1699P. Mexico Protected Areas Program: Proposed Restructuring Project GLOBAL ENVIRONMENT FACILITY. Project Document May 1997

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1 GLOBAL ENVIRONMENT FACILITY Public Disclosure Authorized 1699P Mexico Protected Areas Program: Proposed Restructuring Project Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Document May 1997 THE WORLDBANK THE WORLD BANK

2 GEF Documentation The Global Environment Facility (GEF) assists developing countries to protect the global environment in four areas: global warming, pollution of international waters, destruction of biodiversity, and depletion of the ozone layer. The.GEF is jointly implemented bythe United Nations Development Programme,the United Nations EnvironmentProgramme, and the World Bank. GEF Project Documents --identified by a green band - provide extended project-, specific information. The implementing agency responsible for each project is identified by its logo on the cover of the document. Global Environment Division Environment Department World Bank 1818 H Street, NW Washington, DC Telephone: (202) Fax: (202)

3 Report No ME Mexico ProtectedAreas Program: Proposed Restructuring Project Project Document May 1997 Mexico Country Management Unit Latin America and the Caribbean Regional Office

4 CURRENCY EQUIVALENTS Currency Unit Mexican US$ / pesos pesos pesos pesos = pesos WEIGHTS AND MEASURES Metric System Vice President: Director, Country Department: Manager, Sector Leadership Group: Sector Leader: Task Leader: Shahid Javed Burki, LACVP Olivier Lafourcade, LAMXC Michael Baxter, LASLG Adolfo Brizzi, LAMX1 Christine Kimes, ENVGC

5 ABBREVIATIONS AND ACRONYMS BANOBRAS CI CONABIO CONANP CTAs CTEP CTFANP CTI DGDR FANP FMCN GEF GOM IBRD ICR INE IPDPs NGO PA PAM POA PRODERS PROFEPA SEDUE SEMARNAP SINAP TNC UCANP UCE WWF Banco Nacional de Obras y Servicios Publicos Conservation International Consejo Nacional para el Conocimiento y Uso de la Biodiversidad Consejo Nacional de Areas Naturales Protegidas Consejos Tecnicos Asesores Technical Committee for Evaluation and Planning Technical Committee for the Fund for Natural Protected Areas Technical Committee for International Outreach Directorate General for Regional Development Fund for Natural Protected Areas Fondo Mexicano para la Conservacion de la Naturaleza Global Environment Facility Government of Mexico International Bank for Reconstruction and Development Implementation Completion Report Instituto Nacional de Ecologia Indigenous Peoples Development Plans Non-Govermmental Organization Protected Area Mexico Environment Project Annual Operating Plan Programa de Desarrollo Regional Sustentable Procuraduria Federal de Proteccion al Ambiente Secretaria de Desarrollo Urbano y de Ecologia Ministry for Environment, Natural Resources and Fisheries National System of Protected Natural Areas The Nature Conservancy Coordinating Unit for Natural Protected Areas External Credit Unit World Wide Fund for Nature

6 MEXICO: PROTECTED AREAS PROGRAM PROPOSED RESTRUCTURING TABLE OF CONTENTS I. BACKGROUND A. Project Origins B. Project Implementation C. Performance Review and Redesign D. Sector Policy Reforms E. Status of Project Implementation II. ENDOWMENT FUNDS FOR BIODIVERSITY CONSERVATION A. Background B. The Proposed Fund for Protected Areas (FANP) III. THE RESTRUCTURED PROJECT A. Project Objectives and Description B. Project Costs and Financing C. Complementary Support for Reserve Conservation Programs D. Procurement E. Disbursements IV. PROJECT IMPLEMENTATION ARRANGEMENTS A. Reserve Conservation and Central Coordination Programs B. FANP Administration C. Supervision, Monitoring, and Evaluation V. FANP MANAGEMENT A. Operations Management B. Asset Management C. Administration, Accounts, and Audits VI. BENEFITS AND RISKS A. Benefits B. Risks VII. AGREEMENTS REACHED AND RECOMMENDATION A. Agreements and Assurances B. Recommendation

7 TABLES Table 1: Cost Summary By Component Table 2: Financing Summary Table 3: Summary of Complementary Funding Table 4: Summary of Procurement Methods ANNEXES Annex 1: Project Reserves - Summary Data Annex 2: Task Force for Fund for Protected Areas (FANP) Annex 3: Detailed Cost and Financing Tables Annex 4: FANP Investment Analysis Annex 5: Complementary Funding Tables Annex 6: Disbursement Schedule Annex 7: Policy Framework for CTAs Annex 8: FMCN Organigram Annex 9: By-Laws of CTFANP Current Membership of CTFANP (sectoral affiliation) System for Immediate Response to Natural Disasters Annex 10: Monitoring Indicators Annex 11: Outline of FANP Operational Manual Annex 12: FANP Spending Rules: Eligible Activities Cost-sharing Ratios by Category ("rubros") Annex 13: FANP Funding Cycle Annex 14: Asset Management Investment Firms Selection Criteria Investment Guidelines MAP IBRD This report is based on the findings of restructuring missions which visited Mexico in September 1996 and March 1997, comprising Christine Kimes (Task Leader), Adrian Demayo (LASLG), Alberto Ninio (LEGLA), and Musa Asad (Consultant). Mr. Olivier Lafourcade is the Country Director, Adolfo Brizzi is the Sector Leader, and Michael Baxter is the Sector Leadership Group Manager.

8 Part I: Project Summary

9 MEXICO PROTECTED AREAS PROGRAM: PROPOSED RESTRUCTURING I. BACKGROUND A. Project Origins 1. Mexico is ranked fourth among the thirteen megadiversity countries containing 10% of the world's biodiversity. Besides being biologically important, Mexico's forests and wildlands have broad importance both nationally and globally for environmental, social and commercial reasons. In recent years, there has been a growing recognition that Mexico's diverse ecosystems and biodiversity are being threatened by deforestation, over-exploitation, uncontrolled tourism, accelerated economic development and arbitrary settlement policies. 2. In response to these threats, the Government of Mexico (GOM) developed a strategy for protecting critical habitats in the late 1980s. The main policy goals included: (a) integration of protection and sustainable development of natural resources with social, economic, and modernization processes needed for development; (b) making ecosystems conservation compatible with the need for rational natural resource use to support sustained community development; and (c) ensuring the recovery, protection and conservation of natural resources and the equilibrium of ecosystems. 3. As one instrument to meet these objectives, the GOM created the National System of Protected Natural Areas (SINAP) comprising parks, reserves, and monuments. SINAP was designed to: (a) preserve natural settings, (b) safeguard genetic diversity, (c) ensure rational utilization of ecosystems, (d) provide areas conducive to scientific research, (e) promote rational and sustained resource utilization and preservation, (f) establish forest zones to protect human activities in mountainous flood zone regions, and (g) protect cultural heritage. 4. In the early 1 990s, GOM and the Bank began to explore ways in which Bank financial support could assist GOM in achieving its environmental objectives. This dialogue culminated in March 1992 in the approval of a SDR 21.4 million (US$30 million equivalent) GEF grant for the Mexico Protected Areas Program, and an associated US$50 million IBRD loan for the Mexico Environment Project (PAM) in April The GEF grant was approved to finance the implementation of emergency plans, management plans, and operating plans derived from them in up to 17 SINAP protected areas with unique global biodiversity. The emergency plans would include only the absolutely essential activities for ensuring the viability of the reserve (basic salaries, equipment for fighting forest fires, surveillance, and basic public awareness), while the operating plans (POAs) could include other activities such as basic infrastructure investment, communication and scientific equipment, vehicles, and basic studies.

10 2 B. Project Implementation 5. The loan agreement and the associated GEF grant agreement were signed in April In late 1992, the project implementing agency, Secretaria de Desarrollo Urbano y de Ecologia (SEDUE), reorganized its Subsecretaria de Ecologia into two semi-autonomous institutes: the Instituto Nacional de Ecologia (INE) and the Procuraduria Federal de Proteccion al Ambiente (PROFEPA). INE was given the responsibility for the protected area system, while PROFEPA was charged with enforcing environmental regulations. Because of this reorganization, the PAM and GEF projects had to be restructured to be consistent with the new institutional arrangements, and the loan and grant agreements had to be amended. At the same time, a panel of experts was consulted regarding the GEF project scope, and, following their recommendations, the number of SINAP protected areas included in the GEF project was reduced to a maximum of 12. Consequently, the GEF grant amount was reduced to SDR million (US$25 million equivalent). The amendments to the IBRD loan agreement and GEF grant agreement were finalized in early 1993, and the loan and grant became effective in April The twelve reserves included in the final GEF project design represented about one-third of the total number of biosphere and special biosphere reserves (35) in the SINAP system. However, they accounted for more than one-half of the total area, in hectares, of all 35 reserves combined. The twelve reserves eligible for GEF funding were: (1) El Vizcaino Biosphere Reserve, Baja California Sur; (2) Islas del Golfo Special Biosphere Reserve, Mar de Cortes; (3) Calakmul Biosphere Reserve, Campeche; (4) Montes Azules Biosphere Reserve, Chiapas; (5) Mariposa Monarca Special Biosphere Reserve, Michoacan y Mexico; (6) Sian Ka'an Biosphere Reserve, Quintana Roo; (7) Isla Contoy Special Biosphere Reserve, Quintana Roo; (8) Ria Lagartos Special Biosphere Reserve, Yucatan; (9) Sierra de Manantlan Biosphere Reserve, Jalisco y Colima; (10) El Triunfo Biosphere Reserve, Chiapas; (11) Isla Isabel National Park, Nayarit; and (12) Cascadas de Agua Azul Special Biosphere Reserve, Chiapas. In practice, only the first 10 reserves in this list have been covered by GEF-supported project activities; information on these reserves is attached in Annex The governmental reorganization and staffing changes of late 1992 translated into project start-up delays, which were compounded by budgetary constraints resulting from loan/grant effectiveness not coinciding with the budgetary appropriation cycle. As a result, implementation did not really get underway until Delays continued to affect implementation during 1994, as the operational and emergency plans for 1994 were not presented to the Bank for no-objection until Oct./Nov In Dec. 1994, the economic crisis and peso devaluation hit Mexico, which resulted in budget austerity measures and severe spending controls being imposed on publicly funded projects throughout During this same period, natural resource management responsibilities were again reorganized within GOM, precipitating another round of staffing changes. A new ministry for environment, natural resources, and fisheries (SEMARNAP) was created in December 1994, INE was placed under its jurisdiction, and oversight of SINAP was included in its mandate.

11 3 8. The cumulative impact of these historical developments was that implementation progress during was significantly less than originally anticipated (the original grant closing date was Dec. 31, 1995). During the months that the project was effectively under implementation, management plans were completed for 6 reserves, emergency plans for another 3. and Technical Advisory Committees (CTAs) were established in 6 reserves to ensure local input into protection plans and programs. Within these technical accomplishments there was tremendous variation from site to site, both in the scope and quality of management plans and in the degree of involvement of CTAs in protection programs. On-site protection activities were initiated at all 10 reserves, but their effectiveness was hampered by slowness in circulation of funds to the field level. By end-1995, only US$ 3.96 million out of the approved US$ 25 million had been disbursed. C. Performance Review and Redesign 9. In an effort to reach a common understanding regarding the causes of the slow implementation progress, the GOM and the Bank agreed in mid-1995 to commission an independent analysis of project performance, with the goal of identifying practical changes which could be made to improve project implementation and help justify the extension of the project closing date (the 4 year implementation period specified in the original legal agreement had been unrealistically short for a project of this nature, independent of the particular country conditions). A Mexican NGO, Pronatura, was selected to conduct this exercise, and a team of Pronatura staff carried out the operational audit in August-September 1995, working closely with involved parties. The assessment exercise was managed in a participatory, transparent way, and generated much interest among participants. It demonstrated the GOM's openness and willingness to work closely with the NGO community, even on sensitive issues. 10. The assessment was completed in October 1995, and the findings highlighted the following project limitations: (a) Inter-institutional structure: too many bureaucratic levels existed between the Bank and GOM counterparts (Hacienda, Banobras, SEMARNAP, and INE) to efficiently administer the technical and financial aspects of the project with the adaptability and timeliness required to achieve its on-site objectives in large and remote protected areas. (b) Institutional capacity of Executing Agency: INE's centralized structure and skill mix were not well adapted to provide effective support to a site-level protected areas operation; cumbersome GOM disbursement procedures slowed flow of funds to the field. (c) Bank procedures: prior review of even small size goods and services contracts introduced delays into implementation of a highly decentralized project; frequent changes of task managers resulted in discontinuity of oversight efforts and technical advice; frequency of supervision missions was inadequate to provide timely support and feedback to project staff and management.

12 4 (d) Local Participation: despite the project goal of promoting local participation through CTAs, these CTAs were not functioning effectively, and incentives (funding, policy, etc.) were not utilized effectively to encourage participation of conservation NGOs, research centers, and local communities in project activities. (e) Sustainability: no policy or budgetary framework existed to ensure the financing of recurrent costs of protection programs at the 10 reserves beyond the life of the GEF project. 11. To address these limitations, the assessment report recommended several practical changes that were considered necessary to strengthen management performance, accelerate the flow of funds to the field, and increase local participation. These included: (a) provision of training and technical assistance to INE staff at all levels, particularly with respect to park management, financial planning, and participatory techniques; (b) streamlining of Bank procurement review requirements, consistent with the decentralized nature of project design; and (c) introduction of third party management of reserve protection programs, where feasible. In addition, Pronatura highlighted the urgent need to address the long term financial sustainability of the reserves, through a combination of budgetary allocations, cost-recovery mechanisms (such as entrance fees, concessions, etc.), and establishment of a capital endowment. 12. Extension of Closing Date. Despite the imminence of the closing date, the GOM did not act immediately on the report's recommendations, but continued to study its options for improving project performance. Consequently, by Dec. 31, 1995, the Bank and GOM had not yet agreed on an action plan that would ensure achievement of project objectives and satisfactory project implementation. In view of the special status of GEF resources and the fact that once canceled, there was no assurance that grant funds would be available in future, the Bank waived its normal procedures (which require that extensions be granted only when implementation arrangements are fully satisfactory for the purposes of completing the project) and authorized a four month extension of the closing date to April 30, It was estimated that this period would be sufficient to permit the Bank and GOM to reach agreement and put in place the changes in implementation arrangements needed for satisfactory project completion and achievement of project objectives. 13. Based on consultations during this four month period, the Bank and GOM were able to satisfactorily conclude negotiations for revising project implementation arrangements, amending the grant agreement, and extending the closing date to permit completion of the project. The major changes agreed in April/May 1996 included: (a) streamlined procurement review procedures, in keeping with the small size of goods and service contracts; (b) authorization of third party management of reserve protection programs; (c) furither refinements to the revolving fund mechanism operated by BANOBRAS, to accelerate flow of funds to the field; (d) inclusion of Indigenous Peoples Development Plans (IPDPs) in the project, to promote the full participation of indigenous communities in project conservation activities; and (e) extension of the closing date until June 30, The list of eligible reserves was reduced to 10, to reflect actual practice under the project.

13 5 14. It was also agreed during the April/May negotiations that the Bank and GOM would begin working together to design an endowment mechanism that would ensure long-term recurrent financing of reserve conservation programs in the 10 GEF reserves. Assuming agreement could be reached on a satisfactory management framework and financial structure, the intent was to amend the existing GEF grant agreement to include the establishment of an endowment fund as an additional project component. Undisbursed funds from the GEF grant would be used to capitalize the endowment and create a financial framework that could, over time, attract other donors (bilateral, multilateral and private) and provide expanded support to the SINAP. D. Sector Policy Reforms 15. In parallel with efforts to improve performance under the GEF project, the Zedillo Administration was taking steps to improve the policy and financial framework applicable to the entire national protected areas system. Building on the National Development Plan and National Environment Program (both of which emphasized the importance of conserving national protected areas), in May 1996 GOM issued "Program for Natural Protected Areas in Mexico ", which was the first coherent attempt to develop a strategy for protecting Mexico's rich biological resources in consultation with the national community of scientists, conservationists, and indigenous peoples. The priorities of this program are to: (a) strengthen management at the reserve level, (b) broaden the coverage and representativeness of protected areas, (c) decentralize and re-categorize national parks, (d) strengthen central and local institutions responsible for protected areas management, (e) improve funding for recurrent costs of conservation in protected areas, (f) ensure adequate local community participation in the design and implementation of protected areas management plans, (g) apply an ecosystems management approach to regional development programs, (h) improve inter-institutional coordination, (i) increase education and training, and (j) develop adequate biodiversity information systems. 16. As first steps in implementing this strategy, the GOM established a National Council for Natural Protected Areas (CONANP), composed of representatives from conservation NGOs, the academic community, business and social sectors, and indigenous peoples, to provide ongoing policy advice to GOM regarding the national protected areas system. CONANP began functioning as an advisory group in April 1996 while the "Program for Natural Protected Areas " was being formulated, and the committee's official statutes were promulgated in July In addition to this initiative to involve civil society in policy formulation, the GOM also took steps to increase its financial support for protected areas management. Recognizing that budgetary allocations for SINAP were unreasonably low (about US$1 million in 1995), the President increased fiscal support for the system in 1996 to almost US$ 3 million, and to about US$ 3.5 million in The goal of these increased allocations in the short term is to ensure budgetary support for essential recurrent costs in 25 high priority protected areas (covering permanent personnel, basic operating costs, and basic equipment). Over the longer term, the goal is to gradually extend the same basic coverage to a larger share of the national system.

14 6 E. Status of Project Implementation 17. The conclusion of negotiations in April/May 1996 permitted project activities to resume on their planned trajectory. During 1996, substantial progress was made in preparing management plans for El Triunfo, Mariposa Monarca, and Sierra de Manantlan, and agreement was reached on the framework for the management plan for the Islas del Golfo. Progress was also made in developing the methodology for working with indigenous communities to address their needs and preferences regarding conservation and natural resource management. Preparation of IPDPs was initiated for the 5 reserves with significant indigenous populations living in or around the protected area or holding natural resource rights in the reserve (Isla Tiburon, Calakmul, Sierra de Manantlan, Mariposa Monarca, and Montes Azules); the IPDP preparation process is expected to be completed by the end of May SEMARNAP's Directorate General for Regional Development (DGDR) has taken the lead in preparing IPDPs for the project, building on experience with its regional sustainable development program (PRODERS); INE plans to take the lead in the implementation phase of the IPDPs, with continued support from PRODERS. Progress was also made during 1996 in preparing for third party implementation of protection programs; by end-1996, agreement had been reached for third party management of the 1997 reserve protection program in the reserves of Sian Ka'an, El Triunfo, and Sierra de Manantlan.

15 7 II. ENDOWMENT FUNDS FOR BIODIVERSITY CONSERVATION A. Background 18. One of the most difficult problems facing Mexico in implementing protected area (PA) conservation strategies is limited capacity, particularly in the areas of institutional strengthening and financial resource mobilization. Protection programs need guaranteed long-term funding of essential recurrent and core conservation costs. Yet, protected areas conservation activities have rarely generated net revenue. Even when they have, most governments have typically allocated such revenues to general budgetary support, rather than reinvesting them in specific conservation efforts. 19. Capital endowments have become increasingly important as a financing mechanism to provide the reliable, stable support to sustain effective programs promoting protected areas conservation programs. The essential features of an endowment include: (a) a capital fund which is invested with the aim of maintaining its real value while generating income to fund project activities; (b) a decision-making mechanism to allocate the income for specified uses or to meet agreed objectives; and (c) an administrative mechanism to distribute and monitor the funds disbursed and to evaluate the impact and cost-effectiveness of funded activities, relative to the fund's stated objectives. Increasingly, the mechanisms under (b) and (c) are being managed by private institutions (eg, NGOs, foundations), thereby taking advantage of flexible management and administrative procedures. 20. Because of these design features, endowment funds ensure the long-term viability of conservation activities by stabilizing recurrent cost financing and moderating the volatility in funding. In addition, endowments have proven to yield multiple indirect benefits, including: (a) provision of a flexible instrument for objectives ranging from supporting protected areas management to community-based conservation efforts; (b) improved flow of funds to the field as a result of agile administrative systems, able to match disbursements from the endowment to actual implementation needs; (c) a catalyst for leveraging additional resources from public, private, domestic, or international sources; these new funds may be blended with existing capital, managed separately for complementary conservation activities, or used on a "matching" basis for eligible sub-projects; and (d) enhanced public-private partnerships through, inter alia, the establishment of managing boards with representative membership, drawn from all sectors of society. 21. The proposed endowment fund under the restructured GEF project would share the features and benefits described above. Overall design and financial structuring of the proposed endowment has drawn on growing GEF experience with environmental funds, as well as expertise from other organizations which provide conservation financing (e.g., WWF, TNC, and USAID). The financial aspects also draw upon research on investment guidelines prepared by the GEF, and financial consultant reports utilized for similar projects. These reports advise on aspects regarding the

16 investment of the capital fund, including: selection of an investment firm to manage the capital assets, appropriate contract terms, investment strategy, and estimates of realistic rates of return. 8 B. The Proposed Fund for Protected Areas (FANP) 22. Following the negotiations between GOM and the Bank in April/May 1996, CONANP nominated a national task force in late May 1996 to develop recommendations on the establishment of an endowment mechanism for the GEF Protected Areas Project. The task force consisted of respected individuals from academia, conservation NGOs, the private sector, indigenous communities, and the GOM (members of the task force are listed in Annex 2). The responsibilities of the task force were to evaluate options and make recommendations to CONANP on: (a) the type of long-term funding mechanism that would be appropriate, including legal status; (b) whether to create a new institution or work within an existing one; (c) the scope of fund activities (what would be eligible for funding); (d) the financial structure (size of fund, financing plan); and (e) operating procedures, including relationship between the proposed capital endowment and GOM. 23. To assist with some of these key design decisions, the task force carried out an extensive consultation process between June-August 1996, in which almost 80 conservation organizations, local community representatives, private businessmen, government officials, and donors were interviewed personally and/or contacted by mail to solicit their views by written questionnaire. Review of the consultation results showed that a majority of respondents favored the establishment of a private endowment fund (outside the control of government), with a decided preference for using an existing institution rather than creating a new entity. Following the completion of this consultation process, CONANP decided that a Fund for Natural Protected Areas (FANP) should be housed within the Fondo Mexicano para la Conservacion de la Naturaleza (FMCN), a three-year old private non-profit organization, established to promote biodiversity conservation and to manage an endowment (funded by USAID, GOM, and private international contributors) for a small and medium grants program. 24. Following this decision, the task force then devoted the months of September-December, 1996, to working through the many details involved in establishing a sound endowment fund mechanism and making periodic recommendations to CONANP for decisions, as needed. The range of issues covered during this period included: (a) trustee and organizational arrangements; (b) internal legal documents; (c) financing and financial management requirements; (d) asset management options; (e) eligible activities and spending rules; (f) project cycle and institutional responsibilities (FMCN, SEMARNAP, INE, CTAs); (g) disbursements to the field and financial controls; (h) monitoring and evaluation. Based on this work, CONANP designated in December 1996 the first members of the technical committee to oversee FANP operations within FMCN, and this committee began functioning immediately thereafter. The task force supported FANP start-up within FMCN, by assisting with the first meetings of the FANP technical committee and initiating the recruitment process for the Director of the new fund.

17 25. Based on progress to date, it is now possible to describe how the proposed Fund for Protected Areas would be designed, managed, and operated, and how the GEF Protected Areas Project would be restructured to incorporate this new financial mechanism. GOM and BANOBRAS have confirned in writing that they wish to restructure the project along these lines, to reassign GEF grant resources to FMCN, and to cancel funds from Grant in favor of FMCN for the purpose of capitalizing the endowment. 9

18 10 III. THE RESTRUCTURED PROJECT A. Project Objectives and Description 26. The proposed project restructuring builds on the April/May 1996 agreements and continues the GOM effort to address the weaknesses identified in the 1995 Pronatura assessment report. The restructured project would have the following objectives: (a) protect unique biodiversity in eligible biosphere and special biosphere reserves; (b) strengthen protected areas management at the reserve level; (c) promote local participation, including indigenous communities, in the implementation of protected areas operating and management plans; and (d) ensure long-term recurrent cost financing for core protection and conservation activities. 27. To support GOM's efforts to achieve these objectives, the restructured project would include the following major components: (a) reserve conservation programs: this component would consist of a core group of protection, community outreach, sustainable use, and training activities aimed at improving reserve management and ensuring effective biodiversity conservation in the 10 project reserves; reserve conservation programs would be prepared and implemented in each reserve with input from local stakeholders through the CTA mechanism, and would include activities identified through the IPDP process; examples of activities included in a reserve conservation program would be: regular patrols for surveillance, biodiversity monitoring, signs/postings/trails, fire prevention and control, habitat rehabilitation, control of exotic (invasive) species, construction of rustic infrastructure, environmental awareness training, local community capacity-building, and pilot income-generating activities focused on conservation and sustainable use of natural resources; activities to strengthen reserve management capacity would also be included in reserve conservation programs (such as training of the reserve management team and support for the CTAs); implementation of the reserve conservation program could be managed directly by the reserve director and his core staff or contracted out to a third party with appropriate experience (eg., NGOs, universities institutes, etc.); the specific management modality would be worked out on a case by case basis and could vary over time; (b) central coordination programs: this component would consist of activities coordinated at the national level for the purpose of strengthening project performance, with particular emphasis on protected area management, the CTA mechanism, and project evaluation; criteria for activities included in this component would be that they benefit a group of project reserves or CTAs, and for this reason could not be implemented at the reserve level as part of an individual reserve conservation program; examples of central coordination activities covered by this component would be: training programs (including workshops and specialised technical assistance) for core reserve staff in modem reserve management techniques (including stakeholder participation, conflict resolution, financial systems, etc.); training programs (including workshops

19 11 and specialised technical assistance) for CTAs to enhance their capacity to play a meaningful role in reserve protection and conservation, as partners of reserve management; national coordination of project planning, contracting, and procurement; and independent evaluations of project implementation; and (c) permanent endowmentfor protected areas: this component would consist of the establishment and operation of the Fondo para Areas Naturales Protegidas (FANP) within the Fondo Mexicano para la Conservacion de la Naturaleza (FMCN) for the purpose of supporting reserve conservation and coordination programs benefiting the 10 project reserves; component activities would include: establishment of the endowment's legal, financial, and operating structure; incremental staff, management, and office support to enable FMCN to assume its additional financial, administrative, and technical oversight responsibilities for the operation of the FANP; and operation of the FANP under the rules established in an Operational Manual satisfactory to the Bank; within FMCN, a technical committee composed of representatives of civil society (CTFANP) would be responsible for policy decisions and program oversight; except in 1998, only the proceeds from investment income would be used to fund reserve conservation, central coordination, and FANP administrative programs. 28. Project activities supported by the FANP are expected to continue over a year period. Bank supervision is expected to terminate after the fourth full year of FANP operations (2001), with the final ICR review mission taking place in However, the legal agreement provides for a 10 year "lifetime" should the Bank wish to exercise its oversight prerogatives beyond B. Project Costs and Financing 29. Costs. Project costs for the restructured project fall into 3 distinct categories: (a) original project arrangements (actual expenditures incurred between ); (b) transition program including establishment of the endowment (1997); and (c) endowment supported program (1998 onwards); for the purpose of illustrating project costs under the endowment mechanism, a 4 year time slice ( ) has been estimated that is representative of the much longer implementation period that the endowment would make possible. 30. Total costs for the restructured project ( ) amount to US$46.2 million, of which about 51 % would be directed to conservation activities at the reserve level, about 35 % consists of the capitalization of the endowment, 12 % represents central coordination activities for the protection program, and about 2 % represents endowment administration costs. Once the FANP is operational (1998 onwards), project costs are expected to average about US$3.5 million per year, with costs broken down as follows: about 61% for protection programs in the reserves, about 28% for local community participation activities, about 4% for management training programs, about 2% for protection program coordination and evaluation, and about 5% for endowment administration. A sunmmary cost table by project component is presented in Table 1, and detailed cost tables by period, by component, and by activity are attached in Annex 3.

20 12 TABLE 1. COST SUMMARY BY COMPONENT (US$ million) CY92-96 CY97 CY98-01 TOTAL Reserve Conservation Basic Conservation Community Activities Management Strengthening Subtotal Reserve Conservation Central Coordination Management Strengthening Project Supervision Subtotal Central Coordination FANP Endowment Capital Administration Subtotal FANP Endowment OVERALL TOTAL Financing. Project costs would be financed by a combination of GEF grant resources (reallocation of GEF TF 28604), government budgetary support, income generated through debt swap options, co-financing from NGOs/foundations (under parallel financing arrangements), and investment income generated by the endowment. Within the project financing plan for the restructured project ( ), the breakdown by financier gives the following share in overall project costs: GEF support represents about 57% of project costs, GOM about 31% (including budgetary support and the FANP income resulting from the GOM's debt swap program), FANP income about 11% (excluding the debt swap income), and co-financiers about 1%. A summary financing plan for the restructured project ( ) is presented in Table 2 below.

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