PROJECT BRIEF

1. IDENTIFIERS: PROJECT NUMBER:PROJECT NAME: Indonesia: Maluku Conservation and

Natural Resources Management (MACONAR)

DURATION: 5 yearsIMPLEMENTING AGENCY: World BankEXECUTING AGENCIES Provincial Government of Maluku, District

Government of Maluku Tangara, Directorate General of Regional Development, Ministry of Home Affairs, Directorate General of Forest Protection and Nature Conservation, Ministry of Forestry

REQUESTING COUNTRY OR COUNTRIES: IndonesiaELIGIBILITY: Indonesia ratified CBD on 08/23/94GEF FOCAL AREA: BiodiversityGEF PROGRAMMING FRAMEWORK: Coastal, Marine and Freshwater Ecosystems

(OP2) / Forest Ecosystems (OP3)

2. SUMMARY: The project is located on and around four biologically-rich islands in the province of Maluku in eastern Indonesia. Home to a rich mixture of flora, fauna and marine species, Maluku has just one terrestrial and one marine protected area, which are poorly managed and under threat. The project will address the threats by: (a) strengthening management of the existing terrestrial protected area (Manusela National Park) and establishing a second area (Lolabata-Akitajawe National Park); (b) expanding and managing a system of marine protected areas around the Aru and Banda islands; (c) encouraging local communities to support conservation and adopt more sustainable use practices by (i) providing development grants in return for pro-environmental actions, and (ii) reviving traditional natural resource management systems; and (d) promoting community, NGO and private sector involvement in ecotourism development and protected area planning and management. It also includes biodiversity monitoring and environmental awareness components.

3. COSTS AND FINANCING (MILLION US):

GEF: - Project- PDF:Subtotal GEF:

US$ 6.0 millionn/aUS$ 6.0 million

CO-FINANCING: -IA:-Other International:-Government:-Private/NGOSubtotal Co-Financing:

US$ 2.0 millionn/aUS$ 1.1 millionUS$ 1.5 millionUS$ 4.6 million

TOTAL PROJECT COST: US$ 10.6 million

4. ASSOCIATED FINANCING (MILLION US$) GOI CONSERVATION BUDGETNGO ACTIVITIESASSOCIATED IBRD PROJECTS

TOTAL ASSOCIATED FINANCING

US$ 0.6 millionUS$ 0.5 millionUS$ 2.2 million

US$ 3.3 million5. OPERATIONAL FOCAL POINT ENDORSEMENT:

Name: Mr. Effendi A. SumardiaOrganization: State Ministry of the Environment

Title: Assistant Minister for Coordination

Date: 11/04/98

6. IMPLEMENTING AGENCY CONTACT:

Robin Broadfield, Senior Regional Coordinator, East Asia, ENVGCTel. (202) 473-4355, Fax: (202) 522-3256Email: rbroadfield@worldbank.org

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A. PROJECT DEVELOPMENT OBJECTIVE

1. BACKGROUND:

1. Maluku is part of Wallacea, the land lying between the Sunda and Sahul continental shelves, a biological transition zone which derives its flora and fauna both from Asia and Australia. Over 80% of the land area of Maluku is forested, including highly threatened forest ecosystems such as: lowland evergreen rainforest, mangroves, lowland monsoon forest and forest on limestone. The richness and uniqueness of the archipelago's bird fauna is indicative of the province's importance for biodiversity. Maluku harbors 348 species of birds (20% of the Indonesian avifauna) of which over 90 species are unique to the province. This is more endemic bird species than Papua New Guinea, Peru or Colombia, which are recognized as megadiversity countries. The seas around Maluku are some of the most biologically diverse in the world and contain a high variety of corals, fish species, mollusks, dugongs, and globally important turtle nesting sites. Many of Maluku’s endemic species are unique to one island or island group, so that no single island represents the full diversity of habitats and species, which occur in the province.

2. Despite its remoteness, the broad geographic spread of its many small island ecosystems, and relatively low population densities, Maluku’s rich natural and biological resource base is under serious threat. The major threats to biodiversity are fragmentation and loss of habitat caused by unsustainable logging and mining practices and small-scale agricultural pressures. Destructive fishing practices, coupled with inappropriate coastal development have had a detrimental impact on coral reefs and fish populations both in areas close to large urban centers, and, as harvesting has expanded, even on remote reef systems. Pressures on the environment and natural resources are expected to increase during the current economic crisis as devaluation of exchange rates have increased the pressures to exploit natural resources to fuel export oriented industries; one example is hastened conversion of coastal forests to support shrimp farms.

3. Indonesia has committed at the national level to protect natural resources and to preserve biodiversity but effective protection on the ground is weak. Maluku has an important role in preserving Indonesia’s rich biodiversity and centers of endemism and includes several areas identified as national and global priorities for conservation. At present, less than 5 percent of Maluku's land area is designated for protected status. There are only two established protected areas of significant size in Maluku: Manusela National Park (180,000 ha) and Aru Marine Reserve (102,500 ha), and neither has an effective management system in place.

4. The fiscal crisis in Indonesia will increase pressure on the province's natural resources, both to meet subsistence needs and to provide revenues from exports. It also provides a unique opportunity to help GOI secure its natural resource base, strengthen its protected area network and address the root causes of biodiversity loss through policy reform and development programs linked to sound environmental management. The Bank is aiding GOI with reforms in the forestry sector under the Structural Adjustment Loans and is working directly in Maluku to provide improved agriculture and sustainable development options to some of the poorest villages in the islands.

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5. The Maluku Regional Development Project (MRDP) is promoting intensified agriculture as well as providing kecamatan level village block grants in North and Central Maluku to finance the basic village development investments and alternative income generating activities that promote communal-based sustainable natural resource use, reduce local pressure on natural habitats and species while simultaneously reducing rural poverty. The Learning and Innovation Loan (LIL) component of the proposed MACONAR project will extend the village grant program to Southeast Maluku, thereby reducing pressure on proposed and existing protected areas (PAs) in that kabupaten. The MACONAR project will strengthen management at four key sites in the province, Manusela (Seram), Lolabata-Akitayawe (Halmahera), and Aru and Banda Marine reserves as well as lead to the establishment of a secure and representative protected area network for the whole province (both terrestrial and marine). It will address the special needs and opportunities of biodiversity conservation in small island ecosystems, through establishing strategic partnerships between the public and private sectors and engaging the expertise, skills, and local and traditional knowledge of local communities and of local and international NGOs. It will complement and have close linkages to the Coral Reef Rehabilitation and Management Project (COREMAP) which addresses coral reef conservation and management issues in three provinces in eastern Indonesia, including one site in Maluku. The MACONAR Project provides a rare opportunity to explore innovative new management options for biodiversity management and sustainable use and for linking key village infrastructure development to conservation through local government grants.

2. PROJECT DEVELOPMENT OBJECTIVE AND KEY PERFORMANCE INDICATORS (SEE ANNEX 1):

6. The proposed project's central development objective is to develop and test a framework for alternative methods to manage protected areas in Indonesia and promote sustainable natural resource use. The new approaches would be tested in a limited area of eastern Indonesia (Maluku) and if deemed successful, these approaches could be adapted elsewhere in the country. In particular, the project proposes to: (a) involve local stakeholders in the design and management of protected areas; (b) promote private sector and non-governmental organization (NGO) participation in protected area establishment and site specific protected area management; (c) develop sustainable financing mechanisms for nature conservation activities through user (concession) fees and eco-tourism activities; and (d) promotion of sustainable natural resource use while increasing local incomes.

3. PROJECT GLOBAL OBJECTIVES AND KEY PERFORMANCE INDICATORS (SEE ANNEX 1):

7. The global environmental goal of the proposed project is to protect and enhance the unique terrestrial and marine biodiversity in Maluku, including areas recognized as regionally and globally important. The project proposes to implement management at a number of sites defined as national priorities in the National Conservation Plan (1981, revised 1995), the Biodiversity Action Plan (1993), the Tropical Forestry Action Plan (1991), and the Marine Atlas (1984), to increase the number of gazetted protected areas in Maluku and ensure their effective management. Some monitorable key indicators of project success would be: number of local legal decrees (peraturan daerah) issued supporting environmental management and

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8. conservation; establishment of community-based natural resource management systems; new institutional arrangements established for gazetting, managing and financing protected areas; number and area of new protected areas established and gazetted, and number of areas under effective management.

B: STRATEGIC CONTEXT

1(A). SECTOR-RELATED COUNTRY ASSISTANCE STRATEGY (CAS) GOAL SUPPORTED BY THE PROJECT (SEE ANNEX 1):

CAS document number: 16691-IND Date of latest CAS discussion: June 13, 1997

9. One of the CAS overall objectives is to decrease regional disparities and reduce rural poverty through the promotion of sustainable environmental and natural resource management. Specifically, the CAS describes the Bank's objectives of assisting the Government of Indonesia to increase the number of conservation areas and promote efficient management of conservation areas. The project's focus on strengthened policy and legal enforcement, site management and close collaboration with private sector, NGOs and local communities, and poverty reduction is consistent with the CAS strategy.

b. GEF Operational Strategy/program objective addressed by the project

10. Indonesia ratified the Convention on Biological Diversity in August 1994. The project is consistent with the GEF Operational Strategy, especially Operational Program 2 (Coastal, Marine and Freshwater) and OP3 (Forest Ecosystems); it will also provide support to conserve montane ecosystems (OP4). The project will support the establishment and strengthening of a representative protected area network, both terrestrial and marine, throughout the Moluccan islands, which lie within a globally renowned biogeographic transition zone, Wallacea, with uniquely high levels of species endemism. The whole region is recognized as one of the 200 most important ecoregions globally. The individual protected area sites are identified as national priorities in the Indonesia Biodiversity Strategy and Action Plan as well as being recognized as regionally and globally significant in numerous reviews of conservation priorities. The project supports conservation and sustainable use, and more equitable sharing of benefits, by improving forest and coastal and marine management, strengthening partnerships for natural resource management between the public and private sectors and linking development opportunities for local communities to environmental performance criteria.

11. The project is consistent with COP guidance as it focuses on conservation and sustainable use of critical ecosystems and threatened endemic species and supports the active involvement of local communities as managers and beneficiaries of better forest and coastal management. It responds to COP3 guidance through promoting conservation and sustainable use through capacity building of local NGOs and communities and is innovative in using economic incentives by linking regional development opportunities in Southeast Maluku to demonstrated community commitment to conservation. In line with COP4 guidance the project takes an ecosystem approach to maximize biodiversity conservation and sustainable use in a range of forest and coastal and marine habitats that will span altitudinal gradients and represent different management regimes. The project will explore and support a range of innovative institutional arrangements, including NGOs, local communities and public-private partnerships consistent

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with the special needs and opportunities of protected area management and conservation in small island ecosystems. The project will build on indigenous knowledge and traditional resource use patterns (sasi) and extend elements of these management practices to new sites as appropriate. Through support for conservation measures that control trade in endangered species (especially parrots) and afford better protection to migratory species (turtles, dugongs) the project will support the objectives of other biodiversity treaties including CITES and the Bonn Convention.

2. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY:

12. The Bank has recently completed a sector review of Integrated Conservation and Development Projects (ICDPs) in Indonesia. The main finding of the study was that inadequate institutional capacity and insufficient local government support for biodiversity conservation hampers the effective implementation of such projects. Consistent with the ICDP Review findings, currently protected area management and biodiversity conservation in Maluku is characterized by: (a) inadequate government institutional capacity, (b) limited financial resources; and (c) low levels of local government awareness and support for conservation.

13. Environmentally sustainable development will become one of the main challenges in the years to come when Indonesia struggles to find its way out from the financial and economic crisis. In Maluku, the crisis has exacerbated the non-sustainable use of local natural resources. Forest exploitation and fisheries in particular, and hastened the conversion of coastal forests to shrimp farms and other export oriented products are creating new pressures on the environment. Policies, such as formal recognition of “customary law” like sasi and better enforcement of national policies and legislation are needed to ensure that natural resources are harvested on a sustainable basis. The government's basic development strategy, as documented in the CAS, remains valid. However, innovations, reforms and efficiency gains are now of even higher priority. The government intends to strengthen local planning and management and to reduce regional disparities while increasing cost recovery and promoting environmental sustainability. Consequently, activities that protect the environment while simultaneously promoting regional development and reduction of poverty will be high on the list. This project takes an innovative approach in providing development opportunities to encourage biodiversity conservation.

3. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES:

14. The main sectoral root causes of biodiversity loss are closely related to policies that lead to unsustainable exploitation of resources. These policies are being targeted by a wide range of projects funded by multiple multilateral and bilateral donors, including the World Bank. In addition, natural resource degradation is closely linked to prevailing poverty levels, including equity of distribution of wealth, weak institutional capacity, and low environmental awareness. The specific sectoral issues to be addressed by the project include: (a) land use conflicts due to lack of intersectoral coordination and participatory approach in delineation of PA system; (b) illegal fishing practices by foreign and local fisherman, enhanced by weak enforcement capacity of regulatory agencies; (c) lack of alternative income generating activities in the remote areas; and (d) lack of clear property rights and weak customary resource use rules.

15. The project will be address these issues by pursuing conservation of biodiversity through

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development of innovative participatory natural resources management approaches with direct benefits to local communities. It also provides opportunity to test new innovative mechanisms to encourage local government and community support for conservation and new financing mechanisms to cover PA management costs. Coordination of project activities with on-going World Bank projects in the region, such as MRDP and COREMAP, allows to take a boarder approach to address crosscutting issues such as mitigation of rural poverty, lack of intersectoral cooperation and public awareness. Development of participatory, community based institutions and project management mechanisms will be key elements of the project.

16. The project will built on existing government commitment for protecting biodiversity and improve rural living standards through promoting sustainable management of natural resources. The GOI has recognized the need to implement the strategies suggested in the NCAP to protect biodiversity by integrating nature conservation goals with sectoral and economy-wide development policies. he Ministry of Mines and Energy is currently developing a legal and policy framework to integrate nature conservation goals into its sectoral policies, including revision of the existing legislative and policy framework to support financing of protected areas management from donations and user fees from the mining sector. If proved feasible, similar schemes can be developed to other export oriented natural resources industries (timber, etc.) whose activities impose threat to biodiversity.

4. LEARNING AND INNOVATION EXPECTATIONS:

17. The project will promote private sector and NGO participation in conservation activities. The project proposes to create new partnerships with the private sector and local communities for the establishment and management of protected areas while testing cost-recovery through eco-tourism permits and sustainable harvesting of natural resources in carefully regulated zones. To support environmentally sustainable rural development, the proposed project would pilot the provision of block grants to villages to support economic development activities, including rural infrastructure, in return for improved environmental management practices. It is expected that the village grants would help leverage local government and community support for environmental conservation on a quid-pro-quo basis. The proposed project would also attempt to support local/indigenous enforcement systems for natural resources, sasi, which has traditionally functioned in Maluku. To ensure that conservation objectives are being met and proper documentation of the learning aspects of the various activities, an independent monitoring system for reviewing and disseminating information on project progress would be established.

C: PROJECT DESCRIPTION SUMMARY

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1. PROJECT COMPONENTS (SEE ANNEX 2 FOR A DETAILED DESCRIPTION AND ANNEX 3 FOR A DETAILED COST BREAKDOWN):

Component Category Cost Incl. Contingencies

(US$M)

% of Total

Bank-financing(US$M)

% of Bank-

financing

GEF Financing (US$M)

A. Environmental performance-based Kabupaten block grants

      2.3 21.7 2.0 87 -

B. On-Site Management       4.3 40.6 - - 3.0C. Protected Area Systems Establishment

      2.0 18.9 - - 2.0

D. Environmental Awareness 0.8 7.5 - - 0.5E. Biodiversity Monitoring       0.7 6.6 - - 0.5F. Independent Monitoring       0.5 4.7 - - -

Total 10.6 100% 2.0 6.0

Project Components

The project has six major components, four of which (components B, C, D, and E) benefit from GEF financing.

A. Environmental Performance-Based Kabupaten Block Grants (LIL + GOI US $2.3 million): Block grants would be provided to finance either Kecamatan-level infrastructure (small jetties), basic village infrastructure, scholarships or alternative income generating activities in Maluku Tenggara, the poorest Kabupaten in Maluku (i.e. the Kabupaten not presently covered by MRDP). Grant allocations would be linked to environmental performance indicators, to be developed through the participatory process in consultation with local government. Expected project outputs would include commitment to more sustainable management of natural resources, including issuance of local decrees (peraturan daerah), enhanced local awareness and support for nature conservation, and promotion of environmental awareness within the Kabupaten.

18. Disbursement of block grants would depend on independent “verification” of the performance indicators. Grants would be disbursed against a pre-approved list of Kecamatan-level eligible small-scale infrastructure expenditures (jetties, and feeder roads). The release of the block-grants will be gradual and phased against the Kecamatan reaching pre-determined environmental targets. Local government would be required to widely publicize the grants and their objective within the Kabupaten, in order to ensure the full disclosure of the information regarding the grant scheme, and develop and instill local community interest in

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receiving awards for environmental conservation. Although implementation of the component would be carried out by the local government of Maluku Tenggara, execution of individual activities will be contracted to private sector and local NGOs which is expected to increase the transparency of the process.

19. It is anticipated that the block grants would mitigate the pressures on natural resources and protected areas and reduce unsustainable harvesting of endangered species by improving village welfare through provision of financing for alternative income-generating activities, and strengthening of traditional community-based natural resource management systems.

B. On-Site Management of Priority Protected Areas (GEF 3 million Other 1.3 million): Establishment and management of two terrestrial protected sites (Manusela National Park and the proposed Lolabata-Akitajawe National Park) and two marine protected sites (proposed Aru and Banda National Parks). Activities would include ecological surveys, boundary establishment, gazettement, preparation and implementation of management plans, strengthening of enforcement capacity, investments into basic infrastructure and field equipment, staff training, and limited support for eco-tourism development. Different management models will be tested at the various sites, including partnerships between governments and competent NGOs and the private sector, and involvement of local communities living within or adjacent to the protected areas.

a) Manusela National Park (GEF US$ 0.8 million: Other US$ 0.1 million). Support will be provided for rationalization of park boundaries, staff training for management, monitoring and conflict resolution, implementation of an effective management plan, and upgrading visitor facilities such as trails, shelters, bridges, and information bulletins.

b) Proposed Lolabata-Akitajawe National Park (GEF US$ 1.2: Other US$ 1.1 million). Establishment of a National Park with multi sectoral agreement of boundaries and development of effective management operations. The boundary establishment, gazettement and some infrastructure is expected to be supported by financing from a neighboring mining company. Once the park has been legally established the project would assist in financing investment in zoning, basic park infrastructure, strengthening of management and enforcement capacity, and establishment of monitoring programs.

c) Aru Tenggara Marine Reserve (GEF US$ 0.5 million). Establishment of a system of marine protected areas in the south-east section of Aru islands by joining Aru Tenggara Strict Nature Reserve with three other proposed reserves in the region (Karawai Estuary, East Koboor, and Baun Island). Special emphasis would be given to the protection of dugongs and sea turtles, and to promotion of environmentally sound utilization of natural resources. The project would explore new ways to demarcate marine boundaries, and would support implementation of constituency building programs with the focus on formation of a local alliances for sustainable management and monitoring of natural resources. The project would finance implementation of a natural resource monitoring program which would identify priority management activities.

d) Banda Marine Reserve (GEF US$ 0.5 million: Other US$0.1 million). Support would be provided to expand the reserve area and upgrade its status to a Marine National Park. A participatory reserve management plan would be developed together with the local communities to integrate terrestrial, coastal and marine conservation activities. The project would finance the establishment of coral and fish monitoring programs to provide feedback

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for adaptive management and strengthen local capacity for marine conservation. Ways to establish financial and management sustainability will be assessed, including marine eco-tourism concessions and user fees.

C. Protected Areas Systems Establishment: The Maluku Islands cover seven biounits each with its unique endemic flora and fauna. This component complements and extends the support to four key areas (component B) by implementing the first steps in establishing a province-wide fully representative terrestrial and marine protected area system that protects areas of high biodiversity and endemism. Gazettement of these areas would involve endorsement by local and provincial government and sectoral agencies and pre-empt their consideration for alternative land uses. Activities would include rapid ecological and rural surveys, rationalization and demarcation of boundaries including stakeholder consultation and participation, gazettement of protected areas, and integration of protected area system into the spatial plan of the province. These activities would focus on:

a) Establishment of Terrestrial Sites (GEF US$ 1.4 million) at nationally and globally important terrestrial sites including Yamdena, Gunung Kalapat Muda (Buru), Gunung Arnau (Wetar), Taliabu, and Pulau Obi. Once the areas' legal status is established, assistance would be provided to identify appropriate strategies for management and financing for each protected area based on needs, opportunities and capacity of local institutions.

b) Marine Sites (GEF US$ 0.6 million). In Tayandu Islands, Geser, Kei and Wetar, all areas identified as nationally and globally important, the project would support the collection of baseline data, preparation of documentation for gazettement, and recommendations for management, building on local community models.

D. Environmental Public Awareness (GEF US$0.5 million: Other US$0.3 million): This component would test various means and methods of provincial and site-specific awareness (e.g. Aru, Banda, Manusela and Lolabata); and environmental awareness activities to generate public support for establishment and maintenance of protected areas and conservation of charismatic, endangered species. Provincial campaign activities would focus mainly on terrestrial conservation issues, as marine environmental awareness will be covered through COREMAP, a separate GEF/IBRD financed project currently under implementation in eastern Indonesia. Activities would include: a) Assessments of attitudes and behaviors of specific target groups around key protected areas

and in urban centers to feed into design of awareness campaigns and monitor impact on resource utilization behavior;

b) Workshops for government officials, local NGOs and civil society, production of awareness materials designed for appropriate media including theatre;

c) Development of teaching materials and training for local teachers to address conservation education in schools;

d) Development of training and materials for religious leaders and workshops and seminars on conservation ethics; and

e) Enhancement of public environmental awareness amongst general public through annual special events, such as song festivals, poster design and writing contests for local and national journalists.

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E. Biodiversity Monitoring (GEF US$0.5 million: Other US$0.2 million): A key objective of this project is biodiversity protection and many project indicators will focus on biodiversity indicators to assess project impact, e.g. areas of habitats protected, number of protected areas gazetted - see Annex 1. Individual M&E plans will also be prepared for the four parks supported under component B. In addition to these efforts the project will focus on monitoring the status of key endangered species as indicators of ecosystem health and the impact of project interventions on protecting biodiversity in the project areas.

20. In particular the project would focus on the status of species such as dugongs, turtles, trochus and parrots which are heavily harvested and traded. Such monitoring would require substantial underpinning through capacity building and training to appropriate agency staff for base-line status surveys, simple monitoring programs and establishment of databases, tools and activities to better monitor, regulate and control domestic and international trade. Supporting activities would also need to include better dissemination of information about protected species, regulations and penalties and training for local law enforcement officers (including police, navy and judges) in species recognition and regulations.

F. Independent Monitoring (Other US$ 0.5 million): In order to ensure transparency and honesty in use of Environmental Performance-Based Kabupaten Block Grants, the project would contract local NGOs to monitor project activities and use of funds. Activities would include frequent site visits, significant site presence, preparation and dissemination of project related public information briefs and newsletters. In order to avoid conflict of interest, as several local and international NGOs are also involved in project implementation the project would contract respected independent auditor based in Ambon to assess impact of project and innovative linkages of development grants to environmental performance and assist with project monitoring and supervision.

2. Key policy and institutional reforms supported by the project:Protection of biodiversity and sustainable management of natural resources are key components of the GOI nature conservation strategy. The project would assist GOI to test innovative policy and institutional changes in the management and financing of protected areas and forest and coastal and marine resource management. Such innovations include: Enhanced stakeholder participation in boundary demarcation of protected areas; Increased use of community-based mapping to delineate protected area zonation and

management; Logistic and financial support from private sector to PA management for boundaries,

enforcement, buffer zone development activities by mining company in northern Halamhera; New models of field-based enforcement including partnerships with communities and

Indonesian Navy to enforce marine reserves; New mechanisms to finance recurrent costs of park management, including contributions

from forestry sector, eco-tourism concessions, and user fees; Environmental performance based grants to stimulate local government ownership and

support for conservation; PAs integrated into spatial plans for kabupaten and province;

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Piloting innovative institutional arrangements for PA management including contracting out of surveys, monitoring, mapping and awareness to local and national NGOs with proven capacity and expertise (WWF, TNC, Birdlife, Hualupu, Nen-Mas-il).

Independent monitoring of effectiveness of kabupaten grants.

3. Benefits and target population:

21. The primary target population for this project are some 186,000 people in Maluku Tenggara, some of the poorest villages in Indonesia, who will benefit from the kabupaten grants, and communities living adjacent to the protected areas which will receive support under the project. Communities will benefit from greater consultation/empowerment and involvement in management decisions concerning protected areas and natural resource use. The project would benefit local populations through:

Support of community-based natural resource management systems, such as sasi; Benefits to local communities by involvement in provision of eco-tourism services; Protection of coastal and coral reef fisheries (shrimp, tuna) for local populations in Aru and

Banda.

22. The project provides indirect benefits to a wider population in the province through protection of ecosystem services, such as watershed protection in northern Halmahera and Seram to maintain water supply for downstream irrigation and provision of potable water to coastal communities.

23. Finally, the project provides considerable global benefits through establishment of a representative PA network in an area of high species richness (especially marine) and endemism and interest for study of island biogeography and species evolution (Alfred Wallace developed his theory of natural selection and evolution in Maluku).

4. Institutional and implementation arrangements:

24. Implementation period: A four year project period is planned for LIL activities, and a five year period for GEF project investment. A longer implementation period is required for the conservation activities, due to the extensive stakeholder consultation and time required to complete biodiversity surveys and boundary demarcation activities.

25. Implementation agencies : Component A (village block grants) would be implemented by the local government of Maluku Tenggara (PEMDA Tk. II) through the Kabupaten planning agency BAPPEDA Tk. II. DGPHA and its provincial office BKSDA are responsible for overall coordination of the project’s conservation activities, biodiversity monitoring, and environmental awareness campaign. Provincial oversight for these activities would be provided by a Steering Committee chaired by the Governor or Sekwildah and at the Kabupaten level by Bupati. The Steering Committee would provide policy and monitoring oversight of the project. National-level oversight would be provided through a central secretariat chaired by BAPPENAS, including BANGDA and PHPA. There are three project managers (Pimpros), one residing in PHPA-BKSDA Ambon, and others are in Bappeda TKI and TK II in Maluku Tengarra. To increase the local ownership of nature conservation activities a community/local stakeholder

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board will be established at each protected area to allow broader stakeholder consultation in park management activities.

26. In order to ensure sustainability and improved delivery of services the implementation of individual activities will be contracted out directly to qualified local and international NGOs, research groups, and other locally-based groups. A range of different implementation models will be used at different sites building on NGO experience and existing local resource utilization arrangements. The key NGOs to be involved include: Birdlife and RARE (Halmahera and Seram for environmental awareness), WWF for PA management work in Aru, Yayasan Hualupu for consultation, boundary demarcation and participatory mapping activities in Seram, Yayasan Nen-Mas-il for Aru, Kei and Yamdena--participatory mapping, consultation and monitoring, TNC for marine biodiversity surveys, management planning activities in Banda, LIPI-Ambon for biodiversity survey activities. Project activities will strengthen local NGO capacity to deliver services and assist with management of protected areas. On the mining side, Deptartment of Mines and Energy, and Weda Bay Minerals in Halmahera will support infrastructure development and financing of Lolabata-reserve, and monitoring of mining activities in the reserve buffer zone to ensure that company activities do not threaten the integrity of the park or its wildlife. The park management activities in Manusela would be implemented through the technical management unit (UPT) recently established for the park.

D: PROJECT RATIONALE1. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION.      (i) The project could have followed a “traditional”, more conservative, approach with PHPA directly implementing on-site protected area management activities; and supporting alternative income generation activities at the village-level. This approach is currently being used in other projects such as Kerinci-Seblat ICDP and COREMAP. The reason why more conservative approach was rejected was because PHPA does not have enough qualified staff or skills to implement the on–site management activities in Maluku. Instead, given the special needs and challenges of establishing a protected area network over wide distances in an island archipelago, it was decided to build on local experience, opportunities and capacity to encourage new and innovative strategic partnerships between the public and private sectors and civil society to foster conservation of the islands’ unique biodiversity. There are a number of strong, well-qualified international and national NGOs who have existing field activities and experience in Maluku, who in partnership with PHPA and local government could provide a new protected area management approach. The concept of Kecamatan/Kabubaten level environmental performance based grants, on the other hand, is to help leverage local government support on a quid-pro-quo basis through policy, legislation and enforcement for protected area management. If this concept works in Maluku Tenggara, it would be scaled–up in other kabupatens in Maluku.

(ii) The project could have focused on strengthening protected area management at one or two key pilot sites in Maluku. However given the increasing pressure on natural resources and habitats as a result of the current fiscal crisis, it was decided to move ahead to support gazettement of a fully representative system of protected areas so that there was clear commitment to assign these areas for conservation rather than leaving their status undecided with the potential for future land use conflict and loss of areas of high biological value to

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agricultural, forestry or fisheries production.

(iii) There could have been one fully integrated conservation and development project for the whole of Maluku. However because of scheduling constraints and already complex nature of MRDP it was decided to move ahead earlier with the Maluku Regional Development Project for North and Central Maluku. Instead, the conservation components for the whole province are attached to LIL which extends the Performance-based Kabupaten grants to Maluku’s poorest region, Maluku Tenggara. Nevertheless the MRDP should be seen as fully complementary to this project, co-financing activities in North and Central Maluku that encourage conservation. The MRDP contributes directly to biodiversity conservation through provision of grants and indirectly by addressing the root causes of biodiversity loss, promoting agricultural intensification and productivity and thereby reduces the need for agricultural expansion into native forests.

2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned):

Sector issue Project Latest Supervision (Form 590) Ratings

(Bank-financed projects only)Implementation

Progress (IP)Development

Objective (DO)Bank-financed Institutional strengthening, development of part management plans

Forestry Institutions and Conservation project (FICP II)

Completed U S

Village grants to buffer-zone communities, improved spatial planning, park management support

Kerince-Seblat ICDP (Ln 4008-IND) and TF-28312)

S S

Coral reef management outside of conservation areas with the focus on awareness, enforcement, and legal policy framework.

Coral Reef Rehabilitation and Management Project (Ln 4305-IND and TF-28373)

Start-up Start-up

Other development agenciesPrivate concession for conservation managed by a local foundation

Leuser Development Program (European Union)

Private sector mining company support for conservation management through establishment of a local “partnership”/foundation

Kutai National Park, Kaltima Prima Coal, other private sector companies

Integrated Small Islands Planning Assistance Project

UNDP

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN:

(i) Past experience with conservation projects in Indonesia financed by the Bank and other

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multi-lateral and bilateral donors, has shown that conservation agencies have limited capacity , have relied too heavily on expensive expatriate technical assistance, have frequently over–invested in expensive infrastructure, and generally lack financial resources to cover recurrent costs. The project addresses these issues by investing relatively modest sums at several sites and building on local capacity already in place to participate in PA management. Various models, including private sector financing, will be tested to address recurrent costs.

Experience further shows that many projects, including those financed by international donors and local NGOs, focus too much on community-based threats at a localized level, and fail to respond to the root causes of biodiversity loss, such as threats from large-scale land use changes such as mining, roads and logging. Gazettement of PAs, policy changes and strengthened multi-sectoral and private sector partnerships will address this issue. A serious constraint has been in relationships between protected area managers and local governments, who see PAs as a loss of local revenue and income for their constituencies. Several projects currently being implemented by the Bank and others (Kerinci, Leuser, Kutai) have attempted to address these issues. These projects have supported local and regional development through grant funds linked to conservation activities; promoted privatization of management and enforcement function; as in the EU-financed Leuser Development program; and encouraged establishment of financing partnerships with adjacent mining and other private sector companies as in Kutai National park to provide recurrent cost support for park management activities.

Many of these lessons have been incorporated in project design, especially with regard to institutional arrangements at individual sites. The most important lesson-learned from these projects has been that a simple, flexible design process, with strong local “stakeholder” ownership provide a key ingredient for success. The Kabupaten grants component and awareness component are specifically designed to foster a strong sense of local ownership and pride as well as provide development benefits limited to conservation.

(ii) The first GEF STAP review, carried out in October, 29th 1996 acknowledges the importance of the project to conserve species richness and unique endemism in Maluku. It endorses the project solving approach to target the threats to protected areas in a flexible site-specific way in order to address the diverse needs of nature conservation in the archipelago. The review outlines the following areas that require closer attention during the project development.

First, there is a need to integrate the gazetting and preparation of management plans of protected areas within the development plans of the province in order to anticipate and mitigate any future threats. The report emphasizes the importance of participatory process to achieve broad social consensus in establishing the protected areas.

Second, there is a need to increase the environmental awareness of decision makers as well as the general public. Especially, it is important that the benefits generated by the nature conservation are clearly communicated to various stakeholders and linked to their economic well being. It was recommended that the project address the sustainable management of natural resources through the community development activities, which increases the well-being of local communities and enhances their ability to resist the threats their actions may impose on the environment.

Thirdly, there is a need to develop mechanisms for sustainable financing of management activities and cost recovery using various economic incentives, including resource user fees and

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revenues from eco-tourism services. The project is addressing these issues at different sites consistent with opportunities for eco-tourism and private sector interest. The development of alternative financing mechanisms should include necessary institutional and policy reforms to assure that revenues collected remain to the management of protected areas.

Finally, the review highlights the need for partnership with NGOs and private sectors to contract out various nature conservation activities, such as boundary demarcation, zoning, conflict resolution, etc.

It should be emphasized that many of these suggestions have been incorporated in further project development.

(iii) The initial project concept was approved a year ago. Since the appearance of economic and financial crises in Indonesia the project design has been significantly changed, giving the need for an updated STAP review. The new GEF STAP review from November 12, 1998 endorses the revised strategy of the project. It specifically upholds the project’s approach to built on local experience; development of innovative public-private partnerships to foster management of protected areas; design of environmental performance-based Kabubaten level block grants; establishment of local stakeholder boards; and involvement of local and international NGOs in the monitoring activities. The review also endorses the allocation of a significant share from project’s budget towards on-the-ground investments such as management of key protected areas. At the same time, the review emphasizes the need to strengthen the local participation in protected area management by channeling the flow of benefits from nature conservation to those whose livelihood depend upon extractive use of natural resources. The project would assist local communities in the development of eco-tourism based alternative income generation activities, such as providing porter and trekking guide services for hikers, shelter and “homestay” services, on-shore diving services, and etc.

4. INDICATIONS OF BORROWER COMMITMENT AND OWNERSHIP:

27. The Government of Indonesia ratified the Convention on Biological Diversity in 1994 and is committed to conservation of biodiversity and the promotion of sustainable use of natural resources which will improve the quality of life of the communities who are reliant upon them. These objectives are also stated in the CAS as the long-term development goals for the country. The country’s commitment to conservation of biodiversity are expressed in detail in the National Conservation Plan, the Biodiversity Action Plan, and the Tropical Forest Action Plan. An important indication of borrower support is the encouragement of BAPPENAS (National Planning) and the Maluku provincial government to test innovative management and institutional arrangements for PA management.

5. VALUE ADDED OF BANK AND GLOBAL SUPPORT IN THIS PROJECT:

28. The Bank has had a long involvement in the forestry sector in Indonesia including policy dialogue and substantial support to encourage more sustainable forestry production and protected area management, both through Bank lending and GEF projects. The Bank assisted Indonesia in preparing its Biodiversity Action Plan and has helped support implementation of several priorities identified in that plan. Through its assistance to GOI with the structural adjustment loans the Bank can promote more sustainable management of natural resources, both terrestrial and marine. Linkages with other Bank projects in the province, e.g. MRDP, COREMAP and

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KDP provide opportunities for economies of scale and closer collaboration with provincial governments. The Bank's ongoing dialogue with sectoral ministries and the private sector would also support the goals of the project.

29. The Bank involvement would allow valuable lessons and initiatives tested by the project to be scaled up into a larger program in the future. The GOI has indicated its desire to use the project implementation experience to potentially develop a comprehensive nationwide program enhancing the current system of managing the protected areas. This includes testing of and improving the participating agencies capacity to coordinate wide-ranging stakeholder participation in protected areas management. The financial and economic, and the environmental impact of the "tested" approach would be closely monitored and results would feed back into management elsewhere in the national protected area system.

30. The GEF value added comes from its global experience on the design, implementation, and financing of biodiversity conservation projects. The GEF support is justified by the global importance of the province's biodiversity and by the unique opportunity to establish a representative protected area system. Other benefits from the GEF involvement include:

The project will have closer links to other GEF projects in Indonesia (Kerinci and COREMAP) and benefit from lessons learned, best practice and activities and materials developed under those projects.

The Bank's suite of GEF and biodiversity projects in the region provides opportunities for promotion of exchange of ideas, cross-fertilization with other GEF projects, and strengthened biodiversity monitoring and evaluation, review, and scientific oversight.

31. Without GEF support, the current efforts by GOI and NGOs in the province would consist only of a series of small-scale isolated activities with limited impact and no secure financing nor overarching provincial framework. The GEF support provides a unique opportunity to protect the full range of habitat diversity and endemism in Maluku.      

E: SUMMARY PROJECT ANALYSIS

1. ECONOMIC

32. The incremental cost analysis is presented in Annex 2. The baseline cost without GEF Alternative includes current GOI nature conservation expenditures over the life of the project, biodiversity conservation activities carried out by a number of NGOs, and several World Bank projects that promote sustainable natural resource use and mitigate environmental pressures through investments into basic village infrastructure and alternative income generating activities within and adjacent to protected areas (MRDP, LIL component of MACONAR Project, COREMAP). The full cost of implementing the Baseline Scenario over the life of the project is estimated as US$6.1 million. The cost of implementing the GEF Alternative during the same time period is estimated at US$13.9 million. The incremental cost of protecting global biodiversity in Maluku is US$7.8 million, of which GEF is requested to finance US$6.0 million.

2. FINANCIAL

33. Financial mechanisms for ensuring the long-term sustainability of project benefits will be

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addressed during project preparation. These include: (a) development of financial incentives for biodiversity conservation; (b) testing of innovative management arrangements utilizing local capacity to improve cost effectiveness, and (c) establishment of revenue generating mechanisms to support protected area management, including voluntary contributions from the mining sector and other private sector interests.

34. Given the innovative character of the project, a standard financial analysis of activities financed by the village block-grants is not possible ex ante. However, the experience from the other Bank financed projects in the region show that investments into basic village infrastructure and alternative income generating activities has potential financial rate of return (FRR), exceeding 20% in most cases.

3. TECHNICAL

35. The technology used in the project is simple and already well tested in similar projects in the region. TA will include support to development of biodiversity monitoring systems, rapid environmental assessment, design and surveys of local community participation, gazettement and boundary demarcation, enforcement, and basic infrastructure (i.e. trails, shelters, visitors’ centers, etc.) and field equipment.

4. INSTITUTIONAL

36. An assessment of the participating institutions has been carried out under the preparation of the MRDP Project. The local government and local conservation agency SBKSDA currently have limited planning and implementation capacity. Previous project implementation has been less than satisfactory, mainly due to inefficient use of funds and lack of beneficiary participation.

37. Models will be developed for local community participation in nature conservation, public-private partnerships and collaboration between SBKSDA, BAPPEDA TH I and II, NGOs and private sector. The NGO evaluation and dissemination of information about progress with both LIL and GEF-financed components is expected to encourage better performance.

38. The main executing agencies would be DGPHA the provincial and local governments (BAPPEDA I and II), and SBKSDA. Project managers located in the economic section of BAPPEDA TK I and II would supervise implementation supported by an advisory committee chaired by the Governor or Sekwildah. The project manager for MRDP is also located in the same section of BAPPEDA, thus facilitating coordination between MACONAR and MRDP. Strong cooperation and collaboration between MACONAR and MRDP and other Bank and bilateral projects in the province will lead to cost-effectiveness in monitoring and supervision.

5. SOCIAL

39. Substantial social assessment analysis, including a participatory needs assessment, was conducted in 39 villages, with about 2,000 beneficiaries across northern and central Maluku for the preparation of the MRDP and the proposed project. In addition, rapid assessments were conducted in Aru (Southeast Maluku). The social assessments were site specific reflecting different conditions across individual sites. The indigenous people are involved as implementators and beneficiaries under the project. Annex 5 presents the issues related to indigenous peoples, including the potential livelihood impacts in the project area.

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40. The analysis of the assessments indicate that very few village development or income generating activities have been effective to date due to lack of beneficiary capacity, inadequate information about activities and difficult market access. Women play a major role in processing products collected from “kebuns” (home-gardens) such as cassava, taro and in gleaning marine products (mollusks) and drying fish. A key problem is limited access to market for sale of these products and a number of infrastructure related "bottle-necks" were identified including ports, jetties and water supply. To respond to these needs the project proposes to finance simple village-level infrastructure (ports, jetties, roads) to improve access to markets and thus improve general economic development, but link these developments to expected environmental performance. Income generation activities for women would be supported through the MRDP project.

6. ENVIRONMENTAL

a. Environmental issues:41. The main environmental issues are: (i) protection of representative terrestrial and marine ecosystems and numerous globally endangered and endemic species; (ii) enhanced management of protected areas through public-private partnerships; (iii) potential increases in eco-tourism activities in protected areas; and (iv) sustainable use of natural resources. Environmental screening for small-scale infrastructure projects in protected areas and the village component will be carried out using standard Bank’ operational proceedings similarly to KDP and MRDP.

b. Environmental category: [ ] A [x] B [ ] C

7. PARTICIPATORY APPROACH:

a. Primary beneficiaries and other affected groups:

42. The primary stakeholders are local communities of Maluku Tenggara, some of the poorest villages in Indonesia, who will benefit from the kabupaten grants, and communities living adjacent to the protected areas which will receive support under the project. Involvement of local communities in management decisions concerning protected areas and natural resource use is a vital part of the project that would build local ownership and sustainablility of the project process. The independent monitoring by local NGO networks would provide ongoing feedback on project performance and enhance the bottom-up execution of the project.

b. Other key stakeholders:

43. These include international and local NGOs (TNC, WWF, Birdlife, RARE, Yayasan Hualupu, Yayasan Nen-Mas-il, LIPI-Ambon, Department of Mines and Energy, The Weda Bay Minerals), academic institutions (University of Ambon), local government, navy, police, private

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sector (e.g. tour operators, trekking guides, etc), local communities, and external donors. The full involvement of these stakeholders will develop through the workshops and consultations that will be carried out during the project process.

44. Extensive consultations and partnership building has taken place in the project areas, including Kecamatan-level stakeholder workshops in six Kecamatans in north and central Maluku, as part of associated MRDP project, as well as proposed project. Village-level meetings were also held with local NGOs and communities in southeast Maluku. A provincial working group for project preparation has been formed, which includes in addition to the implementing agencies, participation of local NGOs, university groups, and the Indonesian navy. Local NGOs, navy, police, and universities are expected to play a key role in implementation of the proposed project activities including: surveys and research, community facilitation, enforcement and environmental awareness activities. Project funds would be provided for training to facilitate the various stakeholders to carry out their roles.

45. The project would pilot and test a number of innovative partnerships for project implementation that include extensive participation by various stakeholders at all levels. This includes:

Design and delineation of protected area systems, including boundary demarkation, in cooperation with local NGOs and community groups;

Creating new partnerships with the private sector and local communities for the establishment and management of in-site protected areas while testing sustainable financing of conservation activities through eco-tourism activities, sustainable harvesting of natural resources, etc.

Involving local communities in the protection of endangered species through enforcement incentives and increased public awareness (various models of delivery of environmental awareness enhancement would be tested to determine what causes changes in attitude and behavior);

Carrying out independent monitoring of project implementation progress, use of project funds and progress toward project development objectives, through local NGO networks; and

Establishment of local “stakeholder boards” at each on-site management location to allow local government, community and private sector participation in protected areas management and natural resources management.

8. RESETTLEMENT: THE PROJECT DOES NOT FORESEE ANY LAND ACQUISITION OR RESETTLEMENT.

F: SUSTAINABILITY AND RISKS

1. SUSTAINABILITY:

46. The following institutional elements will be vital to sustainability of the project. First, the commitment of GOI to maintain the conditionality and the management standards established under the project. Second, the development of effective mechanisms for local community participation in nature conservation.

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In terms of social sustainability it is important that communities see clear and explicit linkages between the development and employment opportunities they receive and conservation to ensure their continued support to conservation activities.

47. Financial sustainability is key for continued conservation activities initiated by the project. Development of public-private partnerships to cover the recurrent costs of protected area management and seek approval that revenues will remain to finance management activities are crucial for project sustainability. A number of financing mechanisms will be tested at appropriate sites, including the introduction of user and non-compliance fees, development of eco-tourism services, and capturing the in-kind contributions from the private sector. In order to increase local support the project would assist traditional communities in the development of eco-tourism based alternative income generation activities, such as providing porter and trekking guide services for hikers, shelter and “homestay” services, on-shore diving services, and etc. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk Risk Rating Risk Minimization Measure

Annex 1, cell "from Outputs to Objective"

Efficient management activities will be discontinued after termination of the project. PHPA may not support institutional change for park management.

S Ensure that the PHPA continues its commitment towards initiated institutional changes such as building private partnerships to manage protected areas through training programs;. Ensure that revenues extracted from eco-tourism go back to park management

Inadequate stakeholder support S Make sure that the benefits from the nature conservation are clearly communicated to local stakeholders

Annex 1, cell "from Components to Outputs" Difficult to identify and contract qualified

local staff and consultants;      S Identify qualified local experts and

consultants prior to effectiveness. Project funds misused S The use of independent monitoring

should lower the risk of misuse. If supervision find project funds have been misspent, the agency will have to return the funds.

Insufficient incentives to motivate local communities to adopt sustainable natural resource management practices and meet performance targets

H TA contracted to assist villages in the identification of investment activities; Regular reviews during implementation. If problems occur, increase portion of project dedicated to outreach and training; Flexibility in the design of performance indicators.

Overall Risk Rating SRisk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

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3. POSSIBLE CONTROVERSIAL ASPECTS:

Given the objectives of the project no major controversy is expected. However:

(a) Potential disruption/change in access to livelihoods, particularly among 200-250young males living near Manusela National Park, for whom catching parrots within the Park is a major supplementary source of income. Loss of income among fisher folk using destructive fishing techniques (poison and bombing) within sanctuary areas of marine reserves. This would be mitigated through alternative income and employment activities supported by the Maluku Regional Development Project.

(b) The potential of eco-tourism to finance protected area management and as an alternative income source for local communities, needs a clear assessment of private sector interest. There is a possibility that demand for, or profit from eco-tourism may be too low to attract private sector investments. The development of eco-tourism is also limited by poor tourist infrastructure and relative remoteness of the province.

(c) The local government of Maluku Tenggara has limited institutional and financial capacity to implement the project. The unique geographical setting of Maluku Tenggara (small islands, limited transportation networks, and dispersed population), also makes it difficult to adequately supervise the project. Potential misuse of project funds is a major issue to be addressed by the project design.

(d) The project would address the issue of corruption by: (a) ensuring potential project beneficiaries are aware of the project through a widespread mass-media effort; (b) contracting independent monitors ; and (c) working with the UNDP planning project in Maluku which will locate Technical Assistance in Maluku Tenggara to assist with overall Kabupaten planning activities.

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