The World Bank Report No: ISR14078 Implementation Status & Results Costa Rica Mainstreaming Market-Based Instruments for Environmental Management Project (P093384) Public Disclosure Copy Operation Name: Mainstreaming Market-Based Instruments for Environmental Project Stage: Implementation Seq.No: 17 Status: ARCHIVED Archive Date: 26-Mar-2014 Management Project (P093384) Country: Costa Rica Approval FY: 2006 Product Line: IBRD/IDA Region: LATIN AMERICA AND CARIBBEAN Lending Instrument: Specific Investment Loan Implementing Agency(ies): FONAFIFO Key Dates Board Approval Date 08-Jun-2006 Original Closing Date 31-Jul-2012 Planned Mid Term Review Date 20-Feb-2012 Last Archived ISR Date 23-Dec-2013 Effectiveness Date 31-Jul-2008 Revised Closing Date 31-Mar-2014 Actual Mid Term Review Date 09-Apr-2012 Project Development Objectives Mainstreaming Market-Based Instruments for Environmental Management Project (P093384) Project Development Objective (from Project Appraisal Document) The Project Development Objective is to enhance the provision of environmental services of a national and global significance and secure their long-term sustainability through a scaled-up payment for environmental services system in Costa Rica. Has the Project Development Objective been changed since Board Approval of the Program? Yes No GEF - Mainstreaming Market-Based Instruments for Environmental Management Project (P098838) Global Environmental Objective (from Project Appraisal Document) The Project Global Environmental Objective is to enhance the conservation of globally significant biodiversity and ensure its long-term sustainability by supporting the development and implementation of market-based instruments to promote forest conservation in buffer zones of protected areas and biological corridors connecting them. Has the Global Environmental Objective been changed since Board Approval of the Program? Yes No Public Disclosure Copy Component(s) Component Name Component Cost Sustainable Financing Mechanism 16.50 Scaling up the Payment for Environmental Services Program 72.80 Increased Participation in Environmental Services Program 1.00 Overall Ratings Page 1 of 9 The World Bank Report No: ISR14078 Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Satisfactory Progress towards achievement of GEO Moderately Satisfactory Moderately Satisfactory Public Disclosure Copy Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating Implementation Status Overview This is the last ISR prior to the closing of the project, which also records a final restructuring to re-allocate proceeds from the GEF grant portion of the project. While the IBRD loan has been fully disbursed since December 2013 and the re-allocation will enable the full disbursement of GEF grant proceeds as well by project closure. With most activities finalized or about to be completed, it is expected that the project will close orderly by March 31, 2014. Locations Country First Administrative Division Location Planned Actual Costa Rica Provincia de San Jose San Jose ✔ Costa Rica Puntarenas Provincia de Puntarenas ✔ Costa Rica Limón Provincia de Limón ✔ Costa Rica Heredia Provincia de Heredia ✔ Costa Rica Guanacaste Provincia de Guanacaste ✔ Costa Rica Cartago Provincia de Cartago ✔ Costa Rica Alajuela Provincia de Alajuela ✔ Results Project Development Objective Indicators Public Disclosure Copy Page 2 of 9 The World Bank Report No: ISR14078 Indicator Name Core Unit of Measure Baseline Current End Target By the end of the project, at least 288,000 Text Value 250,000 ha 297,432 ha 310,000 ha hectares of land with environmental service Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Public Disclosure Copy contracts generating environmental servicesof Comments The unit of measure is Earlier high enrollment rates Costa Rica’s National local, national and/or global importance. hectares (ha) and not text as in the PSA program (340,000 Development Plan has a indicated to the side ha in 2012), due to the target of conserving a total of availability of additional 310,000 ha a year using PSA. funding provided by the World Bank loan and by contributions from other donors, has led to an overhang of obligations, which has limited enrollments over the past two years. As a result, the target of 310,000 ha (revised in the 2012 restructuring) could not been reached. Areas brought under enhanced biodiversity Hectare(Ha) Value 250000.00 297432.00 310000.00 protection (ha) Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Comments This CSI has been introduced to address the fact that the original indicator was selected at a time when there were no CSIs. The values are similar to the previous indicators. By the end of the project, conservation of at Hectare(Ha) Value 7400.00 24543.00 35000.00 least 35,000 ha is financed annually by funding Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 from service users Comments This is the revised version of During the project life the the indicator: By the end of EOP target had been the project, at least half of the overachieved (e.g. 41,000 ha newly-contracted area is in 2010), but because of the Public Disclosure Copy financed by funding from annual nature of most of service users. FONAFIFO’s budget and the five-year length of most of its conservation contracts, Costa Rica's PSA program is subject to wide fluctuations in the areas under conservation. Page 3 of 9 The World Bank Report No: ISR14078 Improved efficiency of the environmental Text Value Indicator dropped. services program, as measured by indices of Date 31-Mar-2014 services generated per dollar spent.(Index Comments Dropped-tracking this under preparation) Public Disclosure Copy indicator has been found extremely difficult. This is primarily due to the technical difficulty of quantifying the changes in the level of environmental service provision. By the end of the project 50% increase (from Text Value 1,900 landholders (small- and 4,729 3,500 current 1,900 to 2,850) of the number of small- medium-sized) and medium-sized landholders (less than 100- Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 hectare farms) participating in the PSA Comments This indicator was increased Program. to 3,500 in the 2012 Restructuring. By the end of the project, at least half of the Text Value 0% 24,543 35,000 newly-contracted area is financed by funding Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 from service users. Comments Target was revised in June 2012 from its original target of 50%, in part because generating financing from service users has proven much more challenging than expected (particularly so in the case of carbon financing and biodiversity payments), but primarily because fuel tax revenues have increased dramatically due to the increase in traffic, resulting in an automatic increase in Public Disclosure Copy government funding to the PSA program. Global Environmental Objective Indicators Page 4 of 9 The World Bank Report No: ISR14078 Indicator Name Core Unit of Measure Baseline Current End Target At least 190,000 ha (2,000 contracts) in Text Value 100,000 ha 146,074 ha 190,000 ha productive landscapes in the buffer zones of Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Public Disclosure Copy protected areas and biological corridors in the Comments Because of the annual nature MBC are maintained annually under PSA contracts of 20 years. of most of FONAFIFO’s budget and the five-year length of most of its conservation contracts, Costa Rica's PSA program is subject to wide fluctuations in the areas under conservation. Effective biodiversity conservation in globally Text Value 0 Indicator dropped significant areas measured by vegetation cover Date 08-Jun-2006 31-Mar-2014 and indicator species of conservation interest Comments (method under preparation, baseline to be ready by 12/07). Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target % of annual net returns from the FBS invested Percentage Value 0.00 0.00 85.00 in PES at productive landscape projects Date 28-Jun-2012 13-Mar-2014 31-Mar-2014 located in buffer zones of protected areas and Comments Given the low returns on the biological corridors investment following the financial crisis, FONAFIFO was not able to invest any of the FBS return by project closing. 3.5% from fuel-tax revenues and 25% water- Text Value 3.5% 3.5% 3.5% resource-usage tariffs to finance PSA. 0% 25% 25% Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Public Disclosure Copy Comments % of fuel-tax revenues and % 3.5% fuel (₡12.831m) 3.5% fuel of tax used from water- 25% water (₡982m) 25% water resource tariff and colones (₡) of revenue received from tax Page 5 of 9 The World Bank Report No: ISR14078 FBS with capital participation of at least US$15 Text Value US$0 US$18.5 million total of which US$15 million total of which million, of which US$7.5 million contributed by US$9.1 million from GEF. US$7.5 million from GEF. GEF. Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Public Disclosure Copy Comments The indicator is US$ and not The Fund has been text as indicated to the side capitalized with the GEF and KfW contribution. Its capitalization exceeds the target of US$15 million. However, current returns (at 2%) are below expectation and addressing this will be a priority over the next 6 months. The FBS board has initiated a number of steps to address this issue, including (i) negotiating a lower management fee for the investment institution (Banco Nacional de CR); (ii) consolidating all funding received in one account to improve the effectiveness of applying the investment strategy; and (iii) introduce the possibility of using an international fund manager. At least 75% of PSA Program resources are Text Value Present percentage to be 77% 75% placed in PSA contracts. evaluated during year 1 of project implementation Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Comments The unit of measure is percent and not text as indicated to the side Public Disclosure Copy Contract system for payments of environmental Text Value Does not exist System operational and System is approved and services with differentiated payments applied. working under implementation Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Comments PSA activities are integrated through Text Value 0 micro-watersheds 2 micro-watersheds 3 micro-watersheds participatory planning on land use in at least 3 Date 08-Jun-2006 30-Apr-2013 31-Mar-2014 (micro-watershed) communities. Comments By the end of the project activities were integrated through participatory planning Page 6 of 9 The World Bank Report No: ISR14078 on land use in only 2 (micro- watershed) communities (Jesus Maria y Rio Morote). Through an agreement with Public Disclosure Copy the Institute of Technology of Costa Rica participatory planning and implementation work in the micro watershed of Rio Volcan is carried out. tons of CO2 from forestry activities will be Metric ton Value 0.00 23084.00 238239.00 certified and sold at the global carbon markets Date 28-Jun-2012 13-Mar-2014 31-Mar-2014 Comments At the end of the project 23,084 tons of CO2 from forestry activities were certified sold at the global carbon markets, for US $95.798. Following appraisal of the project (and the two year delay in becoming effective), the annual emission reduction generation proved to be significantly lower. The primary causes for the shortage of Certified Emission Reductions (CERs) are two fold: (i) requirements for verification and certification of emission reductions are more stringent and take longer than anticipated at appraisal tocarry out, and (ii) a decline in CER prices, more or less Public Disclosure Copy coinciding with the financial crisis, affected the proper functioning of the activity. Revenues achieved Amount(USD) Value 0.00 95798.00 900000.00 Sub Type Supplemental Page 7 of 9 The World Bank Report No: ISR14078 Female landholders in the program will be Number Value 474.00 877.00 800.00 maintained at least to the current level. Date 08-Jun-2006 13-Mar-2014 31-Mar-2014 Comments Public Disclosure Copy Indigenous community owned lands in the Hectare(Ha) Value 25125.00 47572.00 43000.00 program will be maintained at least to the Date 08-Jun-2006 06-Mar-2014 31-Mar-2014 current level. Comments Data on Financial Performance (as of 26-Feb-2014) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P093384 IBRD-73880 Effective 08-Jun-2006 08-May-2007 31-Jul-2008 31-Jul-2012 31-Mar-2014 P098838 TF-56666 Effective 08-May-2007 08-May-2007 31-Jul-2008 31-Jul-2012 31-Mar-2014 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P093384 IBRD-73880 Effective USD 30.00 30.00 0.00 30.00 0.00 100.00 P098838 TF-56666 Effective USD 30.00 10.00 0.00 9.21 0.79 92.00 Disbursement Graph Public Disclosure Copy Page 8 of 9 The World Bank Report No: ISR14078 Key Decisions Regarding Implementation None Public Disclosure Copy Restructuring History Level two Approved on 29-Jun-2012, Level 2 CD Decision on 15-Jul-2013, Level 2 CD Decision on 11-Mar-2014 Related Projects P098838-GEF - Mainstreaming Market-Based Instruments for Environmental Management Project Public Disclosure Copy Page 9 of 9