage other spin-off projects (e.g., financing o f major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring inboth countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance o f combining "bottom-up" planning and implementation (and local economic benefits) with "top-down" (e.g., policy level) support; and the value o f high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance o f involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project designmodels; for example, effective cooperation i s possible despite substantial differences in the countries' institutional structures. The study tour also highlighted the importance o f creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value o f restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management o f transboundary lakes such as the International Commission for the Protection o f Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. E. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed o f Lake Skadar-Shkoder (andextending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. Inaddition, the large geographic area and limitedresources would spread investments on the ground too thinly. Project-supported actions are designedas a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health inthe face o f 8 anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and "hotspots." Initially, GEF resources were considered to finance remediation o f a legacy waste dump at the K A P site, the up-front work requiredwas still substantial, and therefore limitedproject resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion o f an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening o f the Protected Areas around the Lake was limitedto reflect changes inthe GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement o f fishery management, and integration o f parks insustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use o f lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimumnumber o f enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate inlocal user associations. 111. 111. IMPLEMENTATION A. Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission i s the coordinating body for the joint Strategic Action Plan-a framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEF's IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. B. Institutionaland implementationarrangements 32. Project implementation arrangements will be streamlined within the existing structures o f the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry o f Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry o f Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides o f the border falls within formally established Protected Areas (PAS). InAlbania, MEFWA i s also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the 9 Ministryof Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special case-due to its P A status, responsibility i s delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms o f Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part- time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality o f Podgorica, and a Steering Committee for KAP site grant supported activities (KSC). Government departments, agencies, or organizations that are beneficiaries or involved in implementingproject activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups o f technical specialists and local stakeholders with project support to identify priorities and facilitate coordinatiodaction on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors inMEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management o f SLC activities will remain centralized under coordination o f the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non- implementing institutions that are important actors and stakeholders. For example, the Drin- Bune River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that o f local communities and NGOs. 10 C. Monitoringand evaluation of outcomedresults 37. The Project Coordinators inMTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats i s inthe PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation o f mitigation measures inthe Environmental AssessmentEnvironmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts o f project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro- Meteorological Institute, Institute for Protection o f Cultural Monuments, Nature Protection Institute, University o f Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum,FisheryResearchInstitute,and University o f Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments' approval o f its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness o f the Committee and its Working Groups will also be measured by the extent to which the governments make use o f these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness o f the governments to cover a portion o f its basic costs (meetings and communications) over the life o f the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio- economic impacts will be measured through social surveys-results will be compared with baseline studies carried out during project preparation and the first year o f implementation. Data collection will be carried out by the staff o f the respective P A management units and by contracted third parties. Impacts o f the small-scale wastewater treatment demonstration will be measured by improvement o f water quality at the site. Ecological restoration o f buffervegetation should also helpprotect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress o f restoration work. D. Sustainability 11 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first thee years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary context-annual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. beyondthe project life . For all these reasons, the likelihood is high that project outputs and outcomes will continue E. Criticalrisksandpossible controversial aspects RISK MITIGATION IIRating with Mitigation Government commitment to High visibility of Lake Skadar-Shkoderas a nationally, and preservethe lake ecosystem internationally important natural area (enhancedby the project) weakens againstpressures for will strengtheninternational supportto counter largethreats.' M non-compatible economic Public awareness and community involvement insustainableuse developmentin watershed. will help build local support. Tourism growth at national Both governments have identified Lake Skadar-Shkoder as a M and/or local levels less than priority for tourism potential. Strengthenedplanning and expectedor growth is rapid regulation, monitoring to identify potential problems at an early but does not follow a stage, raising public awareness, and working with private sector sustainablepath. partners are key elementso fa strategy to manage and steer tourism insustainableand productive directions. Weak institutional The project supportsexisting actorsto improve, expand, or reorient implementation capacity in existing activities, and provides assistance for Project Coordinators both countries; and inter- focused onjoint cooperation across the respectiveMinistries. S dependency of Governments Capacity to work with the KAP site will be strengthenedby an for joint activities could slow international adviser. InAlbania, the new SLMNR Management project activities. unit will be formed from staff currently under the forestry department. Project procurement and financial managementis centralized inboth countries to avoid fragmentation of efforts. Project combines bothjoint and single country activities. Support to the KAP site may TORS for the studieswill focus on demonstration of economic S be influenced by the political benefitsof alternative solutions to both government and the private process; and project lacks any owner. A component specific SteeringCommittee will be 'The Governmentof Montenegro's recent rejection ofthe proposedBuk Bijela hydroelectric dam (which threatened a part of the Tara River Canyon) is an example o fthe influence carried by local and international opinion. 12 leverageon overall establishedprior to initial tenderingofthe KAP assignments. Its environmentalperformance role is to help promote informationsharingat an early stage. ofthe plant. InternationalAdvisory support will strengthencapacityto negotiate solutions with the private sector. Work will be coordinatedwith parties preparingthe IPPC permit, likely to be startedduringthe project life. Ifdemolitionsbygovernment The projectdoes not support investments at sites where legalstatus occur aroundthe Lake, and is uncertainor subject to the ongoingprocedures. Lake there is aperceptionby the managementplan is limited to the lake itself. Projectactivities localpopulationof a link to remain separate from any governmentdecisions for demolitionthat S the project,this couldcreate a may stem from the law 9482 process. Incase this risk occurs,the negativeenvironmentfor outreachand communications programofthe SLC will help clarify project implementation. the limits and scope ofthe project actions. Projectimplementation manualclarifying roles and responsibilities(including limits of park rangers responsibilities)will be publically available. Close Icoordinationacross Bank portfolio and with countrymanagement and implementationof aproactivecommunications strategy. OverallRisk Rating S F. Grant conditions and covenants 44. Conditionfor Grant Eflectiveness: Cross-effectivenessof the grant agreementsfor AlbaniaandMontenegro,respectively. (BOTHAGREEMENTS) 0 The ProjectImplementationManual, satisfactoryto the WorldBank, has beenadoptedby the Recipient.(BOTHAGREEMENTS) 0 The executionanddelivery ofthe grant agreements onbehalfofthe Recipienthas been duly authorizedor ratifiedby all necessarygovernment action.(BOTHAGREEMENTS) 45 I Disbursement Covenants: Priorto the commencement of any works under Parts B andC3 ofthe Project, the Recipientshall preparefor eachsite a site-specificEMPina manner satisfactoryto the WorldBank.(ALBANIA) Priorto the commencement ofany works underPart B or Part C1ofthe Project,the Recipientshall prepare for each site a site-specificEMP ina manner satisfactoryto the WorldBank.(MONTENEGRO) For paymentsmadeprior to the date ofthe Agreement, except that withdrawalsupto an aggregate amount not to exceed$100,000 equivalentmay be made for payments madeprior to the date ofthe Agreement but on or after November 1,2007for EligibleExpenditures under Category 1(BOTHAGREEMENTS) UnderCategory 3 unlessthe KSC hasbeenestablishedandconvenedwith staffand resources satisfactoryto the WorldBank (MONTENEGRO) 46. Implementation Covenants The Recipientshall maintainthe SLC, the SLC Working Groups, the SLC Secretariat, andthe MEFWAPMUat all times duringProject implementation,withterms ofreference andresources satisfactoryto the WorldBank, andwith competent staffinadequatenumbers. (ALBANIA) 13 The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i)duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangementstherein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation,with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) 0 The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i)duly perform all obligations under the Project Implementation Manual, the Framework EM, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii)not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the ProcessFramework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) 0 The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: 0 The Recipient shall ensure that a financial management system is maintained in accordance with the provisions o f Section 2.07 o f the Standard Conditions. (BOTH AGREEMENTS) 0 The Recipient shall ensure that interimunauditedfinancial reports for the Project are prepared and furnishedto the World Bank not later than forty five (45) days after the end o f each calendar quarter, covering the quarter, inform and substance satisfactory to the World Bank.(BOTH AGREEMENTS) 0 The Recipient shall have its Financial Statements for the Project audited inaccordance with the provisions of Section2.07 (b) of the Standard Conditions. Eachsuch audit of the Financial Statements shall cover the period o f one fiscal year o f the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end o f such period. (BOTH AGREEMENTS) 0 The Recipient shall monitor and evaluate the progress ofthe Project and prepare Project Reports inaccordance with the provisions o f Section 2.06 o fthe Standard Conditions and on the basis o f indicators agreed with the World Bank. Each Project Report shall cover 14 the period of one (1) calendar semester, and shall be furnishedto the WorldBank not later than one (1) month after the end o f the periodcovered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report inaccordance with the provisions of Section 2.06 o f the Standard Conditions. The Completion Report shall be furnishedto the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) IV. APPRAISAL SUMMARY A. Economicand financialanalyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality o f the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investmentsunder this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits o f the K A P site and investments in small-scale wastewater control; these appear inAnnex 9. Financial or economic analyses will bepart ofthe investment feasibility studies. The K A P feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investmentcosts per capita, and promote lowest-cost design solutions proven effective inother rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs o f the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. B. Technical 49. A key influence on project technical design was the substantial difference between the two countries' prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and humanresources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution o f project benefits. 50. U P hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent o f soil pollution, design options to contain or dispose o f the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services o f a specialized international adviser to assist capacity-building and sustainability inthe MTEP and ensure that studies and recommendations buildupon international good practice o f hazardous waste management and aluminum waste remediation. 51. Project support will builda small-scale wastewater system usingconstructed wetlands for final filtration. Terms o f reference for the feasibility study have been prepared and call for international expertise for this first-ever such system inMontenegro. 15 C. Fiduciary FinancialManagement - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project i s moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government o f Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU i s established, functioning, and in charge o f fiduciary aspects for three ongoing projects inMontenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation o f those three projects was overall satisfactory. Soon, the TSU will likely be in charge o f implementing six or seven projects, this will require close monitoring and evaluation o f any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months o f the end o f each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set o f Interim un- audited Financial Reports (IFRs) for each calendar quarter throughout the life o f the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses o f project funds, and movements in the project's Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software i s acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms' annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area o f corruption, financial crimes, and misuse o f public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegro's `financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some o f these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale o f corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project- level measures to mitigate corruption risks include a separate financial management system for 16 the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include:use a privateaudit firm for project auditing; use Bank FinancialManagement Specialist for oversight; use a Designated Account inEUR for administeringproject finds will be opened ina commercialbank acceptable to the WorldBank. Financial Management Albania - 56. Financial management arrangements of the project implementing entity, the MEFWA, have been found to be satisfactory, subject to implementation of action agreed by negotiations (see Weaknesses and action plan section). The overall financial management risk for the project i s substantialbefore mitigation measures, and with mitigation measures agreed, residual risk i s ratedmoderate. 57. As of the date of this report, MEFWA has no overdue audit. The annual auditedproject financial statements will be providedto the Bank within six months of the end o f each fiscal year and at project closing. The most recent Country Fiduciary Assessment (CFA-August 2006), Public Expenditure and Institutional Review (PEIR-July 2006), and Public Expenditure and Financial Accountability Report (PEFA-July 2006) confirm that public spending needs to increase efficiency and accountability by improvingplanning, budgeting, and executing public investmentprojects; strengthening lines of accountability, includingbetter access to information by all stakeholders; strengthening monitoring and evaluation systems; and establishing competitiveandtransparent frameworks for government purchases (procurement). 58. An assessment of country financial management arrangements concluded that it has improved significantly during the last few years in budgeting, internal control, internal and external audit, albeit from a weak base. The Project will rely on the various elements of Albania's public financial management systems, includingbudgeting, internal controls, flow of funds and accountingandreporting. Procurement-Albania and Montenegro Keyprocurement issues andrisksidentifiedfor projectimplementationincludethe following: 59. For Montenegro, a Country FinancialAccountability Assessment (CFAA) and Country Procurement Assessment Report (CPAR) were carried out in 2002 for the former combined Republic of Serbia and Montenegro. The CPAR categorized Montenegro as high risk given issues identifiedin the legal framework, regulatory functions, enforcement regime, and so forth. A PreliminaryReview of FiduciaryArrangements supportingthe CAS was prepared in draft for Montenegro in April 2007. Although the TSU in charge of procurement for Montenegro has World Bank project experience, given the CPAR findings, the overall procurementrisk is rated high. 60. For Albania, the Bank assessed the Albanian procurement system first in January 2001 (CPAR) and most recently in August 2006 (CFA-Country Fiduciary Assessment). The 2006 CFA rating was significant for risks associated with public procurement.The 2006 CFA noted high-level government attempts to bypass the law, lack of capacity in the public procurement 17 agency and implementing ministries, and inadequate complaint-review mechanisms. In November 2006, Parliament enacted a new public procurement law, effective January 1,2007. The project implementing institution, MEFWADNPP (Department o f Nature Protection Policies), lacks Bank procurement experience (Project Director has no procurement experience; Project Coordinator located in Shkodra has modest experience inBank procurement). Therefore, the overall procurement risk for Albania i s high. The project will hire a part-time procurement consultant, with Terms o f Reference and selectionprocess acceptable to the Bank, to work on the Albanian side. D. Social 61. Project social assessments were conducted in Montenegro and Albania, and the project Environmental Assessment and the survey on fishing practices covered some social aspects. The studies included local workshops, questionnaires, focus groups, and individual interviews with an extensive sample of communities on both sides o f the lake. The social assessments analyzed stakeholders from central and local governments, regional associations, user groups, and NGOs active in the project area. The environmental NGO sector i s weak in both countries, although some groups exist (e.g., Greens o f Montenegro; ecological clubs in Albania) and can be strengthened through project participation. The joint public outreachkornmunicatiodeducation program under the project will use extensive information collected on stakeholder group identitiesandcircumstances. 62. The social assessments identifiedpatterns o f demographic change near the lake. On both sides o f the border, social organization i s constrained by social and demographic trends such as village depopulation and aging and recent substantial immigration (including refugees) to urban areas (particularly Shkodra). Generally, recent immigrants to the Shkodra municipal area are poorly integrated into social networks, creating significant divisions between newcomers and long-time residents. The social assessments reported little evidence o f conflicts based on ethnicity eventhough Montenegrins, Serbs, and Albanians populate the area. 63. Social studies data are conflicting on the role o f fishing in the local economy (including commercial fishing, fishing for own use, and recreational fishing for locals and tourists). The social assessmentscarried out ineach country indicate that fishing as a primary livelihood source has declined, supplanted by agriculture. The Albanian fishing practices survey reported much greater reliance on fishing for own use and sale. The level o f fishing pressure reduction required to sustain the resource i s unknown but will be studied during implementation, when better information emerges about fish populations and distributions. An in-depth socio-economic survey will be conducted during the first year to assess restrictions on fishing and potential negative impacts. E. Environment 64. The project is classified Category B; activities are expected to have limited impacts that are primarily environmentally neutral (e.g., establishing transboundary institutions) or positive (e.g., treating wastewater, restoring ecological balance, promoting more sustainable practices). Minor construction impacts are expected, related to small-scale wastewater investment, physical 18 improvements at cultural monuments, and small-scale civil works in parks. An environmental management plan will be prepared for these investments, detailing mitigation measures required, roles and responsibilities to prevent negative impacts during construction and operations. The TORS for construction contracts will incorporate the EMPs in the agreements. Support to the KAP site includes funds to prepare an EIA (to meet category A-type investment standards) of recommended remediation options from a project-financed feasibility study. Although the project provides only TA for this site, it requires close supervision and oversight by Bank environment specialists given the complexity of environmental issues. The project will finance an international adviser to strengthen government and supervision capacity for this activity and assist capacity building and sustainability inthe MTEP. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.01) [XI [I Natural Habitats (OPBP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Cultural Property (OP 4.11) [XI [I Involuntary Resettlement(OPBP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [I [XI Forests(OP/BP 4.36) [I [XI Safety of Dams (OPBP 4.37) [I [XI Projects inDisputedAreas (OPBP 7.60)* [I [XI Projects on International Waterways (OPBP 7.50) [XI [I 65, Environmental Impact Assessment: An Environmental Impact Assessment has been carried out and publicly disclosed in both countries. The EIA describes potential activities and outlines the assessment and permitting processes for such investments in accordance with Government and World Bank policies and procedures. The EIA also reviews each country's legislative and regulatory frameworks and implementatiodenforcementcapacity to assess their compatibility and adequacy for World Bank requirements; evaluates potential project environmental risks and impacts, including transboundary impacts, and international obligations; examines project alternatives; identifies improvements for project selection, siting, planning, design, and implementation by preventing, minimizing, mitigating, or compensating for adverse environmental impacts and enhancingpositive environmental impacts; and describes the process for developing environmental monitoring and mitigation plans (EMPs) for specific investments. Environmental procedure details are inthe PIM, including processesand responsibilities. 66. Natural Habitats: This OP is triggered because the area surrounding the lake comprises legally designated PAS and Ramsar sites and because some on-the-ground works will be financed within these protected areas-for example, an ecological campground, waterfowl monitoring stations, and a village-level artificial wetland wastewater treatment facility. * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputed areas 19 67. Cultural Property: This OP is triggered because legally designated cultural heritage sites exist within the project area (e.g., old monasteries) and some will be refurbishedfor tourism and education purposes. Special measures will be taken in the design and construction work, including assurance of close consultations and permissions from legal bodies responsible for cultural heritage ineach country. 68. Involuntary resettlement: The project will not finance land acquisition; and project activities will not require or entail any land acquisition and/or physical relocation of people. The project may require involuntary restriction of access to natural resources in legally designated protected areas as background studies indicate that over-fishing likely represents a significant threat to the sustainable use of the lake ecosystem. The extent of over-fishing will be assessed during the first project year through a detailed study of fish resources. Reducing fishing pressure to achieve sustainability could restrict livelihoods for some local residents so Resource Access Restriction ProcessFrameworks were preparedfor bothcountries inaccordance with WB OP/BP 4.12. These Process Frameworks have beenpublicly disclosed together with the draft EIA and were submitted to the World Bank with cover letters endorsing the Frameworks. The process frameworks do not address re-settlement associated with possible demolitions by ongoing government programs in accordance with their law. Planning supported under this project only addresses natural resources management at a regional level which does not trigger WB OPBP 4.12. 69. International Waterways: Lake Skadar-Shkoder empties into the Adriatic Sea via the transboundary Buna-Bojana River. The project will not finance investments that abstract water and the interventions will be environmentally positive (reducing pollution inputs to the lake). However, in accordance with Bank policy, this OP is triggered by the project's small-scale investment in rural wastewater treatment with constructed wetlands inMontenegro. Notification of the Adriatic states has been done through UNEP, which serves as the Secretariat for the Barcelona Convention for the Protection of the Mediterranean Sea against Pollution. F. PolicyExceptionsandReadiness 70. No policy exceptions are sought for this project. Project readinesshas focused on ensuringthe first year of procurement actions are preparedand ready for tendering by the effectiveness date. Some calls for proposals can be launched earlier. The project preparation teams implementing the PDF-B inbothcountries are responsible for ensuring readiness, and arrangements have beensecured for their ongoing work untilproject effectiveness. 71. The project will allow for retroactive finance from November 1,2007 for Project Coordinator salary costs (following close of the PDF-B preparation grant). No special policy approval is requiredgiven the limitedamounts (up to $100,000). 20 Annex 1: Country and Sector or ProgramBackground ProjectArea, Economic and Social Trends Description of the lake andproject area 1, Lake Skadar-Shkoder is locatedonthe borderbetweenMontenegroandAlbania, south of the Dinaric Alps. The lake is oriented lengthwise from northwest to southeast, paralleling the Adriatic coast from which it is separated by a 10 km wide span of the Tarabos and Rubia mountains.Skadar-Shkoder is the largest lake on the Balkanpeninsula, interms of surface area, averaging 475 km2 (varyingbetween about 370 km2in summer and 540 km2 in winter). It is a relatively shallow lake, with an average depth of 8 mybut with some deeper funnel-shape depressions ("oko") where groundwater wells up. The coastline is 168 km (110.5 km in Montenegroand57.5 km inAlbania) andnumerous elongatedislands are foundalongthe coast. 2. The physical-chemicalcharacteristicsof the lake water are the result of inflow from its tributaries (particularly the Moraca and Crnojevica Rivers), inflow from karstic springs, exchange between the sediments and overlying waters, and chemical exchange between the waters and the extensive beds of aquatic macrophytes. Water circulation and mixing inthe lake are highdue to highidout flow. The average water residencetime i s about 120days. There i s no stratification and therefore little habitat differentiation within the lake except around the shoreline. Average water temperatures are high due to the mild climate and the lake's low elevation and shallowness, creating high rates of decomposition and an important winter bird refuge. 3. The most important lake tributaries enter from the north: the Moraca, Crnojevica, Orahovstica, Karatuna and BaragurskaRiversinMontenegro,and the Rjolska and Vraka Rivers in Albania. River deposits and the lower edge of plain have created a wide marsh belt that is regularly flooded. The lake level is strongly related to inflow from the Moraca River. Many small streams enter on the western site. The lake area is tilted to southeast, and drains through Buna-BojanaRiver to Adriatic Sea. Floodsinthe mid-1800sdivertedthe Drin River in Albania westward into the Buna-BojanaRiver, a few hundredmeters from the lake outlet, with a large depositionof sediments that raisedthe riverbed. The outwardflow of the lake is impededwhen there is high flow in the Drin River, usually from December to February, depending on water released from three hydropower dams constructed in the 1960s/1970s upstream on the Buna- BojanaRiver, which raises the lake leveltemporarily.The river has a low transport capacity for sediment due to the low gradient of its channel, and sediment accumulates around the intake leading to frequent flooding of nearby land. Recently, the outlet has been narrowed through landfill for new construction. 4. Precipitation and groundwater from the Zeta plain Quaternary aquifer in the northhortheast,karstic springs particularlyonthe southwesternside, andthe "oko" groundwater upwellingalso contributesignificantly to the water inflow to the lake. Most of the springs are at or belowthe surface levelofthe lake.The groundwater depth onthe Zeta plainnear the lake are at about 8-10 m below the ground, with a flow gradient from northeast to southwest. Recharge 21 (normally around 5 m3/s) is mainly through infiltration from rainwater, river water (particularly the Moraca, Cijevna and Ribnica Rivers) and karstic aquifers. The Zeta plain aquifer, karstic springs at the edge of the plain and the lake water are all hydraulically connected. Lake area groundwater is used for drinking, irrigationand industry. Karstic spring water, some from karstic aquifers up to 60 m deep, is excellent quality and usedfor drinking. Socio-economic and demographicfactors 5. Approximately 500,000 people live inthe greater Lake Skadar-Shkoder watershed, with two-thirds in Montenegro and one-third in Albania. Sixty percent of the population is urban, living in a few cities: Shkodra in Albania and Podgorica, Niksic, Danilovgrad and Cetinje in Montenegro. The rural population is sparse in small villages and communes. The proposed project area is considerably smaller-the lake itself and immediately surrounding areas. In Albania, it falls within three Regions o f the Shkodra District (Shkodra, Malesia e Madhe and Puka), although the territory of Puka Region does not directly contact the lake. The total project area population inAlbania is about 170,000, living in seven municipalities and rural communes (72 percent rural, 28 percent urban). The Albania poverty profile identifies the Shkodra prefecture as among the four with the highest poverty headcount in the country-over one-third of the population lives below the poverty line and lacks access to basic public services. In Montenegro, the lake and surrounding areas fall entirely within the Lake Skadar National Park, which includesparts of the territories of three municipalities (Podgorica, Bar, and Cetinje). The total population of 40 settlements inside or at the edge of the park in Montenegro i s about 12,500. O f these, only about 550 (4 percent) live in the relatively urbanized settlements of Virpazar and Rijeka Crnojevica, while the remainder (96 percent) live in rural areas. In this region the unemployment rate is about 40 percent higher than it was in 1991, and since 2003 unemployment has increased25 percent inKrjina and 40 percent inCrmnica. 6. Migration i s changing the demographic profile of settlements inthe area on both sides of the border-populations are aging and declining in rural villages as young people migrate to urban areas. Pensioners comprise about 15 percent of rural settlements in Montenegro, and over 30 percent in some villages. While the population i s declining over most o f the project area, it has increased2.5 times inthe agricultural Zeta plain (one of the most intensively cultivated areas of Montenegro) since 1990. In Albania, the rural village population has declined by 18 percent over the same period, while small towns and urban areas have increasedby 8.7 percent. 7. The two countries suffered severe economic decline during the 1990s and many industrieswithin the watershed collapsed. This was bad for people's livelihoods but good for the lake because it reducedsources o f industrial pollution. Both governments now seek to revive the economic base in the area and a wave of housing construction, particularly on the Albanian side near Shkodra city, reflects the influx of money from remittances (and some smuggling). 8. Since 1991,inAlbania, there has beena mass migration of people from the mountainous and rural zones to urban areas and coastal cities. The state and the land market, have beenunable to provide housing for the large influx of people. Consequently, people have occupied both state and privately owned land, and illegally built homes without the benefit of clear urban plans or adequate infrastructure. Since 2001,the Government has beentrying to improve this situation by 22 strengthening enforcement through development of new urban and regulatory/zoning plans, introduction of new processes of legalization, and demolition of illegal buildings. A 2006 Law (9482) on legalisation, urbanisation and integration of illegal construction, excludes the legalization of illegal buildings built incoastal and priority touristic areas including the banks of Shkodra Lake from Zogaj to Koplik inthe regions of Shkodra and Malesia e Madhe until further actions have been taken to update urban development plans. An urban planning study has been prepared by Shkodra municipality with the support of GTZ, which proposes two development alternatives on the lake shores: (1) strictly develop only existing official urban areas with demolition of identified illegal buildings; or (2) allow existing buildings, but regulate for the future the intensive and irregular development of the present area. Intotal, 199 illegal buildings (134 in Shiroke and 65 inZogaj) have been identifiedaround the Lake with no urban planning or clear inventory of illegal construction on the eastern lakeshores. No definite timetable has been established to reach final agreement on the urban plan and follow-up actions. Thus, it has been assumed for the life of this project (next 4-5 years), that resolution of the illegal building problem aroundthe lake will remain an active concern ofthe government. 9. Tourism i s proposed to be a major economic driver. The Montenegro Master Plan for Tourism Development designates Lake Skadar a tourism development zone, with cultural tourism and sailing, walking and fishing as the main potential attractions. Similarly, the 2005 Strategy and Action Plan for the Development of the Albanian Tourism Sector Basedon Cultural and Environmental Tourism outlines a new orientation towards cultural and environmental tourism emphasizing nature and cultural heritage. The 2005 Strategy of Economic Development of Shkodra Municipality identifiestourism development as a priority strategic objective and sets out action plans for eco-tourism development based on the lake and cultural attractions. However, these objectives at odds with current trends of uncontrolled construction of homes, restaurants, and other facilities along the lake shore, which will have to be replaced by well planneddevelopment and effective regulation. The challenges are similar to those of the Adriatic coastal areas inbothcountries, but at a less advancedandperhapsmore manageable stage. Policy and Institutionalfactors 10. Both Montenegro and Albania have updated or are updating policies and laws relating to natural resources (e.g., water, forests), nature protection and Protected Areas, environmental assessment and environmental management. Neither country has made explicit efforts to harmonize laws across borders, but both are trying to harmonize with EU policies and regulations, which i s resulting in convergence. In both countries, enforcement of these laws remains relatively weak, in part due to institutional capacity constraints, and in part due to political realities such as politicians' need to capture support among volatile local voters, which sometimesprecludestaking a hard line on illegal activities. 11. The entire lake together with immediately surrounding areas falls within ProtectedAreas (PAS) on both sides of the border. In Montenegro, the Lake Skadar National Park (LSNP) was established in 1983 and declared a wetland of international significance under the Ramsar Convention in 1995. In Albania, the Shkoder Lake Managed Nature Reserveg (SLMNR) was designated inNovember 2005, and declared a Ramsar site inFebruary 2006, and is expected to IUCN Category IV 23 establish an administrative body in 2008. Altogether, the combined protected area covers 900 km2o f which about half is the lake itself. Both PAS are multiple-use, not exclusive nature reserves that include substantial settlements, privately owned and public lands, with resources (fish, gravel, pastures, etc.) that are exploited for subsistence and commerce. As noted, tourism i s well established inthe area and expected to grow rapidly. 12. The PA status confers many advantages. At the policy level, it establishes nature conservation and sustainable use o f natural resources (focused on the lake) as the core management objectives and provides a legal framework for the government (MTEP and Public Enterprise for National Parks inMontenegro; Directorate for Nature Protection under MEFWA in Albania) to establish and enforce regulations for access and use of land, water, and natural resources. In both countries, the PASare designated special planning areas for which detailed spatial plans are to be developed and approved by Government; these plans can supercede local/municipal-level plans. The P A laws also call for P A management plans, but these are approved internally and lack the same legal standing. The PAShave designated Management Units with a mandate to enforce regulations and to pass or refuse development proposals, land purchases, and so forth, based on their spatial and management plans and the P A legislation. The Management Unit o f the LSNP in Montenegro is well established and experienced, with a modern Headquarters building and management team. The Management Unit o f the SLMNR in Albania has been legally established but at present consists o f 10 fisheries rangers, one o f whom has been designated acting Head o f the Unit. A proposal i s under consideration with MEFWA for strengthening this organization in 2008 through consolidation with other structures responsible for land and water. Under the Ramsar Convention, both halves o f the lake have been designated wetlands o f international importance-recognition that this i s a global asset and legitimate concern o f the international community, which adds another level o f protection. Trans-boundaryDiagnosticAnalysis (TDA) 13. Duringproject preparationa TDA was carried out to identifymajortrends andunderlying causes in lake ecology and natural and economic resources. The TDA was the basis for the Strategic Action Plan, on which the proposed GEF project components and activities were based. The TDA findings are recognized as indicative rather than conclusive, given significant data gaps and inconsistencies within and between the two countries. In addition, trends in physical and chemical parameters of water quality show a high degree o f seasonal variation, and swings over time reflecting major economic, political, and social changes in surrounding areas. The TDA proved that a broad-based and systematic trans-boundary monitoring program should be established as soon as possible, and that many key lake and resource management decisions can be made only when key baseline studies are updated or undertaken. Bearing these constraints in mind, key findings o fthe TDA are as follows: Lake Skadar-Shkoder water quality i s generally good (in most cases meeting EU standards for drinking water), and is better than in previous decades, due to reduced industrial and agricultural pollution inflows following the early 1990s major industry collapse, and to rapid water turnover (the entire lake contents i s replaced every 120 days on average). Therefore the main challenge i s to protect the lake from a likely increase in 24 pollution and other environmental degradation during anticipated future economic renewal and development, bothinthe immediate upstream area. 0 Some localized pollution "hotspots" present immediate ecological and health hazards and should be remediated as soon as possible-areas of the lake at mouths of the main inflowing rivers and adjacent to main agricultural areas, for example, and contaminants carried through groundwater hydrologically connectedto the lake. Decline in some fish species populations i s evident, particularly commercially valuable migratory species, andpossibly insome residentand migratory waterfowl. There is little history of coordination or cooperation between Montenegro and Albania for managing the lake and its resources. 13. The sectionsbelow elaborate onTDA findings relevant to the proposedProject. Lake Water Quality 14. The Moraca River is the main source of lake pollution. Since 1990 on the Montenegro side the Hydrometeorology Institute and Center for Ecotoxicological Research (CETI) carried out fairly systematic monitoring of a wide range of chemical and physical parameters (surface and groundwater samples eight times per year). This began during 1990-1991 with a fairly comprehensivebaseline study that includedsoil and groundwater samples at locations aroundthe Kombinat Aluminjuma Podgorica ( U P ) aluminum plant (see below), the mouth of the Moraca River and lake sediments, and fish and lake vegetation. During 1992-96, an environmental study of the Zeta Plain examined groundwater, river waters, soil, lake sediments and air quality, with an emphasis on areas likely to be affected by the KAP. In Albania, the Hydrometeorological Institute also carries out regular sampling and analysis at several stations approximately twice a year, complemented by Institute and University of Shkodra studies. Due to limited facilities, the analysis covers only basic physical and chemical parameters(e.g., temperature, pH, conductivity, transparency, dissolved oxygen, ammonia, nitrites, nitrates, phosphates, total phosphorus). Since 2000, a multi-national consortium of universities (Heidelberg, Graz, Shkodra, Tirana and Montenegro) has been carrying out environmental studies within the framework of the "Integrated Monitoring of Shkodra Lake" project. In the past few years, the Universities of Shkodra and Montenegro have been using innovative technologies such as semi-permeable membrane devices to test for the presence of toxic hydrophobic organic pollutants such as poly nuclear aromatic hydrocarbons (PAHs) and polychlorinated biphenyls (PCBs) and other pollutants suchas fluorine, naphthalene, among others. 15. During the 1970s, lake water quality (in some samples) had unacceptable levels of several parameters, including heavy metals, PCBs, and PAHs, and concentrations were above detection limits during 1990-95. In the most recent samples (during 2000-5), water quality in most of the lake was greatly improved and contaminants are now below detection levels or well within international standards for drinking water (but see below regarding groundwater and sediments). Most lake water samples show heavy metals (As, Cd, CryNi,Pb, Zn and Hg) values to be at low concentration (Class 2), with moderate to high concentration (Class 3) at a few sites. However, nitrates pollutant concentrations are higher in the northhorthwestern part of the lake and near the mouth of the Moraca River and the Zeta plain. Eutrophication i s not yet an issue, due to highwater turnover rates, but stagnant cornersnear the Moraca delta and Zeta plain are at 25 risk. The Moraca delta continues to show elevated levels of mercury and other heavy metals; seasonal variation exists, suchas lower dissolved oxygen levels during summer. Lake Sediments 16. Contamination of lake sediment presents a direct and lasting threat to the aquatic ecosystem, particularly the benthic flora and fauna. Many toxic and persistent pollutants become absorbed to sediments and soils and can incorporate into aquatic food webs. Data on sediments inLake Skadar-Shkoder are limitedand fragmentary, but indicate the presence oftrace elements, metals, PCBs, PAHs and organochlorine pesticides. Sediment sampling carried out in 2005 showed that in Montenegro, Pb was <5.0 mgkg, while Hg reached 1.77 mgkg (exceeding EU standards at four of the eight sampled locations). Ni exceeded EU standards at two of the eight locations. On the Albanian side, Pb was somewhat higher (maximum value 27.3 mg/kg) while Hg was lower (< 0.5 mgkg). Ni exceeded EU standards at seven out of ten locations, while Hg levels were lower than on the Montenegrin side. During 1993-95 samples, PCBs and PAHs in the sediments were higher at the entry points of the Moraca River (0.3-0.5 p k g and 0.8-100.7 p k g respectively). However, these values were reduced in 2005 (0.09 p/kg PAH; < 0.01 p k g PCB), againpossibly due to containment measures taken since 1998 at the KAP site. Lake Pollution Sources 17. The main pollution sources discussed in the TDA include the KAP site upstream on the Moraca River; steelworks in Niksic, untreated or inadequately treated wastewater, urban municipal(solid) waste, mineral waste oils inthe Zeta plain, and agricultural runoff inthe Zeta plain. Ofthese, the KAP emissionsto groundwater and untreatedwastewater are the main targets ofthe present project. 18. KAP Aluminum Plant: The TDA identifiedthe KAP Aluminum Plant, located 10 km southwest from Podgorica in the Zeta Valley near Lake Skadar, as a major source of lake pollution. The plant has operated since the early 1970s, and has a surface area of 825,000 m2. Alumina is produced from Bauxite in the well-established Bayer process. Primary aluminum is produced from Bauxite that i s converted into Alumina. The capacity of KAP i s 125,000 todyear of primary Aluminum and 280,000 todyear of Aluminum Oxide (Alumina); however, the plant i s not currently operating at full capacity." The main environmental issues for primary aluminum are the production of poly fluorinated hydrocarbons and fluorides during electrolysis, the production of solid wastes from the cells, andproductionof solidwaste during the production of alumina". 19. The plant constitutes an environmental hazard for three main reasons: (i)its production technology generates toxic and hazardous substances as waste products; (ii)waste product treatment has been inadequate since the plant began operations in the early 1970s; and (iii) the geographic, hydro(geo)logical and hydrographic setting of the plant site. The primary aluminum process causes significant air pollution (fluorides, dust, CO and C02, S02, K, Nox,Pecs loUSGS, 2005 MineralsYearbook, Bauxite and Alumina. I' EUReferenceDocument on Best Available Techniques inNonFerrous Metals Industries(2001) 26 (perfluorcarbons), tars and PAHs (poly-aromatic hydrocarbons), and solidliquid wastes includingredmud, spent pot lining, skimming, bricks, filter dust, and carbondust.12 20. The plant is on a flood plain of fluvial sediments, about 2 km from the MoracaRiver. In the KAP area andbetweenKAP and the MoracaRiver, the prevalentsubstrate is coarse-grained, sandy gravel, which is highly permeable with flow estimated in the to m/s range. The entire area is karstic with numerous interconnectingwater systems; groundwateri s found 12.5 m below the surface and river-level gravel pits contain standing water. A groundwater gradient exists from the KAP site to the river, with groundwaterflowing southhoutheasttowardthe lake. 21. Two KAP site facilities have raised particular concern: (a) the red mud basins, which contain the bauxite raw material residue following extraction of alumina,13 and (b) a large uncovered, unlined, solidwaste dump site (estimated500,000 m3of material,coveringmorethan 100,000 m2), containing an unsorted mix of non-hazardous wastes (construction rubble, scrap metal) and hazardous wastes (cathode residuehpentpot linings, anode scrap, slag). The red mud basins are less of a potential pollution threat, and under the privatization contract, United Company RUSAL, the KAP owner, is responsible for upgrading the red mud basins for environmentalcontroland safety.By contrast, the waste dump (for which the Governmentunder the privatization agreement has responsibility) raises serious concerns because it lacks a base liner, lateralbarriers, a cover system, a drainage and water treatmentsystem, and contains mixed wastes. Exposureto precipitationresults in rainwater percolatingthrough the waste, mobilizing and transporting contaminants into the underlying and adjacent soils and groundwater. Water samples from two boreholes directly downstream from the waste dump also showed elevatedpH andtoxins: Parameterhubstance Borehole samples Drinkingwater guidelinevalue pH 11.86 6.5-8.5 (USEPA) Fluorides 6.2 mg/l 1.5mg/l (WHO) Lead 0.05 mg/l 0.01 mg/l (WHO) Mercury 0.007mg/l 0.001mg/l (WHO) 22. Analysis of soil samples taken immediately to the south (downstream/downhill)of the dumpsite also had elevated pH values and high concentrations of F-, Hg, CN-, PAH, NH3 and PCB. Investigations during 1991-96 showed significant PCB and PAH groundwater contamination in the Zeta plain and the Plavnica, Gostiljska Rijeka, Velika and Mala Mrka Rivers and PodgdhuminHum Bay. However, groundwater samples from the same sites during 1998-04showed almost no traces of PCBs, a difference ascribed to removal and containment of some polluted soil and old barrels of Pyralene (polychlorinated byphenol) on the KAP site, coupledwith rapidwashing of the soil resultingfrom very permeable (sand and gravel) substrate andheavyrains. 23. The Government and RUSAL are jointly responsible for managing the waste dump (Government for hazardouswastes; UC RUSAL for non-hazardous) but the materialsare highly EuropeanCommission,IntegratedPollutionPreventionand Control(IPPC), ReferenceDocumenton Best Available Techniques in the Non-FerrousMetals Industries, December2001 13One unlined, the other lined butthe liner believedto be leaking 27 mixed. One proposal, given preliminary assessment, is to construct an EU-standard hazardous waste landfill on the current site, sufficient to accommodate legacy materials and future plant disposal needs (hazardous and non-hazardous wastes are now being separated). An exercise to inventory and categorize waste, followed by a feasibility study, will indicate technical feasibility and estimated costs o f this and other potential solutions. Municipal Wastewater 24. Each year, millions o f cubic meters o f untreated or poorly treated municipal wastewater are discharged into the inflowing rivers14and the lake it~e1f.l~ This contaminates the water with suspended matter, bacteria- and ox gen-depleting substances, nitrates, nitrites, mineral oils, sulphides, phenols, and phosphates.'6 Larger urban wastewater treatment facilities are being gradually improved (Podgorica; Shkodra Municipality) with EU and bilateral donor assistance, but nothing is beingdone about effluents from smaller villages. Upstream WaterDevelopmentProposals' ' 25. Montenegro: The draft National Spatial Plan, the Water Resources Master Plan, and the draft Energy Sector Strategy include proposals for hydropower development on the Moraca River. One proposal to transfer water from the Tara River into the Moraca River is highly controversial in Montenegro and internationally-this proposal i s neither moving forward nor abandoned. The potential impacts on Lake Skadar-Shkoder hydrology and ecology are not well understood, but it is urgent that they be clarified to inform the debate. The predictive hydrological model to be prepared under the project should provide the technical basis for this analysis. Albania; The Bushati hydropower project involving the DrinRiver, under preparation since 2002 (intake completed but construction halted) is equally controversial. The Drin River would be almost completely diverted southwest to the power plant to be constructed on the Zadrima plain, and then redirected to the Buna-Bojana River or directly to the Adriatic Sea. Some of the Drin riverbed would be left almost empty and linked effects would substantially lower the lake level. An associated proposal i s to dredge the Buna-Bojana River, lowering the lake even further (up to 1.5 m), to convert a substantial portion o f the lake on the Montenegrin side into dry (proposed agricultural) land. River dredging would also potentially open a passageway for larger boats traveling from the Adriatic to the lake. Similar to the hydropower project, the hydrological and ecological impacts need to be much better understood by decision makers and local stakeholders (ie. impacts on the groundwater regime, the sublacustrine springs and linked biological communities, lake flushing, pollution buffering, water temperatures, fish migrations) Flora and Fauna (Fisheries) l4ParticularlyMoraca and CrnojevicaRivers. l5Shkodracity, lakeside villages, and communes. 16Annex 5 ofthe TDA provides the available data l7A third proposaldiscussed in the TDA - extractiono f water from the Bolje sestre springon the northwesternside ofthe laketo supplytowns on the Adriatic coast, is moving forwardwith financingfrom the World Bank among others.The EnvironmentalImpactAssessment for the projectdeterminedthat the amount of water offtake would have a negligibleeffect on the lake level. 28 Annex 2: Major RelatedProjects Financed by the Bankand/or other Agencies SHKODRA LAKE INTEGRATED ECOSYSTEM MANAGEMENT World Bank 1. Albania Fishery Development Project (US$5.6 million IDA); Approval: July 22, 2002; Status: Completed in 2007. The project aimed to increase the economic and environmental sustainability of marine and lake fisheries resources by improving sector management by introducing a system of community-based resource co-management, strengthening public institutions, improving fishing ports management, and making small improvements to Albania's major fishing port facilities. The project was implemented in four major seaports-Durres, Vlora, Saranda, Shengjin-and in ports on Lake Ohrid and Luke Shkoder. The primary beneficiaries are fishermen and their families. InShkodra, the project has supportedfishermen to organize themselves into community-based fishery management organizations (FMO), and financed fishing port rehabilitation, preparation, and implementation of Fisheries Management Plans (FMP) for the lake. 2. Albania Land Administration and Management Project (US$15 million IDA and US$19.96 million IBRD loan); Approval: June 2007; Status: Under implementation. The goal of the long-term land administration and management program is to facilitate development of efficient land and property markets by enhancing tenure security and improving land administration and management services. Shkodru municipality i s among the beneficiaries. Support will be provided to strengthenmunicipalcapacity inurban landmanagement to establish a market-responsive, participatory urban planning and development control system, develop regulatory plans for the city; mobilize municipal revenues, and correct property market distortions through property valuation and taxation. Shkodru will also benefit from support to selected infrastructure investmentsand services, inaccordancewith strategic investment plans. 3. Albania Agricultural Services Project (US$9.9 million IDA); Approval: December 21, 2001; Status: Under implementation. The project aims to improve access among small farm owners to quality seeds; market participation; and technologies, through community-based technology pilots. The Agricultural Services Project has supported the Shkodru City fruit and vegetable market construction in 2006r (app. US$840,000), and a US$lOO,OOO grant for a new Shkodru slaughterhouseas part ofthe competitive grants program under this project. 4. Montenegro: Environmentally Sensitive Tourism Areas Project (US$7 million IDA); Approval September 11, 2003; Status: Under implementation. The project aims to create ecological and commercially sustainable solid waste collection and disposal services in Montenegro's coastal municipalities. The project will develop the sector's institutional, policy and regulatory framework; rehabilitate and upgrade two municipal landfill sites; carry out environmentally acceptable closing o f current disposal sites; provide modern collection equipment; initiate a pilot recycling campaign; and strengthentwo multi-municipal companies operating regional solid waste disposal systems (Bar and Ulcinj; and Kotor, Tivat and Budva). It also supports extension of drinking water supply from Skadar Lake to the Montenegro coast. A 30 detailed environmental impact assessment study in this case concluded that Lake impacts from the investmentwouldbe minimaldue to highgroundwater inflowsnear the final selectedsite. 5. Albania IntegratedCoastal Zone Management and Clean Up Program (US$17.5million IDA; US$0.95 GEF; US$5.2 EU; US$3.11 Dutch; US$2.6 Austria); Approval 2005; Status: Under Implementation. The project objective is to protect the Albanian coastal ecosystems, resources and cultural assets and promote their sustainable development and management through (i) establishingan integrated coastal zone management (ICZM) policy framework; (ii) strengtheningthe broader regulatory and enforcement capacity at the central, regionaland local levels; (iii) introducingalternativeplanningtools that promoteactive public participationin the integratedmanagementand development ofthe coastal zone anditsresources; (iv) implementing sub-projects aiming at sustainable coastal zone development; and (v) enhancing biodiversity conservationand sustainable ecosystem management with conservationof world heritageinthe protected areas. This project provides some valuable lessons learned on evolving zoning processes for touristic areas in Albania which have helped inform the design of the current project 6. AlbaniaNaturalResourcesDevelopmentProiect(US$7 millionIDA; US$5 millionGEF; $5.2 millionSweden); Approval2005; Status: Under Implementation.The projectdevelopment objectiveis to establishor maintainsustainable, community-basednaturalresource management inabout210 communesinuplandandmountainouserosion-prone lands, leadingto enhanced productivityandincomesderivedfrom sustainableresourcemanagement, reducedsoil degradation, improvedwater management, conservationof biodiversity,and strengthenedpublic sector managementofthese resources. ImprovedManagementof Forests andPastures component includesapproximately490,000 haof forest lands, and 186,000 ha ofpasturesin uplandareas of all 12regionsinAlbania, reachinga ruralpopulationofmore thanone million people. ImprovedWatershedManagement component is pilotingintegratedmanagement of naturalresources inthree ofAlbania's sevenwatersheds, focusingon five regions(Dibra, Kukes, Lezha, ElbasanandKorce). Lessons learned from these investmentswill be incorporatedintothe designs for buffervegetationimprovementsinthe currentproject. 6. Albania IntegratedWater and Ecosystems Management Proiect (US$4.87 million GEF; US$ll.15 EIB; US$3.98 Albania); Approval 2004; Status: Under Implementation The main objective of the project is to assist the Government of Albania in improvingthe management of uncontrolled wastewater discharging which in turn is threatening the global significant ecosystems along the coastline of Albania. The project will contribute to increase global environmental benefits by: (i) reducing sewage pollution loads generated by the three urban settlements of coastal cities areas of Durres, LezheBhengjinand Saranda and (ii)promotingand improvingthe management of protected areas. Although the project is not locatednear Lake Skodra, it presents Albania's first experiences with constructed wetlands, important for the Montenegropilot andpromotionofreplicationto other smallcommunitiesaroundthe lake. 31 Other DevelopmentAgencies Albania Austria is one of the main donors active inthe Shkodra Region. Their ongoing support program includes Shkodra Water Supply project (EUR6.4 million), which aims to improve water supply andmanagementsystem of Shkodra city and increase institutional managementcapacity. Austria i s supporting (EUR1.39 million) a Feasibility Study and Emergency Measures in Water supply and Wastewater for Kopliku Commune. Austria's Development Cooperation Program (2007-12) plans to support environmental infrastructure, regional development, and capacity-building activities on water management. Austrian funds (EUR1.9 million) will co-finance (with KFW, EU/IPA, Switzerland) a project for Lake Shkodra to protect natural water resources inthe Qark (region) of Shkodra and to improve living conditions by rehabilitating the drinking water supply and water sewage systems. An integrated regional development project for North Albania will also support Shkodra and Malesia e Madhe municipalities. Austria's technical assistance program will support: (i)Capacity building of Local Governments in North Albania in Assets Management and Administration of Water Infrastructure in the Framework of the Decentralization Process; and (ii)Promotion of Sustainable Tourism Development in the Shkodra Lake Region through the establishment of long-term tourism development model for the transboundary region (project value: EURl.4 million and time frame 2008-10). 9. Germany's KfW will support Shkodra City with wastewater collection and treatment facilities including a EUR7.5 million committed for the first phase (2007-2009). KfW is also supporting expansion of energy transmission lines between Tirana (Albania) and Podgorica (Montenegro) by adding a 400-kV to the existing 220-kV line (est. EUR 54 million). Germany's GTZ 2003-08 program on Regional Economic and Employment Promotion in Structurally Weak Districts of Northern Albania, has supported Shkodra region to draft a regional development plan, and establish networks of agri-businesses and traditional products. GTZ i s also implementing a project to support the Handicraft Business Centre inShkodra; the trans-boundary (Albania and Montenegro) spatial plan for Shkodra Lake Region; and preparation of regulatory/spatial plans for Shiroke and Zogaj. 10. Switzerland is actively supporting development of a functioning and sustainable water supply in Albania, through a grant o f around 6 million Euro for the rehabilitation of the water supply project of Shkodra designed to improve living conditions of the population and improve the local economy. The investment is co-financed with 15.4 million from the Austrian Development Cooperation ADC and the German Credit Bank for Reconstruction KfW, and 0.5 million Euro from the Albania state budget. 10. Netherlands. The Government's new regional program on strengthening capacities inthe Western Balkan countries to address environmental hot spots will support the packaging and disposal of expired pesticides located in the international railway station of Bajza that links Shkodrawith Podgorica (app. US$2.1 million). UNDP is a partner inthis program. 11. European Union has provided assistance (EUR670,OOO) through its CARDS program on transport to rehabilitate streets and lighting systems, and to improve city public green spaces. EUIPA funds will also provide co-financing to the drinking andwater sewage project. 32 12. Other Bilateral donors have supported capacity building among local institutions and civil society organizations, networking/information exchange, and transboundary cooperation betweenShkodra and Podgorica, including Italiangovernment support for fisheries development. Montenegro 13. Germany supports the Ministry o f Tourism and Environmental Protection to develop a concept paper on Transboundary Development o f Skhoder Lake that will guide local stakeholders in Montenegro and Albania in planning sustainable development activities. The project includes developing project papers for Vranjina with Lesandro Fort, Zabljak Crnojevica, and Murici; and concept papers for Dodose, Krnjice-Seoce and Karuc. A separate project component will prepare a publication on Architectural Heritage o f Skhoder Lake and its surrounds, to provide guidelines for future development, conservation, and construction. The project started in2006; total value i s EUROS million. 14. Austria's ongoing program in the Lake Skhoder region comprises support to tourist infrastructure development (EUROS57 million); GTZ is implementing through the Austrian Development Agency. The project aims to increase tourism-generated income by arranging external expo site in the Vranjina centre o f the Skhoder Lake National Park, and tourist facilities (green market, public toilets, entry/exit points to National park designated areas) and tourist information points at four major locations - Vranjina, Virpazar, Murici and Rijeka Crnojevica. The project will also help develop and refurbisheight hikingandwalking paths aroundthe lake. 15. Other donors. Other donors have supported capacity building among local communities through ad-hoc activities and transboundary cooperation between Podgorica and Skhodra. Among the most active were the European Agency for Reconstruction, UNDP, Regional Environmental Centre for Central and EasternEurope (REC), and the Dutch government. 33 Annex 3: Results Frameworkand Monitoring ResultsFramework Immediate and longer term threats term economic value and to lake water quality and indicate whether on-the-ground environmental services of Lake ecological system are reducedon investmentsare having the desired Skadar-Shkoder and its natural both sides of the border, through beneficial impactson water quality resources (GO); and direct investments, information and ecosystemhealth. Ifnot, the exchange, bilateral planning and bilateral Working Groups will be to help establish and strengthen agreements. askedto identify other investment institutional mechanisms for priorities. transboundary cooperation through Status of key transboundary joint efforts to improve sustainable indicators of Lake water quality The level and quality ofparticipation management o f Lake Skadar- and ecological maintained or in, and follow-up on outputs of, Shkoder (PDO). improved. transboundaryprocesseswill indicate the effectivenessofthese institutional mechanismsto facilitate positive cooperation at technical and political levels. Indications of decline in key water quality and ecological parameters, and public access to this information through the bilateral database, will trigger renewed efforts to identify main causes and build commitment out Skadar-ShkodraLake Commission Operational costs of maintaining and Government support for these (SLC) and Working Groups are participating in SLC, lake-wide institutional structures one year operational, sustainableand databaseand Working Groups are before project closing will reflect implementing priorityjoint activities included inGovernments' budgetsa their usefulness and Governments' identified in SAP). year before project's close. commitment to transboundary cooperation for lake management (PI per the BilateralAgreement. Conversely, ifone or both governments fail to provide for these costs, it will indicate a needfor hrther awarenessraising and exploring other options for institutionalizing cooperation. Predictive hydrological model of Ifthe hydrological model ofthe lake Lake Skadar-Shkoder completed and is actively used by stakeholders and being used to analyze likely impacts decision makersto analyze likely >fpolicies and proposed impactsof proposeddevelopment investments. projects and investmentsinthe lake basin, it will improve the level of :p) informed debate about trade-offs at both national and transboundaryl regional levels. Ifthe model is not 34 used, consultations will beheldwith stakeholdersto find out why (e.g., insufficient publicity; design insufficiently informative, or operationaland user-friendly) The lake-widemanagement plan Lake-widezoningand management will provideessential input for planapprovedby bothGovernments improvement o f local and national and beingincorporated in spatial spatial plans, which providethe planupdates. (P) legalbasis for controlling and regulatingdevelopment, natural resourceuse and pollution sources affectingthe lake. Regulatorycapacity, infrastructure Targetedtourism infrastructure Dataon tourist use of facilities in and community levelmechanisms renovations and construction protected areas on both sides ofthe and incentives in placeto support completedand attractingvisitors lake will provide a basis for naturalresourceutilization and (visitor centers, culturalsites, trails, planningfurther sustainabletourism sustainabletourismdevelopment etc.). (P) development, Reductionin numbers of fishermen usingillegal fishing methods.(S) Socio-economic/attitude surveys indicateincreasedlocal understandingof, and engagement in, sustainabletourismand natural resourcemanagement. (P) Solutions for decreasingtoxic and GovernmentofMontenegroKAP Agreement betweenGoM and KAP non-toxicpollutantsentering into owners (Rusal) agreement on owners on the best solution Lake Skadar-Shkoderidentified and preferred solutionandjoint action (technicalfeasibility, cost, and actions takento reduce plan for hazardous waste dump at community acceptance) and ajoint contamination. KAP site. action and financingplan, is a prerequisite to proceedingwith the large investmentto mitigatethis urgent and significantthreat to the lake and its users. Pilot wastewater management and Sewage collectionand wastewater ecologicalrestorationinvestments treatment system establishedat will be used as models for Vranjinavillage. replicationaround the Lake.Results will also be disseminatedthrough IW-Learn network for replication and adaptationelsewhere. Project-supportedmonitoring Area of water buffer vegetation activities will be designedto restored in pilot areas to reduce determinewhether project sedimentationand runoff into lake. interventionsare effective in improvingquality ofwater entering the lake. Ifproblems persist despite investments, it would indicatethe need for further researchto identify prioritypollution sources. 35 10 m 0 0 I k 0 a5 Nkq W h 1 Q\ m L 0 d Annex 4: DetailedProjectDescription ProjectObjectives 1. The overall global and development objective is: To maintain and enhance the long-term economic value and environmental services o f Lake Skadar-Shkoder and its natural resources and to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management o f Lake Skadar-Shkoder. ProjectRationale. 2. A joint Strategic Action Plan (SAP) for Lake Skadar-Shkoder, based on the Transboundary Diagnostic Analysis has been prepared and approved by both Governments as part o f the preparation o f the proposedproject. Some ofthe principles underlyingthe SAP are: 0 Lake Skadar-Shkoder is a single, uninterrupted and unified ecosystem, which requires a holistic approach for its conservation and development; 0 The greatest challenge is to balance the legitimate needs o f local people for development and better living conditions while conserving and enhancing environmental conditions. 0 Local people's support i s crucial for successful implementation o f project activities so local communities must be involved inthe decision-making process for area development. Immediately visible and tangible results are essential to demonstrate to the communities the importance o f nature conservation to sustainable local livelihoods. 0 Some institutions/agencies have overlapping or unclear roles in managing and developing natural resources and their functions and responsibilities must be clarified. 3. The SAP defines four Strategic Goals: (a) achieve joint lake planning and management; (b) conduct monitoring and research; (c) improve management o f the lake and its natural resources at a national level by strengthening the two Protected Areas which together encompass the lake and its surrounding area; and (d) carry out urgent environmental investments. Through interventions in support o f the SAP Strategic Goals, the project aims to address current and imminent threats to the lake water and ecosystem: first, by building national and local political commitment for sustainable management; and second, by directly intervening to reduce pollution from point and non-point sources. In both cases, the project will build upon and supplement existing initiatives o f both governments and other donors by adding a transboundary dimension. 4. The long-term quality and sustainability o f the Lake Skadar-Shkoder ecosystem depends on national and local interest and commitment sufficient to invest in protective measures and counteract pressures for incompatible development. Achieving this commitment will require understanding o f the environmental services provided by a healthy lake ecosystem that generates concrete and meaningful benefits for local and national stakeholders. Furthermore, the lake's status as a bilateral, regional, and global asset must be recognized so that its management supersedes local and national interests, making decision-makers accountable to a wider constituency. To translate commitment into effective action, institutional mechanisms must be established to enable the diverse water users/stakeholders in both countries to coordinate and cooperate on sustainable water resources management. The project will comprise three main components: 5. Component 1: Capacitv Buildinp for Improved Understandinp and Joint ManaPement of the Lake (Total: USs3.43; GEF: US.U.80million) The project will help establish and operationalize a high-level Skadar-Shkodra Lake Commission (SLC) with a Secretariat that will serve as the main steering 42 mechanism to implement the SAP, and serve as the key forum to discuss and agree on issues affecting lake resources management and use. The Commission will convene bilateral Working Groups o f technical specialists and local stakeholders to facilitate discussions on specific issues and to steer joint program implementation. The project will support an initial four Working Groups: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. These Working Groups will agree on specific objectives and work programs in their respective areas o f responsibility and will directly oversee design and implementation o fjoint activities. They will also serve as a mechanism to exchange technical informationand coordinate with linked non-project activities. The two Governments will be responsible for appointing the SLC and Working Group members. The Committee and Working Groups will be served by a small 2-person Secretariat based in Albania, in premises provided by the Skodra municipality financed through the project for the first three years. 6. Working Group on Planning and Legal. The primary focus o f this working group i s to help harmonize planning o f the two countries with regard to the Lake, and to help identify and facilitate any legal steps required to ensure sustainable management. The initial workprogram o f this working group includes in the first year, technical oversight for a follow-up socio-economic study to improve baseline information on local communities' use o f and reliance on the lake's resources. This working group will provide technical oversight for a lakewide management plan, including steps to help operationalize and legalize its key recommendations. The project will help finance technical assistance in each country on legal framework harmonization and provide recommendations for integration o f the work of the Commission into national laws under the guidance o f this working group. This working group is responsible for monitoring the implementation and adequacy o f the Bilateral Agreement, and making any recommendations for its future revision or updates as required. 7. Working Group on Communications/Outreach and Sustainable Tourism. Key responsibilities of this working group are to helpplan and implementcoordinated public awareness and tourism marketing campaigns, promote organization o f public events (e.g. Lake Skadar/Shkodra Day), and help prioritize expenditures on promotional materials (internet site set up and maintenance, maps, brochures, postcards, etc.). This working group will also promote international donor coordination related to programs around the Lake, and oversee local stakeholder coordination by the Commission and the Secretariat. The working group will establish a liason with the GEF IW-LEARN network and other Lake Commissions and help with information exchange. This working group will also help provide technical inputs for specific project investments to promote sustainable tourism as described inmore detail incomponent 2. 8. Working Group on Water Management. The initial workprogram o f this working group supported under the project includes technical oversight for development of a predictive hydrological lake and lake basin model to analyze existingand expected impacts o f development activities and proposals. The model will take into account the complexities of multiple sources o f water and potential transport routes for pollutants into the lake, includingthe complex underlying karstic systems and the interconnections among the lake, its tributaries, and groundwater. This working group will also provide technical oversight for the program on sustainable fisheries management including oversight for technical studies on ajoint fisheries management and monitoring plan and lakewide stock assessment, and for the sustainable fisheries management investments to benefit fishermen and park rangers as described in more detail in component 2. It is also the bilateral forum for monitoring, and exchange on project specific investments to protect water quality (detailed incomponent 3). 9. Working Groupfor Monitoring and Research. Supported activities directly under this working group's technical guidance include: (i)Establishment o f a coordinated, collaborative lake-wide monitoring system for key chemical, physical, and biological parameters that are important to manage lake resources and standardize technology, sampling regimes, and reporting formats in both countries. 43 The monitoring system will include a joint database that will be publicly accessible and facilitate information exchange between Montenegrin and Albanian researchers and resource managers, and offering other stakeholders (e.g., local NGOs) informationto contribute knowledgeably and effectively to decision-making processes concerning the lake. The project will also support monitoring o f a few indicators that are excluded from routine monitoringby the two countries but have specific transboundary implications (e.g., algal indicators for eutrophication, toxic residues in fish tissues), and (iii) Incremental research and studies to clarify specific technical questions identified by the Working Group. 10. Supportfor Project Implementation Capacity. The project will contribute over its lifetimeto the cost o f a small team o f consultants to supplement government capacity for specific aspects o f project implementation. In Montengro, the project will finance salary and operating costs for a project coordinator. Services for procurement and financial management will be paid and governed through a direct contract with the Technical Services Unit on a fee for service basis. In Albania, the project will finance salary and operating costs for a project coordinator to support the Ministry in project implementation. The project will also finance part-time procurement and financial management specialists based on TORSagreed with the Bank. 11. ComDonent2: PromotingSustainable Use of the Lake (Total: US% 79 ;GEF US$I.06 million) This component aims to promote adoption o f sustainable approaches to economic development o f the lake and its natural resources. It focuses on tourism and fishing where there i s highpotential for economically significant sustainable use. 12. Sustainable Tourism promotion. The proposed project will promote more environmentally and socially sustainable tourism; improve nature- and culture-based facilities and attractions (e.g., eco- camping, cultural sites); and raise public awareness and provide information and Technical Assistance to local residents to help them engage in appropriate tourism enterprises. Investments under this sub- component will be guided byjoint tourism development planning coordinated by the Working Groups on Planning and Legal Framework, and on Communications/Outreach and Sustainable Tourism. There are existing and planned government and donor-funded projects to support national tourism development in the area (see Annex 2); the project will complement these activities by emphasizing support for transboundary coordination and joint action, based on the lake-wide tourism plan. The project will support small-scale infrastructure and rehabilitation (e.g., link transboundary hiking trails surrounding the lake, rehabilitate cultural and historical sites to create a transboundary tourist route, etc.). The overall objective i s to support public investment to create an enabling environment and attract private sector enterprises; project fhds will support TA to market the cross-border Lake Skadar-Shkoder area as a tourist destination, and to help prospective entrepreneurs identify and develop appropriate, compatible business ideas. The project will not directly finance entrepreneurs but support specialized park staff trained to helpthem access government and donor program funding. 13, Sustainable Fisheries management: Traditionally, local communities have used and marketed Lake Skadar-Shkoder natural resources (e.g., willows for basketry, medicinal plants, wild fruits), but fishing is by far the most significant economic and employment activity and fish mobility makes transboundary cooperation essential for sustainable management. Some o f the lake's most valuable fish species are now threatened by over-exploitation and habitat degradation. Albanian fishermen have increased from 160 prior to 1990, to about 800 today. Both governments have fishing regulation institutions and personnel, but information, mechanisms, and capacity to manage the fisheries on a lake- wide basis are lacking. Similar to tourism, government- and donor-funded initiatives support aspects o f individual country fish management (see Annex 2); while the project will complement those programs by filling gaps and improving bilateral management. A lake-wide stock assessment and fisheries management plan will be a key first year activity. These outputs will be integrated into national plans and 44 regulations and some aspects o f the management plan will be implemented. Support will provide fishermen with incentives to cease illegal practices and strengthen government regulatory and enforcement capacity for the fishing industry. Project activities to assess and monitor stocks will help evaluate whether present fishing levels are sustainable, and promote measures to correct any imbalances such as declaring some areas o f the lake off-limits or reducing the number o f boats and fishermen. 14. Component 3: CatalyzePollutionReductionInvestments(Total: US$II.51million; GEF: US$l.69 million) This component will support investmentsto help address existing sources o f pollution identifiedinthe TDA; the project will complement investments by the two governments andother donors (see Annex 19, addressing transboundary issues and demonstrating innovative approaches. The component includes three subcomponents: (i) Small-scale, innovative wastewater treatment for a lakeside village (Montenegro) (ii) TA for protection o f groundwater from hazardous wastes at the KAP Aluminumplant (Montenegro) (iii) Pilot ecological restoration o f lakeside vegetation buffer areas (Albania) 15. Small-scale wastewater treatment: Several large donor-funded programs now support construction or upgrading o f sewage collection and wastewater treatment facilities in large urban areas, creating positive impacts on Lake Skadar-Shkoder (e.g., Shkodra Municipality, Podgorica). The GEF funds will help pilot and demonstrate a small scale wastewater treatment facility, based on constructed wetlands, inthe village o f Vranjina, Montenengro, on the northern shore o f the lake. The feasibility study will evaluate low-cost options such as small borehole and condominia1 sewers, and will include in-kind contributions from the local community to the extent possible. This demonstration investment will be combined with public awareness activities to help local people and visitors understand how a small-scale investment insewage treatment can helpreduce impacts to the lake. 16. KAP hazardous waste containment: Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant on the MoracaRiver has beenidentified as the highestpriority industrial threat to the lake, specifically as a source o f heavy metals, PCBs, and other toxic pollutants, which have beendetected inthe lake water, adjacent springs, wells, and some fish. These pollutants emanate from a large, unlined, uncovered dumpsite containing a mixture o f non-hazardous and hazardous wastes that have been accumulating since the early 1970s. Under the 2005 privatization contract, the Government o f Montenegro i s responsible for disposing o f the hazardous wastes and the new owner (RUSAL) is responsible for disposal ofnon-hazardous wastes. However, the materials are co-mingled and likely will be difficult to separate. The government has tentatively budgetedan initial 5 millionEuro to remediate legacy hazardous waste. The actual cost, final technical solution, and timetable for remediation, recycling, or proper containment o f waste from the site can be estimated only after the waste has been properly characterized, a feasibility study undertaken, and an options analysis and design completed. 17. This component will classify (or verify classification of) K A P wastes, undertake an options analysis and feasibility study, and recommend basic designs for K A P hazardous waste containment. The assignment will determine whether hazardous wastes can be distinguished from non-hazardous wastes, waste from current options versus legacy wastes and help determine the extent o f soil pollution and develop and develop and evaluate design options to contain the hazardous wastes. The preferredpolitical option inMontenegro i s to construct a secure (EU-standard) hazardous waste landfill on the present dump site. But, since the location i s poor for a hazardous waste landfill (highly permeable substrate, directly upstream of Lake Skader-Skodra etc.), the basic option o f constructing a landfill at the site needs to be compared with options to recycle some waste back into the manufacturing process, with costs and feasibility o f constructing a landfill elsewhere and transporting wastes there. Other technical solutions for 45 remediation and process improvements that would reduce future impacts will also be examined (e.g., perimeter monitoring/pump and treat wells). In Montenegro, previous attempts to establish non- hazardous municipal landfills have provoked strong public resistance, which may make it difficult to relocate a facility from land owned by KAPRUSAL. 18. Component Description: Project funds will help facilitate a more expeditious response to this urgent threat to the lake. Inthe first stage, the project will support TA to inventory and classify the extent of soil pollution; the second stage will be a feasibility study and options analysis with designs for hazardous waste containment and recycling. In addition, GEF funds will help finance an international advisor to assist Government to supervise work for the KAP remediation site, and support Montenegro's efforts to prepare for the IPPC Directive at the KAP site. The proposed project will also finance a Category A Environmental Impact Assessment for the design options that will be proposed in the Feasibility Study. Various environmental laws have been enacted in Montenegro, Integrated Pollution Prevention and Control (IPPC) and the Waste Management laws are particularly relevant to this assignment. There is a desire in the government to aspire to EU legislative standards. However, it i s also recognized that the Ministry (MTEP) has a very low capacity both for environmental permitting and regulation. A secondary objective of this assignment is to help build the technical capacity of the Ministry inthe particular aspects o f IPPC and waste management stemming from this assignment. To this effect, an International Advisor, with appropriate background and experience, will be contracted to support the MTEP for the duration of this KAP assignment. The perspective of that support will derive from the implications of the IPPC legislation and the need for MTEP to understand the scope o f any future IPPC permit application with respect to their role in permitting and regulation for the KAP and other IPPC installations. This assignment provides a practical opportunity, and has particular relevance to remediation and process improvements that would reduce future environmental impacts at the KAP site. 19. Pilot buffer vegetation restoration: Natural vegetation along the lakeshore and the banks of inflowing rivers buffers Lake Skadar-Shkoder from pollution and sedimentation from agricultural areas and inflowing river deltas. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded this vegetative buffer in many places. Ecological studies have identified areas where the ecological damage is pronounced-for example, it has degraded important spawning and nursery areas. These areas include stream banks that flow to the lake from Taraboshi Mountain and coastal areas around fish nursery sites inKamic and Shiroke (Albania). The project will provide Technical Assistance, equipment, and operational costs to support pilot ecological restoration activities at priority sites. 46 Annex 5: ProjectCosts LAKE SKADAR-SHKODERINTEGRATED ECOSYSTEMMANAGEMENT PROJECT GEF Grant Allocation by Component and Country (US$millions) Project Cost by Component- Local Foreign Total ALBANIA US$ million US$ million U S $ million COMPONENTS 1. UnderstandingManaging Lake .79 0.29 1.08 Ecosystem 2. Enhancing Sustainable Use o f -60 0.05 .65 Lake Ecosystem 3. Catalyze PollutionReduction .26 0.0 0.26 Investments Total Costs(physical and price 1.55 0.43 1.99 contingenciesincluded) Project Cost by Component- Local Foreign Total MONTENEGRO US $ million US$ million US$ million COMPONENTS 1. UnderstandingManaging Lake 0.34 0.38 0.72 Ecosystem 2. Enhancing Sustainable Use o f .41 0.0 0.41 Lake Ecosystem CatalyzePollutionReduction 0.43 1.o 1.43 Investments Total Costs (physical and price 1.18 1.38 2.56 contingencies included) 47 Annex 6: ImplementationArrangements LAKE SKADAR-SHKODERINTEGRATED ECOSYSTEM MANAGEMENT PROJECT Responsibilitiesfor ProjectImplementation 1. The Ministry of Tourism and Environment (MTEP) has overall project responsibility inMontenegro. The Ministryof Tourism and Environment is the main project implementing agency. The Ministryi s also responsible for planning, coordinating, and financing the national environmental monitoring program, including for Lake Skadar given its protected area status (Water bodies without protected areas status fall under responsibility of the Ministry of Agriculture, Forestry, and Water Resources). The Project Director i s the Deputy Minister of the Department of Environmental Protection. 2. The Ministry of Environment, Forests, and Water Administration (MEFWA) has overall project responsibility in Albania; and is responsible for strategic, policy, legalhegulatory framework, and national-level management of protected areas, including operationalizing the Lake Shkodra Managed Nature Reserve. The Water Department of the same Ministry is responsible for coordination of national water resources management policy. Within Albania MEFWA, the Head of the Directorate for Nature ProtectionPolicy has beenappointed as the Project Director. 3. Each Ministry will hire a Project Coordinator whose salary is paid by the project budget, and who reports to the Project Director. The Project Coordinator is a full-timeproject position to ensure day-to-day implementation. The Albanian Project Coordinator will be based in Shkodra, near the Lake, in an office provided by the municipality of Shkodar. The Montenegro Project Coordinator has office space within the MTEP inPodgorica and would travel frequently to the Lake area which has a closer proximity to the Lake. 4. Project activities will be coordinated at a transnational level by the SkadadShkodra Lake Commission (SLC), a bilateral body that has been established according to an agreement between the MTEP and MEFWA. The Commission members will be appointed by the two governments. The Commission will be assisted by a Secretariat based in Shkodra, Albania; the Secretariat will employ one person, paid by the project budget. 5. The Commission through the project will establish four Working Groups to advise on issues related to the lake management: (1) Planning and Legal; (2) Monitoring and Research; (3) Communications/Outreach and Sustainable Tourism, and (4) Water Management. The project will support the start-up of the Lake Commission both directly by providing resources for goods, personnel and capacity building and indirectly by testing the functionality and organization of the SLC and its Working Groups. 3. Project implementation requires cooperation with public agencieshstitutions acting within their institutional roles and paid with government budget. MTEP and MEFWA will ensure that sharing information on project objectives and programs with these institutions is timely and that implementation roles and responsibilities are clarified and agreed. Local and international consultants will be contracted as necessary to carry out project activities. 48 Implementationresponsibilitiesare summarizedinthe table below. Component OperationsBmplementation Operations/lmplementation Responsibilities Responsibilities Montenegro Albania 1. Capacity Buildingfor Improved Understandingand Joint Managementof the Lake Strengtheninstitutional MTEP will hireaProjectCoordinator MEFWA will hireaProjectCoordinator structures for cross-border (PC) responsible for day-to-day project (PC) responsiblefor day-to-day project cooperation implementation, to coordinate activitiesin implementation, to coordinate activities in Montenegro with activities inAlbania, Albaniawith activities in Montenegro, and to organize national-level and to organize national-level communication and participation.The PC communicationand participation. is basedin Podgoricaand paidwith MEFWA will identify duringproject projectfunds. MTEP will identify during implementationany improvements project implementationany adjustments neededto national-and trans-boundary- neededto improvenational-and trans- level institutionalarrangements to boundary-levelinstitutionalarrangements managethe Lake ecosystem and the to managethe Lake ecosystem. ManagedNatureReserve. MEFWA will providepremisesfor the Secretariat and the PC. The Secretariat will provide logisticalsupport to the Lake Commission and Working Groups meetings and for internaland external communicationo fthe Lake Commission. Create bilateralworking MTEP and MEFWA will ensure that the B iteral Working Groups comprise qualified groups for advisoryroles Monitoring and Evaluation The Project Coordinatorwill collect MEFWA will collaboratewith othersto websitecontentand deliver it to the preparetechnical specificationsfor the Secretariat. transboundary website. MEFWA will collaborate with the Secretariat to supervisewebsite implementation;the Secretariat will maintainthe website duringand after project implementation. The Project Coordinatorwill collect website content and deliver it to the Secretariat. 2. PromotingSustainable Use of the Lake 49 Component Operations/lmplementation OperationsDmplementation Responsibilities Responsibilities Montenegro Albania Supporttourism Skadar NationalPark will collaborate MTEP will collaborate with local officials development with the MTEP to prepareTORs for and the Ministry for Tourism, Culture, capacity building activities and help Youth and Sport (MTCYS) to prepare identify the eco-campingsite and info- TORs for local consultantsto develop points, monitoringplatforms, and architectural/landscapeguidelines, and to renovation works. A local consultantwill inventory cultural heritage sites. MEFWA be hired to preparetechnical will consult with MTCYS and Shkodra specifications for construction works. Municipality on selecting sites/ buildings Skadar National Park will be responsible to be restored; a local consultantwill be for submitting all permit requests hired to preparetechnical specifications necessary for renovation or construction for these works, ifneeded. The technical works, and for supervising execution of advisor will be responsiblefor submitting the works. any permit requests necessary for renovation/construction works. Supportsustainable Project Coordinator will collaborate with Project Coordinator will work with natural resources Skadar NationalPark and local fisheries Fishermen's Association on the project organization on the project actions to actions to promote sustainablefisheries. promote sustainable fisheries Supportenhanced The Skadar NationalPark Director will The Skadar Lake ManagedNature enforcement capacity collaborate with the MTEP to prepare Reserve/Directorate for Forest Service, technical specifications for goods and Skadar District will collaborate with equipment to be procured for park ranger MEFWA to preparetechnical activities. specifications for goods and equipmentto be procured for park ranger activities. 3. Catalyze Pollution Reduction Investments Small scale wastewater MTEP will procure feasibility study and control designfor the WWTP at Vranjina, in collaboration with Podgorica Municipality technical staff. Supportcontainmentof MTEP will hire an international hazardous waste on KAP consulting firm to preparea waste dump site inventory, site investigation, options analysis, feasibility study, preliminary design for the KAP hazardous waste dumpsite. A draft TOR for this assignment is attachedto the PIM. MTEP will also hire an international adviser to help evaluate bidding documents, supervise consultant work, and advise a government stakeholdersteering :ommittee. MTEP will contract :onsultant services for an EIA. Support restorationof lake MEFWA will promote pilot projects of buffer habitat habitat conservation and restoration and tree-planting. These activities will be developed involving the local community and fishermen associations. KAPContaminatedSite 6. A two-tier mechanism is proposed to support smooth implementation of this project sub- component. The Project Management Team under the Ministry of Environment and Tourism will be responsible for day-to-day project management. A KAP Site Steering Committee (KSC) will be 50 established to oversee coordination betweenthe project management, KAP, other government institutions, and local parties; oversee and coordinate implementation; and ensure that KSC stakeholders' decision- making i s timely. The project will finance an international advisor to help support the work o f the KAP Site Steering Committee and assist the Montenegro government to prepare to implement the IPPC Directive for the K A P site. ProjectOrganisationStructureRelatedto KAPTechnicalAssistance (schematic) ProjectOrganisationStructure 1 DonorTrust Fund 1. Role of the Ministry (MTEP) The MTEP has the following responsibilities: Appoint Project Director; recruit Project Coordinator; 0 Leadproject and ensure that activities and results comply with the overall project objectives; Facilitate partnerships with other line Ministries, local governments, and all institutions and stakeholders that might be usefully involved inandor impacted by project activities; 0 Provide resources and institutional support necessary to implement the project; 0 Execute Procurement procedures following the advise/oversight o f the TSU and procedures of the WB (BiddingDocuments, Procurement Contracts, etc.) 0 Appoint Evaluation Commissions inaccordance withprocedures o f the World Bank and under the guidance o f the TSU; Ensure participation o f all institutions/ stakeholders that might be usefully involved at any level in project implementation. 2. KAPSite SteeringCommitteeParticipants 51 A KAP Site Steering Committee (KSC) shall be establishedprior to initaltendering ofthe KAP technical studies, to ensure coordination andmonitoring ofthe contractedtasks to be carried out for the benefitof the Ministry (MTEP). The role of the KSC i s to provide a forum for planning, evaluation and discussion ofthe assignment work plan, progressof the activities, andrelated aspects. The KSC takes decisions upon problems related to the project strategy, andhas a monitoring and coordinating role. The Beneficiary (MTEP) approvesthe assignmentoutputs. The MTEP Project Director will chair the KSC, which will include representativesfrom the Ministry ofEnvironment and Tourism, KAP, Ministryof Economic Development, Privatization Agency, Municipality of Podgorica, and the Metallurgical Faculty. The KSC will involve representativesfrom all parties involvedinimplementing the KAP assignment.The KSC Chair will convene meetingsand meet as often as requiredto advance the work, and at least every 3 calendar months for the duration of the KAP assignment. The Chair would inaddition invite specific attendanceat the meetings, dependingon the topic(s) to be discussed, including clarification of mandatory and optional attendance for each meeting. Inputfor Key Decisions would be solicited from all by KSC members, however final decisions are madeby the MTEP Chair. Incases where key Decisions required broader endorsementthan the MTEP, selected Decisions may be elevatedby the Chair to a Government wide Decision. 3. Tasks and Responsibilities of the KAP Site Steering Committee (KSC) Consultant(s) contracted under the project will work under the supervision of the Project Management team, comprising the Project Director, Project Coordinator, TSU, or any other organizational unit designated by the MTEP. Further, Consultants for KAP site studies will report on a regular basis to the KAP Site Steering Committee (KSC) about assignment progress, any problems, and work scheduled and outputs to be achieved during the period before the next KSC meeting. The Consultant(s) will report to the Project Coordinator, who has the responsibility to receive the reports elaboratedby the Consultant and submit them to the KAP Site Steering Committee for comments and approval. The Project Coordinator will help facilitate achievement of the work plan with the Consultant(s), and help convey comments from KAP Steering Committee members. The key KSC responsibilities includethe following: 0 Oversee implementation of the KAP assignment; 0 Review terms of reference of key consultantsfor the KAP assignment and provide recommendationsto the Project Management team; 0 Review consultants' reports and recommendations, especially those requiring actions and decisions from local authorities, institutions, or industriesand provide recommendations for implementation and future remediation steps for the KAP site -resolution, financing, sequencing, and implementation schedule; 0 Ensurethat localparties and stakeholdersdecisions and actions are timely; facilitate adoption and implementation; 0 Ensure appropriate consultationwith local institutions, donors, and other stakeholders. The KSC Chair will appoint a Secretary-Coordinator, who will prepare and distribute the MinutedAgenda for each KSC meeting and facilitate daily activities inthe Project Management team incoordination with local parties and stakeholders. 52 Annex 7: FinancialManagementand DisbursementArrangements LAKE SKADAR-SHKODERINTEGRATED ECOSYSTEMMANAGEMENT PROJECT Montenegro: 1. Country Issues. A 2007 fiduciary review concluded that budgetary control has improved significantly after establishing a fully functioning Treasury system linked to all budget users. Allocating and accounting systems for tax revenues have been enhanced. Revenue and expenditure forecast credibility has improved suggesting that the planning process has become more reliable. Elements o f a modern public sector audit function (both internal and external audit) have been established and have improvedcontrol and oversight. 2. However significant challenges remain. Considerable investment in developing program budgeting has yet to substantially improve policy planning and prioritization across government. Similar to other countries, further work i s requiredto develop a medium-termexpenditure framework that links policies and planning to the budgetary process. The government also needs to develop a comprehensive picture o f public sector fiscal risks; particularly loans, contingencies, and guarantees by municipalities and public enterprises. Finally, basic building blocks o f financial control are needed, for example the Treasury system needs a commitment control system so MOF can include accounts payable in the accounting system. 3. Risk Analysis. The overall financial management risk for the project i s moderate before mitigation measures, and with adequate mitigation measures agreed, the financial management residual riskis ratedlow. The table below summarizes financial management assessmentand risk. Risk Risk Rating Risk Mitigation Measures Risk Rating mitigation 1. INHERENTRISK Country level. The Perceived S Risksinhibit use o fcountry systems. The risk imposedby M corruptionis high. State Audit insufficient capacity of SA1and internalaudit will be Institution(SAI) and internal mitigatedby usingprivate auditors, supervisedby the audit capacitiesare relatively Bank, for project financial statements and by the Bank's low. Treasury system has been supervision,. Inaddition, robust internalcontrolswill be modernizedbut improvements applied during projectimplementationto ensure funds are to accomplish measurableand used for intendedpurposes, and to safeguard project assets. specificresults are needed. Internalcontrolsand proceduresinstitutedfor ongoing Internalcontrolsare not always projects implemented by the TSU are assessed adequate appliedin practice-confirmed for this project.A DesignatedAccount will be opened in a in reports of internaland commercial bank acceptableto the World Bank.A stand- external audits. Sector within alone accounting system will be used for project the MoF that performs SOE accountingand reporting. oversight has very low capacity (1 person). Entiv level. Althoughthe TSU M The Bank FMS will closelymonitorTSU financial L has substantial experienceand managementof implementationto detectany potential knowledge of Bank procedures, gaps betweenquantityof work and unit capacity, and expanding TSU scope ofwork promptlytake appropriate remedial actionifcapacity gaps to implementthe six to seven are noted. projects that are envisaged soon, will create capacity concerns. Project level. Adequate M Appropriate financial management arrangementswith financial management respect to accounting; financial reporting; auditing; flow of arrangementsneedto be funds have been instituted for project implementation. instituted for project implementation and the existing ones tailored to project needs. Overall Inherent Risk - M 2. CONTROLRISK 1.Budgeting and Planning. M Planning and budgeting for previous/ongoing World Bank L Risk createdby lack of projects implementedby the TSU proved adequate. The computerizedsoftware to risk is additionally reducedby acquisition ofacceptable support the budgeting and software. planning processes. 2. Accounting. Acquisition of M Acquisition and installing of FMS.sys will improve L software (Quick Book) to be reliability of accounting information and mitigate risk o f used for project accountinghas omission, error, or inaccuraciesin project accounting and not been finalized yet and reporting. The software provides reliable accounting software has not been made information and is automatedto a significant extent. fully functional. There is a clear needfor computerized accounting software to ensure reliable and transparent accountingand financial information and reducerisko f errors. 3. Internal controls. Systemof S Soundsystemof internal controls will be applied during M internal controls inMontenegro project implementation to secure use of funds for intended public sector is relatively weak purposes, and safeguardproject assets. Internal controls and does not provide sufficient and proceduresinstituted for ongoing TSU-implemented assuranceon the use of funds projects are assessed as adequate for this project. for intendedpurposes. 4. Fundsflow. M A DesignatedAccount will be opened in a commercial L bank acceptableto the World Bank. 5. Financial reporting. M Acquiring and installing Quick Book software needs to be L Financial reports compiled finalized prior to negotiation. Quick Book software manually using Excel files generates financial reports automatically, significantly based on Excel accounting mitigatingfinancial reporting risk. records, riskingreliability, comprehensiveness & accuracy. 6. Auditing. S Private audit firm acceptable to the World Bank will M perform audit. 7. Staflng. Although the TSU - TheBankFMSwillcloselymonitorTSUfinancial S has substantial experienceand management of implementation to detect any potential M knowledge of Bank procedures, gaps betweenquantity of work and unit capacity, and expandingTSU scope of work promptly take appropriateremedial action ifcapacity gaps to implement the six to seven are noted. projectsthat are envisaged soon, will create capacity concerns. Overall ControlRisk - M L OVERALLFMRISK M L 54 4. Strengths. The TSU staff are qualified and experienced, including substantial experience implementingWorld Bank-supported projects (currently implementing three active projects). The project designhas relatively low complexity in institutional design (one implementingentity), fairly simple flow o f funds, disbursement, accounting and reporting. 5 . Weaknesses and Action Plan. Despite the TSU's strong experience and performance record, its capacity could be overstretched and this should be monitored. The TSU is overseeing fiduciary aspects o f implementation for three projects. Irrespectively, the conclusion remains that the pros o f assigning the TSU with fiduciary responsibilities outweigh the cons. Previously agreed action plan has been implemented since project accounting software has been acquired and made fully functional. 7. Implementing Entity. The Ministry o f Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation; the Government o f Montenegro Technical Services Unit (TSU) will be incharge of fiduciary aspects o f project implementation, namely financial management and procurement. The TSU is established and functioning. It i s in charge o f fiduciary aspects for three ongoing projects inMontenegro. The unit i s staffed by qualified and experienced staff with experience in implementation o f World Bank supported projects in all functions, including financial management. Performance o f the TSU duringimplementation o f the ongoing projects was overall satisfactory. 8. Budgeting and Planning. Planning and budgeting for previous/ongoing World Bank projects implemented by the TSU proved to be adequate. Recent acquisition o f acceptable accounting software will facilitate further planning and budgeting and inparticular, analysis and comparison of budgeted and actual figures. The MTEP will play an important role in planning and budgeting, thus good communication between the MTEP and the TSU is important to optimize management o f funds allocation, liquidity, and overall performance. Regular monitoring o f actual versus budgeted figures i s essential to detect any variances and take corrective actions. 9. Accounting and Staffing. The TSU financial management staff is an experienced and qualified specialist who is already managing the finances o f three active projects and has gained substantial experience inworking on World Bank-supported projects. Other functions inthe TSU are also adequately staffed. However, soon the TSU will be in charge o f implementingsix to seven projects and this situation should be closely monitored to detect any gaps in capacity and take appropriate remedial actions. The implementingentity is responsible for project financial management and will provide any supplementary capacity required for World Bank accounting, reporting, disbursement, or procurement procedures. 10. Information Systems. The TSU has acquired and installed FMS.sys accounting software to be usedfor project accounting for ongoing projects. This software is acceptable to the Bank and will be used for this project. The software provides reliable accounting informationand it i s automated to a significant extent. Management information systems developed for implementation o f ongoing projects is adequate for implementation o f this project. 11, Accounting Policies and Procedures: The accounting books and records are maintained on cash basis with additional information on signed contracts. Project financial statements will be presented in EUROs. Accounting policies and procedures inplace for ongoing TSU-managed projects will be used for this project. Additional accountingpolicies for the project include the following major assumptions: cash accounting i s the basis for recording transactions; -- -- reporting inEUROs (reporting currency); consolidated IFRsprepared for all donor funds and all components; counterpart funds reflected infinancial reports. 55 12. Internal Controls and Internal Audit. The TSU has an adequate internal controls system for projects under implementation, which will be used for this project. Defined controls and procedures are applied in practice as verified by Bank financial management supervision, and private audit firms. The auditors have issued clean audit opinions on ongoing project financial statements. Ingeneral, key internal controls to be applied for the project include: -- appropriate authorizations and approvals; --- segregation o f duties; differentpersons responsible for different phasesoftransaction; regular reconciliations o f records and actual balances, includingwith third parties; maintain complete original documentationto support project transactions. 13. The MTEP publishes tenders and i s signatory to the contract. Invoices received are forwarded to technical staff for verification (project coordinator) or to other institutions responsible for checking the quality and quantity o f the delivery covered by the invoice. Independent consultants may also be contracted to verify, prior to payment, that acceptable goods, services, or works have been delivered. After technical staff approve the workhervice quality and quantity, the TSU registers the invoice in the Archives. The project accountant reviews then registers the invoice in a simple log file with name o f supplier, amount, and payment date. The project accountant checks the invoice, the invoice calculation, and selects the appropriate budget to charge (contract number, item number, and program (component), records the accounting codes, hisher initials, and sends the invoice to project procurement. The project procurement staff checks the invoice against the contract number, attaches a copy o f the relevant contract paragraph, and signs the invoice. 14. All documentation relevant to the invoice shall be attached so the Project Director can immediately check that all controls have been performed. The invoice i s returned to the project accountant, and registered, ensuring that payment can be made as per terms; then payment orders and the invoice with all designated approvals and signatures are submitted for payment. The TSU receives daily bank statements and regular Treasury reports; based on these, the TSU financial specialist will record executed payments and reconcile bank balances. The TSU financial specialist will prepare quarterly interim un-audited financial reports inthe agreed format and submit these to the World Bank. 15. Reporting and Monitoring. Project management-oriented interim un-audited financial reports (IFRs) will be used for project monitoring and supervision. The format o f the IFRs were agreed during negotiations and attached to the minutes. The TSU will produce a full set o f IFRs for each calendar quarter throughout the life o f the project, due 45 days after each quarter ends. The IFRs will comprise the following reports presented inthe agreed format: ----- Statement o f Sources and Uses o f Funds; Uses o f Funds by Activity; Designated Account statement; UnitofOutput byActivity; Narratives to the reports. The accounting for the project is cash basis with additional information provided for commitments on signed contracts. 16. External Audit. The project financial statements will be audited by a private sector audit firm usingterms of reference acceptable to the Bank; the audit report will be submitted to the Bank no later than six months after the end o f the period audited. Audit TOR has been agreed during negotiatios and attached to the minutes o f negotiation. The annual audits costs will be covered by project funds. The 56 project financial statements are prepared on cash basis. Audits should be conducted in accordance with InternationalStandards of Auditing. The following chart identifies the audit reports and submission due dates for the projectimplementationagency. Audit Report Due Date Entity financialstatements Na Project financial statements (PFS), including SOEs and Within six months of the end of each SpecialDesignatedAccount. The PFSs include sources and fiscal year and at the closing of the uses of funds by category, by components, and by financing project source; SOE statements, Statement of Designated Account, notesto financialstatements, reconciliationstatement Audits performedby State Audit Institutionare not acceptable for this project.Althoughthe institutionis developingrapidly, it still lacks sufficient capacity. 17. from: (a) the World Bank - either as an advance, via a Designated Account, in a commercial bank Funds Flow and Disbursement Arrangements. Project funds in United States Dollar will flow acceptable to the World Bank, and replenished under transaction- based disbursement, managed as described indisbursement arrangements, or by direct payment on the basis of direct payment withdrawal applications; or (b) the Government ofMontenegro. 18. The TSU will administer the Designated Account, and prepare withdrawal applications with designated signatures, which will include a government official of Assistant Minister level or above. Payments from the DesignatedAccount are executed by payment orders. After applying all procedures described in internal controls with respect to flow of documents, verifications, authorizations, signed orders are submitted for payments from either the Designated Account or the Budget (for Government contribution) split according to eligible percentages of financing. In the case of Direct Payment, the applicationform for such methodpayment is submittedto the Bank with the same authorizedsignatories as describedabove. 19. Designated account will be opened in EURO and the ceiling for this DesignatedAccount will be 200,000 EURO. Replenishment documentationrequirements will follow standard Bank procedures as described in the Disbursement Handbook. Reconciled monthly bank statements for the Designated Account will accompany all replenishmentrequests. 20. Supervision Plan. During project implementation, the Bank will supervise project financial management arrangements in two main ways: (i) review project interim un-auditedfinancial reports for each calendar quarter, and projectand entity annual auditedfinancial statements and auditor management letter; and (ii) perform on-site supervisions, review the project financial management and disbursement arrangements to ensure compliance with Bank minimum requirements.On-site supervisionwill include monitoring agreed actions, review of randomly selected transactions, review of internal controls, and other supervisionactivities. Supervisionwill be performedby the Bank accreditedFinancialManagement Specialist. Albania: 21. Country Issues. The latest draft Country FiduciaryAssessment (CFA-August2006); draft Public Expenditure and Institutional Review (PEIR-July 2006) and draft Public Expenditure and Financial Accountability Report (PEFA-July 2006) confirm that improvement is required to increase public spending efficiency and accountability by improving planning, budgeting, and executing public investmentprojects; strengtheninglines of accountability,includingenabling better access to information by all stakeholders; building stronger monitoring and evaluation systems; and establishingcompetitive 57 and transparent frameworks for government purchases. Improvements were also needed in public procurement law and implementation regulations to improve procurement transparency, economy, and efficiency. The Procurement Agency supported by EU technical assistance is amending the laws and regulations. 22. The assessment o f the country financial management arrangements concluded that the public financial management has improved significantly during the last few years in areas such as budgeting, internal control, internal and external audit, though from a relatively weak base. The fiduciary area will benefit from the ongoing improvements o f the Treasury system (especially an improved financial reporting enabling follow-up o f programmatic budgetingand giving more analytical information down to the level of individual service units) through implementing an expanded computerized Treasury information system, expected to be ready by June 2008. The proposed project will utilize these improvements by using the Treasury system for the payment and reporting functions. Internal audit i s being fully developed to improve the government internal control environment and the internal audit should also be utilized to monitor project implementation. A Public Internal Financial Control framework based on EU principles i s being implemented and EU support i s strengthening the supreme audit institution. 23. The Project will rely extensively on the various elements of Albania's public financial management systems, including: 0 Budgeting-the project budgets approved annually by the Project Manager; 0 Internal controls - the project will use the existing internal control framework within the ministrywith additional procedures developed for the Project; 0 Flow o f funds and payments- the project will use the Treasury system; 0 Accounting and reporting-the project will rely extensively on the Treasury system. 24. Risk Analysis and conditions. The overall financial management risk for the project is substantial before mitigation measures, and with adequate mitigation measures agreed, the financial management residual risk i s rated moderate. The table below summarizes the financial management assessment and Country level. The public financialmanagementis Entity Level. Risk of political ct LeveL Project is small, 58 Conditionsof Risk Risk Mitigating Measures Residual Board or Risk Effectiveness budgetarysystem budget in agreementwith IDA Accounting.InexperiencedFM Hire part-timeconsultant.Projectto use the expanded S No staff and use of localizedTreasury computerized Treasury system to be ready by June system. 2008 for payments and reporting. Internal Controls.Internal Additional procedures are includedinthe FMchapter S No controlso fthe existingTreasury o f the PIM and independentauditorsto monitor the system are acceptable; project- project implementationand resultsverification. specific controlsare incorporated inthe project financial manual. 1. Fundsflow. A Designated S Treasury will through accountingentrieskeeptrack M No Account would be opened inthe o f the funding goingto this project enablingMEFWA Bank o fAlbania from which the to preparethe interimunauditedfinancial reportso f funds will be transferredto the the project e.g. the sources and uses ofthe project SingleTreasury Account (STA) funds andthe remainingbalance ofthe funding from in local currency,but GEF/IBRD. "earmarked" for the project. Financial Reporting.Current S MEFWAwill usethe dataobtained from the M No manual Treasury system is unable Treasury system after reconcilingthe datawith its to generate financial reports own records. The Treasury system is inthe process automatically. of beingdeveloped with WB assistance.The reportingpartofthe system will be assessedas soon as the systemwill becomefully operational. Currently, the Treasuryusesa manual system for its accountingbooks and records.The manualTreasury system is also usedfor monthly and annualreportson cash expenditures, which are compared withthe - annual budgetsapproved by parliament. Auditing. M The audit will be carried out by independentauditors M No acceptableto the Bank.The global audit arrangements would be streamlinedto ensuretimely appointmentof auditors. OVERALL CONTROL RISK S M - RESIDUAL RISK RATING S M 25. Strengths. The basis to rely on the project financial management system include the assessed strengths o f the financial management o f Government o f Albania in controlling budget entities' spending and the well-functioning Treasury system for payments and reporting. Actions Responsibility Deadline Reporting from new computerizedTreasury Before relying on reports from the system: Assess project reporting from the new MEFWNWB computerized system, planned to computerizedTreasury system start by midyear 2008 27. With actions taken before negotiation, together with additional financial management measures (strengthened internal controls, private auditor for project accounts) the financial management arrangements for project implementationare acceptable to the Bank. 59 28. Implementing Enti@. The Ministry o f Environment, Forestry and Water Administration (MEFWA) is the main implementing agency with clear responsibilities for strategic, policy, legalhegulatory framework and management the protected areas nation wide. The proposed project implementation will be streamlined within the existing structures o f the relevant government agencies. 29. Budgeting. The MEFWA will be responsible for the preparation o f annual project budgets (to be included in its departmental budgets) based on their respective procurement plans. This budget will form the basis for allocating funds to project activities, for requesting funds from the government for counterpart contribution, and for payments via Treasury system as appropriate. The risk associated with planning and budgeting i s assessed as moderate. 30. Accounting. Staffing. The MEFWA finance and budget department has a staff o f five people. The Ministry will hire a part-time consultant because based on assessment, the existing staff at the Ministry are overloaded and not experienced with the foreign financed projects. The project manager will authorize and control o f payments, work closely with finance staff and MoF to ensure timely submission o f quarterly interimun-audited financial reports (previously called Financial Monitoring Reports, FMRs), annual financial statements, and other progress reports to the Bank reflecting the project implementation status. The risk associated with staffing after mitigationmeasures i s assessed as substantial. 3 1. Information svstems. The project will use reporting generated by the new computerized Treasury system currently being implemented inall Treasury offices. The Bank will review the reporting generated by the new Treasury system prior to shifting from the manual system to ensure that the new system has the capability of generating the agreed reporting. Currently, the Treasury uses a manual system for its accounting books and records, which are done on a cash basis. The manual Treasury system i s also used for monthly and annual reports on cash expenditures, which are compared with the annual budgets approved by parliament. The recent assessment concluded that the current manual system will be able to report according to the agreed formats, although the ongoing computerization will reduce resources required to produce these reports for the project, most probably from second half o f 2008. The risk associated with informationsystems i s moderate. 32. .Accounting Policies and Procedures. The accounting books and records will be maintained on a cash basis and project financial statements will be presented in Albanian Lek. The project will follow Government policies and procedures (Treasury) for processing payments. Additional accounting policies to be applied on the project (besides standard accounting policies used for Budget agencies) will include the following major assumptions: (i) accounting as the basis for recording transactions; and (ii)all cash counterpart funds should be reflected in the financial reports. Risk associated with accounting after mitigationmeasures i s moderate. 33, Internal controls and Internal Auditing. The project will utilize existing internal controls within the Ministry and the Treasury, and supplement these with additional controls to ensure that funds are used effectively and efficiently for the purposes intended. The internal controls include (a) procurement controls-World Bank procurement procedures will apply, (b) budgetary controls-the project will form part o f the Ministry budget, (c) Treasury controls-payments will flow through the Treasury, (d) accounting controls-additional appropriate controls will be implemented, (e) quality controls - on-site supervisors will verify all bills beforepayments are made, (0management controls-project manager will be appointed to coordinate and provide general oversight, (8) audit controls-an independent acceptable audit firm acceptable to IDA will audit annually the project financial statements, based on audit terms o f reference acceptable to IDA; and (viii) supervision controls-the World Bank team will regularly carry out project supervision. 60 34. The project has documented inthe financial management chapter of the PIM the internal control mechanisms to be followed in the application and uses o f finds and the implementation o f the project. The chapter will cover all financial management and administrative procedures, including accounting and record-keeping, flow o f funds, and reporting procedures. The manual will also reflect the internal structure relevant to the project, administrative arrangements, internal control procedures, including procedures to authorize expenditures, maintain records, safeguard assets, segregate duties to avoid conflicts o f interest, monthly reconciliation o f treasury account statements with the project records, ,monthly reconciliation o f disbursement summaries o f the World Bank with project records, bank signing mandate (to include at least two signatories), regularly reports to ensure close monitoring o f project activities. 35. The Ministry internal audit units would audit project activities as a routine part of their work. As the capacity o f the internal audit is still generally low, no specific reliance on the internal audit i s planned for this project. The risk associated with internal controls i s substantial before mitigation measures, and i s assessed as substantial after mitigationmeasures. 36. Financial Reporting. The CFA-July 2006 indicates that the publicly available budget execution and fiscal reports appear to be reliable and frequently updated. All payments are made through the Treasury system for all budget entities, including the implementingentities for this project. Currently, the Treasury uses a manual system for its accounting books and records and on a cash basis. The manual Treasury system i s also used for monthly and annual reports on cash expenditures, which are compared with the annual budgets approved by parliament. The system will also enable the continued tracking of the project and is expected to be able to provide reliable reporting for the funding suggested for the project. 37. The MEFWA will prepare interim un-audited financial reports (IFRs) for project monitoring, disbursement and supervision. Draft formats o f these IFRs have been agreed upon before and during the negotiations. The implementingentities will produce a full set o f IFRs every three months throughout the life o f the project and the reporting currency will be Albanian Lek, except as otherwise stated. The IFRs include the following tables: (a) Summary o f Sources; (b) Project Sources and Uses o f Funds; (c) Components as per cost categories; (d) GEF Desiganted account Statement; (e) STA reconciliation statement; and (f) Contract Monitoring reports for technical serives and goods. The risk associated with financial reporting i s moderate. 38. External Auditing. As of the date o f this report, the MEFWA had no overdue audit. The auditor will be appointed by the Ministry o f Finance as part o f an overall agreement for the audit o f the non- revenue earning Bank-financed portfolio inAlbania. The global audit arrangements should be streamlined to ensure timely appointment o f auditors. Specific terms o f reference are used for the projects covered by this agreement. Despite Ministry of Finance arrangements, the implementing entity is responsible for delivering to the Bank, within six months o f the closing o f each fiscal year, the audited financial statements. The annual cost o f the audits will be covered by the government part o f the portfolio audit. The following chart identifies the audit reports and submissiondates for project implementation agencies. Audit Report Due Date Entityfinancialstatements N/A Projectfinancial statements(PFS) for the implementing Within six months o f the end of each fiscal year agency, includingSOEs and DesignatedAccounts. The and at the closing ofthe project PFS include sources and uses o f funds by category, components, and financing source; SOEs, Statement o f DesignatedAccount, notes to financial statements, and reconciliationstatement. Inaddition, the Albanian supreme audit institutionperformsad hoc externalaudits of the implementing entities. The risk associatedwith externalaudit i s moderate. 39. Flow of Funds and DisbursementArrangements. The project funds will flow from IDA, via one United States Dollar DesignatedAccount (DA) in Bank of Albania (BOA) from which the funds will be immediatelytransferredto the SingleTreasury Account (STA) inlocal currency, but "earmarked" for the agreed project.Treasury will through accounting entries keep track of the funding going to this project enablinga separatereportingon the sources and uses ofthe projectfunds andthe remainingbalance ofthe funding from IDA. Counterpart funds are transferred through the Treasury system directly to the suppliers.Project funds will flow from: (a) the Bank, either via a single DesignatedAccount which will be replenishedon the basis of SoEs or by direct payment on the basis of direct payment withdrawal applications if a special need arises; or (b) the Government, via the Treasury at the Ministry of Finance (MOF) onthe basis of paymentrequests approved by the Treasury Department ofthe MOF directly to the localsupplierfor VAT andother taxes. 40. The ceilingfor the GEF-DesignatedAccount would be $200,000. Applicationsfor replenishment of the Designated Accounts will be submitted quarterly or when one-third of the amount has been withdrawn, whichever occurs earlier. Documentation requirements for replenishment would follow standard Bank procedures as described in the Disbursement Handbook Counterpart funding will be executedthroughTreasury accounts. 41. Supervision Plan. During project implementation, the Bank will allocate one staff week for financial management supervision. The Bank supervises project financial management arrangements in two main ways: (a) review the project's the quarterly interim un-auditedfinancial reports and project annual audited financial statements and auditor's management letter; and (b) during the Bank's supervision missions, review the project's financial management and disbursement arrangements (includinginterim reports (IFR) and movements on the Designated Account) to ensure compliancewith the Bank's minimumrequirements.As required, a Bank-accreditedFinancialManagement Specialistwill assist with supervision. 42. Re-assess Treasury System. The Bank will re-assess the expandedcomputerizedTreasury system beforethe projectcanrely onthe expandedmodernizedTreasury system for payments andreporting. 62 Annex 8: ProcurementArrangements LAKE SKADAR-SKODER INTEGRATED ECOSYSTEMMANAGEMENT PROJECT A. General 1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004 and the provisions stipulated inthe GEF Grant Agreements, to be signed for each country separately. A general description o f expenditure categories and items appears below. For each GEF Grant-financed contract the Borrower and the Bank will agree on procurement or consultant selection methods, pre-qualifications, estimated costs, prior review requirements, and time frame, and these will be recorded in the Procurement Plan, which will be updated annually or as required to reflect actual project implementation needs, and improvements ininstitutional capacity. The project contracts that are not financed directly by the Bank would be procured in accordance with national regulations, or co-financing institutions' procurement regulations. Initially projected procurement will be advertised in a General Procurement Notice (GPN), and Specific Procurement Notices (SPNs) to be issued thereafter as needed. The Borrowers will publish a GPN, acceptable to the Bank, online in the United Nations Development Business (UNDB) and in the Development Gateway's dgMarket. The individual SPN for goods and civil works, and request for expression o f interests (REoIs) for consulting services, will be advertised following negotiations in a national newspaper or on the MEFWA (for Albania) and in the MTEP (for Montenegro) websites. The SPNs for International Competitive Bidding for goods and civil works packages and REoIs for consultant's contracts above US$200,000 equivalent will be advertised on-line in UNDB/dgMarket. The results o f contract awards for goods, civil works and consulting services will be posted on the UNDB and in the Development Gateway's dgMarket as the Guidelinesrequire.The TSU (inMontenegro) and the MEFWADepartment o f Nature Protection Policies (DNPP) will not engage services o f firms and individuals debarred by the Bank for Bank financed contracts. The current listing o f such debarred firms and individuals i s located at: httv://www.worldbank.ordhtmUopr/procure/debarr.html 2. Procurement of Works: The Project will finance civil works contracts in both countries for refurbishing buildings, for renovating pilot cultural sites, building construction, etc. The civil works will be packaged to the extent possible for tenderingunder NCB or ICB procedures to increase competition, The following procurement methods will be used: (a) International CompetitiveBidding (ICB) for civil works contracts US$500,000 and over. (b) National Competitive Bidding (NCB) for contracts more than US$lOO,OOO equivalent and less than US$500,000. The ECA regional sample bidding documents for N C B works contracts will be used. Any other biddingdocuments for N C B will follow the conditions applicable to Albania and to Montenegro for the NCB procedures established inthe Grant Agreements and shall beacceptable to the Bank. (c) Shopping (minor works) procedures for civil works contracts less than US$lOO,OOO equivalent on the basis o f three written quotations obtained from qualified contractors. The Project contains also technical services (TS) contracts for laboratory services for environmental monitoring, each less than US$100,000, which will be procured following shopping procedures. 3. Procurement of Goods: Goods procured under this Project include information technology (IT) systems, office furniture, vehicles, small boats, fishing nets, etc. The TSU and the DNPPNEFWA will use the Bank's Standard Bidding Documents (SBDs) for all ICB. Contracts for goods will be grouped in bidpackages as muchas feasible to increase competition. 63 International Competitive Bidding (ICB): Goods packages estimated to cost US$lOO,OOO and above per contract will be procured through ICB. IT equipment and software would be procured as separate packages and usinga single-stage procurement procedure. Shopping: Goods packages estimated to cost less thanUS$lOO,OOO per contract may be procured through shopping procedures on the basis o f at least three quotations. The TSU (in Montenegro) and DNPPNEFWA supported by procurement consultant (in Albania) would solicit quotations from at least three (normally 5-6) suppliers from eligible source countries. When shopping for procurement o f IT equipment (hardware, software, etc.) the TSU and DNPP o f MEFWA will follow procedures set forth inthe Bank external website. When soliciting quotations, they will include in the shortlist the authorized firms recommended in this website for each country; other firms or local dealers may be added to the shortlist, after confirming their credentials with respective manufacturers. Direct Contracting: Where certain goods are available from one supplier or incases where compatibility with existing equipment requires that goods must be procured under Direct Contracting (single-source) and having obtained prior approval from the Bank (in accordance with paragraphs 3.6 and 3.7 o f the Procurement Guidelines). 4. Selection of Consultants: Consulting services under this project would include technical assistance for developing predictive hydrological models; feasibility studies and site investigation for waste inventory; socio-economic studies; capacity building; etc. The project will also finance training and study tours. Short lists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. Selection methods will be as follows: Consulting services estimated to cost normally US$200,000 or more per consultant contract will be procured through Quality and Cost- Based Selection (QCBS) method; this method also would be used for smaller contract amounts o f a complex nature. Consulting services costing each less than US$200,000 equivalent may be procured through Consultants Qualijkations (CQ) method. The Fixed Budget (FB) method o f selection may be used for simple assignments when the contract amount should not exceed the allocated budget. The consulting contract for project audit may be selected through Least Cost Selection (LCS) method. Individual consultants will be selected in accordance with Section V o f the Consultants Guidelines.Single source (SS) method may be used for consulting assignments with prior Bank approval in accordance with paras 3.9 through 3.13 o f the Consultants Guidelines. 5. Training: Training will include study tours connected with project component activities and reflected inthe Annual Training and Study Tour plans, to be approved by the Bank and after that changes and additions would be reviewed separately as they occur and would cover participants, agenda for training events, and budget estimate. Consultants required to prepare, facilitate, or conduct training activities shall be selected under Consultants Guidelines described above, and shall be included in the ProcurementPlan. 6. OperatingCosts: The Project would finance operating expenditures incurredby each component and country, such as office supplies, utilities, communication, etc. The project will finance, for Montenegro, the operating cost including salaries, for the TSU in Podgorica for about 10 months o f operation. The TSU i s carrying out other World Bank projects and the cost for the remaining part o f the project will be covered from other Bank projects the TSU will implement. Existing three TSU staff are consultants (not government employees) and were selected competitively under the previous Bank projects. 64 Assessmentof the agency's capacity to implementprocurement 7. InMontenegrothe TSU staffcomprises a procurement officer, a financial officer, and an assistant, who will work with the MTEP Project Coordinator on technical issues. The TSU procurement officer's mainresponsibilitywill be to coordinate procurement under the Montenegropart of the project, ensuring compliance inaccordance with WorldBank procurement procedures for project components. 8. InAlbania the Director of DNPP will be Project Director, assistedby the Project Coordinatorin Shkodra, and supportedby an experiencedprocurement consultantwho will be selected competitivelyfor this part-timepositionto ensure proceduralcomplianceandcontractawards inaccordance withthe World Bank procurement procedures onthe Albanian side. 9. A procurement capacity assessment of the TSU in Podgorica and of the Department of Nature ProtectionPoliciesinMEFWA in Tirana (and in Shkodra Municipality, where the ProjectCoordinatoris located) was carried out in September 2007. The key issues and risks for procurement for project implementationincludethe following: - For Montenegro, at country level, a Country Financial Accountability Assessment (CFAA) and a Country Procurement Assessment Report (CPAR) were carried out in 2002 for the former Republic of SerbiaandMontenegro.The CPARhas categorizedMontenegroas highrisk giventhe issues identifiedin its legal framework, regulatory functions, enforcement regime, etc. A preliminary Review of Fiduciary Arrangements insupportingCAS was preparedindraft inApril 2007 for Montenegro.As above, although the TSU incharge of procurement for Montenegrohas World Bank projectexperience, giventhe CPAR findings, the overallprocurement risk is rated"high ". - For Albania, the Bank carriedout an assessment of the Albanianprocurement system in January 2001 (CPAR) andinAugust 2006 (CFA-CountryFiduciaryAssessment). The 2006rated"Significant" the risks associatedwith publicprocurement inAlbania. The 2006 CFA identifiedshortcomings such as high-level government attempts to bypass the law, capacity deficiencies in the public procurement agency and implementing ministries, and an inadequate complaints review mechanism. A new Public Procurement Law became effective January 1, 2007, but the Albanian project implementing institution, MEFWADNPP lacks experience with Bank procurement (the Project Director has no procurement experience; the Project Coordinatorlocated in Shkodra has modest experience with Bank procurement). Therefore, the overallprojectprocurement risk for Albaniais "high ". 10. The following actions needto be undertakento alleviaterisks to projectprocurement: - The Bank shall prepare and provideto TSU (Montenegro) and DNPP in MEFWA (Albania) a file with the latest procurement documents (guidelines, manuals, procurement notice templates, standard bidding documents for procurement of goods and works, standard request for proposaldocuments for consulting services, evaluationreport formats, regional and simplified procurement documents, etc.) at the time of Project LaunchWorkshop. It is recommended that the TSU and the DNPP in MEFWA visit the World Bank website for latest procurement documents. The Project Launch Workshop to be organizedjointly, will includea procurement trainingsession for staff. - The TSU has a hll-time procurement officer; however, in Albania the Project Director (head of DNPP of MEFWA) will have procurementsupport from a part-time experienced procurement consultant, who will be hiredthroughcomparisonof CVs among qualifiedcandidates. The TSU procurementofficer and the ProjectDirectorinTiranawill attendWorldBankregionalprocurement trainingsheminars. 65 - A clear communications procedure must be established between the TSU and the DNPP of MEFWA and the project beneficiaries. For example, all correspondence regarding procurement, disbursement, should be routed to the Bank through the TSU and DNPP. The TSU (Montenegro) and DNPP o f MEFWA (Albania) should ensure that all information exchanged with the World Bank team i s complete and accurate. This will also allow the TSUProject Director inDNPP to track procurement and other activities on behalf o f BASand to take corrective measures in case o f delays; this also allows them to collect data on procurement, project management, etc., for project monitoring and evaluation and for preparing periodic consolidated project progress reports. - The TSU and the DNPP Project Director should have adequate office space and equipment, such as computers, phone/fax machines, photocopiers, to expeditetheir procurement function. C. ProcurementPlan 11. Each Borrower (Montenegro, Albania) under this project developed a procurement planfor project implementation. These plans were discussed during appraisal and were agreed during Negotiations on April 23, 2008. These procurement plans will be available in the project database and on the Bank external website, and will be updated annually or as required in agreement with the World Bank Project Team to reflect project implementationneeds and improvements ininstitutional capacity. D.Frequencyof ProcurementSupervision 12. Inaddition to the prior review supervision carried out from Bank offices, the TSU and MEFWA capacity assessments recommended procurement supervision missions visit the countries to carry out a procurement post-review, a minimumo f once per annum. E.Detailsofthe ProcurementArrangementsInvolvingInternationalCompetition 1. Goods and civilworks (a) List o f contract packages to be procured following ICB, direct contracting, and other methods: See Procurement Plan(below) for each country; and 2. ConsultingServices (a) List o f consulting assignments with short-list o f international and local firms and individual consultants: See Procurement Plan (below) for each country; Attachmentto Annex 8 66 Procurement Plan I GENERAL Agreed date of procurementPlan Original: April 23,2008 Dateof GeneralProcurementNotice: estimatedJune 2008 11.Goods and Works and non-consultinpservices. Procurement Method Method Threshold Prior Review Threshold /Comments 1, ICB for Goods > $100,000 All subjectto prior review 2. ICB for Civil Works > $500,000 All subjectto prior review 3. NCB for Civil Works <$500,000 I I I First two contracts for each country 1I I and all contracts more than I $200,000 subject to prior review 4. [ I First two contracts for eachcountry subject of prior review 5. I1Shoppingfor Goods, Civil Works and I < $100,000 technicaiservices (TS) Direct Contracting * I All subjectofprior review Detailedprocurement contracts for goods and works are enclosed inthe table below (inpara 111. 3). 111.Selectionof Consultants 1. Prior Review Threshold:Selection decisions subject to Prior Reviewby Bank as stated in Appendix 1to the GuidelinesSelection andEmployment o f Consultants: *) All contractssubject tojustification 2. Short list comprising entirely of national consultants: Short list o f consultants for services, estimated to cost less than $100,000 equivalent per contract, may comprise entirely o f national consultants inaccordancewiththeprovisions ofparagraph 2.7 ofthe ConsultantGuidelines. 3. ConsultingServices assignments and contracts for goods and works with selection methods and time schedule: - For Albania: 1 2 1 3 4 5 6 7 67 Contract Type of Number Procurement Review Expected Expected (Description) contract of Method by Bank Contract contract Contract (Prior 1Post) sinnature comoletion date Component 1 Understanding and - management of Lake Shkodra Ecosystem 1. Project Coordinator for Albania (local cs 1 Individual Prior 01/01/2008 09/30/2012 consultant) 2. Operating cost for Project Coordination I Annual I 9. Refurbishmentof Lake management 1 cw- 1 -1Shopping I Prior r 09/30/2008 I 06/30/2009 I Committeeoffice 11. Seminars, workshops, study tours for I TR I Annual II I working groups (*I Plan 12.Legalframework harmonization and I cs 1 ICQ I Prior I109/30/2008 06/30/2009 integratingrole of commission into national legislation ($1 13. Public awarenesscampaign, public cs multiple CQ Post 03/30/2009 06/30/2012 outreachkommunication(local firms) (*) 14. Developingjoint fisheries monitoring and CS 1 CQ Post 06/30/2009 03/15/2010 managementplans (*I 15.Establishand maintainjoint database (*) cs 1 Individual Prior 09/30/2009 09/30/2010 16.Lab equipment for targetedtransboundary G multiple shopping Prior 07/30/2009 11/30/2009 nets, cell phones, etc) 27. Expertiseon fishermenorganization support CS 2 Individual Post 03/30/2009 07/15/2009 28. Equipment for Enhance Lake protection G 2 Shopping Post 03/30/2009 06/30/2009 enforcementcapacity 29. Operatingcost oc Annual Plan 68 Notes: (*) These markedassignmentsare forjoint activities,where the selection process (andcontracting)will be madefrom one country, while the - beneficiarieswill be bothcountries. (**) Contracts for parttime FMspecialist (0.030) and financialaudits are governmentfinanced. - For Montenepro: 1 2 3 4 5 6 7 8 Contract Type of Amount Number Procurement Review Expected Expected (Description) contract financed of Method by Bank Contract contract by the Contract (Prior / Post) signature completiondate GEF Date (million Plan 6. International consultant for preparing Lake- CS 0.070 1 Individual Prior 06/30/2009 03/30/2010 wide zoning and management plan (*) 7. Local experts for preparing Lake-wide zoning CS 0.020 1 Individual Post 07/30/2009 03/30/2010 and managementplan (*) 8. Developjoint lake water/ecological 1 11/30/2008 I 03/30/2009 Lake ecosystem 13. Capacity building on tourism (local first - CS 0.012 1 Individual Post 01/01/2009 12/30/2009 year contract financing only from GEF)) 14. Pilot renovation of cultural siteshisitor cw 0.100 1 Shopping Prior 03/15/2010 09/30/2010 centers 15.Construction works for model eco-camping CW 0.045 1 Shopping Post 03/15/2010 06/15/2010 site 16. Works on migratory waterfowl monitoring CW 0.040 1 Shopping Post 09/15/2010 11/30/2010 stations 69 EnhancingLake protectionenforcement Notes: (*)- These marked assignments are for joint activities, where the selection process(and contracting) will be conductedfrom one country, while the beneficiaries will be both countries. (**) - The Project will finance, for Montenegrin part, the operating cost including salaries for the TSU in Podgorica for about 10 months of operation. The TSU is carrying out other WB projects and it was agreed that the cost for the remainingpart of the project will be covered from other Bank projects the TSU idwill implement. The three TSU staff are consultants (not Government employees) and were selectedcompetitivelyunder the previous WB project. (***)- contracts for financial audits are government financed IV. Ex-Post review: 1. Contractsfor goods, woks andconsultingservices belowprior reviewthresholdsare subject of Bank's selective ex-post review.Periodicex-postreviewbythe Bank will be undertakenduringregular supervisionmissions.Procurementdocuments, such as biddingdocuments, bids,bidevaluationreports andcorrespondencerelatedto bidsandcontracts will bekeptreadilyavailablefor the Bank'sex-post reviewduringsupervisionmissionor at any other pointoftime.Bank'smissionwill reviewat least one out of every five contracts which are subject ofex-post review. 2. RecordKeeping: The TSU inMontenegroandDNPP o f MEFWA inAlbaniawill maintaincomplete procurementfiles whichwill be reviewedby supervisionmissions.All procurement relateddocuments that requiresprior reviewwill be clearedby the ProcurementAccreditedStaff(PAS) andrelatedtechnical staff.Procurementinformationwill be recordedbythe TSU andDNPPandsubmittedto the Bank as part o f quarterly (FMRs) and annual progressreports. 70 Annex 9: Economic and FinancialAnalysis LAKE SKADAR-SKODER INTEGRATEDECOSYSTEM MANAGEMENT PROJECT EconomicAnalysis 1. Project benefitsare long-term and cannot be quantified inmonetary terms so this section describes economic costhenefit. Most investments are institutional and capacity building and do not lend themselves to economic and financial analyses thus analysis was limited to the K A P site and untreated wastewater. The K A P feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment o f affordability and willingness-to-pay for operations and maintenance costs o f the small-scale wastewater investmentwill be conducted usingsurveys. 2. Waste dump at U P site. The K A P waste dump facility lacks a base liner, lateral barriers, cover, drainage, and water treatment systems, which exposes the waste to precipitation and results in rainwater percolating through the waste. Without investmentto stop migration o f polluted soil, contaminants inthe underlying and adjacent soils and groundwater leading to Lake Skhodra will continue to degrade the water quality. In2005-2006, water quality near the factory showed increased levels o f PCB, PAH, As, Pb, Cd, Zn, pH, phenols, Fe, and failed to meet standards for drinking water quality. The aluminum plant i s the biggest polluter of groundwater inthe Zeta valley. Groundwater pollution with PCB compounds (the most serious environmental problem in the previous period) i s reported to have decreased due to removal o f old barrels o f Pyralene on the K A P site. Toxic substances have been measured in soils near the plant, with elevated concentrations o f PAHs, PCBs, fluorides, mercury, cyanides, and ammonia well above maximum allowable concentrations. Some o f the soil on the KAP site i s extremely polluted and i s a permanent source o f groundwater pollution. 3. Primary existing and potential environmental and health risks that the K A P site poses include the following: 0 Toxic emissions into the atmosphere 0 Toxic emissions into groundwater and drinking water from seepage through polluted soil 0 Toxic substances contaminating surface water runoff 0 Exposure to toxic substances threatens human and animal health through skin contact, inhalation, ingestion 4. Quantifying the health impacts o f toxins on the population i s possible only through surveys that precisely measure exposure duration and severity, or by studying epidemiological evidence o f the impact o f soil pollution on health. Populations can be exposed to toxins from polluted soils via diverse routes (ingestion, consuming polluted crops, soil dust, or inhaling air polluted by soil). Lead i s a known carcinogen that has been linked to decreased intellectual function. Cadmium can cause lung cancer and mercury can accumulate in the food chain, for example, larger and older fish usually contain the highest amounts of methyl mercury. The human nervous system i s highly susceptible to the effects o f mercury, particularly fetuses and children. Methyl mercury i s commonly associated with risks o f developmental defects but short- and long-term effects depend on amounts and exposure. Relatively small exposure can result inslight decreases inintellectual h c t i o n and might not be apparent, but significant exposure poses a serious health threat. 71 5. The proposed component will benefit Montenegro, particularly in avoiding costs for cleaning up polluted groundwater, treating drinking water, and removing polluted sediments. Benefits also accrue from avoiding damage to public health that would result from taking no action because over time, more toxic substances would build up in the environment as they are released. Typical clean-up costs for groundwater and sediments substantially exceed the costs for appropriate landfill storage. In addition to the health benefits, remediation of the KAP waste dump facility would protect drinking water supplies, increase real estate values, improve the ecosystem, and reduce some of the local populations' pollution- related concerns. 6. The Zeta Plain is the largest plain and one of the most densely populated areas inMontenegro; it consists of fertile lowland that stretches from Podgorica in the north to Skadar Lake in the south and is home to the vast vineyards of "Plantaie" a quality wine producer. Zeta Plain also has ideal growing conditions for a wide variety of Mediterranean fruits and vegetables. Golubovci town is the biggest settlement in the plain (3000 inhabitants), and i s the capital of Golubovci urban municipality, which encompasses most ofthe plain. 7. Small scale wastewater treatment. Several donor-funded programs are supporting construction or upgrading of sewage collection and wastewater treatment facilities in large urban areas connected to the lake basin. In Montenegro, the project will finance a pilot small- scale wastewater treatment, possibly basedon constructed wetlands, for the village of Vranjina. 8. Wastewater treatment will provide the following: Health benefits from improved availability and quality of drinking water 0 Natural resources benefits from improved water quality for recreational and downstream surface water uses 0 Economic benefits from enhanced prospects for tourism growth, related employment, increased number ofpotential users, and increasedlandvalues Ecological benefits from improved systems for better lake water quality, which represents a non- use value 9. Wastewater schemes must be affordable and technically sustainable; prior to approval, feasibility studies will evaluate the technologies, financing, and affordability of initial investments plus operation and maintenance requirements. 72 Annex 10: SafeguardPolicyIssues LAKESKADAR-SKODERINTEGRATEDECOSYSTEMMANAGEMENTPROJECT Environment 1. Overall, the project has been classified as Category B based on screening proposed investment types. Three types of project investments are identified with potential construction-related impacts including: small scale wastewater treatment system; waterfowl monitoring stations; and rehabilitating historic and cultural monuments. Each o f these investments requires EMP development and environmentalassessment under national laws and environmental permitting applications. Additionally the cultural monument renovationswill require special permitsfrom the respectiveMinistries of Culture. The project will support feasibility studies a EIA for the KAP site, which would be prepared to the standard of a category "A" World Bank assessment. Technical Assistance related to the KAP site (feasibility study, EIA, and technical advisory support) financedthrough the project is considered most compatible with a Category "B" classification, since it requires involvement of Bank environment specialistsinreviewingTORS,project supervision,and providingtechnicalcomments for reportsfor risk mitigationandquality assurance. 2. Environmental Impact Assessment: An EIA has been carried out and publicly disclosed in both countries in the form of a Framework EIA because on-the-groundinvestments were not specified (e.g., locations and technologies for small-scalewastewater treatment) during preparation.The EIA describes potential activities and outlines the process by which environmental screening and assessment for such investments will be undertakenin accordance with government and World Bank policiesand procedures. The EIA also reviews relevant legislative and regulatory frameworks and implementatiodenforcement capacityineach country and assesses the extent to which these are compatiblewith and sufficientto meet WB requirements; evaluates the project's potential environmental risks and impacts in its area of influence, including transboundary aspects and international obligations; examines the project alternatives; identifiesimprovementsto project selection, siting, planning, design and implementationby preventing, minimizing, mitigating, or compensating for adverse environmentalimpacts and enhancing positive impacts; includes mitigation processes and managing adverse impacts by developing environmentalmonitoringand mitigationplans (EMP), whichwill be implementedas a partofthe project execution. The EIA will be incorporatedinto the project PIM, which will specify review processes and responsibilities. For any subproject, the respective ministry or project proponent will carry out an appropriate EnvironmentalAssessment (EA) for activities under the main project. Before approving a subproject, the Project Coordinator verifies (through its own staff, outside experts, or existing environmental institutions) that the subproject meets the environmental requirements of appropriate national and local authorities and is consistent with the OP 4.01 and other applicable environmental policies of the Bank. The Project Coordinatorwill submit all EAs to the Bank for review and comment beforefinalizationofthe nationalEA review. 3. Natural Habitats: This OP i s triggeredbecause the projectarea comprises legally designatedPAS and Ramsar sites and because some on-the-groundworks will be financed (e.g., ecologicalcampground, waterfowl monitoring stations, and a village-level constructed wetland wastewater treatment facility. Project impacts are expected to be positive, through improved monitoring of lake conditions and strengthened capacityofthe agencies responsiblefor managingthe lake (the managementunitsofthe two Protected Areas). The lake-wide zoning and management plan will be integrated with, and add an essentialtransboundaryelement to protectedareamanagementplans ineach country. 73 4. International Waterways: Lake Skadar-Shkoder empties into the Adriatic Sea via the transboundary Buna-Bojana River. There will be no water abstraction and the only interventions will be environmentally positive (reducing pollution inputs to the lake). However, in accordance with Bank policy and practice, this OP i s triggered because investmentinnew wastewater treatment infrastructure i s envisioned. The Adriatic states have beennotified through UNEP, which serves as the Secretariat for the Barcelona Convention for the Protection o f the Mediterranean Sea against Pollution. PublicConsultationand Disclosure 6. During the EA process for sub-investments, the respective ministry will consult with project- affected groups and local nongovernmental organizations (NGOs) about project environmental impacts and take their views into account. The respective ministry will provide informationthat i s understandable and accessible informat and language to project-affected groups and localNGOs ina timely fashion prior to consultation. PotentialEnvironmentalImpacts 7. The following investments are sample descriptions of potential environmental impacts of proposals that would require a site-specific EA and Environmental Management Plan. Details are provided inthe project EIA. All investments should be consistent with PA management plans and spatial plans. Example: New wastewater svstem in the village of Vraniina - Potenial environmental issuei n d impact Mitigation measures Contamination of surroundings during construction A waste management plan should be prepared, covering the with construction waste (packaging, solvents, whole construction phase. Waste containers with locks could paints, plastic, etc.) be placed at the building site to separate types of waste, and frequent inspections should be done by the monitoring authority. A special container should be dedicated to hazardous waste-solvents, paints, and other toxic chemicals. Contamination of the lake with domestic waste Different solutions for treating wastewater should be water, containing fecalia, pathogens and considered, including sand filters, mini wastewater treatment contaminants (e.g. detergents, disinfectants, plants, and modern septic tanks. If septic tank solutions are chlorine, etc.) used, a system for emptying the tanks should be put inplace. Destruction of recreational values because of odors, Local environmental authorities on both sides of the lake tainting of the water at outlets, etc.; Health risks should ensure future monitoring programs analyze water near outlets samples for E. coli and/or coliform bacteriato underpin public information on health risks inthe lake Oxygen depletion due to high organic content in Oxygen content (dissolved oxygen) should be part of future waste water monitoring programsto be measuredon a regular basis Eutrophication due to high phosphorus content of As mentioned above, different solutions for treating the waste water wastewater should be considered, including sand filters, mini wastewater treatment plants, and modern septic tanks. Legacy Pollution ( U P ) Site 9. Terms o f Reference for the waste classification and pre-investigation studies will be prepared by authorities in Montenegro and members o f a K A P site steering group with comments and no-objection from the World Bank. The project description from the feasibility study report should be used for an application o f approval to the Ministry o f Tourism and Environment and follow normal EIA procedures, and be submitted to the World Bank for review and comment. Movement o f hazardous waste and construction o f a landfill for hazardous waste i s on the list for preparation o f a mandatory EIA study 74 according to the Law on EIA inMontenegro. An extra hearing/consultation apart from the obligatory one under the Montenegrin EIA Law should be initiated by the project proponent, as soon the project description i s well developed. As expertise for this kind o f remediation, containment or construction of landfills for hazardous waste i s not present inthe Ministry, the project supports an international adviser to help in supervision and an advisory role to the Ministry. This support will supplement and not replace Bank and Ministry o f Environment and Tourism supervision. Capacity Development and Institutional strengthening 10. Both Montenegro and Albania have been actively revising sectoral policies and legislation to harmonize with EU policies and Directives. This includes recently updated legislation on Environmental Impact Assessment (including Strategic Environmental Assessment), environmental protection, Protected Areas, and protection and management o f water and living natural resources. National and local governments in both countries have made considerable progress in re-establishing a regulatory presence since the early 1990s. However, law enforcement relating to land and resource use remains weak. Uncontrolled and unregulated construction is a major threat, particularly on the Albanian side (and some on the Montenegro side). There are issues o f conflicting and overlapping sectoral agencies' mandates and between central and local government levels. EIA recommendations to strenthen environmental enforcement capacity have been incorporated by the project: (1) Trainpark rangers of both countries to enforce nature park regulations and take action against illegal fishery, waste disposal, etc. Training would be conducted in cooperation with the Regional Environment Agency Shkodra, and the future Environment Agency inMontenegro. Park rangers have the primary responsibility to identify and assess fees and fines related to natural resources including fisheries, and some responsibility for small solid waste violations. Parks rangers in Albania and Montenegro do not have authority to issue fines or take action against illegal construction, and must defer to other responsible government agents. (2) Training regional environmental agency staff in Shkodra on environmental auditing and inspection. Social Safeguards 11. Cultural Property: This OP i s triggeredbecause there .are legally designated cultural heritage sites within the project area (e.g., old monasteries), some o f which will be rehabilitated for touristic and educational purposes. Special measures will be taken inthe rehabilitation designs and construction works, including close consultations and permissions from legal bodies responsible for cultural heritage in each country. Construction agreements will include provisions related to "chance finds" in all contracts that involve earth movement, following procedures specified inthe PIM. 12. Involuntary resettlement: The project will not finance any land acquisition; activities carried out under the project will not require or entail any land acquisition and/or physical relocation o f people. However, the project may require involuntary restriction o f access to natural resources in legally designated protected areas. The TDA indicated that over-fishing and fishing in inappropriate areas or with inappropriate methods probably represents a significant threat to the sustainable use o f this valuable element ofthe lake ecosystem. This remains to be confirmed through a detailed study ofthe fishresources duringthe first year of the project. Confirmation that fishing pressure needs to be reduced could damage livelihoods for some current users. Anticipating this possibility, Resource Access Restriction Process Frameworks were prepared for both countries during project preparation in accordance with WB OPBP 4.12. These Process Frameworks have been publicly disclosed with government cover letters endorsing the Frameworks. The process frameworks do not address re-settlement associated with possible demolitions by ongoing government programs in accordance with their law. Planning supported under this project only addresses natural resources management at a regional level which does not trigger WB OPBP 4.12. 75 Annex 11:ProjectPreparationand Supervision LAKE SKADAR-SKODERINTEGRATED ECOSYSTEM MANAGEMENT PROJECT planna Actual ~ ~~ PCN review 03/04/2004 03/04/2004 Initial PID to PIC 03/30/2004 0311212004 Initial ISDS to PIC 03/30/2004 05/04/2004 Appraisal 2/27/2008 3/1212008 Negotiations 4/21/2008 4/22/2008 Board/RVP approval 05/27/2008 Planneddate of effectiveness Planneddate of mid-termreview Plannedclosing date Key institutions responsiblefor preparation of the project: Albania: Ministry of Environment, Forests, and Water Montenegro: Ministryof Tourism andEnvironmental Protection Bank staff and consultants who worked on the project included: Name Title Unit Agi Kiss ' Lead Ecologist ECSSD Aleksandar Cmomarkovic Financial Management Analyst ECSPS Rohan Selvaratnam Sr. Program Assistant ECSSD Nikola Ille Sr. RuralDevelopment ECSSD DritaDade Projects Officer ECSSD Karin Shepardson Sr. Operations Officer, TTL ECSSD Olav Christensen Sr. Financial Management Specialist ECSPS ArbenMaho Procurement Specialist ECSPS Aleksandar Nacev Sr. Agriculturist ECSSD KirstenBurghardt Propst Counsel LEGEM Danielle Malek Counsel LEGEM Paula M.Lytle Senior Social Dev. Specialist ECSSD Elona Gjika Financial Management Analyst ECSPS KonradBuchauer Wastewater Consultant ECSSD Katelijn Van den Berg Environmental Economist ECSSD Marina Markovic Environment Consultant ECSSD Wolfhart Pohl Sr. Environment Specialist ECSSD Chris Cosslett GEF ICA Consultant ECSSD RobinDrewett Industrial Pollution Consultant ECSSD Bank funds expendedto date on project preparation: 1. Bank resources: BBGEF US$390,100.05 2. Trust funds: PDF-B US$119,349.73 3. BBFAO: US$12,100 4. Total:US$52 1,549.73 76 Annex 12: Documentsinthe ProjectFile LAKESKADAR-SHKODERINTEGRATEDECOSYSTEMMANAGEMENTPROJECT 1. Project Concept Note 2. Project Information Document 3. Albania: Environmental Impact Assessment 4. Albania: ResourceAccess Restriction ProcessFramework 5. Republic ofMontenegro: Environmental Impact Assessment 6. Republicof Montenegro: ResourceAccess RestrictionProcessFramework 7. Joint Strategic Action Plan 8. PDF B Audit of the Annual Financial Statements for the year ended 31". December2006 9. Lake Shkoder/Skadar: Transboundary Diagnostic Analysis Report 10. Lake Shkoder Integrated EcosystemManagement Project: "Support for Preparation Revision of Montenegrin Draft Water Law -Final Report, February 20,2006 11. Lake Skadar: Health ScreeningAssessment Report 12. Social Surveys 13.Draft PIM for the Lake Skadar-Shkoder Integrated EcosystemManagement Project 14.Zero State Analysis (Environmental Audit) o fKAP Site 15. Agreement Betweenthe Government of the Republic ofMontenegro and the Council of Ministersof the RepublicofAlbania for the Protection and SustainableDevelopment ofthe Lake of Shkodra (Skadar) and its Watershed, February25,2008 16.Vranjina Draft Feasibility Study TORS 17.Project Procurement Plan 77 Annex 13: Statement of Loansand Credit- ALBANIA Differencebetween expectedand actual OriginalAmount in USJMillions disbursements ~~ ~~ Project ID FY Purpose IBRD IDA SF GEF Cancel Undisb Orig Frm Rev'd PO96643 2007 BERIS 5.60 3.70 0.00 0.00 0.00 8.85 -0.43 0.00 PO96263 2007 LANDADMIN & MGMT PROJ 19.96 15.00 0.00 0.00 0.00 36.04 0.38 0.00 PO96205 2007 DPL 0.00 10.00 0.00 0.00 0.00 10.43 0.00 0.00 PO78949 2007 TRANSPORT 20.00 5.00 0.00 0.00 0.00 25.82 0.00 0.00 P100273 2006 AVIAN FLU-AL 0.00 5.00 0.00 0.00 0.00 4.49 1.13 0.00 PO82814 2006 HEALTHSYST MOD 0.00 15.40 0.00 0.00 0.00 15.71 1.38 0.00 PO78933 2006 EDUC EXCEL& EQUITY 0.00 15.00 0.00 0.00 0.00 14.52 0.28 0.00 PO82375 2005 NATURAL RES DEVT 0.00 7.00 0.00 0.00 0.00 5.67 1.98 0.00 PO86807 2005 COASTALZONE MGMT (APL #1) 0.00 17.50 0.00 0.95 0.00 15.45 5.96 0.00 PO89061 2005 NATURAL RES DEVT(GEF) 0.00 0.00 0.00 5.00 0.00 4.08 0.00 0.00 PO90656 2005 ECSEEAPL2 (ALBANIA) 0.00 27.00 0.00 0.00 0.00 25.76 0.77 0.00 PO82128 2004 WATER RES MGMT 0.00 15.00 0.00 0.00 0.00 8.12 -0.80 0.00 PO77526 2004 POWERSECTOR GENER& 0.00 25.00 0.00 0.00 0.00 24.82 22.16 0.00 RESTRCT`G PO75156 2004 INTGDWATEWECOSYSMGMT (GEF) 0.00 0.00 0.00 4.87 0.00 4.01 4.67 0.00 PO77297 2003 COM WRKS 2 0.00 15.00 0.00 0.00 0.00 2.74 1.42 -0.82 PO41442 2003 MUNWATEWW 0.00 15.00 0.00 0.00 0.00 6.15 1.18 0.00 PO69479 2002 FISHERY DEVT 0.00 5.60 0.00 0.00 0.00 0.51 -0.32 0.00 PO55383 2001 SOC SERV DEVT 0.00 10.00 0.00 0.00 0.00 7.70 4.50 2.20 PO54736 2001 AG SERVICES 0 00 9.90 0.00 0.00 0.00 1.74 -0.02 0.00 Total 4556 216 10 000 1082 000 22261 4424 138 ALBANIA STATEMENTOF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2005 FusheKruje 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 INSIG 0.00 0.00 6.23 0.00 0.00 0.00 6.22 0.00 2000 NCBank 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 1999 ProcreditALB 0.00 0.98 0.00 0.00 0.00 0.98 0.00 0.00 2003 VodafoneAlbania 17.83 0.00 0.00 3.70 17.83 0.00 0.00 3.70 Total portfolio: 47.83 2.98 6.23 3.70 47.83 2.98 6.22 3.70 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2002 SavingsBank 0.00 0.02 0.00 0.00 Total pendingcommitment: 0.00 0.02 0.00 0.00 78 Statement of Loans and Credits Difference between expected and actual Original Amount in US%Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm Rev'd P106899 2008 ECSEE APL #3 -MONTENEGRO 0.00 9.00 0.00 0.00 0.00 9.46 0.33 0.00 PO93461 2007 SUST TOURISM DEVT 0.00 10.00 0.00 0.00 0.00 10.12 0.70 0.00 PO84597 2005 EDUC (MONTENEGRO) 0.00 5.00 0.00 0.00 0.00 0.85 -0.65 0.00 PO79116 2004 ENVIRONMENT 0.00 7.00 0.00 0.00 0.00 5.15 4.58 0.00 PO82223 2004 HEALTH SYSTEM (MONTENEGRO) 0.00 7.00 0.00 0.00 0.00 3.89 2.83 -1.16 PO87470 2004 PENSIONADMIN (MONTENEGRO) 0.00 5.00 0.00 0.00 0.00 4.09 3.00 0.00 Total: 0.00 0.00 0.00 0.00 33.56 10.79 - 1.16 STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1982f82187187 Gov montenegerol 22.14 0 0 0 22.14 0 0 0 0100 Gov montenegro 2 3.04 0 0 0 3.04 0 0 0 Total portfolio 4 000 0000 0000 25 18 0 00 0 00 79 Annex 14: Country at a Glance Europe & upper Key Development Indlcators Central middle Montenegro Asia income Age dlstrlbutlon,2006 (2006) Male (..) Female(..) Population, mid-year (millions) 0 62 460 810 Surface area (thousand sq. km) 14 24,114 41,460 Population growth (Oh) 0 0 0 0 0 7 Urban population (%of total population) 62 64 75 GNI (Atlas method, US$ billions) 2 5 2,206 4,790 B~ 3C-M GNI per capita (Atlas method, US$) 4,090 4,796 5,913 X-24 GNI per capita (PPP, International$) 9,662 10,817 10.14 M0 0 0 1 I l I GDP growth (%) 6.5 6 8 5 6 GDP per capita growth (oh) 6.5 6 8 4 9 perG9"t (most recentestimate, 20(1&2006) Poverty headmunt ratio at $1 a day (PPP, %) 9 1 Poverty headmunt ratio at $2 a day (PPP, %) 10 Undrr-6mortalltyrate(per 1,000) Life expectancy at birth (years) 69 70 Infant mortality (per 1,000live births) 28 26 Child malnutrition (Ohof children under 5) 5 Adult literacy male (% of ages 15 and older) 99 94 Adult literacy,female (% of ages 15 and older) 96 92 Gross primary enrollment, male (Ohof age group) 103 106 Gross primary enrollment, female (Ohof age group) 100 104 Access to an improved water source (Ohof population) 92 93 AWSS to improved sanltabonfacilities (ohof populabon) 85 81 1980 16% 2030 2m OMOntenegm( ) OEumpe h CentralAsia Net Aid Flows 1980 1990 2000 2006 (US$ millions) Net ODA and ohlclal aid Orowth of GDP and GDP perCaplta (Oh) Top 3 donors (in 2005) n a I O7 n a n a Aid (96 of GNI) Aid per capita (US$) Long-Term EconomlcTrends Consumer prices (annual % change) 24.0 2 1 GDP Impliat denator (annual % change) 22.0 3 9 I Exchangerate (annual average, local per US$) 1.1 0 8 Terms of trade index (2000 100) 1980-90 1990-2000 2000-06 (average annual growth %) Populabon,mid-year (millions) 0 6 0 6 0 6 0 2 GDP (US$ millions) 944 2 491 3 0 (% of GDP) Agriculture 13 1 7 8 2 3 Industry 24 6 17 6 2 3 Manufacturing 12 3 12 6 Services 62 4 74 6 3 0 Householdfinal ansumption expenditure 70 6 81 5 3 0 General gov't final mnsumDtion emenditure 22 9 18 5 3 0 Grosscapital formation 21 4 31 8 3 0 Exports Of goods and SeNlCeS 38 4 48 0 3 0 Importsof goods and services 53 3 80 9 3 0 Gross savings 21.9 6 3 Note Figuresin italics are for years other than those specified 2006 data are preliminary Indicates data are not available DevelopmentEconomics, Development Data Group (DECDG) 80 Y iIlennium Development GoaIs Montenegro Vitbselected targets to achreve between 1990 and 2075 ?sfmateclosesf to date shown, +/- 2 years) iOal 1:halve the rates for $1 a day poverty and malnutrltlon 1890 199s 2000 2005 Povertyheadcount ratio at $1 a day (PPP. % of population) 9.0 Povertyheadcount ratio at national povertyline (% of population) Share of incomeor consumptionto the poorestqunitile (%) Prevalenceof malnutrition(% of childrenunder 5) i0al 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) Primarycompletionrate (% of relevant age group) Secondary school enrollment(gross, %) Youth literacyrate (% of peopleages 1524) ;Oal 3: eliminate gender disparity In educatlon and empower women Ratioof girls to boys in primaryand secondaryeducation (%) Women employedin the nonagriculturalsector (% of nonagriculturalemployment) 91 Proportionof seats held bywoman in national parliament (%) ;Oal 4: reduce under-5 mortalityby two-thirds Under-5 mortalityrate (per 1,000) Infant mortalityrate (per 1,000 live births) 10 Measlesimmunization (proportionof one-year olds immunized, %) iOal 5: reduce maternal mortality by three-fourths Maternalmortalityratio (modeledestimate,per lW,OOO livebirths) Births attended by skilled health staff (% of total) iOal 6: halt and begin to reverse the spread of HlVlAlDSand other malor diseases Prevalenceof HiV (% of populationages 15-49) Contraceptiveprevalence(% of women ages 1549) Incidenceof tuberculosis(per lW,OOOpeople) Tuberwlosis cases detectedunder DOTS (%) ;oal 7: halve the proportion of people without sustainable access to basic needs Access to an improvedwater source (% of population) Access to improvedsanltationfacilities(% of population) Forest araa (% of total land area) Nationallyprotectedareas (% of total land area) CO2 emissions(metrictons per capita) GDP per unit of energy use (constant2000 PPP 5 per kg of oil equivalent) iOal 8: develop a global partnership for development Fixedline and mobile phone subsaibers (per 1,000people) 1,421 Internet users (per 1,000 people) Personalcomputers(per 1,000 people) Youth unemployment(%of total laborforce ages 15-24) 3.8 Educatlon indicators (%) Measles immunizatldn (Oh of 1-year olds) iCT Indicators (per 1,000 people) 1.5w l zwo L 2002 - 2w5 1880 18% XXXI zw5 +Pnmsry net enrollment ratio (..) -0- Ratioofgirlstoboysinprlmry8 0Fixed+mablle subswbers( ) secondary education (..) 0 Montenegro( ) 0Europe8 CentralAaa Bl Internetusera ( ) 1018: Figures in italicsare for years other than those specified. ..indicates data are not available. 11/5/07 bvelopment Economics. DevelopmentData Group (DECDG). 81 Montenegro 3alance of Payments and Trade 2000 2006 US$ rnfLons) lGoverntnce Indicatora, 2000 and 2006 I 'otal merchandiseexports(fob) 853 ?otalmerchandiseImports(clf) .... 1,973 Vola and accountability det trade in goods and seMces -141 -836 Pollllcal stability :urrent accountbalance -00 -677 as a % of GDP -8.8 -27.2 Regulatoryquality Norkers' remittances and Ruleof law compensabonof employees(receipts) Controlof comption ?eserves includinggold 100 433 0 25 50 75 :entral Government Finance m2006 Country8percentilerank (0-100) 02000 h m vdcm rmpiy bMw rahnge % of GDP) :urrent revenua (includinggrants) 39.2 34.6 Tax revenue 29.6 27.5 hrrent expenditure 35.2 33.4 Technolopy and Infrastructure 2000 2005 herall surplus/defiut 0.0 1.7 Paved roads(% of total) jighest marginaltax rate (%) Fixedline and mobilephone Individual subsaibers (per 1,000 people) Corporate High technologyexports (% of manufacturedexports) ixternal Debt and Resource Flows Environment US8rnfllfons) 'otal debt outstandingand disbursed 615 1,217 Agriculturalland (% of land area) otal debt s m c e - .. 20 Forestarea (% of land area) )ebt relief (HIPC,MDRI) - Nationallyprotectedareas (% of land area) otal debt (% of GDP) 55.2 48.9 Freshwaterresourcesper capita (w.meters) Otal debt SBMC-9 (% Of expOrtS) .. 2.4 Freshwaterwithdrawal(% of Internalresources) oreigndirect investment(net inflows) 0 467 C02 emissionsper capita (mt) 'ortfolio equity(net Inflows) 0 6 GDP per unit of energyuse (2000 PPP $per kg of oil equivalent) Composition of total external debt, 2006 Energyuse per capita (kg of oil equivalent) Short-term 0 PliVltl 5%- (US8 millions) IBRD 7 Total debtoutstandingand disbursed 344 Disbursements 14 o d m w Principalrepayments 8 Idere1 74 Interestpayments ---- BilltUd 189 17 JSS mllion8 IDA Total debt outstandingand disbursed - 4 6 Disbursements - 6 kivate Sector Development 2000 2008 Total debt service - 0 ime requiredto start a business(days) - 24 IFC (fiscalyear) :os1to start a business(% of GNIper capita) 6.7 Total dlsbursedand outstandingportfolio 18 ima requiredto registerproperty(days) -- 86 of which IFC ownaccount 18 Disbursementsfor IFC own account --- 8 !ankedas a major constraintto business Portfoliosales, prepaymentsand (% of managersSurveyedwho agreed) repaymentsfor IFC own account - 2 ma. ma. MIGA Gross exposure to& market capitalization(% of GDP) Newguarantees - - ank capitalto asset ratio (%) tote: Figuresin italicsare for years other thanthose speclfied. 2006 data are prellmlnaly 11/5/07 Indicatesdata are not available. -indicates observationis not applicable. levalopmentEconomics,DevelopmentData Group (DECDG). 82 Annex 14: Country at a Glance Albania at a dance 9/28/07 Europeh Lower- POVERTYand SOCIAL Central mlddle- Albania Asia Income Developmentdlamon@ 2006 Population,mid-year(millions) 3.1 460 2,276 GNI per capita (Atlas method, US$) 2,960 4,796 2,037 Life expectancy GNI (Allas method, US$ billions) 9,3 2,206 4,635 Average annual grwth, 2000.06 Population (%J 0.4 0.0 0.9 Laborforce (%) 0.2 0.5 1.4 GNI Grosi per priman Mostrecent estimate (latestyear available, 200046) capita enrollmen Poverty(% ofDoDulationbelownationalwvertvline) 25 Urbanpopulation (% offofalwpulationj 48 84 47 Lifeexpectancyat blrth (yearsJ 75 69 71 Infant mortality (per 1,000livebirths) 16 28 31 Child malnutrition(% ofchildren under5) 14 5 13 Access to improvedwater source Access to an improvedwater swrw (% ofpopulation) 96 92 81 Literacy1% ofpopulationage f5+J 99 97 89 - Grossprimary enrollment (% of school-agepopulation) 106 102 113 Albania Male 106 103 117 - Lower-middleincomegroup Female 105 100 114 KEY ECONOMIC tunos and LONG-TERM TRENDS 1986 1996 2006 2006 iconomlc ratlor. GDP (US$ blllionsj 2.2 3.0 8.4 9.1 Gross capitalformationiGDP 30.9 22.0 23.6 25.6 Exportsof awds and services/GDP 15.1 12.3 21.8 22.2 Trade Grossdomestic savingdGDP 30.5 -0.9 -0.5 1.3 Grossnational savings/GDP 30.5 20.0 16.1 17.4 Current accountbalanceffiDP -3.6 -7.9 -8.0 interest pamentdGDP 0.2 0.3 Domestic Capital Total debVGDP 16.3 21.9 ~avings formatlon Total debt service/exporls 2.1 2.5 Presentvalue of debVGDP 16.5 Presentvalue of debVexports 42.9 Indebtedness 1986-96 1QS646 2005 2006 2006-10 (averageannualgrowth) GDP -2.5 5.9 5.5 5.0 6.0 -Albania GDP percapita -2.8 5.7 4.9 4.7 4.8 -Lower-middle-incomegroup Exportsof goods and services 25.1 21.1 7.2 7.3 9.7 STRUCTUREof the ECONOMY ./% IgB61996 2o06 /Growthof caphl and GDP (W) of GDPJ ~, Agriculture 34.0 33.0 22.8 Industry 44.2 20.2 21.5 Manufacturing .. 14.4 Services 21.8 46.8 55.7 I Householdfinal consumptionexpenditure 60.2 91.2 91.2 Generalgov't flnai consumptionexpenditure 9.3 9.7 9.3 8.9 imports of goods and selvices 15.5 35.2 45.9 46.5 -GCF -GDP (averageannualgrowih) Aoriculture 4.1 1.4 2.6 .. 4o T iI Iniustry -11 2 8 6 -34 /boA n Manufactunng 5 8 S B M a S -16 7 9 8 0 Householdfinal consumptionexpenditure 2 9 8 8 Generalgov'tfinal consumptionexpenditure -3.1 72.93 2.0 50 26 ni rn n? M m OB Gross capital formation 19.2 11.7 4.3 139 -Export5 -0'lmporls Importsof goods and services 24.2 16.4 10.1 3.1 Note: 2006 data are preliminaryestimates. This table was producedfromthe DevelopmentEconomics LDB database. The diamondsshowfour key indicators in the country (in bold) comparedwith its income-groupaverage. If data are missing. the diamondmil be incomplete. 83 PRICES and GOVERNMENT FlNANtE 1986 1996 2005 2006 Domestic prices lnflatlon (Oh) I I (% changel I OT i: Consumer prices 12.7 2.4 2.4 ImplicitGDP deflator -2.4 28.4 3.5 2.4 Government finance (% of GDP, includescurrentgrants) 1 2 I O Current revenue 48.7 15.8 24.9 25.5 01 02 03 04 05 06 Current budgetbalance 25 0 1.2 1.8 -11.o -6.2 Overallsurplus/deficit -4.1 -3.9 -GDP deflator -"o"CPI TRADE 1986 1996 2005 2006 (US$ millions) Export and Import levels(US$ mill.) Total exports (fob) 229 652 750 I 3,000 Agriculture 35 Mineral products 21 Manufactures 111 2.000 Total imports (cin 921 2,397 2,618 Food 323 1,000 Fueland energy 22 Capitalgoods 367 0 Export priceindex(2000=100) 121 120 Importpriceindex (2000=100) 116 117 I Exports llrnpork I Terms of trade (2000=100) 104 102 BALANCE of PAYMENTS 1986 1996 2005 2006 lI o (US$ miilions) ICurrent account balanceto GDP (%) Exportsof goods and services 327 373 1,623 1.988 Importsof goods and services 336 1,111 3.858 4,164 Resource balance -9 -739 2,035 -2.176 -2 Net income 0 72 144 152 4 Net current transfers 559 1,229 1,297 -8 Current account balance -107 -663 -727 Financing items (net) 163 766 807 8 Changes in net reserves 1 -56 -103 -80 j.10 Memo: Reserves induding goid (US$ millions) 324 1,263 1,332 Conversion rate (DEC, iocaVUS$J 8 0 IO4 5 99 9 98 5 EXTERNALDEBT and RESOURCE FLOWS 1986 1996 2005 2006 (US$ miilians) Composltion of ZOOS debt (US$ mill.) Total debt outstanding and disbursed 491 1,839 IBRD 0 0 0 IDA 137 655 729 I G 288 Total debt service 21 81 IBRD 0 0 0 IDA 1 10 10 Composition of net resourceflows Official grants 114 154 Officialcreditors 80 79 Private creditors 4 34 Foreign direct investment (net inflows) 90 262 Portfolioequity (netinflows) 0 D.212 World Bank program Commitments 63 52 0 A IBRD - E Bilateral Disbursements 32 34 46 E . IDA D Other multilateral - F Pnvate -- Principalrepayments 0 4 5 C IMF - G .Short-term Netflows 32 30 41 Interest payments 1 5 6 Nettransfers 31 24 35 Note This table was producedfrom the DevelopmentEconomicsLOB database. 9/28/07 84 Annex 15: IncrementalCost Analysis LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEMMANAGEMENT PROJECT ProjectDevelopmentObjectiveand BaselineScenario 1. The project development objective is to maintain and enhance the long-term economic value of Lake Skadar-Skhoder and its natural resources. The baseline funding in support o f the project amounts to US$40.2 million. The baseline scenario and corresponding funding with regards to each project component are describedbelow. LAKE ECOSYSTEM MONITORING AND MANAGEMENT 2. In the past, both Montenegro and Albania pursued lake management from a predominantly national perspective with little transboundary co-operation. There i s no institutional structure for co- ordinating protection and management. As such, under a fonvard-looking baseline scenario, it would prove increasingly difficult for managers to address mounting challenges to lake sustainability during the planned project period. 3. This situation began to change with the creation o f a project involving the two Governments together with the Regional Environment Center (E) and with the move to develop a GEF project. Launched in2000, the REC project has a total budget o f US$600,000, o f which US$170,000 will be spent during the project period. REC project activities include: (i) institutional capacity building to promote cross-border communication and collaboration (especially for communities and NGOs), (ii)public awareness activities, including preparation o f promotional materials for ecotourism, (iii) a small amount o f equipment for Skadar Lake NP. 4. While the REC project focuses on communityAoca1communication, it does not support high-level government coordination, nor does it implement activities on the ground to make the cooperation concrete. Thus, while the REC project is very valuable to instill the idea o f transboundary cooperation, it cannot fund its completion. 5. Both countries carry out environmental quality monitoring within the lake basin and this will continue at a similar rate o f expenditure under the baseline scenario. However, this scenario has the following shortcomings: (a) each country uses different monitoring approaches and data collection methods meaning that the data are not inter-comparable; (b) no common database exists for open and efficient exchange o f information; (c) data gathering and analysis are not necessarily carried out based on priorities concerning the lake as a whole; (d) the parameters measured are not necessarily the most useful to underpin lake-wide management decisions; (e) research may be too donor-driven, reflecting the priorities o f the respective funders, (0 data are not readily available within either country because data collection i s done by semi-autonomous institutions, which often charge high fees, and; (g) technical capacities to analyze and interpret data are limited, particularly inAlbania. 6. For all these reasons, accurate and up-to-date informationon the status and trends o f key elements o f the lake ecosystem are almost impossible to obtain. However, such information i s essential for effective lake-wide management to achieve national and transboundary priorities. These drawbacks tend to limit both national and transboundary benefits from monitoring. 85 7. Estimated baseline spending for environmental monitoring in the lake area during the project period i s US$675,000 in Montenerrro" and US$68,000 for Albania. Some spending will be reoriented under the GEF Alternative to increase and capture transboundary benefits. As part of baseline funding, data from a transformed program of monitoring will be complemented by a transboundary research project funded by the Norwegian ResearchCouncil (NIVA). The three-year DRIMON19project involves Montenegro, Albania, and Macedonia and covers Lakes Skadar-Shkoder and Prespa. Total funding for Lake Skadar-Shkoder i s estimated at US$237,500. Project activities include: (i) establishnutrient budgets and address siltation challenges for the lake basins, (ii)assess the status of the lakes through dose- responserelationships betweennutrientsand sediment inputs and their effects; (iii) suggest environmental goals for the lakes, based on information on their trophic status and evidence of their reference (or natural) conditions, in dialogue with stakeholders. This NIVA-financed study will provide essential management-relateddata that would otherwise be available only with GEF support. 8. In addition, GTZ will finance complementary activities under the "Physical Planning and TransboundaryManagement" project that covers both Montenegro and Albania. The project, which has been approved and i s expected to begin shortly, will provide US$625,000 over 18 months to prepare detailed urban plans for six pilot lakeside villages (to reduce illegal building, sup ort well-regulated residential and tourism development), some small ecotourism-related infrastructure!' The province of Pisa, i s financing urban planning activities in cooperation with the Municipality of Shkodra for approximately US$612,000. LAKE SKADAR-SKHODER WATER AND NATURAL RESOURCES MANAGEMENT 9. At present, no zoning or management plan exists in the areas surrounding the lake so most areas are legally accessible to tourists and fishermen. Local and commercial use of the lake natural resources i s allowed everywhere, including fishing, hunting, recreation (boating, hiking, etc.). Ensuring that these resources are used sustainably and limiting negative ecological impacts is an essential and challenging part of lake management. However, these objectives are undermined by capacity constraints in both countries, as evidenced by extensive illegal fishing and hunting and inappropriate alternative uses of the lake waters that promise localized short-term gains. Local authorities have limited experience with modern, integrated, andparticipatory approachesto natural resources management. 10. Inthe case ofMontenegro, an estimatedUS$1,875,000 inbaselinesupport will beprovided during the full project period,*l to cover the annual operational budget of the project implementation entity (the Lake Skadar National Park administration), awareness raising and government counterpart funding for USAIDand Council ofEurope (CoE) projects. 11. InAlbania, the lake area received area status only in2006, near the end of the project preparation period. The move to initiate transboundary co-operation, including the anticipation of international (GEF and others') support for this objective, has beenan important impetus underlying the establishmentof the PA and the creation of an associatedbudget. Inthe absence o f GEF support, baseline spendingby Albania under this component would have beenzero. ''Basedon an annual figure of Eurol.6 million for country-wideenvironmental monitoring and an estimatethat 10percentof spending takes lace within the lake basinand is therefore relevant to the lake environmental quality. Interdisciplinarj Assessment o f Water resource Managementin Two `TransboundaryLakes in South EasternEurope 2oAdditional project activity is considered incremental support and is presentedbelow under the Alternative GEF Scenario. 21Duringthe PDF-B Phase, GoM investedUS$225,000 in PA infrastructure to rehabilitate the National ParksHQandvisitor center at Lake Skadar in conjunction with, the PDF-B Phase, which is reflectedinthe attached incrementalcost matrix. 86 12. The following donor support is being provided under the baseline scenario for natural resource management inthe project area: GTZ inMontenegro is supporting the "Improving Touristic Offer of LSNP' project and is financing small tourism-related infrastructure suchas signs, trails, promotional materials, etc. Total financing is estimated at US$225,000. GTZ and Austrian Aide (ADA) are providing US$340,000 to support small/medium tourist-friendly infrastructure, e.g., rehabilitate Virpazar market. USAID, Council of Europe, and Government of Montenegro: Together are providing financing for tourism development activities basedon natural and cultural heritage, including birdwatching, lake clean- up, building thematic visitor centers at Bar and Cetinje, and supporting cultural heritage and local traditions that emphasize social inclusion. Total financing: US$340,000. UNDP: UNDP has a national project to develop GIS for natural resource management, although it does not support on-the-ground activities at Lake Skadar. A three-phase project totaling US$512,500 is expectedto provide US$50,000 of geographically relevant support during the project. WATER QUALITY PROTECTION INVESTMENTS 13. Important baseline investments are controlling pollution within the lake watershed that used to reach the lake. Pollutants included hazardous wastes, solid wastes and wastewater. In the area o f wastewater collection and treatment, major challenges remain, particularly in Albania, where wastewater from the city of Shkodra flows largely untreated into the lake. Overall baseline financing includes the following: 0 US$17 million to Albania from KfW and Austria to help provide Shkodra city with wastewater collection and treatment facilities US$200,000 to Montenegro from the European Agency for Reconstruction (EAR) to rehabilitate an existing wastewater treatment plant for Podgorica (a significant source of pollution through the Moraca River). US$lOO,OOO from Montenegro government to pilot small-scale wastewater treatment along the lake. Some financing will be redirected to innovative approachesunder the GEF Alternative. 14. In the area of hazardous wastes, the contract to privatize Montenegro's State-owned KAP aluminum plant was awarded to RUSAL, a Russian company. This contract requires that by 2010, "legacy" hazardous and non-hazardous waste dump site on the KAP grounds must be removed or contained in EU-standard sanitary land fill, and RUSAL is responsible for non-hazardous wastes (estimated financing of US$10 million), while Government of Montenegro i s responsible for the hazardouswaste component. 15. Hazardous waste from KAP presents a particular threat to Lake Skadar as it is contaminating groundwater that enters the lake, primarily through the Moraca River. Addressing the KAP hazardous waste issue will have important national and transboundary benefits by removing a significant threat to lake environmental quality. In conjunction with GEF support, the Government of Montenegro i s providing baseline financing of US$lOO,OOO for the feasibility study and US$5.16 million to clean up the site.22 22The GEF incrementalcost contributionofUS$1.2 million to the KAP cleanupis describedbelow inpara. 35. 87 16. Management of solid waste represents an important task for lake managers and local governments inbothcountries. Domestic solid waste is a recognized serious and growing problem throughout the lake basin. Wastes from settlements and tourism facilities near the lake and inriver basins are blown into the lake and collect at the mouths of rivers, where they damage ecological functions, local health status, and tourism prospects. Shkodra city has an established (though inadequate) waste collection system, but villages and communes on either side of the lake lack waste collection systems. 17. Baseline spendinginthis area includesthe following: 0 IDA-financedMontenegro Environmentally Sensitive Tourism Project (MESTAP) is funding two regional municipal solid waste landfills, one for Bar municipality, which borders Lake Skadar. Relevant baselinecosts at this site are estimatedat US$300,000.23 0 Baseline spending for the city of Shkodra in Albania is estimated based on an ongoing US$500,000 annual contract for solid waste collection and disposal. An estimated 10 percent of that contract is collecting waste from areas proximate to the lake, therefore reducing the risk of solid waste entering the lake. Thus, US$200,000 of baseline spending is estimated over the four- year life of the project. GlobalEnvironmentalObjective and Alternative Scenario 18. The project global environmental objective is to enhance transboundary cooperation for managing sources and impacts of potentially conflicting development objectives and activities affecting the waters of the Lake Skadar-Shkoder basin. The total cost of the alternative scenario is US$46.6 million-US$40.2 million baseline investments and US$6.5 million incremental finance. The proposed project, with total financing of US$15.7 million including a GEF contribution of US$5 million, covers all incremental activities and key baseline activities financed by the two governments. It addresses major gaps inbaseline activities and aims to achieve global, transboundary, andnational benefits. COMPONENT 1: CAPACITY BUILDINGFOR IMPROVED UNDERSTANDINGAND JOINT MANAGEMENT OF THE LAKE 19. Under the alternative GEF scenario, US$2.8 million of incremental support will be provided to enhance and solidify a long-term programme of integrated environmental lake management. This i s key to establishing and operating a permanent institutional structure for lake management. The additional support will establish a Skadar-Shkodra Lake Commission (SLC) and bilateral Working Groups to coordinate implementation of key actions called for in the Strategic Action Plan. Working Groups will cover the following activities: Coordinate legal and institutional frameworks; Coordinate planning, including developing a lake-wide managementplan; Design and oversee a lake-wide researchand water-quality monitoringprogram; Coordinate and resolve conflicts on water management issues; Develop and oversee ajoint public awarenessand educationprogram; and Prepare a coordinated strategy andplanto promote sustainable tourism development. 23This figure is basedon anestimate that 10 percentofthe total spendingis relevant for the lake. 88 20. The project will also finance a small Secretariat to support the SLC and Working Groups and to coordinate and facilitate implementation o fjoint project a c t i v i t i e ~ .Accurate and up-to-date information ~ ~ on the status and trends o f key elements o f lake ecosystem i s essential for effective protection and management. For a transboundary lake it i s important that both countries use the same monitoring approaches and data collection methods, that a common database i s established with open and efficient exchange of information, and that analysis i s carried out based on priorities concerning the lake as a whole. 21, Incremental support under this component leveragedby the GEF i s as follows: (i) Government of Montenegro will provide US$160,000 for the SLC and Working Groups; US$25,000 for public outreach and communication, and US$67,000 for monitoring (ii) GovernmentofAlbaniawillprovideUS$lOO,OOOfortheSLCandWorkingGroupsandUS$7,000 for monitoring. (iii) SNV Netherlands is providing US$112,500 for institutional strengthening, stakeholder participation, and co-operation between the two countries. (iv) GTZ will provide approximately US$20,000 in technical assistance to develop a framework strategy for preparation o f the Lake-wide Management Plan. 22. In addition to the above, US$2,330,000 inincremental support is being requested from the GEF for the following elements: (i) Technical assistance, training, equipment, and support for incremental operating costs (on a declining basis) to support the establishment o f the SLC and Working Groups to enable them to carry out their responsibilities. This includes establishing a small Secretariat for the SLC and one- person technical support units in each country, and the costs o f regular meetings and communications. (ii) Technical assistance, equipment, and support for incremental operating costs to implementjoint activities designed and overseen by the Working Groups. These will mainly consist o f studies, targeted research, monitoring, and preparing spatial and development plans, and developing and implementing a public outreach and education program. Lead responsibility for implementation o f joint activities will be assigned to either Montenegro or Albania, based on capacity o f their implementing agencies and their priorities. An important part o f the monitoring program will be to establish and maintain a common, publicly accessible data base and networks for information exchange. COMPONENT2: PROMOTING SUSTAINABLE USE OF THE LAKE 23. The total cost ofthe GEF Alternative under Component 2 is US$6.4 million. This total consists o f US$4.9 million inbaseline support and US$1.5 million in incremental support. Incremental support from GEF totalling US$1.025 millionwill include the following: e Technical assistance, training, equipment, and materials, and some incremental operating costs to strengthenthe capacity o fthe local administrations responsible for management of the lake and its natural resources, including both improved communication and partnership with local governments and communities and more effective enforcement o f regulations (e.g. against illegal fishing). 24Implementationofthe programs developedby the WGs will mainlybe financed throughother components. 89 0 Technical assistance, civil works, equipment, and materials to support development o f sustainable tourism as the best alternative for the use o f the lake ecosystem. This includes small-scale infrastructure such as hiking trails and signage, birdwatching platforms, and rehabilitation o f cultural heritage sites to enhance their touristic and educational value. 0 Technical assistance, equipment, and materials to build capacity and provide incentives for sustainable fisheries management. This may include, for example, legal and technical assistance for local fishermen and other resource user associations, improved market facilities accessible to registeredfishermen, training inhandicrafts based on local resources, among others. 24. An incremental budget o f US$420,000 is leveraged from the government o f Montenegro and US$60,000 from the government o f Albania insupport o f this component. COMPONENT3: CATALYZEPOLLUTION REDUCTIONINVESTMENTS 25. The total cost o f the GEF Alternative under Component 3 is US$34.7 million. It includes US$32.5 million in baseline support and US$2.2 million in incremental support. The GEF incremental support is estimated at US$1.6 million, which will help address urgentpollution hot-spots, includingthe following: 0 Hazardous waste: GEF will provide incremental support to address K A P site hazardous waste; US$l.O million GEF funding i s requested to inventory and categorize wastes and finance an options analysis and feasibility study, and for technical advisory services. 0 Wastewater treatment: GEF support is requested to help address the growing problem o f untreated wastewater flowing directly into the lake from lakeside villages and communes. Specifically, based on priorities identified in the SAP, GEF would contribute to installing a small-scale, environmentally and economically sustainable wastewater collection and treatment system in one village inMontenegro. The proposed GEF contribution to this effort i s US$365,000. 0 Restore lake buffer vegetation: GEF will finance TA and investments (estimated US$280,000) in equipment, materials, and labor to control stream bank erosion, and restore tree groves and fish nurserybuffervegetation at priority sites on both sides o fthe lake 26. An incremental budget is leveraged from the Montenegro government of US$520,000 and from the Albania government for US$20,000 to support this component. 90 Annex 16: STAP Roster Review STAP ROSTERTECHNICAL REVIEW OF THE PROPOSED GEF-IW PROJECT:"LAKESKADAR- SHKODERINTEGRATEDECOSYSTEMMANAGEMENT" (ALBANIA, MONTENEGRO) by J. A. ThorntonPhDPHCLM ManagingDirector InternationalEnvironmentalManagementServices Ltd-UnitedStates ofAmerica Introduction This review responds to a request from The World Bank (WB) to provide a technical review of the proposedInternationalWaters project entitledLake Skadar-Shkoder IntegratedEcosystemManagement. Inotethat Iama designatedexpertonthe STAPRosterofExpertswithparticularexperienceand knowledge concerning watershed management and land-ocean interactions. Ihave served as Government Hydro biologist with the Zimbabwe Government, Chief Limnologistwith the South African National Institute for Water Research, Head of Environmental Planning for the City of Cape Town (South Africa), and, most recently, as Principal Environmental Planner with the Southeastern Wisconsin Regional Planning Commission (USA), a positionthat Iholdconcurrent with my positionas ManagingDirectorof InternationalEnvironmentalManagement ServicesLtd, a not-for-profitcorporationprovidingenvironmental education and planningservicesto governments worldwide. In each of these positions, Ihave had oversight of projects and programs designed to assess contaminant loads to aquatic ecosystems from land-based activities, and to develop appropriate and affordable mitigation measures to reduce such loads and minimizetheir impacts on the aquatic environment, both freshwater andmarine. This review is based upon a thorough review of the project document, consisting inter alia of the Project Document (22 pages plus Annexes 1, 3-5, 8 and 17); the Project Executive Summary and GEF Council Work Program Submission inclusive of Annex A; and, the (Draft) Lake Shkoder Transboundary Diagnostics Analysis (TDA). Other, relevant documents served as reference sources, includingthe GEF Operational Strategy,Agenda 21, and related materials establishing the necessity and priority of land-basedactivitiesto control marine pollution as set forth in the Global Program of Action for the Protection o f the Marine Environment from Land-Based Activities. Scope ofthe Review This review addresses, seriatim, the issues identified in the Terms of Reference for Technical Review of Project Proposals. KeyIssues Key issue 1. ScientFc and technical soundness of the project. Overall, the project appears to be scientifically and technically sound. The approach proposed, which includes an on-going diagnostic and demonstration project-basedprogram, adequately addresses the needs to initiate actions to (1) create a binational mechanismtojointly manage the shared water resourcesof Lake Skadar-Shkoder, (2) quantify the risks associated with a legacy of historic water quality degradationand current threats to the biodiversity and ecology of the Lake, (3) strengthen the existing national mechanisms for management of land- and water-based activities within the drainage basin tributary to the Lake, and (4) encourage implementation of urgent environmental management actions through provisionof incrementalfinancing of remedial actions to address identified "hotspots". The need for both a land- andwater-basedapproach is documentedin the Lake Shkoder Transboundary DiagnosticsAnalysis that was completed during the preparation of this project. The TDA also identified a number of priority interventions that could be considered as recipient activities under Component 4, targeting priority environmental concerns withinthe Lake Skadar-ShkoderBasin. 91 A review of the Components set forth in the project document suggests that the primary focus of this proposed project will be on capacity building and institutional strengthening; to wit, Component 1 focuses on the institutional and human resources necessary to manage and monitor the water resources of Lake Skadar-Shkoder at the binational level, Component 2 focuses on research and monitoring necessary to complete and refine the data available to substantiate the management measures employed, and Component 3 primarily focuses on the human resources necessary to undertake the management of the resource at the national level. In addition, Component 4 will provide important "on-the-ground" experience in problem solving. These needs are adequately documented in the TDA, especially for management actions at boththe nationaland binational levels where the countriesappear to have utilized a primarily passive and country-based management strategy, rather than a holistic approach to managingthe shared resources ofthe Lake. From a scientific standpoint, providing a framework within which the two countries can assemble a shared data base comprised of similar variables, measured in a consistent manner, and stored in an accessible form is an essential first step toward creatingthe baseline from which disturbances can be measured and assessed. Sucha data base will also facilitate both individual andjoint enforcement of regulations and standards by the countries within the shared basin. In addition, disseminating these data to interested parties, including citizens, nongovernmental organizations, and corporations, through an accessible data base will help to ensure timely action to correct problems, be they concerns regardingoverexploitation ofthe living resources of the Lake, pollutionfrom lakeshore development, or impactsrelatedto humanactivities within the drainage basintributary to the Lake. With regardto creating an appropriateregulatory framework, an understandingof the current status of the Lake waters is also useful in determining whether or not conditions of impairment continue to exist, and in identifying emerging issues that could potentially adversely affect the Lake ecosystem. Appropriate data will permit a realistic evaluation of the standards likely to be appliedby regulators at the country and local government levels. Further, the upgrading of the laboratories and enhancing of the institutional capacities to utilize shared methodologies, implemented by trained and competent staff in the Basin countries, is a necessary element in the sharedenforcement process. Joint action of this nature can overcome the possibility that operations could be shifted betweenBasincountriesinorder to avoid regulationsat the country and local levels. Key issue 2. Identification of global environmental benefits and/or drawbacks of the project, and consistency with the goals of the GEF. Theproposedproject establishes aframework within which to address the major causes of environmental stress within the aquatic environment of Lake Skadar-Shkoder; namely, the historic legacy of contamination, the current threat of overexploitation of aquatic resources, and the likely future risk of uncontrolled development in the drainage area, including the inputs of contaminants washed off the land surface and into the aquatic ecosystem. The legacy of contamination stemsfrom the presence of aluminum and steel plants in the drainage basin, and from ongoing discharges of wastewater from the human settlements in the Basin. While the data gathered during the TDA suggest that the legacy of the aluminum and steelprocessingplants has been mitigated by the rapid flushing rate of the Lake, the threat of ongoing degradation from wastewater discharges from urban and agricultural operations within the drainage basin remains. If unchecked, these discharges threaten the globally signiJicant ecosystems of the Lake, including Ramsar sites in both countries, and downstream areas of the Adriatic Sea. These ecosystems, in addition to be transboundary aquatic systems in their own rights, are either directly or indirectly connected to the transboundary waters of the Mediterranean Large Marine Ecosystem (LME). Consequently, true global benefit is presumed as a result of the connection of the Mediterranean Sea with the North Atlantic Oceanic circulation. Theproject is consistent with the goals and objectives of OP 8,2'contributing to the global effort to address environmental concerns arisingfrom industry, agriculture,fishing, and exploitation of the natural environment for *'Operational Program 8 (OP 8) includes as indicative activities, inter alia, global pollutant projects which are designedto "help countries collaboratively address damaged and seriously threatened water bodies, and the most imminent transboundary threats to their ecosystems....[by modifying] the ways in which human activities are conducted in different sectors so that the water body and its international drainage basin can sustainably support human activities." "Imminent transboundary concerns that seriously threaten water bodies include pollution, overexploitation of living and non-living resources, habitat degradation, and non-indigenous species." This 92 tourism and recreation insofar as it relates to Lake Skadar-Shkoder. A regional approach is essential, and provides the basisfor GEFparticipation, given that each country may need to engage in an additional level of effort beyond that required under their current national legalframework. In this regard, the participation of a broad cross-section of governmental, nongovernmental and civil organizations with interests in the Lake and its drainage basin would be an important element in ensuring the implementation of the project outcomes, even though the outcomes, in the global sense, are environmental in nature. Currently, this participation is provided through the relevant national agencies. Establishment of the various working groups and secretariat, and the stakeholder involvement, as proposed in theproject document, will contribute to achieving this objective, and add the necessary community and transboundary dimensions to the management of this resource. Unfortunately, the civil society organizations are not listed in the project document, so it is not possible to gain afull understanding of the extent or nature of theproposed stakeholder involvement in theproject. Thisproject is complementary to other GEF initiatives within the eastern Mediterranean region, including the Lake Ohrid project. Given the GEF aim of incrementally funding projects that contribute to sustainable economic development in a replicable manner, the current proposal and its companionproposal would seem to be well-suited to achieving such an aim. Key issue 3. Regional context. The participation in this project o f the two countries in the Lake Skadar- Shkoder Basin argues persuasively that adequate and appropriate consideration has been given to the regional context of the project. Notwithstanding, the project team noted that a Basin-wide approach to water resources management, which would have significantly increasedthe area of influence of the project, was discounteddue to the size of this larger geographic unit and the fact that the available financial resources would be insufficient to bring about meaningful change in such a large area. It was noted, however, that one reason for discounting this larger project area was the fact that the Basinwouldbe incorporatedintothe RiverBasinplanningand management program mandated by the European Union (EU) Water Framework Directive.Further, this larger drainage basin was included in the TDA and resultant Strategic Action Program (SAP), which should ensure that actions undertaken within the Lake Skadar-Shkoder ecosystem management project are fully integrated into this larger Basinframework. Actions proposed to better integrate the national regulatory initiatives into a regional program are fully consistent with the development of a sustainableregional approachto managing this waterway. These actions are supportedwithin the proposedprojectby complementary actions to strengthenthe national regulatory programs and institutions.To this end, however, this reviewer notes that the project funds are expectedto be allocated to each country and to the regional working group. It would seem advantageous, however, to further strengthen the binationalentity by channeling the funds to each country through the binationalorganization. This would provide greater surety that the projects undertakenare truly regional in scope, even iflocatedwithin the nationalterritory of one or other o f the Basin countries. By so doing, this financial managementmechanismalso would create a more substantial role for the binational authority and potentially accelerate the creation of a permanent binational commissiontasked withjointly managingthe sharedwater andecological resourcesofLake Skadar-Shkoder. The proposal clearly indicates an intentionto disseminate informationand results on a regionalbasis, both within the Basinand elsewhere inthe region. Sucha regional (European) effort has been initiatedduringthe project development processthrough the exchangevisits to Lake Genevaand Lake Constance, amongst others. Inpart, this dissemination processwill utilizethe proposedbinationalsecretariat as a repository and focal point for information on the protection andconservationofthe ecosystem.As suggestedabove with respectto the fiscal arrangementsfor the project, delegation of such responsibilities to the Secretariat shouldhelpto hastenand strengthenthe processof formation of a truly binationalcommissionfor the managementofthe Lake. Operational Program is intendedto play a catalytic role in leveraging public- and private-sector resources, and engender cooperation among the GEF ImplementingAgencies. 93 Key issue 4. Replicability. The implementation of demonstration projects as a key feature of this project clearly contributes to the potential for replicationo f beneficial practices and techniques. Further, the inclusionof mechanisms for disseminating information and results achieved fosters replication of effective and successhl measures throughout the region, and especially withinthe participatingcountries. As identifiedthrough the Global International Waters Assessment process and related initiatives such as the Lake Basin Management Initiative o f the International Lake Environment Committee Foundation (ILEC), GEF International Waters projects are a primary means by which basin-scale management practices are being developed and implemented through the world. These initiativeshave endorsedthe development and implementation o f informationsharing mechanisms at boththe regionaland global scales-in part, through the global IW-LEARNinitiative.This endorsementunderlines the importance of informationsharing and dissemination between projects, a fact that is adequately and clearly identifiedwithin the project brief for this project. Nevertheless, it is recommendedthat this project seek to ensure the disseminationof lessons-learnedinthe broadestpossiblemanner. The project document suggests that the proposedactivities will continue to embracethe concept of project twinning as one mechanism to enhance exchange of knowledge and experience. As recognizedwithin the project brieffor this project, there are considerablecomplementarities betweenthis project and the projects currently being implemented in the eastern Mediterranean Basin. The inclusion within the Project Document of establishment of explicit linkages between projects is wholly consistent with this concept. Such communication will enhance the replicability of the project outputs and the results of the project, significantly contributingto the coordinated and comprehensivemanagement o fthe Aegean SeaandMediterraneanSea basins. Key issue 5. Sustainability of the project. The project executive summary indicates that a significant element of the sustainability of the project supportedinterventions rests uponthe implementationof the EU Water Framework Directive and related initiatives. In addition, country-level actions in support of the project are identifiedas indicative of a commitment to ongoing support of project actions andactivities, beyondthe immediate periodof project implementationwith GEF support. The project briefacknowledges a number o f incentivesfor the participatingcountries to provide the necessary resourcesbeyondthe project period, includingtheir participationas signatories to the Ramsar Convention. Further, the project proposesto address another key element inthe provision o f adequate resources to ensure the future sustainability of the project-supported interventions; that is, the availabilityof information, the development of a trained cadre of individuals, and the strengtheningof appropriate institutions with the knowledge and ability to implement actions to protect the Lake environment. To this end, the project document sets forth an array of financial and other mechanisms, both in-hand and proposed, to ensure the sustainability of the land- and water-based elements proposed to be developed during the project. These mechanisms include various bilateral financing arrangements and grass roots activities designed to sustain the project actions beyondthe period of application of GEF funds. To a great extent, the to-be-determinedstakeholder participationelement will be critical to the long-term sustainability of the project, particularly those relating to future environmentalchallengesandthreats. Key issue 6. TargetedResearch Projects. Targeted technical demonstration and capacity buildingprojects are key features envisioned within the GEF International Waters Water body-based Operational Program. These activities are clearly included as major elements of this proposedproject, primarily under Component B which is focused on the use of targeted surveys as the means of determining and identifying appropriate and applicable management measuresto quantify emerging issues(suchas avianinfluenzathat is inpart spreadby waterfowl), and ComponentC which is focusedon improvedenvironmentalmanagement. There is also provisionwithin the project brief for creating and implementing an on-demand small-grant program that would support creation of capacity and strengthening of academic and research institutions in the Basin. Implementationof these provisions is strongly recommended.The interventions, funded in part by the GEF, strive for sustainability and the continuation of successfulinterventions beyondthe project period. For this reason, it is most important that the lake and watershed management measures identifiedby the project be internalized within the appropriate ministries such that they continue to be implemented over the longer term. Likewise, it is equally important that the demonstration projects continue to be monitored, and the results reported using the informationdisseminationmechanisms previously identified, beyondthe project period. Such continuity is totally consistent with the catalytic nature of the GEF, and an essential element to the sustainability of the project. 94 Capacity buildingand trainer training, envisioned in the project brief, thus becomethe basic buildingblocks upon which this project will succeed or fail, both from the point of view of its sustainability and from its scientific and technical integrity. Secondary Issues Secondary issue I. Linkage to other focal areas. This project is formulated as an InternationalWaters project under OP 8 of the GEF Operational Strategy. While no specific cross-cutting areas are identified, the project clearly has linkages to the cross-cutting area of land degradation in terms of its focus on land-based activitiesandto the protectionof aquatic biodiversityinterms of its focus on fisheries. Secondary issue 2. Linkages to other proposals. The project recognizes the complementaritiesbetweenthe managementof Lake Skadar-Shkoderand other GEF-related initiativesinthe region. Indeed, actual linkages were explored and strengthened during the period of project formulation. Specific linkages with these projects are proposed and identifiedinthe projectbrief. Where such linkages are based upon project development initiatives, this reviewer recommends that the project team seek to maintain ongoing contacts with relevant sister institutions during the period of project implementation and beyond. As noted above, such linkages include contacts with the Lake Genevaand Lake Constanceorganizations,amongothers. In addition, the project proposesto make use of IW-LEARN. Suchan overt linkage provides a high degree o f sustainability and connectivityto this project, and contributes to the likelihoodthat lessons learnedcan and will be transferred beyond the project boundaries to other, similar situations and locations within the Mediterranean region andbeyond. Secondary issue 3. Other beneficial or damaging environmental effects. The project has no known or obvious damaging environmental impacts associated with the activities proposed to be executed. The beneficial impacts of the project have beenfully articulated above, and include the identification of alternative methodsfor achieving a high quality lake environment through targeted interventions that address both chronic land-based sources and catastrophic lake-based events that contribute to the degradation of the Lake and its resources. The provision of trained staff and institutional capacities needed to enforce and enhance existing environmental protection regulations, and the dissemination of successful management measures further contribute to the benefit of the Lake and its drainage basin. All of these benefits accrue not only within the project area, but, as a result of their wider dissemination using the electronic and other mediaprovided, also to the wider river basin and beyond. Secondary issue 4. Degree of involvement of stakeholders in the project. Component C o f the project is geared toward the involvement of stakeholders. Involvement of the wider public is catered for through an information system established by the Regional Environment Center and other media. Active stakeholder participationis encouragedthrough the committee and working group structure to be createdunder ComponentA. Unfortunately, there are few additionaldetails as to the participants proposedto be included. That said, the project brief does allude to the participation of the relevant regulatory agencies and ministries in the execution and implementation of the project activities, and the project explicitly indicates support for capacity building and institutionalstrengtheningwith respect to these organizations. Such involvement is in additionto the current level o f involvement of the country- and local-levelinstitutions, and is criticalto the sustainability of the project and its expansionintoareas not specifically involvedinthe demonstrationprojects. Secondary issue 5. Capacity building aspects. ComponentsA through C are aimed in part at the acquisition and dissemination of informationon the successfulmeasures to protect the Lake environment through the creation of appropriate institutions(Component A), conduct of targeted research and monitoring(Component B), and the training of agency staff and strengthen institutions (Component C). In addition, Component A, in part, seeks to encourage dissemination of lessons learned with respect to lake and watershed management practices. These elements should be implemented in conjunction with complementary GEF International Waters initiatives, includingthe best practicesdata base beingcompiled by the UnitedNations Environment Programme (UNEP) and the IW-LEARN initiativesbeingexecutedby the UnitedNations Development Programme(UNDP). These efforts 95 will enable wider dissemination of knowledge of practices that have positive effects. Such knowledge is an essential element in building capacity and strengthening institutions inthe region. Inaddition to the dissemination of knowledge and information, the proposed development of standard methods for analysis and impact assessmentwill benefit institutions and staff throughout the region. Inthis regard, Component B contains work elements that are likely to be aimed at establishing a certification process for laboratories, common standards, and reinforced institutional capacity within the region. Maintaining such standards and certification requires trained individuals, actively and conscientiously applying their knowledge and skills for the public good. Secondary issue 6. Innovativeness. Development of appropriate management practices governing the protection of the Lake environment, within the context of an integrated land- and water-based management program, demonstrates a strong desire that the results and outputs of this project reflect the state-of-the-art with respect to the integration of lake management and economic development in transboundary inland lakes. By creating and strengthening the appropriate human resources, institutions, data acquisition and dissemination systems, and shared management mechanisms, the project team has clearly attempted to develop a management program that will be accepted by the basin governments and stakeholders. While many of the actions and approaches reflect state-of-the-art practice, their application in the Lake Skadar-Shkoder Basin will significantly advance current practice in that specific Basin and within the region as a whole. In this manner, the project promotes innovation and development of regionally applicable remedialpractices and experiences. GeneralConclusionand Recommendations Overall, it is the conclusion of this reviewer that the proposed project, with the goal of "Lake Skadar- Shkoder Integrated Ecosystem Management", is wholly consistent with the GEF International Waters operational program, its broader philosophy, and funding criteria. Consequently, this project is recommended for funding. Incompleting the ProjectExecutiveSummary and GEF Council Work ProgramSubmission, the reviewer recommends that each of the Components be elaborated so as to clearly summarize the following elements of each activity; namely, (1) the objectives of the Component, (2) the results or outcomes that this Component is intended to achieve, (3) the outputs or deliverables to be generated by the activities carried out under the Component, (4) indicative activities to be conducted, (5) the costs broken out as GEF funds requested, local share provided, and total cost of the Component, and (6) an indication ofthe likely stakeholders targeted to be participantsinexecuting the activities. This information, to the extent that it is presented, is currently scatteredthroughout the document or indicatedas an expected outcome of the project Appraisal process. The likely participantsare not clearly identified, and the activities and component costs are shown insome detail only inAnnex A, the IncrementalCost Analysis. In implementing this project, the GEF Implementing Agency is enjoined to give consideration to strengthening the role of the binational Secretariat by centering project management, including financial management, and monitoring within this Committee. Such strengthening could accelerate the ability of the countries to create a River Basin Authority, pursuant to the EU Water Framework Directive, and contribute to the creation of lasting working relationships between the binational entity and the national ministries having responsibilitiesfor the management of Lake Skadar-Shkoder. IA RESPONSETO STAP REVIEWz6: The STAP Reviewer's main suggestion is that all GEF funds should be channeled through the binational Secretariat, rather thanjust funds that will finance jointly implementedactivities. The proposal is that this would strengthenthe Secretariat and potentially accelerate the creation of a permanent transboundary institution. While the objective is good, the proposalto channel all funds through the Secretariat is not realistic. This Secretariat does 26 It should be notedthat the above STAP review relates to an earlier project design and many aspects are no longer directly relevant to the current project proposal.The following responsesto the STAP review also pre-datedthe redesignof the project. 96 not yet have a clear legal status as does the Commission(through the BilateralAgreement) and establishment of transboundary institutionalstructuresneedsto be done through a phasedapproach, givingthem successively greater mandate and responsibilities as their specific roles are clarified, agreed and approved by the two Governments.It should also be borne in mind that the permanent institutionalstructure may be a formal coordination mechanism, rather than an implementing body. Finally, it is now considered Bank good practice to mainstream project implementationresponsibilities within regular government structures to avoid the creation of independent "Project Implementation Units." We believe the implementation structure as proposed provides the bilateral Secretariat with responsibilityfor implementing some activities to achieve coordination and efficiency (e.g. procurement of equipment which will be the same for bothcountries), but accordingto WB good practicethe bulk of national level activitieswill be implementedby the respectiveresponsiblegovernment agencies. The STAP Reviewer also noted that the PAD could include more information regarding civil society organizations and other stakeholders which will participate in the project. We have included some more informationon this aspect in Sections 3B and 4D of the PAD, to reflect some of the informationfrom the Social Assessmentsalready carried out in both countries during preparation.These assessments provideda starting point by identifying some relevant formal and informal local organizations (e.g. fishermen's associations, religious organizations), and by raising awareness about the project through publicmeetingsand focus group interviews.The PAD will be further strengthened based on the continued public discussions of the proposed project, which will take place priorto Appraisal. We notethat the "small grantsprogram" referredto on p, 6 ofthe STAP Review is actually the competitive researchgrants programunder ComponentB. The Project Description and the Results Framework have been revised to more clearly identify the objectives, outputs, deliverables, activities and financing (GEF vs. other) for each component, as indicatedon p. 8 of the Review. However, we note that in keeping with WB procedures, the PAD includes a Results Framework rather than a LogFrame, and that the former does not call for a detailed breakdownof project activities. Detailed activity and cost breakdowns are not normally part of a WB PAD, but they have been prepared and were used as the basisfor the moregeneraldescriptions and aggregateprojectcost tables presentedinthe PAD. 97 Map Section IBRD 35768 ALBANIA AND MONTENEGRO LAKE SHKODER - SKADAR INTEGRATED ECOSYSTEM MANAGEMENT PROJECT SELECTED CITIES LAKE SHKODER-SKADAR BASIN NATIONAL CAPITALS MAIN ROADS INTERNATIONAL BOUNDARIES 19°00'E 19°30'E Bijelo Polje Bijelo Polje 20°00'E 43°00'N 43°00'N Elevations in Meters: MojkovacMojkovac 2200 1800 M O N T E N E G R O 1400 1000 600 KapaKapa SmociljeSmocilje MorackaMoracka KolasinKolasin 200 (2227 m) (2227 m) 0 NiskicNiskic“ Matesevo Matesevo AndrijevicaAndrijevica KomoviKomovi Grahovo Grahovo (2656 m) (2656 m) Zet taa DanilovgradDanilovgrad oraca Pelev Pelev PlavPlav Risan Risan M GusinjeGusinje 42°30'N SpuzSpuz Bioce Bioce Orahovo Orahovo 42°30'N Tivat ivat KotorKotor PODGORICAPODGORICA Maja Jezercė Maja Jezercė Cijevna (2693 m) (2693 m) ValbonValbona Valbona Cetinje Cetinje Tuzi uzi Han i Hoti Han Hoti Vranjina ranjina Plavnica Plavnica Budva Budva KoplikKoplik 0 5 10 15 Kilometers 0 5 10 15 Miles Lake B O S . & 19° 20° SERBIA SERBIA Shkoder-Skadar H E R Z . 43° M O N T E N E G R O A L B A N I A FushFush Stari Bar Stari Bar K O S O V O ArrėzArrėz Podgorica C R O . BarBar KomanKoman Pukė Pukė Lake Lake Shkoder Shkoder Shkoder-Skadar Shkoder-SkadaraShkoder-Skadara 42° Skopje SukabiriSukabiri 42°00'N AREA OF MAP FYRFYR 42°00'N MACEDONIAMACEDONIA A d r i a t i c Tiranė S e a A L B A N I A LakeLake OhridOhrid Buna/Bojana 41° Lake Lake 41° Prespa Prespa UlcinjUlcinj This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown I T A L Y on this map do not imply, on the part of The World Bank 40° 40° Group, any judgment on the G R E E C E legal status of any territory, or any endorsement or ShėngjinShėngjin Province Boundary a c c e p t a n c e o f s u c h 19°30'E 20°00'E (As reflected in Serbia only.) 20° 21° boundaries. OCTOBER 2007