Page 1 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: 49243 Project Name Second National Environmental Project - Phase II Region LATIN AMERICA AND CARIBBEAN Sector Sub-national government administration (89%);Central government administration (11%) Project ID P099469 Borrower(s) FEDERAL REPUBLIC OF BRAZIL Implementing Agency Ministerio do Meio Ambiente Ministerio do Meio Ambiente SECEX SAS, Qd. 5, Bl. H, Ed. Supes Ibama/DF Sala 310, Brasilia, Distrito Federal Brazil Tel: 61 3321.2012, Fax: 61 3321.3284 lorene.lage@mma.gov.br Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 23, 2009 Date of Appraisal Authorization November 14, 2008 Date of Board Approval August 6, 2009 1. Country and Sector Background Brazil has historically based its economy on exploiting the immense wealth of its natural resources. A significant part of its economy still relies on the use of natural resources, whether they are used as production inputs or as sinks for production waste. Despite the importance of its natural resource base, Brazil faces major challenges to reverse a trend of unsustainable use of its natural resources and environmental degradation. In recent years, the Government of Brazil, through the Ministry of Environment (MMA), has officially adopted a policy of decentralization of environmental management. Within this context, the Second National Environmental Project (NEP II) represented a priority and strategic program for the Ministry of Environme nt’s efforts to promote environmental management capacity at the state level. Since 2002, the GOB’s program has had four major pillars: (a) decentralization, (b) strengthening the National Environmental System (SISNAMA); (c) social control, and (d) transversality. NEP II, Phase 1 contributed significantly to each one of these pillars. Progress has been achieved in strengthening environmental licensing procedures, managing pollution in selected watersheds, strengthening the management of conservation units, sharing responsibility with state environmental agencies, improving dialogue with the private sector on environmental management, sustainable economic activities, and stimulating greater interest in the use of economic instruments for environmental protection. The environment has been a rising priority in Brazil because of: (i) growing public awareness of environmental issues 1 and the need for improved environmental management; (ii) increasing sensitivity to 1 Especially since the United Nations Conference on Environmental and Development (UNCED) held in Rio de Janeiro in 1992 Page 2 2 domestic and external criticism of poor natural resource management; and (iii) growing recognition in both the public and private sectors that better environmental management provides a competitive edge to Brazilian business. Thus, while there has been progress in many areas, persistent problems of pollution and natural resource degradation remain in Brazil and, in some cases, the government has had little success in improving the situation. Environmental licensing procedures have not always been effective as instruments for environmental management and have often been time consuming and onerous to private enterprise, possibly discouraging public and private investment. Environmental enforcement is spotty and relies excessively on command-and-control while some environmental institutions have not become measurably more efficient in their environmental management and protection activities. Deforestation in the Brazilian Amazon and along the coastal Atlantic Forest has continued and even accelerated. Furthermore, Brazil has not been able to collect and disseminate reliable environmental information in a timely and comprehensive fashion. Public-private alliances needed for better environmental management have not emerged in most places. The First National Environmental Project (NEP I) (P006446 – Ln. 3173-BR) supported by the Bank was implemented from 1991 to 1998. It aimed at strengthening environmental management capacity at the federal level and protecting key endangered ecosystems at the national level. NEP I laid the groundwork for the Second National Environmental Program (NEP II) which was approved as a three-phased Adaptable Program Loan (APL) for a total of US$150 million. Phase 1 of NEP II (P035741 – Ln. 4520- BR) was implemented from July 7th 2000 to June 30th 2006. It focused on continuing some of the efforts of NEP I by solidifying the national environmental management system at the state level (For more information on Phase 1 please refer to Box 1 below). The triggers for moving from Phase 1 to Phase 2 (through an eligibility criteria scoring system) were fulfilled earlier than anticipated during project implementation. All in all, 43 subprojects and activities were carried out in 17 states during Phase 1. A total of US$ 8.8 million was disbursed under Phase 1. The success of the project design and the consequent strengthening of the National Environmental System (SISNAMA) of which the states and municipalities are the building blocks, have motivated the Ministry of Environment (with the strong endorsement of the Association of State Environmental Agencies (OEMAs) to secure authorization to prepare Phase 2 of the project from the Inter-Ministerial Committee on External Finance (COFIEX). Consequently, COFIEX authorized preparation of Phase 2 of NEP II with a total cost of US$66.3 million of which US$46.4 million would be financed by the Bank. COFIEX required that the loan be divided into two sub-phases, sub-phase A of US$ 24.3 million and sub-phase B of US$22.1 million, to be negotiated separately and moving from Sub-phase A to B would be contingent on: (i) proof of satisfactory performance under the first sub-phase; (ii) commitment of at least 75% of loan proceeds; and (iii) utilization of at least 50% of loan proceeds. The Ministry of Environment (MMA) has indicated that, among all programs seeking external financing, NEP II is the highest priority. Ministry officials recognize NEP II as one of the most successful programs executed in recent years and as the mainstay of its outreach to states and municipalities. In addition, MMA considers that NEP II would be a strong complement to the recently approved programmatic Sustainable Environmental Management Development Policy Loan (SEM-DPL) among other things since NEP II is currently the main mechanism to strengthen the capacity at the local, state and federal levels for environmental management including licensing. States bear prime responsibility for environmental management in Brazil. They review the vast majority of applications for environmental licenses, issue licenses and are responsible for environmental monitoring and reporting. NEP II is currently the main mechanism by which the federal ministry interacts with states and strengthens environmental capacity at the state level. Both the MMA and the states acknowledge the accomplishments of the NEP which Page 3 3 underscores the need to proceed to Phase 2. MMA has further recognized the importance of NEP II by incorporating it as a key program within the Ministry. Box 1. Phase 1 of the Second National Environmental Program Phase 1 of NEP was implemented from 2000 to 2006. The original amount for this phase was US$15 million, but after cancellations in the order of US$6.92 million, final disbursement was in the order of US$8.8 million. Structure & Design. Phase 1 encompassed two major components: (i) Institutional Strengthening (covering activities in water quality monitoring, environmental licensing, and coastal zone management), and (ii) Environmental Assets . During first Phase of NEP II, 25 states carried out an environmental priority setting exercise which guided subsequent subprojects and interventions in the states. Among the priorities identified in Phase 1 were: (i) water quality and livestock wastes in three southern states (Santa Catarina, Rio Grande do Sul & Paraná); (ii) protection of key watersheds and solid waste management (São Paulo, Goiás, Bahia, Minas Gerais and Pernambuco); (iii) natural resource conservation (in the upper Araguaia basin in Mato Grosso) involving erosion control and sustainable tourism; and (iv) protection of the caatinga biome (Pernambuco). Outcomes from Phase 1. The key outputs of NEP II included a number of policy reforms and to a larger than expected participation by the states. The merits of Phase 1 are based on: (i) the reforms adopted by the states; (ii) the learning process for engagement between MMA and the states; and (iii) the core activities implemented. Previously, only four states (RS, PR, SP and BA) used any kind of computer system for tracking environmental licenses. By the end of Phase 1, seven additional states (SC, MG, GO, MT, AC, PB and CE) had digital licensing systems, making the licensing process more transparent and efficient. Computerization provided not only a tracking tool, but also a tool for transforming the licensing process into a tool for environmental management. Likewise, prior to NEP II, most states had not conducted an environmental assessment to identify key priorities. At the completion of Phase 1, twenty five of the twenty seven states had undertaken an identification of their environmental priorities and twenty states (from an initial target of 12 states) qualified for matching grants by fulfilling eligibility criteria. Similarly, the target for WQM was five states; by the end of Phase 1, 10 states had working WQM systems. Likewise, the target for States implementing environmental assets subprojects was three, while at the end of Phase 1, nine states were implementing subprojects. Overall, Phase 1 which lasted 6 years, contributed to the implementation of 43 specific int erventions in 17 states, leading to improvements in decentralized environmental management. While small in size, many of these investments contributed to noticeable improvements. It is clear that neither NEP II (nor even project much larger in size) would be able to address all of Brazil's environmental priorities (i.e. such as air quality in Sao Paulo, deforestation in the Amazon, cleaning the Pinheiros or Tiete watersheds in Sao Paulo, etc.). Nonetheless, there were a number of success stories related to improvements in environmental quality in selected areas. For example: · The EA subproject in the Ipojuca basin in Pernambuco State identified some 120 springs that contribute to pollution in the Ipojuca River. The project applied treatments to about 20 of these sources to reduce contamination and maintain flow through appropriate revegetation and the exclusion of cattle from the stream heads. The EA component also contributed to the design and construction of two sanitary landfills in the Ipojuca basin (serving 80% of the population in the area) that reduced the amount of solid waste and flow of leachate into ground and surface water. Through the WQM subcomponent it was concluded that the quality of (once polluted) sections of the basin had been improved. · In Bahia, the EA project helped to reduce pesticide use, irrigation water use and burning of agricultural plots in the middle Paraguaçu River Basin, a major source of water supply and energy for the state capital, Salvador, Bahia. The project also had a demonstration effect on local farms and ranches. The project also supported solid waste management plans for several municipalities in the middle-Paraguaçu basin. The subproject contributed to improving environmental quality by supporting sustainable agriculture pilots that demonstrated approaches to reducing water use in irrigation, reduced pesticide use, and the development of organic fruit and vegetable farming. These approaches not only had beneficial effects on environmental quality but also raised the income of small farmers by lowering their costs and adding value to their products. The project also supported detailed studies of solid waste management (SWM) in several Page 4 4 municipalities in the Upper Tietê Basin and the redevelopment of a landfill, the management of which was t ransferred to a consortium of municipalities that operated the landfill jointly. · There were environmental improvements in selected watersheds in the three southern states (Parana, Santa C atarina and Rio Grande do Sul) which implemented EA subprojects to control pollution from swine raising. The outcomes from these interventions contributed to a reduction of animal waste flowing into key watersheds, with substantial quality improvements. Likewise a subproject in Mato Grosso (in the Araguaia River Basin) aimed at controlling soil erosion from agriculture led to noticeable improvements. (These examples are further detailed in the project’s Implementation Completion Report (ICR)). Phase 1 of NEP II also contributed to a number of institutional partnerships involving State Environmental Agencies, municipalities, NGOs, universities, research centers and training centers, water-resource management agencies, tourism agencies, regional development agencies, agricultural development agencies and the private sector. Challenges in implementation. There were three amendments to the Loan Agreement during Phase 1 extending the closing dates and canceling proceeds from the loan. The first amendment (June 18, 2003) extended the Closing Date of the Project from 2003 to 2005 and cancelled an amount equivalent to US$2.3 million at the request of MMA. This amendment was solicited based on: (a) the fiscal austerity package implemented by the Ministry of Finance which led to severe budgetary restrictions on all Federal projects and reduced budget allocations to MMA, reducing the resources allocated to NEP II. (b) changes of state officials and limitations on the ability to sign operating agreements ( convênios ) with participating states during electoral periods, causing delays and affecting the disbursement patterns; and (c) states took longer than anticipated to qualify for matching grants and in implementing subprojects. The project experienced, however, delays due to MMA's processing of individual consultant contracts. The second amendment (May 25, 2005) extended the closing date of the project from June 30, 2005 to June 30, 2006, bringing cumulative extensions to 3 years. This extension requested by the Borrower was granted to: (i) allow the completion of ongoing Environmental Assets subprojects in qualified states; (ii) finalize key environmental licensing and monitoring activities; and (iii) allow time for the transition and preliminary preparation of Phase 2 of the Program. The third amendment (June 27, 2005) cancelled US$3.6 million from Loan proceeds at the request of MMA, following additional cuts and impoundments imposed by the Ministry of Finance. In each case of budget cuts and impoundments, the PCU was obliged to scale back subprojects that had been designed and, in some cases, approved. In spite of these budgetary reductions, perhaps one of the most impressive characteristics of Phase 1 was its overall administrative/coordination capacity, since the project consistently utilized about 98% of the total funds made available by MMA during the years of operation. This is almost certainly the best record of any MMA program under recent execution. 2. Objectives The project’s higher level objective is the enhancement of environmental quality and sustainability of growth in Brazil. In the past, growth in Brazil has been at the expense of the environment, in terms of health impacts from water and air pollution in urban and industrial areas, destruction or degradation of natural resources such as large areas of forest and critical ecosystems, and soil loss to erosion leading to siltation and contamination of many of Brazil’s waterways. Improving the environmental licensing process is key to increasing investments’ sustainability and reducing environmental costs. The proposed project aims to strengthen the environmental policy framework at the state and federal levels and to establish a methodology which states can follow to address key environmental priorities. By strengthening environmental management, Phase 2 of NEP II is expected to contribute to a reduction in some of the costs associated with environmental degradation and to promote an environmentally sustainable growth pattern in Brazil. 3. Rationale for Bank Involvement The Bank has accumulated significant experience related to environmental management over the past 25 years. The Bank has supported National Environmental Projects in countries as widely varied as India, Page 5 5 Brazil, Mexico, and Poland, for instance. One of the earliest such projects was the first Brazil National Environmental Project (NEP I) that was approved in 1989. The Bank also has considerable experience in Brazil and elsewhere in the design of decentralized, demand-driven municipal development and natural resource management project components - including the highly successful matching grants (PED) component of NEP I - and in the design and implementation of social funds for rural poverty reduction. While the latter operations follow a community driven development (CDD) format aimed at strengthening communities and municipal governments these projects share characteristics with NEP II by combining Institutional Strengthening goals and components with the financing of priority investments identified by local stakeholders. Likewise, in recent years, the Bank has implemented a number of Environmental Development Policy Loans (DPLs), aimed at the establishment of policy reforms and improvements in environmental management. These accumulated lessons have uniquely positioned the Bank in terms of technical and administrative experience which has been valued through the years by clients such as Brazil. The Brazil Country Partnership Strategy (CPS) 2008-2011 continues to stress the principles of increasing capacity for environmental management and implementation of environmental policies to stimulate more sustainable use of natural resources and also underlines support for decentralization and for environmental sustainability. The proposed project will be a key instrument for addressing the sustainability pillar of the CPS by strengthening environmental management and contributing to a reduction in costs associated with environmental degradation and by promoting an environmentally sustainable growth pattern in Brazil. The project will also contribute to the competitiveness pillar of the CPS by promoting the institutional development and strengthening environmental policies and regulations, strengthening and streamlining environmental licensing, improving environmental monitoring, supporting the use of economic instruments and finally, through targeted decentralized demand-driven subprojects aimed at improved management and conservation of selected environmental assets. 4. Description The proposed Phase 2 of NEP II seeks to contribute to strengthening environmental capacity in key Brazilian institutions. This would be accomplished by enhancing the environmental management capacity of environmental institutions at the Federal, State and Municipal levels and by demonstrating the effectiveness of targeted subprojects focused on priorities determined by States. The proposed project would have 3 core components: (A) Institutional Development ; (B) Integrated Management of Environmental Assets ; and (C) Coordination, Dialogue and Communication . Component A. Institutional Development: Based on the lessons and core structure implemented during Phase 1, the Institutional Development component encompasses the following: (i) Strengthening Environmental Licensing policies and procedures at the federal, state and municipal levels; (ii) Environmental Quality Monitoring; and (iii) Economic Instruments for Environmental Management. As in the Integrated Management of Environmental Assets (EA) component, states’ classification per the Eligibility Criteria matrix would qualify them for matching grants. i Strengthening Environmental Licensing. This subcomponent would: (i) continue the implementation of customized information systems for licensing in the 15 states that did not participate in Phase 1; (ii) upgrade and improve the licensing systems in the 12 states that received support during Phase 1; (iii) promote the decentralization of licensing systems to qualified municipalities; (iv) provide technical assistance and capacity building to improve licensing systems in states and selected municipalities, (v) Page 6 6 continue the harmonization of legal instruments and requirements for licensing systems (at all three levels of government); (vi) develop technical guidelines to support the licensing procedures and framework at the state and federal level; and, (vii) provide technical assistance and capacity building for updating procedures and environmental licensing methodologies for key sectors (roads, mining, energy generation, hydrocarbons, among others) and for four key agencies (namely the National Indigenous Foundation (FUNAI), the National Historic Heritage Institute (IPHAN), ANA, and Fundação Palmares ). This subcomponent would also strengthen the post-licensing monitoring of license conditions, clarifying the roles of different stakeholders to expedite licensing procedures, and will seek to integrate brown-green agendas into the state/municipal licensing systems. This subcomponent would incorporate into its design the main conclusions and recommendations from the 2008 Economic Sector Work (ESW): Environmental Licensing for Hydroelectric Projects in Brazil: a Contribution to the Debate . The subcomponent would allow qualified states to have access to matching grants according to their classification. Class 1: R$500,000; Class 2: R$700,000; Class 3: R$1,000,000; and Class 4: R$1,500,000. Each state will be eligible to receive one grant in this Sub-phase. The allocation to the federal government under the licensing component is R$15,610,000. ii Development of Environmental Quality Monitoring. This subcomponent will focus on: (i) developing environmental monitoring systems for priority issues and areas as determined by the states’ environmental priorities (with a particular emphasis on air quality and water quality given their impacts on human health); (ii) integrating the existing state and municipal environmental monitoring networks into MMA’s Environmental Information System; and (iii) enhancing the capacity to process and analyze information from monitoring networks. The activities under this subcomponent would aim at improving decision making process regarding critical environmental issues and complement, when applicable, the environmental licensing process. The Environmental Quality Monitoring Subcomponent would allow qualified states to have access to matching grants in the following order: Class 1, R$450,000; Class 2, R$670,000; Class 3: R$850,000; and Class 4: R$1,100,000. Each state will be eligible to receive one grant in this Sub-phase. iii Economic Instruments for Environmental Management . This subcomponent would assess and promote alternatives to the command and control approach to environmental management, leading to the adoption of innovative instruments such as environmental audits, payment for environmental services, environmental taxes based on the polluter pays principle, etc. It would address demands by states for assistance in developing economic instruments that involve incentive-based approaches to environmental management and protection. Thus, this subcomponent would focus on identifying opportunities and designing mechanisms at the state or municipal level for the development of economic instruments. Subprojects developed under this subcomponent would focus on improvements for environmental management such as emission taxes, payment for environmental services, carbon trading, among others; and would be encouraged to be integrated into the EA subprojects developed under the project. Qualified states to have access to matching grants in the following order: Class 1, R$330,000; Class 2, R$440,000; Class 3: R$560,000; and Class 4: R$890,000. Each state will be eligible to receive one grant in this Sub- phase. Component B. Integrated Management of Environmental Assets: The principle behind the Environmental Assets (EA) Component is to provide an incentive to states to identify, rank and address some of their most pressing environmental challenges. As stated above, states qualify to receive matching grants for the development and implementation of subprojects. The grants may be used to finance subprojects that deal with a problem identified among the state’s highest priorities. It is important to recognize that these subprojects are not designed to “solve” the environmental Page 7 7 problems of the states 2 ; rather they are relatively small demonstration projects that present innovative ways to help resolve environmental problems. They afford additional opportunities to State environmental agencies to make investments designed to enhance environmental sustainability, demonstrate the possibility of “green” production, explore novel ways of enhancing access to renewable resources without depleting them, and others. Additionally, to the component provides an avenue for environmental agencies to design and implement subprojects that build valuable skills that often are in short supply. As an incentive to improve their environmental performance, those states that fall below Class 1 would not qualify for resources under this component; although they could still receive technical assistance for strengthening licensing, environmental monitoring or economic instruments. They could also receive assistance in meeting the reform criteria. states that fall into Class 2 could receive a matching grant of up to R$1.0 million; states that fall under Class 3 would receive up to R$2.0 million; and states that fall under Class 4 would be eligible to receive up to R$4.0 million. Once a state has qualified for a grant, it must present a subproject proposal aligned with a priority identified by the state. Each state could qualify for up to two grants in this component but in order to be eligible to present the second subproject proposal, the state would have to undergo a new qualification process. Two states (Alagoas and Ceara) which submitted proposals during Phase 1 but were unable to implement these subprojects for lack of funding, would receive support for implementation of their respective subprojects. Other states would follow a sequence of subproject preparation and would become eligible for subproject financing as follows (i) creation of a technical group for the preparation of subprojects; (ii) baseline study of the selected area for subproject; (iii) preparation of subproject proposal (which would be discussed and endorsed by key stakeholders through local workshops); (v) assessment of subproject proposals by the Supervisory Committee; (vi) implementation of subprojects; and (vii) monitoring and evaluation of subprojects. Component C. Project Coordination, Dialogue and Communication: The project will support a unit with the technical and administrative capacity needed to manage subprojects and activities at a decentralized level 3 . MMA is financing the existing Project Coordination Unit (PCU) for NEP II during the transition period between Phase 1 and 2 in order to give continuity to the Program. MMA has also “mainstreamed” NEP II by incorporating it into its organization chart as a major vehicle for strengthening the National Environmental System (SISNAMA). This component also includes a small communications unit that will develop and implement a strategy to disseminate lessons learned from current and past project activities and help to build support and understanding for environmental programs among various stakeholder groups. 5. Financing 2 Subproject should fall within the identified environmental priorities in the state; however, not all of the states’ priorities would be realistically financed under NEP II (i.e. air pollution in the São Paulo metropolitan region). States would benefit from fulfilling this specific eligibility criterion in the policy reform matrix since it would allow states to receive TA for carrying out a priority setting exercise that would help update or determine the states environmental priorities. Furthermore, States would receive technical assistance for developing and action plan to address the most pressing environmental priorities (not necessarily covered under the proposed project). 3 One of the most important characteristics of Phase 1 was its overall implementation capacity, since the project consistently utilized about 98% of the total funds made available by Treasury to MMA over the years of operation. This is almost certainly the best record of any MMA program under recent implementation. In spite of this achievement, the Program was hobbled, to some extent, by the reduced budgetary allocations, impoundments and freezes that have occurred each year since implementation began due to austerity measures imposed by Treasury to MMA. Page 8 8 Source: ($m.) Borrower 10.42 International Bank for Reconstruction and Development 24.3 Total 34.72 6. Implementation The Project Coordination Unit (PCU) of NEP II has been active and operating since the implementation of Phase 1, and recently was formally incorporated as part of the institutional structure of MMA under the Executive Secretary (SECEX) . Most of the staff at the PCU have participated in the preparation and implementation of Phase 1 ensuring technical and administrative continuity. Synergy among various externally funded programs and Secretaries within MMA will be assured through the key conveying role of SECEX which has, among other things, responsibility for coordinating the SISNAMA and ensuring consistency among all programs under the Ministry . This would prevent the duplication of efforts and potential conflicts among programs. MMA, through the PCU, would contract consultants providing technical assistance to the states for the implementation of both core components, as well as for the priority setting exercise through UNDP. UNDP would serve as a procurement agent for services for the PCU and goods. Procurement activities will be carried out through UNDP exclusively for goods and consultancies of the PCU. For the implementation of subprojects and activities under Components A and B the Ministry would enter into operating agreements ( convênios ) with the implementing agencies, which may include states and municipalities in order to transfer project resources directly to the implementing unit. During the midterm review and towards the end of Sub-phase A , UNDP’s performance would be evaluated. If its performance has not been satisfactory, alternate arrangements would be made for the project’s procurement needs. Likewise, MMA (which is in the process of negotiating the operating agreement with UNDP) would carry out a capacity assessment (to be jointly undertaken with the Bank) and would require performance indicators from UNDP for this and other projects. Each year the PCU would prepare an annual operating plan, outlining the investments to be made under the project. A Supervisory Committee would be established in order to review the fulfillment of the eligibility criteria matrix as well as the subproject proposals. The Committee would also be in charge of reviewing the Annual Operating Plan. 7. Sustainability Sustainability is a major strength of the project design. The Project is the second Phase of an APL that proved successful in its Phase 1 and which has evolved from the first National Environmental Project. NEP II has contributed to significant achievements including the consolidation of the National Environmental System (SISNAMA), and has also led to concrete environmental gains in specific basins or ecosystems. Some elements that would ensure sustainability of project activities are already imbedded in project design. For example, states seeking matching grants for developing new subprojects under the Environmental Assets Component, would be eligible to receive up to two grants during the life of the project provided that the previous subproject has been completed successfully. Furthermore, states which qualified and carried out subprojects during Phase 1, would be able to qualify for phase 2 only if they demonstrate sustainability and mainstreaming of the subprojects implemented in Phase 1. By strengthening SISNAMA, MMA has internalized many of the products and outcomes and has developed a strong ownership of NEP II, particularly for the following activities: (i) the National Plan for Environmental Licensing; (ii) the WQM Plan; (iii) Coastal Zone Management; (iv) the development of Page 9 9 Solid Waste Management Plans; and (v) the reference data for the Environmental Management System (SIGAB) and for the National Environmental System of Information (SINIMA). NEP II is currently the primary mechanism by which the federal ministry interacts with states and strengthens environmental capacity at the state level. Both MMA and the states recognize these accomplishments and the need to proceed to Phase 2. In addition, it is worth noting that NEP II has contributed to a number of institutional partnerships involving State Environmental Agencies, municipalities, NGOs, universities, research centers and training centers, water-resource management agencies, tourism agencies, regional development agencies, agricultural development agencies and the private sector. For example, NEP II has served as a platform for significant sectoral agreements and environmental mainstreaming including: (i) an agreement between the Itaipú Binational Power Company and the Ministry of Environment (MMA) on watershed management; and (ii) an agreement between MMA and the National Water Regulatory Agency (ANA), whereby ANA has agreed to host one of NEP II ’s key products: the website on water quality in Brazil. It is foreseen that these agreements and synergies will continue throughout Phase 2 ensuring sustainability in the project’s activities. 8. Lessons Learned from Past Operations in the Country/Sector Among the lessons learned from Phase 1 was the reaffirmation of the viability of a decentralized approach to environmental management. By transferring decisions and implementation down to the state level, the federal government has been able to accomplish several important goals, including: (1) leveraging policy and regulatory change at the state level; (2) generating enthusiasm, energy and counterpart funding for state selected priorities; (3) building capacity for environmental management at the state level. Thus, Phase 1 demonstrated that there is a great deal more interest and capacity for environmental protection at the local level, especially when state-level entities are allowed to set their own priorities and develop their own methodologies. Phase 2 would continue to employ this valuable approach in its design by empowering states strengthen their environmental management capacities, develop their subproject proposals, and determine their environmental monitoring needs. Phase 1 also demonstrated that states are quite willing to have their capacity and performance evaluated objectively, especially when the financial incentive to support state-defined subprojects is added. Most state officials actually welcomed the opportunity to have their capacity evaluated externally because it gave them leverage for policy changes within their governments. An important lesson was the importance of building an effective communications component into the project . During project implementation, there were times when the project received less funding from the budget envelope allocated to MMA than other programs that were narrower in scope and performed less well than NEP II. This may have been partly a function of how well the project communicated with its various constituencies. The lesson derived is that the success of a project may often depend on its capacity to identify key stakeholders and to communicate with them effectively, in both directions. Phase 1 included a communications team as part of the project management component. The lack of baseline data against which to measure actual improvements in environmental quality through the implementation of subprojects at the state level is an important lesson from Phase 1. For the most part, participating states did not develop solid baselines and did not establish a basis for comparing changes in environmental quality as subprojects unfolded under Phase 1. Thus, Phase 2 will establish the development of baseline studies as a requirement for subproject financing. Proponents will need to demonstrate specific plans for conducting baseline studies. Page 10 10 An additional lesson concerns the delays encountered in the signing of contracts owing to cumbersome administrative procedures by UNDP. MMA has relied on UNDP as a service provider for letting contracts, which often resulted in delays affecting project implementation. MMA is aware of these shortcomings and will demand performance improvements to continue engagement with UNDP (as part of the negotiations for an extension of the umbrella agreement with UNDP beyond 2010). Contracts for state activities would not be channeled through UNDP. In addition, this diagnostic derived from the implementation of Phase I indicates the need to continue developing the administrative (i.e. procurement and financial management) capacity within MMA to curb reliance on external service support. Lastly, an important lesson for Phase 2 is related to the flexible methodology provided by MMA to the States for assessing their environmental priorities. This methodology has to be very closely monitored to ensure the proper dimensioning of sub-projects and that the proposed priorities addressed within the context of the project are realistic and commensurate to available resources. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [X] [ ] Natural Habitats ( OP / BP 4.04) [ ] [X] Pest Management ( OP 4.09 ) [ ] [X] Physical Cultural Resources ( OP/BP 4.11 ) [ ] [X] Involuntary Resettlement ( OP / BP 4.12) [X] [ ] Indigenous Peoples ( OP / BP 4.10) [X] [ ] Forests ( OP / BP 4.36) [ ] [X] Safety of Dams ( OP / BP 4.37) [ ] [X] Projects in Disputed Areas ( OP / BP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP 7.50) [ ] [X] The proposed project may have some small scale infrastructure works, hence an Environmental Category B has been established in order for appropriate measures to be taken, and given the fact that the main objective of the project is to obtain environmental quality improvements. During Phase I of the National Environmental Program, the only specific safeguard triggered was OP4.01 (Environmental Assessment), because of subprojects related to sanitary landfills. For Phase II, subprojects could potentially cause environment damage or involuntary resettlement, and would be screened for compliance with Bank safeguards prior to approval. As necessary, mitigatory measures would be taken to avoid or minimize environmental damage or involuntary resettlement. Indigenous peoples are eligible for subprojects benefits; in the event that such groups form part of a beneficiary group, the guidelines in OP 4.10 would be followed. 10. List of Factual Technical Documents · Manual da componente Coordenação, Articulação e Comunicação do PNMA II Fase 2. · Instrumentos Econômicos para a Gestão Ambiental do PNMA II Fase 2. * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 11 11 · Documento Salvaguardas PNMA II Fase 2. · Manual de Ativos Ambientais do PNMA II Fase 2. · Manual de Monitoramento Ambiental do PNMA II Fase 2. · Manual de Subcomponente de Licenciamento Ambiental do PNMA II Fase 2. 11. Contact point Contact: Renan Alberto Poveda Title: Sr Environmental Spec. Tel: 54 11 4316-3713 World Bank link: 5260+3713 Email: Rpoveda@worldbank.org Location: Buenos Aires, Argentina (IBRD) Contact: Adriana Moreira Title: Sr Environmental Spec. Tel: 55 61 3329-1062 World Bank link: 5761+1062 Email: amoreira@worldbank.org Location: Brasília, Brazil (IBRD) 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop