Document of
The World Bank
Report No:
PROJECT BRIEF
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR {AMT} MILLION – TO BE FIXED AT NEGOTIATIONS
(USD 6.96 MILLION EQUIVALENT)
AND A GLOBAL ENVIRONMENT FACILITY GRANT
IN THE AMOUNT OF USD 5.0 MILLION
AND A PHRD GRANT
IN THE AMOUNT OF USD 2.7 MILLION
TO THE
AZERBAIJAN REPUBLIC
FOR A
RURAL ENVIRONMENT PROJECT
January 7, 2005
CURRENCY EQUIVALENTS
(Exchange Rate Effective January 7, 2005})
Currency Unit = Special Drawing Rights
SDR 1 = US$1.52592
US$1 = SDR 0.655342
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AREP
BTE
CAS
CBD
CENN
CEPF
CIS
DBCDSPNA
EBRD
ECA
EIA
EU
FAO
GEF
GO
GOA
IUCN
ME
MENR
METT
NEAP
NGO
NP
NSAPBC
ONP
ONPA
OPN
OSCE
PA
PAD
PDO
PHRD
PIU
RECC
SCAWM
Azerbaijan Rural Environment Project
Baku-Tbilisi-Erzerum
Country Assistance Strategy
Convention on Biological Diversity
Caucasus Environmental NGO Network
Critical Ecosystem Partnership Fund
Commonwealth of Independent States
Department of Biodiversity Conservation and Development of Specially Protected
Natural Areas (within the Ministry of Ecology)
European Bank for Reconstruction and Development
Europe and Central Asia
Environmental Impact Assessment
European Union
Food and Agriculture Organization of the United Nations
Global Environment Facility
Global Objective
Government of Azerbaijan
The World Conservation Union
Municipal Enterprise
Ministry of Ecology and Natural Resources
Management Effectiveness Tracking Tool
National Environmental Action Plan
Non-governmental organization
National Park
National Strategy and Action Plan on Biodiversity Conservation
Ordubad National Park
Ordubad National Park Administration
Operational Policy Note
Organization for Security and Cooperation in Europe
Protected Area
Project Appraisal Document
Project Development Objective
Japan Policy and Human Resources Development Fund
Project Implementation Unit
Environmental Centre for the Caucasus
State Committee of Amelioration and Water Management
SDNP
SDNPA
SDR
SME
SPPRED
STAP
UNDP
USAID
VC
WWF
Shah Dag National Park
Shah Dag National Park Administration
Special Drawing Rights
Small and Medium Enterprises
State Program on Poverty Reduction and Economic Development
Scientific and Technical Advisory Panel
United Nations Development Programme
United States Agency for International Development
Village Cluster
World Wild Fund for Nature
Vice President:
Country Manager/Director:
Sector Manager:
Task Team Leader:
Shigeo Katsu
Donna Dowsett-Coirolo
Juergen Voegele
Agnes Kiss
AZERBAIJAN
Rural Environment Project
CONTENTS
Page
A.
STRATEGIC CONTEXT AND RATIONALE ................................................................. 1
1.
Country and sector issues.................................................................................................... 1
2.
Rationale for Bank involvement ......................................................................................... 6
3.
Higher level objectives to which the project contributes .................................................... 7
B.
PROJECT DESCRIPTION ................................................................................................. 7
1.
Lending instrument ............................................................................................................. 7
2.
Project development objective and key indicators.............................................................. 7
3.
Project components ............................................................................................................. 8
4.
Lessons learned and reflected in the project design .......................................................... 13
5.
Alternatives considered and reasons for rejection ............................................................ 14
C.
IMPLEMENTATION ........................................................................................................ 16
1.
Partnership arrangements (if applicable) .......................................................................... 16
2.
Institutional and implementation arrangements ................................................................ 18
3.
Monitoring and evaluation of outcomes/results ................................................................ 20
4.
Sustainability..................................................................................................................... 21
5.
Critical risks and possible controversial aspects ............................................................... 21
6.
Loan/credit conditions and covenants ............................................................................... 23
D.
APPRAISAL SUMMARY ................................................................................................. 23
1.
Economic and financial analyses ...................................................................................... 23
2.
Technical ........................................................................................................................... 24
3.
Fiduciary ........................................................................................................................... 26
4.
Social................................................................................................................................. 26
5.
Environment ...................................................................................................................... 27
6.
Safeguard policies ............................................................................................................. 28
7.
Policy Exceptions and Readiness...................................................................................... 29
Annex 1: Country and Sector or Program Background ......................................................... 30
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 38
Annex 3: Results Framework and Monitoring ........................................................................ 39
Annex 4: Detailed Project Description ...................................................................................... 45
Annex 5: Project Costs ............................................................................................................... 51
Annex 6: Implementation Arrangements ................................................................................. 52
Annex 7: Financial Management and Disbursement Arrangements ..................................... 60
Annex 8: Procurement ................................................................................................................ 61
Annex 9: Economic and Financial Analysis ............................................................................. 65
Annex 10: Safeguard Policy Issues ............................................................................................ 66
Annex 11: Project Preparation and Supervision ..................................................................... 67
Annex 12: Documents in the Project File ................................................................................. 68
Annex 13: Statement of Loans and Credits .............................................................................. 69
Annex 14: Country at a Glance ................................................................................................. 70
Annex 15: Incremental Cost Analysis ....................................................................................... 71
Annex 16: STAP Review and World Bank Response .............................................................. 78
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
Azerbaijan is a mountainous country of 86,600 km2 and a population of about 8 million
people. It lies on the western coast of the Caspian Sea among the mountain ranges of the Greater
and Lesser Caucasus and the Talish mountains. Mountains cover about 44% of the territory, and
forests cover about 11%.
Azerbaijan’s economy declined significantly following independence in 1991, slipping to
one of 7 lowest income countries in the ECA Region. Over the past five years there has been
progress in many areas, and Azerbaijan is moving towards middle income status as benefits from
increasing oil development start to flow. But the country faces continuing problems of regional
income disparities. In the mountain areas targeted by this project, most people fall under the
poverty line of US$ 24 per month (average income is $16 per month in villages above 2000
meters). In the past, about 80% of rural households, including most households in the project
areas, were connected to the gas and electricity network and enjoyed a reliable and highly
subsidized energy supply. Supplies are now erratic and expensive, and the households have
largely turned to fuel wood for their energy needs. Prior to 1991, Azerbaijan also relied on
cheap wood imports from Russia, but today wood supplies come exclusively from State forests,
resulting in rapidly increasing deforestation. Demand for wood fuel exceeds sustainable annual
fuel wood yields by up to a factor of ten in some areas.
Azerbaijan is facing many of the same challenges as other CIS transition economies,
including a daunting agenda of policy and institutional reforms needed to redefine the role of the
state and create essential underpinnings of a market economy. One of the six strategic pillars of
the State Program on Poverty Reduction and Economic Development (SPPRED) is an enabling
environment for income-generating opportunities.
ENVIRONMENTAL MANAGEMENT AND NATURE PROTECTION
Environmental management is recognized as an important right and obligation in the
Constitution of the Azerbaijan Republic (1995). In addition to guaranteeing environmental
safety and ecological balance and calling for participation of the general public and civic
organizations in environmental protection, it identifies biological diversity as a basic
environmental principle. The Law on Specially Protected Natural Areas and Objects (2000)
provides for the protection and preservation of natural areas, both for the protection of biological
variety and ecology and to provide for tourism and recreation. The law includes provisions for
taking into consideration social and economic factors and interests of local people, and for
participation of the population and social organizations in preserving Protected Areas (PAs).
The Ministry of Ecology and Natural Resources (MENR) was created in 2001 to integrate all
aspects of environmental protection and management, including environmental assessment and
monitoring (including reporting on the state of the environment), management of forests and
wildlife resources, and of specially protected natural areas1.
1
There is an independent Ministry of Environment and Natural Resources in the Nakhchivan Autonomous
Republic, with similar responsibilities
1
The National Environmental Action Plan (NEAP), completed in 1998, identifies priorities
relating to reducing pollution damage from oil extraction and industry; halting the decline of
sturgeon populations and water quality in the Caspian Sea; protecting biodiversity and improving
the management of forests, pastures and agricultural lands; preserving cultural heritage;
addressing ecological problems with regional or global impacts; and improving the institutional
and policy framework for environmental management. The NEAP also identifies specific
biodiversity conservation priorities, including strengthening of the PA network through: (i) the
adoption of national parks as instruments for the sustainable use of biodiversity, to complement
the existing protected area network which emphasizes strict nature reserves; (ii) creation of new
protected areas, and (iii) the implementation of pilot projects in sustainable uses of biodiversity
which address rural poverty as a root cause of biodiversity degradation and loss.
The National Strategy and Action Plan on Biodiversity Conservation (NSAPBS),
currently under preparation2, is built upon two main pillars: (i) preservation, improvement and
rehabilitation of key ecosystems and natural habitats by enhancing and efficient management of
protected areas; and (ii) optimal utilization of the country’s economic and social potential at the
national and regional level, including sustainable usage of the biological diversity of Azerbaijan.
Currently PAs cover approximately 7% of the country3, but most are small and fragmented, and
the overall network is incomplete in terms of ecosystem coverage. The Government of
Azerbaijan (GOA) signed the Convention on Biological Diversity in 2001, and has made a major
commitment to protecting biodiversity, including maintaining and substantially expanding the
nation’s PA system to increase coverage of under-represented ecosystems. By 2010 the PA
system is to be expanded from about 7% to about 10% of the national territory. Creation of the
Shah Dag National Park (SDNP) and expansion of the Ordubad National Park (ONP) are among
the highest priorities.
Management of existing PAs remains inadequate, due to factors such as institutional
weakness and inadequate human and financial resources, and poverty and pressure for economic
development in rural areas. Furthermore, the prevailing model for PAs in Azerbaijan, as in much
of the CIS, is based on centrally controlled, Strict Nature Reserves (Zapovedniks) 4. In
accordance with the NEAP and NSAPBC, the GOA has begun to diversify the national PA
system, created the country’s first four National Parks in 2003-20045. National Parks have the
status of PAs6 but, unlike Strict Nature Reserves, allow for zones of limited economic activity
(primarily tourism). The multi-purpose, multi-stakeholder approach proposed for the SDNP
represents an important further step in pioneering a more inclusive approach, with benefits to
local communities.
2
Preparation begun in 2003, by the State Committee for Ecology, in cooperation with stakeholders inside and
outside Government (funding and Technical Assistance from GEF/UNDP)
3
Comprised of 38 PAs: 14 Strict Nature Reserves, 20 sanctuaries, 4 national parks
4
The other main category of PA under the Soviet system, Wildlife Sanctuaries (Zakazniks), are primarily for control
of hunting and are generally not managed as actual PAs
5
Ordubad, Shirvan, Ag-Gel and Absheron NPs
6
Nature Protection Institution and Research Institution under the Ministry of Ecology and Natural Resources
2
NATURAL RESOURCE MANAGEMENT
Forests: Almost all natural forest in Azerbaijan belongs to the State and is designated as
Forest Fund land. During the Soviet era, forest inventory and planning were centralized in
Moscow and in the Caucasian Forest Stocks Projection Institute in Georgia, leaving little forest
management capacity in Azerbaijan after independence. The Forestry Development Department
and its Forest Protection and Rehabilitation Units (MENR) were established in 2002, but their
staff lack training and experience. Since 2003, all forest cutting, for either commercial or
sanitary purposes have been suspended by the MENR, and officially only forest residues are
collected and sold. However, it is generally recognized that large quantities of standing trees
continue to be cut illegally. Over the past ten years, forest coverage in Azerbaijan has been
reduced from about 14% to 11% of the land area. A National Programme on the Rehabilitation
and Extension of Forests (established by Presidential Decree in December, 2001) aims to restore
20,000 ha of existing forest and plant some 43,000 ha of new forest, but due to insufficient
funding, only about 3,000 ha of planting were completed in 2003.
Meadows/Grasslands/Pastures: All high elevation summer pastures and a large
proportion of mid-elevation winter pastures belong to the State. Some small pasture areas and
hayfields belong to, or are under the management of, local municipalities. Municipal pastures
are free for use, while grazing rights on State pastures are leased by the State Land Committee,
together with Rayon Executive Authorities, to individuals or companies on the basis of grazing
permits, usually with a duration of 10-15 years. While grazing rights are in principle allotted on
the basis of numbers of animals, there are no specific legal provisions in the grazing contracts,
and no monitoring on the part of authorities, to ensure that the official stocking rates are
followed. In the SDNP area, it is estimated that the actual stocking rates are as much as five
times higher than the official norm (totaling 2.5 million animals, as opposed to 500,000).
Water: Azerbaijan has a serious problem of water deficit and poor water quality. Most
agriculture is dependent on irrigation and is therefore largely limited to the more fertile lowland
areas.
Rivers carry heavy sediment loads due to soil erosion from overgrazing and
deforestation. The Water Code (1997) encompasses principles of economic development and
environmental protection and calls for water management to be based on river basins, but in
practice water management is based on administrative units with little coordination within river
basins. Both the State Committee of Amelioration and Water Management (SCAWM) and the
MENR have responsibility for aspects of water management, with some overlap and conflict in
their mandates. In practice, the SCAWM focuses mainly on irrigation, including improvement
of irrigated land, and MENR maintains a system of monitoring water levels and quality. Fees for
water abstraction have not kept up with inflation, and water payment systems are generally not
based on actual water use. Thus there is little incentive for downstream users (such as lowland
farmers and urban populations) to use water efficiently or to support watershed protection.
GLOBAL BIODIVERSITY SIGNIFICANCE
Azerbaijan lies at the convergence of three biogeographic regions (Europe, Central Asia
and Asia Minor), resulting in high biodiversity. The Caucasus mountains have been identified
by the World Wide Fund for Nature (WWF) as a Global 200 Ecoregion, and by Conservation
3
International as one of the world’s 25 biodiversity “hotspots” (the only one in the ECA region) 7.
The Caucasus “hotspot,” which spans six countries, has one of the highest levels of endemism in
the temperate world, and is believed to contain more than twice the animal diversity found in
adjacent regions of Europe and Asia. It has been named a large herbivore hotspot by WWF's
Large Herbivore Initiative, as eleven species of large herbivores, as well as five large carnivores,
are found over a relatively small area. The flora is particularly rich in endemic and relict plants
that escaped a series of glaciations in sheltered pockets. It includes over 7,000 plant species, of
which 4500 can be found in Azerbaijan (along with 600 species of vertebrates and at least 14,000
species of insects). Seven percent (270) of Azerbaijan’s plant species are endemic to the
country. Almost half of the forest in Azerbaijan is found in the Greater and Lesser Caucasus
regions. The vegetation of the Caucasus also represents one of the richest gene banks of plant
species useful for agriculture and medicine. A recently completed ecosystem profile and five
year investment strategy for the Caucasus eco-region8 identified 10 corridors that encompass the
vast majority of conservation targets, including protection of most of the 51 globally threatened
species. Five of these corridors were identified as top priority for conservation action, including
the Greater Caucasus (which encompasses the proposed SDNP) and the East Lesser Caucasus
(encompassing the ONP). Both the SDNP and ONP include elements of important
transboundary migratory corridors.
In addition to their significance as global, regional and national biodiversity assets, both
the SDNP and ONP represent important economic assets, due to their rich natural resources and
tourism potential. The proposed expanded ONP contains a large proportion of all high elevation
pasture in the Nakchchivan Autonomous Republic. Shah Dag is Azerbaijan’s second highest
mountain and serves as a watershed which provides much of the water for Baku and the
Absheron Peninsula, which is home to nearly 30% of the country’s population.
THREATS TO BIODIVERSITY
The Caucasus ecosystem profile identified deforestation, overgrazing and hunting as the
three greatest direct threats to biodiversity9. The end of importation of wood from Russia and
elsewhere in the USSR, the collapse of natural gas supply systems and the presence of large
numbers of internally displaced people from the war with Armenia all contribute to rapid
ongoing deforestation in the project areas. Forest edges are also being pushed back (to higher
elevations) as a result of grazing pressure.
Overgrazing of pastures has become a serious threat in the project areas since the late
1980’s, as more people took up shepherding or increased their herds in response to growing
unemployment and declining economic opportunities in other sectors. There is clear evidence
of overgrazing at all altitudinal levels (montane, sub-alpine and alpine), with a visible trend of
replacement of the original grassland species by unpalatable or grazing-resistant species such as
sedges, flatweeds, and mat-grass. In sub-alpine meadows, which serve as summer pastures
7
The Caucasus hotspot spans 500,000 km2 of mountains between the Black Sea and Caspian Sea, including parts of
Georgia, Armenia, Azerbaijan, and small parts of Russia, Iran and Turkey.
8
By the Critical Ecosystem Partnership Fund -- a joint initiative of Conservation International (CI), the Global
Environment Facility (GEF), the Government of Japan, the MacArthur Foundation and the World Bank
9
Poverty and political insecurity were identified as important underlying causes
4
overgrazing and associated disturbance is contributing to declines in wild goats and chamois. In
the lowland grasslands, where the same sheep herds go for winter pasture, severe overgrazing is
significantly impacting the endemic flora and fauna of steppe ecosystems. Competition for
grazing has contributed to the decline of Persian gazelle and, indirectly, striped hyena.
Traditionally, sheep were grazed in alpine meadows, with subalpine meadows reserved for
fodder production and used during the winter months. However, traditional grazing areas in the
north Caucasus (Dagestan, Georgia) are no longer accessible, and livestock is kept nearer to
villages all year round, resulting in overgrazing of subalpine meadows as well as degradation of
fragile subalpine woodland ecosystems.
There is evidence of significant declines in populations of large mammals, particularly
ungulates and predators such as wolf, lynx and brown bear. While there is little by way of
concrete data, it is believed that illegal hunting has a significant impact, along with habitat loss
and competition with domestic livestock.
RELATION TO GEF OPERATIONAL PROGRAMS
Biodiversity conservation is the key focal area for the project. The project addresses
GEF strategic priorities for biodiversity conservation through: (i) catalyzing sustainability of
protected areas, (ii) mainstreaming biodiversity in production landscapes and sectors, and (iii)
generating and disseminating best practices for addressing current and emerging biodiversity
issues. Project activities will directly support innovative practical approaches called for by the
7th Conference of the Parties (COP-7) of the Convention on Biological Diversity (CBD) in its
Decisions VII/1 “Forest Biological Diversity”, VII/11 “Ecosystem Approach”, and VII/28
“Protected Areas”.
The project follows the GEF Strategic Guidelines and incorporates elements of several
GEF Operational Programs:
No. 3 (Forest Ecosystems): by supporting in-situ protection of ecologically mature
temperate forest ecosystems under threat, and combining strict protection and multiple
use to achieve sustainable forest management. Among other things, it will support the
first comprehensive forest inventory and status assessment since 1984, making it possible
to make sound management decisions.
No. 4 (Mountain Ecosystems): by supporting in-situ conservation and sustainable use of
biological resources, expanding and improving connectivity of the protected area system
in the Greater and Lesser Caucasus mountains, and combining productive, socioeconomic
and conservation goals.
No. 12 (Integrated Ecosystem Management): by emphasizing the creation of an enabling
environment for biodiversity conservation, forest and rangeland management, the
strengthening of institutional capacities at local, regional and national levels as well as
investments in sustainable natural resource management.
5
The GEF grant would finance costs of activities required to achieve global conservation benefits,
which would be incremental to the baseline national program undertaken by the Government with
support from the World Bank IDA credit and the PHRD grant (see Annex 15 - Incremental Cost
Analysis).
2. Rationale for Bank involvement
The proposed Azerbaijan Rural Environment Project (AREP) supports the Country
Assistance Strategy for Azerbaijan (CAS)10, which stresses the need to generate jobs and nonoil-based economic growth by improving the business environment, particularly in smaller urban
and rural areas. The Bank’s support for rural development in Azerbaijan has largely focused on
irrigated, arable land in low elevation areas, rather than the mountains. The AREP targets rural
mountain areas, which are among the poorest in the country. While commercial agriculture and
related activities represent a logical development target in low elevation areas, the prospects and
comparative advantage of mountain areas lie in their natural resource assets.
The SPPRED highlights the importance of environmental management: in a recent Bank
review of integration of environment in Poverty Reduction Strategy Papers, Azerbaijan was
ranked 5th out of 53 countries worldwide11. The IDA strategy identified in the CAS includes
support (together with GEF) for an environmental project to support participatory approaches to
sustainable forest, pasture and protected area (PA) management, and for promoting sub-regional
cooperation in the globally significant ecosystems of the Caucasus mountains. The AREP will
support these CAS goals by enabling rural communities in the project areas to participate in the
management of PAs, to adopt more profitable and environmentally sustainable livestock
production systems, to restore and manage forest areas for a more sustainable wood supply, and
to stimulate the development of income-earning activities relating to natural resource use.
In keeping with the NEAP, the Bank’s strategy for assistance to Azerbaijan in the
environment sector has two main pillars: (i) managing environmental challenges connected with
development of the oil industry and broader economic development especially in coastal areas;
and (ii) addressing sustainable natural resource management within the context of rural
development and conservation of Azerbaijan’s key ecosystems. The Azerbaijan Urgent
Environmental Investment Project (AUEIP) and the regional Caspian Environment Program
have focused on the first aspect. The AREP would be the first Bank-financed operation to
support the NEAP objectives of improved pasture and forest management and biodiversity
conservation. It offers the opportunity to bring to Azerbaijan a considerable body of knowledge
and experience from similar initiatives across the ECA region and elsewhere.
The AREP provides for continuity in the Bank’s support for improving the policy and
institutional framework for environmental management. The AUEIP supported the creation of
MENR and built its capacity in relation to Environmental Impact Assessment, remediation and
monitoring of oil pollution and hazardous wastes, and fisheries. The AREP will help MENR
develop essential capacity for forest and pasture management and enable it to expand the
10
FY03-05 CAS, April, 2003
Bojo et al., 2004. Environment in Poverty Reduction Strategies and Poverty Reduction Support Credits.
Environment Department Papers No. 102, The World Bank.
11
6
national PA system more effectively, thus meeting international commitments. Equally
important, the multi-stakeholder, landscape management approach will provide the opportunity
for the MENR to exercise its intended role as an integrator and coordinator of diverse sectoral
and local interests in support of environmentally sustainable development.
While there is considerable interest on the part of Government and within the donor
community to develop rural tourism in Azerbaijan, and particularly in mountain areas that form
part of a Caucasus region destination, existing programs are small (less than $1 million) and
focus mainly on national policy and strategy, awareness raising, training, information and
capacity building. For successful tourism development, this must be complimented by on-theground investment in park management and key infrastructure, which represents a substantial
part of the proposed AREP.
3. Higher level objectives to which the project contributes
The project will contribute to the restoration, protection and management of globally
significant mountain forest and alpine meadow ecosystems, including a number of endemic and
endangered species and transboundary migrants. The creation of the SDNP will greatly increase
the area of the globally recognized (“hotspot”) Caucasus eco-region under protection. By
pioneering a new model of PA in Azerbaijan, it will help shift biodiversity and protected area
policies and practices away from the highly centralized and exclusive model inherited from the
Soviet era, towards a more modern, inclusive approach that combines biodiversity and ecosystem
protection with providing economic and other benefits to local communities. The project will
also introduce active management of pastures for the first time, and support the development of a
participatory approach to natural resource management overall. Equally importantly, the project
will contribute to lasting poverty alleviation in some of the poorest areas of Azerbaijan, by
introducing and catalyzing the adoption of more modern, sustainable, and value-added
approaches to natural resource use and agricultural production and diversification of economic
activities, including development of rural/eco-tourism.
B. PROJECT DESCRIPTION
1. Lending instrument
Specific Investment Loan, GEF grant, PHRD grant
2. Project development objective and key indicators
2a. Project Development Objective (PDO): The PDO is to introduce improved natural
resource management and related economic activities in two mountainous areas of Azerbaijan, in
order to enhance the ecological quality and the sustainable productivity of high elevation forests
and pastures.
7
2b: Global Objective (GO): The GO is to protect biodiversity in two globally significant
biodiversity areas within the Caucasus and Zangezur mountains, and introduce and pilot an
inclusive model of Protected Area management in Azerbaijan.
Key indicators for the PDO and GO are:






Establishment of SDNP (343,000 ha), and enlargement of ONP (from 12,200 to 137,000
ha), as multi-purpose national parks with suitable institutional structures and management
systems in place12;
Development and initial implementation of zoning and management plans for SDNP and
ONP, following a participatory process, with an associated increase in both strictly
protected areas and areas under improved ecological management13;
Implementation of pilot community-based forest restoration and management activities
on unforested and highly degraded lands (covering 300 ha by midterm, and 1,000 ha by
end of project);
Adoption of more modern, productive and sustainable livestock husbandry practices by at
least 20% of households in (55) participating villages;
150 or more environmentally friendly, financially sound, small/medium enterprises
identified, initiated and publicized (all or most receiving small grants from the project as
part of their overall financing package);
Midterm and end-of-project surveys indicate significantly increased awareness and
understanding of, and support for, multi-purpose national parks (and more broadly, for
environmentally sustainable development and natural resource management) within the
project areas.
3. Project components
OVERVIEW
The project will support the restoration, protection and improved management of
economically and biologically important forest and pasture land, much of which is currently
poorly managed and heavily degraded. The main instrument for achieving this will be the
establishment of the two large NPs, bringing the areas under the jurisdiction of MENR and
providing a vehicle for developing and implementing ecosystem scale management plans. The
multiple-use PA model will allow existing residents of the park areas to remain in place, retain
ownership of their land, and to engage in environmentally sustainable agriculture and other
activities, based on jointly developed zoning and management plans. At the same time, the
project aims to promote the development of more sustainable livelihoods and economic activities
12
Including core conservation areas totaling ca. 57,500 ha in SDNP; ca. 21,500 has in ONP
13
Specific end-of-project targets include: in SDNP: strictly protected forest area to increase from 12,800 ha
to about 40,000 has and strictly protected high elevation meadow/summer pasture area from 8,200 ha to about
20,000 has, restoration and/or improved management of 50,000 ha. of forest and 20,000 ha of high elevation
summer pasture; in ONP: improved protection for 1,155 ha of forest and 12,200 has of high elevation summer
pasture within existing conservation areas, improved grazing management in about 26,000 has of summer
pasture, and delineation and protection of important wildlife migratory corridors in lower elevation areas.
8
in the project areas. In the short term the focus is on reducing pressure on natural resources and
ecosystems and mitigating potential negative socio-economic impacts of increased restrictions on
forest and pasture use, by helping assisting local communities to develop alternatives and to
improve the productivity and sustainability of their traditional economic activities, particularly
livestock husbandry. The longer term objective is to promote a diversification of local
economies, making them less dependent on mass consumption of natural resources.
Tourism represents one of the few sectors in which biodiversity-rich areas, including
mountains, have a comparative advantage, and there is growing interest in and support for
transboundary tourism in the Caucasus ecoregion. While tourism prospects for ONP are limited
at this time14, there is already a modest tourism industry in the SDNP area. If properly directed
and supported, this could grow over time into a significant contributor to local economies and a
source of sustainable financing for the park. Therefore, developing park infrastructure and
management capacity for ecotourism, and assisting local communities to develop tourism-related
economic activities, are also important project objectives.
COMPONENT 1. National Parks Establishment and Management (US$ 8.72 million):
This component will support the legal establishment (Shah Dag) and expansion
(Ordubad) of the two national parks, creation and strengthening of modern park management
institutions and systems, and the development and implementation of management plans. The
multiple-use model will be implemented by establishing different management zones within the
parks, including: core conservation zones, restoration zones, sustainable natural resource
management zones, tourism development zones, and residential and economic development
zones. The total area of the SDNP will be about 343,000 ha, and the ONP will be enlarged from
12,200 to 137,000 ha15. About 50,000 ha of forest and 40,000 ha of pasture (mainly alpine and
sub-alpine meadow) are expected to be included within core conservation zones of the two NPs,
compared with 36,400 ha currently within Strict Nature Reserves (Zapovedniks) in the project
areas. Almost all of State Forest land is expected to fall within core conservation or restoration
zones.
The majority of land in both areas is grassland and meadow habitat, currently heavily
used for grazing (low and mid-elevation pastures in winter, high elevation pastures in summer).
Livestock density is far in excess of the sustainable carrying capacity (in some areas, up to five
times higher). However, their numbers cannot be drastically reduced in the short term, because
of lack of management and enforcement capacity and also because it would have unacceptable
impacts on local livelihoods. The project will focus on beginning a transition towards
sustainable use by restoring and introducing management in about 15-20% of the total pasture
area, identified as highest priority on the basis of biodiversity value and ecological functions
such as erosion control. These grazing restrictions will be implemented in parallel with
measures to compensate for their economic impacts (e.g. increased fodder production,
developing alternative sources of income).
14
Due issues of access and security
In addition to the existing ONP, this will encompass the existing Ordubad Natural Reserve ((27,869 ha) and
Shakhbuz Strict Nature Reserve (3,300 ha)
15
9
The proposed SDNP area contains State, municipal (Balladiya16) and privately owned
land, and the intention is that the current owners will retain ownership rights, subject to the
park’s restrictions and regulations17. Residents of sixteen Districts (Rayons) hold grazing rights
within the area, and a number of central government Ministries and agencies also have mandates
and programs within the area. The project will provide technical and financial support to
establish an institutional structure that provides for the effective participation and coordination of
all these stakeholders. The expanded ONP will include only a few villages and therefore will not
need a similar institutional structure. The project will support measures to modernize and
improve park management capacity and increase participation of stakeholders in both parks.
Specific activities to be financed under this component include: delineation and
demarcation of park boundaries; technical assistance and training for institutional capacity
building; forest and pasture inventories, preparation of zoning and management plans and annual
operating plans; implementation of management plans, including rehabilitation and limited
construction of critical infrastructure needed for park management and supporting activities (e.g.
tourism) and essential equipment; establishment and implementation of an ecological
monitoring system; and operating costs (with GEF covering incremental costs associated with
the creation and testing of new institutional structures and addressing new mandates, such as
building partnerships with local communities and other stakeholders). The component will be
implemented by the Ministry of Ecology, Department of Biodiversity Conservation and
Development of Specially Protected Natural Areas (DBCDSPNA), with support and assistance
from the Project Implementation Unit (PIU). The component will be financed by GEF ($2.11
million), IDA ($3.65 m), PHRD ($1.70 m) and GOA ($1.27 m).
COMPONENT 2. Community-level investment in sustainable agriculture and natural resource
management (US$ 4.21 million):
This component will assist communities living inside or immediately adjacent to the two
national parks to shift their traditional agricultural and natural resource use practices towards
more modern and efficient approaches that place less pressure on natural resources and natural
ecosystems. The main focus is on livestock husbandry, which is the economic mainstay of local
communities, and also one of the greatest threats to the area’s biodiversity and ecological
systems, particularly in the vulnerable high elevation summer pastures. In particular, the aim is
to promote dairy cattle, which are typically kept close to home and also offer the greatest
potential for a return on investment. Assistance will also be provided for restoring and
improving the management of badly degraded municipal pastures close to villages.
Communities will develop village investment plans, drawing upon a menu of options (fodder
seeds, fertilizers, agricultural equipment, small scale irrigation, milk collection and storage
facilities, artificial insemination services, fencing material for pasture management, etc.). In
addition to fodder production, access to agricultural machinery and irrigation will help villagers
to increase production of potatoes and other marketable crops.
Under Azerbaijan law, Municipalities (Balladiyas) are not government structures but are recognized as” nongovernmental systems of organization of citizens’ activity” legally empowered to settle issues of local importance.
They are legal entities and can own land and property and hold bank accounts.
17
Under the principle of “servitude” under Azerbaijan law
16
10
Local demand for wood in the SDNP area is estimated to be as much as 20 times the
sustainable off-take level18, with the gap being met through illegal, unsustainable cutting. The
project will support community-based reforestation and management of currently treeless or
badly degraded municipal and State forest lands as an alternative source of wood, and will
support demonstrations of the benefits of more efficient heating stoves and development and
promotion of alternative sources of energy.
The project will target 55 villages, representing about half of the total population in the
two parks19. The villages and VCs will be selected on the basis of criteria, including their
dependence on the natural resources of the park areas (and consequently the threat they currently
represent to the park and their potential to be negatively affected by access restrictions imposed
by park management); their interest in participating and willingness to organize themselves and
to contribute time and labor; the amount of cultivatable land potentially available for forage
production, etc..
Specific activities to be financed under this component include: technical assistance,
small scale works (ponds and pipelines for irrigation; facilities for the MEs); goods and
equipment for the village investments and services; and operating costs for the Municipal
Enterprises that will implement Component 2 activities. This component will be financed by
GEF ($1l19 m), IDA ($2.29 m), PHRD ($ 0.46 m), and Government ($ 0.48 m).
COMPONENT 3: Rural Enterprise Development (US$ 1.96 million)
In the past there were some medium-sized factories and workshops for carpet-making,
leather work and other handicrafts, juice-processing, etc. in the project areas, but these activities
have virtually disappeared since independence. Tourism is also very limited, with few modern
accommodations and services (mainly owned by people from outside the area). Component 3
aims to stimulate economic diversification in the areas by assisting local entrepreneurs to obtain
the technical and business information and advice and the financing they need to start or expand
small and medium commercial enterprises. The information and advice will be provided by
small mobile business advisory teams funded by the project that will assist interested clients to
identify and assess the viability of commercial ventures, prepare business plans and obtain
financing. These teams will also help PIU and Government to identify and alleviate policy,
regulatory and other types of constraints to SME development.
The project will provide matching grants of about $2000-$10,000, based on an
independent evaluation of the business plans. When the business plans call for a larger amount
or longer term financing, the advisors will help the prospective entrepreneurs apply for loans
from existing banks or other credit institutions. For both the technical assistance and matching
grants, priority will be given to activities that are linked to national park objectives, including
tourism-related enterprises, alternative energy and energy efficiency, and value-added processing
of sustainably harvested (non-threatened) natural products such as fruits and nuts. Enterprises
that support Component 2 objectives (e.g. processing of dairy products) will also be particularly
18
100,000 m3 per year, compared with 5,000 m3 per year.
Including 67% of the population inside the SDNP, and 29% of the population of villages inside or close to the
boundaries of the ONP, as expansion of the ONP will have comparatively little impact on these villages
19
11
encouraged. Proposals from the poorest villages, or with a strong public goods element, will
receive a higher proportion of grant financing, up to 100% in some cases.
Given the time and resources available, the objective is not to achieve a large scale
transformation of local economies, but to catalyze a shift by stimulating interest, demonstrating
and testing different types of business opportunities, building local understanding and capacity
for business planning and development, and creating an environment that will encourage other
SME programs and micro-credit institutions to increase their presence in the project areas. This
component will be financed by IDA ($0.65 million), GEF (0.63 million), PHRD ($0.53 million)
and Government (0.15 million).
COMPONENT 4: Project Management, Monitoring and Evaluation, and Communications (US$
1.78 million)
This component will support overall project management and administration, including
the staffing and operating costs of a central Project Implementation Unit and three “branch” PIUs
(two in Shah Dag area, one in Ordubad area). The branch offices are needed because of the size,
remoteness, difficulty of access and poor communications infrastructure of the project areas.
The PIU will be responsible for procurement, financial management and general administration,
including facilitating inter-Ministerial and inter-agency coordination, and for developing and
implementing a Monitoring and Evaluation (M&E) system addressing both project operations
and impacts, and be responsible for progress reporting. For Component 1, the M&E system will
make use of the GEF/WWF Alliance PA Management Effectiveness Tracking Tool (METT).
The PIU will also coordinate several cross-cutting activities, including the development and
implementation of a communications plan (in collaboration with local authorities and NGOs) to
increase awareness and knowledge of the project and its objectives and activities at all levels;
detailed socio-economic studies to improve targeting of project benefits; and facilitating the
development of a cross-sectoral, multi-stakeholder tourism development plan for the greater
Shah Dag area. This component will be financed by GEF ($1.07 m), IDA ($0.37 m), and
Government ($0.32 m).
12
Project Costs
Indicative
% of
Cost
Total
(US$'000)
PHRD
% of
Bank
% of
GEF
% of Financing PHRD
GOA
% of
Financing
Bank Financing GEF (US$'000) Financing Financing GOA
(US$'000) Financing (US$'000) Financing
(US$'000) Financing
Component
National Park
1 establishment and
management
Community-level
investment in
2
agriculture and NR
management
3
Small enterprise
development
Project management,
monitoring and
4
evaluation, and
communication
Total Project Costs
Notes:
$8.72
51.7%
$3.65
52.4%
$2.11
42.2%
$1.70
63.0%
$1.27
57.2%
$4.42
26.2%
$2.29
32.9%
$1.19
23.8%
$0.46
17.0%
$0.48
21.6%
$1.96
11.6%
$0.65
9.3%
$0.63
12.6%
$0.53
19.6%
$0.15
6.8%
$1.78
10.5%
$0.37
5.3%
$1.07
21.4%
$0.0
0.0%
$0.32
14.4%
$16.88
100%
$6.96
100%
$5.00
100%
$2.70
100%
$2.22
100%
Differences due to rounding.
4. Lessons learned and reflected in the project design
Based on experience with similar projects in the Europe/Central Asia Region and
elsewhere, the following lessons have been incorporated into the project design:






Project design should be focused, limited in terms of geographic area and types of
activities; new approaches should be piloted before mainstreaming them at national level;
Be realistic about what can be achieved within the available time frame and the capacity
of implementing agencies, particularly when the project involves introduction of new
ideas, approaches and skills, establishment of new institutional structures (or substantial
strengthening of very weak ones) or revision of legal framework, and community
mobilization and participation;
Set specific and realistic objectives and interim targets, which can be used to evaluate
progress and re-orient components or implementation approaches if needed;
Recognize that pilots and demonstrations of new approaches and technologies can carry
high transaction costs;
For effective protection and sustainable management of biodiversity and natural systems,
follow a strategy of combining enforcement and incentives (either by itself is unlikely to
be effective);
Phase in restrictions on natural resource use and access, based on institutional capacity to
make, implement and enforce plans and regulations, and on the ability to provide realistic
alternatives and compensation to local communities for short-term economic losses;
13


Involve key stakeholders early in the project design and in the preparation phase to
ensure ownership and to ensure that the design and specific investments make sense in
the country and local contexts;
Combine financial assistance for SME start-ups/expansion with professional business
advice (for market analysis, business planning, evaluation of technologies, etc.) and, to
the extent possible, address constraints in the overall environment for business (tax and
other policies, regulatory processes, infrastructure, etc.);
These lessons are reflected in the project design. For example, the project will focus on
the Shah Dag and Ordubad areas, rather than addressing the overall PA system. The objective is
to test and demonstrate a multi-purpose, inclusive, landscape approach to PA management in
these areas, which can then be applied in other areas. Considerable effort has been made to
involve local stakeholders in the preparation phase, for example through the establishment of
local project offices. Communities will be invited and assisted to participate in park
management (e.g. through the Advisory Committee and the park management planning process),
and will also have clear incentives to do so. A substantial communications/outreach program
will ensure that local residents understand the objectives of the project, its implications and the
opportunities it will provide. Component 2 is strongly focused on livestock improvement and
related economic activities (the main livelihood of local communities currently and for the
foreseeable future), rather than supporting a broad menu of potential local development
objectives. Implementation targets (e.g. total areas for introduction of pasture management and
afforestation; numbers of participating villages in Component 2, numbers of SMEs to be
initiated) are purposely modest, based on a realistic implementation schedule that allows
adequate time for recruiting key personnel and procuring required works and goods; carrying out
community mobilization, awareness-raising and participatory planning activities; building
institutional capacity; developing business plans; etc. The project includes a substantial
investment in Technical Assistance (TA), to compensate a severe shortage of existing services in
the project areas and to ensure that community-level and individual enterprises are well designed
and likely to succeed. However, the TA is primarily local, and capacity building and in-service
will be a major element of the consultants’ responsibilities.
Experience from the Rural Investment Project (AzRIP), among others, indicated the
importance of identifying institutional mechanisms for implementing community-level
investment activities under Component 2. Following the dissolution of Soviet-style collectives
after independence, there has been little organization of local community institutions other than
the quazi-governmental Municipalities. While Azerbaijan legislation allows for formation of
NGOs and community groups, the process can be very cumbersome and time-consuming,
particularly for groups based outside Baku. Based on consultations with stakeholders and legal
specialists, Municipal Enterprises were selected as the most appropriate vehicle, as they are
already familiar to most people, are relatively easy to create, and their assets belong to the
municipality, which is a well-established elected body representing the entire community.
5. Alternatives considered and reasons for rejection
The project will introduce and implement the concepts of a multi-purpose national park
and an ecosystem approach to biodiversity conservation in two priority mountainous areas. An
14
initial proposal for a broader project to create a coordinated national Protected Areas (PA)
system was rejected, in view of weak institutional capacity and the need to pilot new approaches
before embarking on a more ambitious expansion program. In both the Shah Dag and Ordubad
areas, the highest priority biodiversity conservation sites (e.g. alpine meadows) are dispersed
across large areas. The main alternatives for protecting these sites were: (i) establishing a
network of relatively small, disconnected PAs; (ii) creating large, conventional national parks,
which would exclude human habitation and all economic activities other than tourism; and (iii)
the proposed model of creating large, multi-purpose national parks which accommodate the
resident populations and their economic activities within an overall management framework.
The first option was rejected as operationally impractical and ecologically unsound as it fails to
address the linkages between the core conservation areas and surrounding areas. The second
option was rejected, as it would have involved relocating more than 60 villages (over 30,000
people) and taking large areas of valuable pasture and forest permanently out of economic use.
Both the first and second options would also have perpetuated the unsustainable and increasingly
unacceptable status quo of isolating local communities from the valuable resources and
economic potential of the PAs. The third option was selected as the most appropriate for
achieving the joint objectives of protecting the most significant and vulnerable biodiversity
assets, while helping to improve the livelihoods of poor rural communities on a sustainable basis.
The SDNP will be by far the largest PA in Azerbaijan and among the largest in the world.
There were proposals for an even larger park, including the coastal area of Samur-Yalama and
further extensions in the Gubar and Gusa Rayons. These proposed extensions were rejected
because of the impracticality of including areas that are already heavily populated and
developed. The Samur-Yalama area is being developed as a separate PA.
Given the weak local technical and institutional capacity in relation to modern
approaches to PA management, high value livestock production and commercial development,
the option of a purely technical assistance/ capacity building project was considered. However,
this would have meant disregarding the demand and urgent need for interventions on the ground
and the importance of actually demonstrating the viability and benefit of these new approaches.
Therefore, the project was designed to combine a major investment in capacity building with
other investments, many of which are at a pilot/demonstration level. The heavy investment in
TA will help fill the immediate need for skilled and experienced personnel to get activities
moving. The consultants will also have the responsibility to provide in-service training and
capacity building for their counterparts. To facilitate this capacity building, most TA contracts
are long-term, providing continuity. International consultants will return repeatedly (for several
months each year) to provide ongoing advice and support, while avoiding the risk that they
simply take over their counterparts’ responsibilities.
The initial project design included a large component for rural energy development, on
the grounds that alternative sources of energy (e.g. natural gas supply) must be restored if
communities are to reduce their use of the forests for fuelwood. This component was dropped
because of concern that it made the project too complex and difficult to implement. Sustainable
energy issues are still addressed in the project on a smaller scale, through support for tree
planting and reforestation on municipal lands and heavily degraded state forest lands near
settlements, and through support for demonstration and promotion of fuel-efficient stoves and
15
alternative fuels. Consideration was given to including a micro-credit element in Component 3
(Small Enterprise Development), but this was rejected in favor of matching grants, in view of the
complexity of implementing micro-credit and the Bank’s policy to avoid ad hoc micro-credit
programs. The possibility of entering into a partnership arrangement with one or more existing
micro-finance or lending institutions was explored (e.g., by providing them with “expansion
grants” to open offices in the project areas). However, no suitable partner was identified. While
no credit mechanisms are included in the project, the responsibilities of the business advisory
service providers will include assisting clients to identify and access loans from existing sources
when appropriate.
C. IMPLEMENTATION
1. Partnership arrangements (if applicable)
Cooperation among numerous actors and stakeholders will be essential for
implementation of the AREP. Unlike other PAs in the country, the SDNP and ONP will include
land and infrastructure that is owned by municipalities or individuals and is used for agriculture
and other economic activities. MENR, which has the overall mandate for management of all
PAs, will also have to coordinate with several other sectoral ministries with ongoing interests
and programs in the area. Various specialized government agencies will also play important
roles, such as the Institutes of Zoology and Botany of the Azerbaijan Academy of Sciences,
which will participate in biodiversity assessment and monitoring.
As part of the “hotspot” Caucasus ecoregion, Azerbaijan benefits from a number of
regional programs by bilateral and multilateral donors and international NGOs. The Regional
Environmental Centre for the Caucasus (RECC, supported by the European Union, Switzerland
and the U.S. among others) and the Caucasus Environmental NGO Network (CENN, supported
by the Sacred Earth Network) are funding a variety of educational and other activities by
regional and local NGOs, including mechanisms for transboundary cooperation in natural
resource management and conservation.
For example, the RECC’s Swiss-financed
Transboundary Grants Programme recently approved a grant to the Azerbaijan Society of
Ornithologists (and the Georgian Centre for Wilderness Protection) for conservation of highland
ecosystems. This will include pilot projects with local communities (hunters, shepherds,
teachers, etc.) on monitoring and management of natural resources, and a demonstration project
on conservation of the endangered Caucasus Black Grouse. The CENN focuses on strengthening
capacity and building coalitions and networks among local NGOs in the South Caucasus
(Armenia, Azerbaijan, Georgia). The Eurasia Foundation’s South Caucasus Cooperation
Program provides support for local organizations to implement cross-border programs, including
one for promoting the development of agro-ecotourism.
Among international NGOs, the Tbilisi-based Caucasus Regional Office of the World
Wide Fund for Nature (WWF) has been supporting and carrying out conservation activities in the
Caucasus for over 10 years, with an emphasis on creation and improving management of PAs,
protection of endangered species (e.g. projects for conservation of leopards and Caucasus deer),
developing ecotourism, and promoting sound environmental policies and environmental
education. WWF coordinated the development of the Critical Ecosystem Partnership Fund
16
(CEPF) ecosystem profile for the Caucasus biodiversity hotspot, which identifies conservation
priorities and targets. The ecosystem profile was developed with the participation of over 130
local and international experts, and provides a framework for inter-governmental and donor
coordination. It helped define the proposed boundaries of the NPs and will be an important input
for park management planning. The CEPF itself may provide co-financing for some communitybased conservation activities to be supported under the AREP.
The local NGO sector is relatively poorly developed, particularly outside Baku.
However, several NGOs that are active in the project areas have been involved in preparation of
the AREP and/or are expected to participate in implementation. These include general
environmental organizations concerned with environmental policy, protection, education and
monitoring (e.g., the Information-Analytic Environmental Agency (ECORES); Azerbaijan
Ecological Union; Xazri TETA; CENN); with biodiversity conservation (e.g. WWF-Azerbaijan;
Birdlife; Azerbaijan Zoological Society; Azerbaijan Animal Protection Society, etc.), and with
rural/sustainable development (e.g., Azerbaijan Mountain Regions Development Association
(ADRIA); Rural Development Programme for Mountainous and Highland Areas).
Tourism is expected to be an important aspect of the development and sustainability of
the SDNP, and SDNP in turn is likely to become a major focus of Azerbaijan and Caucasus
tourism in the future. It is therefore significant that tourism development is emerging as a major
focus of international assistance and NGO activity in Azerbaijan, as the GOA and donors
recognize its potential linkages with poverty reduction and environmental objectives. In 2004,
UNDP and GOA launched a “pro-poor” tourism project aimed at integrating domestic tourism
development and poverty reduction (e.g. by constructing Visitor Centers in rural areas and
training low income youth for employment in the sector). Other recent or current activities
include a Eurasia Foundation project to develop transboundary hiking routes and agroecotourism; the World Bank-financed Cultural Heritage Project; the Trans-Caucasus Tourism
Initiative co-financed by the World Bank and the Swiss Government; a WWF initiative on
ecotourism development in the Caucasus supported by the German government; rehabilitation of
cultural heritage sites in and around Sheki funded by the Norwegian government; and a rapid
assessment of tourism potential undertaken in 2003 as the first phase of a program of the
Organization for Security and Cooperation in Europe (OSCE) to support growth of the tourism
sector in Azerbaijan. Most of these programs are implemented with local NGO partners (e.g.,
the Eurasia Foundation project implemented in Azerbaijan by the eco-tourism NGO Pilgrim and
by the Azerbaijan Climbing Club). Other likely partners in the future include USAID, and the
Soros Foundation (which is already supporting capacity building for rural tourism in several
other countries in the region, such as Ukraine, Poland, Crimea, Mongolia). This diversity of
supporters and initiatives makes coordination and partnership essential. Following a meeting of
the UN Poverty Thematic Group in March, 2004, a Tourism Steering Group was established in
Baku to facilitate information flow among interested parties.
The rural enterprise development component of the AREP will also benefit from
partnership with numerous organizations and initiatives involved in developing small and
medium enterprises in Azerbaijan, such as the EU/EBRD-funded Business Advisory Services
Programme and the Azerbaijan Business Development Program20. Also, as noted in Section B4,
20
likely to be funded by USAID
17
some enterprises applying for grants under Component 3 will require additional loan financing to
be viable. The AREP will not provide credit, but will seek partnership with existing
microfinance institutions.
While the operating costs of the parks are expected to be met mainly by Government, (in
the future) in part from tourism revenues, the MENR and the Bank will also explore the
possibility of partnership with the private sector. The oil industry (led by British Petroleum, in
the context of the Baku-Tbilisi-Ceyhan oil pipeline) has already become involved in supporting
conservation, environmental management and sustainable development in Azerbaijan and
neighboring countries. At present their support is focused on the pipeline route, but there could
be the potential for broadening private sector support to encompass corporate sponsorship of
other environmental initiatives, including biodiversity conservation and national parks, as is the
case in many other countries. Another avenue to be explored is partnership with downstream
users of water, including the city of Baku and the petroleum and other industries concentrated on
the Absheron peninsula. In many countries arrangements have been brokered for downstream
water consumers to contribute to the protection of watersheds in the context of payment for
environmental services. Similarly, the project will explore opportunities for carbon financing
(payment for reducing carbon emissions/sequestration of carbon).
There will be several avenues for NGOs and other stakeholders to participate in or
collaborate with the AREP. The participatory park management planning process will open the
way for key stakeholders and knowledgeable partners to influence key decisions relating to
biodiversity protection and natural resource us. In some cases, the project will complement or
support ongoing NGO activities, and in other cases NGOs will be contracted to undertake
project-supported activities. Technical support and implementation of grant programs under
Components 2 and 3 will be contracted out to firms and/or NGOs, which will need to team up
with knowledgeable local organizations in order to work effectively in these remote mountain
areas. The communications/outreach, social impact assessment and monitoring programs
coordinated by the PIU will all be carried out in cooperation with NGOs and community groups,
some of which participated in local consultations during the preparation phase, including public
dissemination and discussion of the EIA.
2. Institutional and implementation arrangements
A Project Implementation Unit (PIU), established under the Ministry of Ecology and
Natural Resources, will have overall responsibility for project implementation and coordination.
In view of the size and remoteness of the project areas, there will be a central PIU in Baku and
three small regional branch offices located in Guba, Gusar and Ordubad Rayons. The Baku
office will provide project-wide services such as planning, procurement, financial management,
M&E and reporting, training on project implementation procedures, and cross-sectoral
coordination and government liaison (e.g., as Secretariat for the Project Steering Committee).
The regional offices will consist of a local coordinator and an assistant, and will be responsible
for awareness raising and communications at the local level, day-to-day implementation support
(including disbursement of grant funds under Component 2), organizing field visits, data
collection for monitoring, etc. These offices will also serve as a home base for the long-term
technical service providers under Components 2 and 3.
18
The DBCDSPNA within MENR will have overall responsibility for implementation of
Component 1 (National Parks Establishment and Management). For ONP, the existing park
administration will continue, with some restructuring and increase in staff to address the much
larger area and expanded program of management activities. The SDNP will require creation of
a new administrative structure to accommodate the diversity of land use, land ownership and
stakeholders. Unlike the case in existing National Parks, land within SDNP that is currently
owned by Municipalities or private owners will not be transferred to the State, but will continue
to be held by the current owners, but subject to regulations and requirements established through
the park management plan (under a legal principle of servitude).
The SDNP structure will include a multi-sectoral Governing Board, an executive SDNP
Administration (SDNPA) and a Stakeholder Advisory Group. The Governing Board will be
chaired by MENR and will include representatives from other Ministries with direct interests in
the area (e.g. Agriculture, Tourism, etc.), Rayon Executive Authorities, Balladiyas, NGOs and
the private sector. The MENR will delegate specific functions to the Governing Board,
including responsibility to approve the park management plan and annual work plans. The
SDNPA will be the management entity for the SDNP, responsible for park protection and
management and for community relations, in accordance with approved management and annual
work plans. It will incorporate some of the staff of the existing PAs and the State Forest
Enterprise in the area. These institutional structures for SDNP will be described in and
established through the SDNP Charter. The SDNPA will coordinate with Rayon Executive
Authorities and Balladiyas in areas of joint responsibility, such as the issuing of grazing permits
within the park. A multi-sectoral team of technical advisors will be engaged to provide ongoing
advice, support and in-service training and capacity building for the new SDNPA and the ONPA.
The main institutional mechanism for implementation of Component 2 will be Municipal
Enterprises (ME), which are non-profit legal entities owned by the Balladiyas. One ME will be
established for each Village Cluster (VC), comprised of 3-5 villages. Although the project will
meet capital and operating costs of the MEs for 18 months, MEs will charge for services such as
artificial insemination, milk collection, agricultural extension and short-term rental of
agricultural equipment. The fee levels will be set to cover operating costs over the long term,
with fees that are collected during the project support period going into a capital fund for the
ME. It is anticipated that the MEs will continue to provide some of these services beyond the
life of the project. Three teams of locally-based long term consultants (Village Planning Teams)
will be engaged by the PIU (under a single contract) to assist communities to prepare and
implement village investment plans, with each team of three people providing four months of
support to each VC.
Implementation of Component 3 will be contracted to business consulting firms or
suitable NGOs. There will be one contract for provision of mobile business advisory teams (five
teams of 2 people each), whose responsibilities will include: (i) preparation and dissemination of
awareness-raising and instructional materials; (ii) one-on-one support to interested clients to
identify business opportunities and prepare business plans and grant applications; and (iii) where
appropriate, assisting clients to identify credit providers and prepare loan applications. A second
contract will be awarded for administration of the matching grants program.
19
Most procurement of goods, works and services for project implementation will be done
by the PIU. However, the MEs will procure materials and services required for implementing
village level investment activities under Component 2, following the World Bank’s guidelines
for community-based procurement. The SDNPA will be authorized to purchase recurrent items
(e.g. fuel, stationery) on a Statement of Expense basis. Obtaining transportation and other
operational requirements for the technical service providers for Components 2 and 3 will be the
responsibility of the respective contractors.
3. Monitoring and evaluation of outcomes/results
Annex 3 provides the overall framework, indicators and initial targets for monitoring and
evaluation of project outcomes. This will serve as the basis for development of a more detailed
M&E program. One of the professional PIU staff (Assistant Project Manager) will be primarily
responsible for preparation and implementation of this M&E program (job description will
indicate this represents 50% of his/her time). Because of the current lack of site-specific socioeconomic for the project areas, a social and economic impact assessment has been included as a
separate activity under Component 4. This will include an initial baseline study to be undertaken
during the first year, with updates at midterm and end of the project. Ecological monitoring and
assessment (starting with detailed baseline inventories) is an important element of Component 1,
and will be the responsibility of the SDNPA and ONPA, with assistance from Technical
Advisors provided under the project. Because existing forest and pasture inventories and
wildlife surveys are badly out of date, the target indicators and baseline values will be developed
during the first year. The WWF/World Bank Alliance/GEF Management Effectiveness Tracking
Tool (METT) will be used to assess the impact of investments in capacity building for PA
management. The METT “Reporting Progress Scorecard,” which is designed for site-level
assessments, will be completed for each of the parks several times during the course of the
project. The scorecards will be completed by small teams comprised of the Directors and senior
field staff of each park, at least one representative of local government, one representative of a
municipality inside the park, and one representative of a conservation NGO active in each of the
project areas. The scorecard will also be reviewed by the World Bank as part of project
supervision.
20
4. Sustainability
The project aims to put in place systems for more sustainable use of natural ecosystems
that are currently being overused and degraded, and to promote economic development that will
reduce reliance on mass consumption of natural resources. In the short term this will be mainly
through improved protection, but the longer term objective is develop community/user-based
management systems and to trigger a shift from traditional, low-input livelihoods based on
mining of natural resources (forests and pastures) towards more value-added economic activities
that are less dependent on these resources or use them more efficiently. Because of the short
time frame, the project can only serve as a catalyst for such a shift, by introducing new
approaches, demonstrating opportunities, changing incentives, providing some start-up capital,
and improving market access through rehabilitation of key access roads.
The multiple-use National Park model is expected to be more sustainable in the long run
than a large, conventional park that excludes all economic use of natural resources, because it
will have greater local and national support. The project is expected to provide a model of
integration and stakeholder participation to be replicated elsewhere within the national PA
system. The Government is committed to expanding its PA system (with a target of at least 10%
of the country’s total land area) and to providing the recurrent budget to maintain the staffing and
operations of the parks. Government resources available for this purpose are expected to
increase over the next few decades as a result of economic growth from oil revenues.
Nevertheless, project preparation has emphasized the need to be limit capital investment and
operating costs for the parks in order to avoid the all-too-common “boom and bust” phenomenon
when project funding ends. A substantial part of the planned project investment is for tourism
development, as both NPs have the potential to generate revenue from tourism in the future, from
entry fees and tourism concessions. Entry fees (or possibly even concession fees) will probably
not be introduced initially, but will become a factor in later years. At present the parks cannot
legally retain revenues to supplement operating budgets, but this is likely to change over the next
few years as the entire PA system becomes modernized.
The community level investments to be supported under Component 2 are expected to be
sustainable because they will be selected by the communities based on their own needs and
priorities. The Municipal Enterprises that will be formed to implement this aspect will have low
operating costs and will operate on a cost recovery basis, so that they can continue beyond the
life of the project. By contrast, the more expensive technical advisory services are not expected
to continue after the end of the project, but rather to develop lasting local capacity in key aspects
such as park management dairy production, and business planning and management. To
maximize viability and sustainability of small enterprises supported by the project, the matching
grants will require applicants to provide at least 50% of start-up cost and present a longer term
financing plan.
5. Critical risks and possible controversial aspects
The project is introducing a model of multiple-use PA model which is new to Azerbaijan
and involves new approaches, players, attitudes and skills. Implementation could be delayed or
undermined by difficulties in establishing effective institutional mechanisms for cross-sectoral
21
coordination, and in finding experienced and motivated individuals to fill key positions in the
Park Administrations. To mitigate this risk, the project includes up-front capacity building
measures such as training and long-term on-site support from an experienced international
advisory team. Tying major investment to approval of park management plans will help to
provide a strong incentive for ensuring that institutions and put in place and planning is
completed in an appropriate and timely fashion. There is potential for conflict among
stakeholders, particularly in the case of pastures, given the importance of livestock, the large
number of traditional users, and the entrenched grazing permit system. The project design
therefore emphasizes awareness raising and education, consensus building and participatory park
planning, and gradual phasing in of pasture management, together with incentives which will be
agreed upon through the consultative process.
The risk of burdening already poor communities by restricting their access to natural
resources will be mitigated by linking restrictions on grazing and forest use with measures to
compensate for their economic impacts. In accordance with the Process Framework these
measures will be particularly targeted to the affected communities. At the same time, there is a
risk of unrealistically high expectations regarding the immediate and short term benefits from the
project, including direct project investment, employment by the parks, and income from tourism
and other enterprises. This is being addressed through a communications strategy that aims to
provide clear and accurate information about what the project can and cannot do, stresses mutual
responsibilities for project implementation, and emphasizes the importance of longer term
benefits from improved natural resource management. To avoid encouraging local
entrepreneurs to invest time and resources in enterprises with a high likelihood of failure,
matching grants will be provided only on the basis of professional assessment of business plans.
Rehabilitation of key access roads is also expected to contribute significantly to the success of
local enterprises. The risk of “elite capture” of project benefits is addressed through linking
assistance to transparently developed Village Management Plans, and by emphasizing
community level investment, channeled through locally elected Municipalities.
Tourism development is seen as an important area of future economic growth,
particularly in the SDNP area. There is a risk that poorly planned and poorly regulated tourism
stimulated by the project could have negative environmental and social impacts, beyond the
direct potential project impacts that can be addressed through the Environment Management
Plan. Mitigation measures for this risk include designating the entire area as a National Park and
putting it under the overall jurisdiction of the MENR, which has a permanent mandate to ensure
that the park’s conservation and environmental objectives are met; inclusion of environmental
NGOs and other interested stakeholders in the SDNP Governing Board; establishment of park
management planning and monitoring systems; and a dedicated communications and education
program to raise awareness locally and nationally regarding the importance of maintaining the
natural ecosystems protected by these parks.
There is often a concern that development projects in and around Pas can serve as
magnets, attracting more people into the area and thereby increasing pressure on natural
resources. There is little such risk in this case, as populations in these project areas have been
declining in recent years, as a large percentage of young people (up to 80% in some villages)
leave the area seeking better employment opportunities and quality of life. While project
22
activities are expected to improve local incomes and quality of living conditions to some extent,
it is very unlikely that they will result in immigration to the area (or even any significant impact
on the emigration trend). Similarly, support for intensification of livestock production is not
expected to result in an increase in livestock using already over-grazed areas, as the support will
target improved varieties and dairy cattle, which are financially profitable only if reared under
controlled, mainly stall-fed conditions. Furthermore, the designation of the areas as national
parks will substantially increase the possibility of exercising control over factors such as inmigration, secondary development and increased grazing pressure.
The high per capita costs of Components 2 and 3 may raise some questions, but they are
the result of local realities such as the small populations of the villages, their remoteness and
difficulty of access, the lack of experience with modern production and business methods, and
the lack of technical and financial advisory services which requires that the project engage large
teams of local consultants to fill the gap. It is also important to recognize the pilot and
demonstration nature of these interventions, which are intended to catalyze larger impacts and
benefits over the long term. Costs could be substantially decreased by reducing the amount of
technical assistance, but this would greatly undermine the likelihood of success.
6. Loan/credit conditions and covenants
TO BE COMPLETED AT APPRAISAL
D. APPRAISAL SUMMARY
1. Economic and financial analyses
The economic and financial analysis is under preparation and will be completed by
Appraisal. The GEF Incremental Cost Analysis is attached (Annex 15).
Many of the benefits of the project are unquantifiable (e.g. conservation of biodiversity
and ecosystems), or impossible to quantify at this time due to lack of data on the current situation
or trends (e.g. pasture productivity and average income from livestock, extent of soil erosion,
tourist spending, etc.). Therefore, the economic and financial analysis will be a blend of
qualitative descriptions of costs and benefits and, quantitative estimates where these are
appropriate.
One important issue is the financial sustainability of the two National Parks. Operational
costs of most PAs world wide are met through a combination of Government subvention, donor
and NGO contributions and revenues earned primarily from tourism (entry and concession fees).
In the case of SDNP and ONP, direct revenue from tourism is expected to be very limited,
particularly in the short term as the Government does not propose to introduce park entry fees for
at least the first few years (an awareness-raising and educational campaign is needed to introduce
this concept, which is fairly novel in the region). Concession fees for private sector tourism
facilities within the park can become a source of revenue in the near future, but preparation
studies indicated that a “fee holiday” should be offered for the first few years as an incentive for
23
would-be local investors and to build support for the park among local communities. Grazing
fees could also eventually be allocated for park management, but this is likely to meet
considerable resistance from the Rayon Executive Authorities who currently collect them.
Similarly, sale of wood or wood cutting licenses could be a source of revenue for SDNP in the
future, but only after the current ban is lifted, which is likely to happen only after restoration and
improved management activities are well underway. There is very little donor or international
NGO funding going to these areas at present, but once the parks are well established and
publicized it is likely that they will attract more interest and support. Overall, however, it is
expected that the majority of funding for operation of these two NPs (as with all other PAs in
Azerbaijan) will be provided from the Government budget after the close of the project. This is a
realistic expectation, given the anticipated growth in the Azerbaijan economy due to increasing
oil revenues over the next 1-2 decades. However, attention is being paid to limiting capital
investment and staffing costs (and therefore, future annual operating costs) at moderate levels.
Components 2 and 3 will support activities that should create direct financial and
economic benefits for local communities. However, an appropriate direct rate-of-return analysis
would be difficult to do. First, the up-front investment costs and transaction costs will be
unavoidably high, given the remoteness of the target areas and the lack of existing capacity and
services. Second, some of the most important benefits, such as improvement of pastures and
reforestation, are expected to take a few years to materialize, both because of the time needed for
natural restoration and growth processes and because the project will only be able to support
relatively small scale interventions that will serve as pilots and demonstrations. The broader
benefits are expected to result from replication of these activities across much larger areas after
the project.
The economic and financial analysis undertaken for the activities likely to yield more
direct, short-term benefits (e.g. intensified livestock and dairy production and other small
enterprises), projects a strong positive rate of return. However, the sensitivity analysis indicates
that these are very dependent on assumptions regarding production costs, output volumes and
market prices. Thorough, professional market analysis and business planning will be essential to
ensure that enterprises supported by the project have a good chance of success.
2. Technical
This project addresses a challenge that is increasingly common around the world: how to
conserve biodiversity in areas large enough to encompass ecological systems and migratory
species. Like many countries in the ECA region, Azerbaijan inherited the Soviet approach to
PAs, which was based mainly on the most extreme form of exclusive PA, Strict Nature Reserves
(zapovedniks) set aside only for protection and research, allowing no economic activity or
management intervention within their boundaries21. The result was a fragmented system of
small, isolated PAs, which are relatively ineffective for conservation and make no economic
contribution to local or national economies. The conservation community has recognized the
limitations of this type of model, and is increasingly emphasizing large scale, “ecosystem
management” models such as Biosphere Reserves, Protected Landscapes and mixed-use Marine
Unlike the U.S. National Parks, often regarded as the progenitor and model of the “exclusive PA,” Zapovedniks
do not allow even non-consumptive uses such as tourism and recreation
21
24
Reserves. While differing in many ways, such PAs generally share some key features: (i) zoning
of the overall area into smaller sectors which are managed for different uses (strict biodiversity
protection, tourism development, low-intensity use of natural resources, sustainable agriculture,
etc.); (ii) some type of institutional mechanism for planning and coordinating land and resource
use across the whole area; and (iii) the expectation that they will provide a source of economic
and other benefits for local communities and make a contribution to the national economy.
The GOA has made a commitment to expand its Protected Area (PA) system over the
next decade to make it equal to at least 10% of the country’s total land area, to reduce
fragmentation, and to ensure that all its natural ecosystems are well represented22. Recognizing
that this cannot be achieved through the traditional zapovednik model23, MENR has decided to
try a multiple-use, ecosystem management approach. The challenge will be to find the
institutional model (or models) that is most appropriate for the specific conditions of Azerbaijan
in general, and the project areas specifically. There are numerous existing models to draw upon,
particularly from western and central Europe where, in contrast to the U.S., Latin America,
Africa and Asia, multiple-use PAs with resident populations are the norm (in large part because,
by the time national PA systems were being created in Europe, there was little pristine and
uninhabited landscape to be protected). There is considerable diversity across the countries,
reflecting differences in legal, political and cultural factors such as land ownership (public,
private or mixed), role of national vs. local government, role of local communities and NGOs,
role of private sector, etc. Areas that are called National Parks under national laws of European
countries do not necessarily qualify as National Parks according to IUCN24 (Category II in the
IUCN classification system for PAs). In many cases they are actually more consistent with, less
stringent designations, such as Category V (Protected Landscapes and Seascapes).
It is anticipated that the SDNP and ONP will be established as National Parks under
Azerbaijan law, in order to give MENR a clear mandate and jurisdiction to coordinate planning
and management of land and resources across the entire areas. However, some revision of the
Law on Specially Protected Natural Areas and the Land Code may be needed to accommodate
the proposed aspects of multiple use/multiple ownership and stakeholder participation. In any
case, the details of an appropriate management structure and approach will have to be developed
and tested over time. The project will support international TA and training (e.g. cross-country
visits) to help Azerbaijan identify the best model(s) for the local context.
Improved forest and pasture management, including the introduction of community-based
approaches, are very important to achieving the project objectives. Azerbaijan currently has
little experience or capacity in either. The project will help to fill this gap by providing technical
assistance and training, including exposure to the experience of neighboring countries which
have been dealing with similar challenges, in many cases under World Bank-financed projects
(e.g. Turkey, Georgia).
22
In keeping with IUCN goal for global PA coverage
e.g., given that the proposed SDNP has a resident population of over 27,000, and pastures that are currently used
by livestock owners from 16 Rayons
24
e.g., according to IUCN, management standards for a National Park includes preservation of ecological integrity,
and exclusion of any use that might deteriorate it, in at least 75% of the area.
23
25
For Components 2 and 3, technical issues mainly relate to the need to identify
technologies for intensified livestock husbandry and other enterprises that are acceptable to and
feasible for local communities, environmentally sustainable and economically viable and
competitive. This will be a significant challenge, as the project areas have comparative
disadvantages in terms of climate, terrain and biological productivity (e.g. short growing seasons,
soils vulnerable to erosion, limited surface water, difficult access to markets, etc.). However,
they also have comparative advantages for certain activities, such as tourism, production of
popular wild fruits, nuts and medicinal plants and traditional handicrafts. The objective is to
capitalize on these advantages by supporting enterprises that make use of the rich natural
resource assets of the area, while putting measures in place to ensure that this does not stimulate
over-harvesting of biodiversity or other negative impacts, such as ecological destruction due to
poorly planned or unregulated tourism development.
Several of the project activities and objectives are in principle eligible for carbon
financing: reforestation/afforestation, shifting from unsustainable to sustainable forest utilization,
restoration/revegetation of pastures, and introduction of alternative energy and energy efficiency.
However, during project preparation it became clear that the data needed (e.g. data on current
standing stock of trees and potential extent of reforestation) are presently lacking. During
project implementation, the implementing agencies will work with specialists to explore the
potential for carbon financing and develop specific proposals.
3. Fiduciary
TO BE COMPLETED AT APPRAISAL
4. Social
Although no villages or households will be relocated and land ownership and rights will
not be affected, the WB’s Involuntary Resettlement Policy is triggered because the
establishment/ enlargement and improved enforcement of the two NPs will reduce access to
pastures and forests that are traditionally used and important for local livelihoods. This includes
both local communities and absentee livestock owners and non-residents involved in trade of
wood and other forest products. In the long term restoration and sustainable management of
these ecosystems will benefit the users, but the short term impacts need to be mitigated, as
detailed in the Resettlement Process Framework. These include involving local users in park
zoning and management planning, phasing in of grazing restrictions, and support for developing
alternative livestock rearing methods, sources of wood, and income sources (including some
employment in the parks themselves). Development assistance provided under Components 2
and 3 will be particularly targeted to villages that are most affected (those nearest areas which
become closed to grazing). Matching requirements for grants will be reduced or eliminated for
applicants from the highest elevation (poorest and most vulnerable) villages, and for enterprises
with particularly high social benefits. Data on resource use and users in the project areas are
lacking or unreliable, making it impossible to identify the subgroups most likely to be affected or
to assess the likely impacts accurately. The PIU will put in place a program to monitor socioeconomic impacts of the project, starting with a detailed baseline to be prepared in the first year.
The results will be used to modify project components and implementation where needed, for
26
example to address the needs of any subgroups (e.g. women, youth, internally displaced people)
that are identified as particularly vulnerable.
5. Environment
EIA Category: B
The project is expected to have an overall positive environmental impact by conserving
globally and nationally significant biodiversity, protecting rare, transboundary ecosystems and
the enhancing the sustainability of natural resource use in the project areas. Other likely
environmental benefits include: reduced soil erosion (improving downstream water quality), flood
moderation (protecting downstream infrastructure such as roads, bridges and irrigation systems), and
carbon sequestration in improved pastures and forests. Barn improvements (sanitation and ventilation)
under Component 2 will improve environmental health conditions both for livestock and for the people
who handle them
The Environmental Assessment undertaken during project preparation identified the
following issues (in keeping with WB policies, the EA included social issues):

Construction and/or rehabilitation of infrastructure within the NPs, including checkpoints
and guard stations, visitor centers, roads and trails, etc. could have direct impacts on flora
and fauna at the construction sites or result in erosion, and generate wastes requiring
disposal. However, these works will be small scale and limited in extent;

Increased tourism/recreational use of the two areas could result in impacts such as
disturbance of wildlife, generation of solid waste, overuse or pollution of surface water,
and various social disruptions;

Some micro-projects under Components 2 and 3 (e.g., small scale irrigation, marketing of
non-forest timber products) could lead to environmental impacts associated with
construction, waste disposal, over-harvesting of vulnerable species, increased
agrochemical fertilizer use, etc.
Mitigation measures are outlined in the Environmental Management Plan, and will be
incorporated into the Project Implementation Plan, and into the Operational Manual for
Components 2 and 3. These include assessing proposed construction sites for potential
biodiversity or environmental concerns, including waste management measures and site clean-up
requirements in construction designs and contracts, environmental screening of micro-project
proposals, etc. The EMP also lays out responsibilities of the MENR and other government
agencies, the PIU and micro-project beneficiaries. These include carrying out the appropriate
level of environmental screening or assessment, based on the type of activity in question,
obtaining required clearances and environmental permits and monitoring compliance and impact.
Public Participation
Public consultation during project preparation included over 30 meetings in both project
areas, involving over 700 local stakeholders. Consultants preparing the EIA met with
27
stakeholders in including local public officials (local representatives of the Rayon Executive
Authorities, local staff of concerned Ministries, Directors of Ismailly and Pirkuli Nature
Reserves and of six Forestry Units), elected municipality leaders, NGOs, representatives of the
scientific community, school directors and teachers and other community members including
elders (aksakkals), shepherds, farmers, small business owners, handicraft makers, youth and
women. NGOs participating in the discussions included WWV-Azerbaijan, Chevre, Biodiversity
Centre, Zoological Society, Hayajan, Regional Resource Centre, and Matanat. The consultant
preparing the Process Framework met with communities to discuss their perceptions and
concerns, such as anticipated restrictions on access to pastures and their priorities for
development assistance and delivery mechanisms. Most of the consultants undertaking
preparation studies also met with local stakeholders to discuss the specific aspects of the project
with which they were concerned, as did members of the World Bank task team during
preparation support missions. The meetings have been facilitated by local Project Coordinators
based in Guba and Nakhchivan respectively, and details are available from the PIU.
A second phase of public consultations will take place in January, 2005, after the EA document
and the Process Framework are finalized and available for public review and discussion. This
round will allow stakeholders to review findings and comment on proposed mitigation and
management options. The consultations will be carried out by the Project Implementation Unit /
two regional Project Coordination Units, with the assistance of several NGOs which have
expressed their willingness to help facilitate such meetings and have appropriate experience and
facilities. Some of these NGOs have been collaborating with the project team (e.g., the NGO
Saniya participated in 2001 Identification Mission), and/or are engaged in related projects (e.g.,
Caucasus Environmental NGO Network; the Regional Environmental Center), or are working
with vulnerable groups such as women and youth in the region (e.g. the National Assembly of
Youth Organizations; the Civil Initiatives Center). The Aarhus Convention Center, supported by
the OECD and based in the Ministry of Ecology, will be one of the locations for dissemination of
the EIA and PF documents. The PIU will document all the meetings and have relevant minutes
and protocols archived in files.
6. Safeguard policies
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP/GP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Cultural Property (OPN 11.03, being revised as OP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OD 4.20, being revised as OP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP/GP 7.60)*
Projects on International Waterways (OP/BP/GP 7.50)
*
Yes
[ x]
[x ]
[]
[]
[ x]
[]
[x ]
[]
[]
[]
No
[]
[]
[x ]
[]
[]
[x ]
[]
[ x]
[x ]
[x ]
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas
28
The Natural Habitats policy and the Forest policy are triggered because the project areas include
relatively pristine natural habitats, a large part of which is indigenous forest, for which
management plans will be developed and implemented. However, the project will result in
improved protection of these areas, not result in any destruction or increased exploitation.
Natural areas with high biodiversity value, including the existing PAs, will be incorporated into
the two new NPs as core conservation areas, and their protection is expected to improve as a
result of the project. All management activities relating to natural forests and other natural
habitats will be consistent with the WB policies.
7. Policy Exceptions and Readiness
TO BE COMPLETED AT APPRAISAL
Issues to be addressed include:
Legal Framework for Protected Areas: indicate whether revisions are required for establishment
of the multiple use/multiple ownership National Park; possible conflict between the Law on
Specially Protected Natural Areas and the Land Code.
29
Annex 1: Country and Sector or Program Background
AZERBAIJAN: Rural Environment Project
Country and sector issues
Azerbaijan is a mountainous country of 86,600 km2 and a population of about 8 million
people. It lies on the western coast of the Caspian Sea among the mountain ranges of the Greater
and Lesser Caucasus and the Talish mountains. Mountains cover about 44 percent of the
territory, and forests cover about 11 percent.
Azerbaijan became independent in 1991 and embarked on a transition towards a market
economy. The country’s economic prospects were bright at the dawn of the 20 th century due to
oil and gas resources, but then slipped to become one of 7 lowest income countries in the ECA
Region. According to the Interim Poverty Reduction Strategy paper (2001), 90 percent of the
population suffered a decline in their monthly mean expenditures between 1995 and 1999. Over
the past five years, however, there has been progress in many areas. Azerbaijan is moving
towards middle income status as benefits from increasing oil development start to flow. But the
country faces continuing problems of regional income disparities. Poverty assessments indicate
that rural poverty rates are somewhat lower than urban in general, but this is not true of mountain
areas, where they are among the highest in the country. Almost all crop agriculture comes from
low elevation, irrigated lands, while those at high elevations rely primarily on extensive livestock
production. Most people in the project areas are under the poverty line of US$ 24 per month
(average income is $16 per month in villages above 2000 meters).
Azerbaijan has been
amongst leaders in CIS in farm privatization and registration of arable land, but this has also
been mainly in low elevation areas with limited progress in the highlands, while land rights and
responsibilities for pasture and forest land remain unclear.
Azerbaijan is facing many of the same challenges as other CIS transition economies,
including severe economic contraction during early 1990’s, with sharp increase in poverty, and a
daunting agenda of policy and institutional reforms needed to redefine the role of the state and
create essential underpinnings of a market economy. One of the six strategic pillars of the State
Program on Poverty Reduction and Economic Development (SPPRED) is an enabling
environment for income-generating opportunities.
POLICY AND LEGISLATIVE BASIS FOR ENVIRONMENTAL MANAGEMENT AND NATURE
PROTECTION
The Constitution of the Azerbaijan Republic (1995) recognizes the importance of
environmental management. Article 39 states (inter alia) that everyone has the right to live in a
healthy environment and the right to information about ecological conditions. Article 78
declares that every citizen is responsible for the protection of the environment, and Chapter IX
empowers municipalities to approve and implement local ecological programs. The Law on
Environmental Protection (1999), provides a strong legal, economic and social framework, with
30
provisions to: “guarantee environmental safety and the ecological balance of the environment,
prevent the impact of socioeconomic and other activities, preserve biological diversity, and
effectively manage the use of nature” It calls “balancing the achievement of social, economic,
moral and aesthetic objectives” and also for ‘”the participation of the general public and civic
organizations in environmental protection.” It also stipulates that the preservation of biological
diversity is one of the basic environmental principles, and gives the State supreme powers and
duties in defining biodiversity conservation policy, including: (i) issuing decisions on, setting
quotas and limits for, and regulating use of plants, wild animals and other natural resources;
(ii)approving and implementing conceptual plans and comprehensive programs for the use,
conservation and renewal of natural resources; (iii) designing and undertaking national
inventories and monitoring for environment and natural resources; (iv) maintaining a national list
of rare and endangered plant and animal species (national Red Data Book); and (v) approving
the list of special environmental sites of scientific, environmental and biological importance and
establishing protected areas.
The National Environmental Action Plan (NEAP), completed in 1998, identified
environmental issues and proposed short, medium and long term actions in six priority areas:






Pollution damage from industries (particularly oil and petrochemicals), energy and
transport;
Problems of the Caspian Sea, including the dramatic decline in sturgeon populations;
Protecting biological diversity and forest, pasture and agricultural land management;
Cultural heritage;
Ecological problems with regional or global impacts; and
Development of the institutional and policy framework to monitor, coordinate and
manage environmental issues more effectively.
The Urgent Environmental Investment Project (UEIP)25 focused on petrochemical and
Caspian Sea issues, as does the Caspian Environment Program, in which Azerbaijan is a
participant. Several additional potential IDA-financed operations have been identified to
continue support in these areas. The proposed Rural Environment Project addresses the priorities
of biodiversity protection and forest and pasture management, targeting the mountain areas
which are identified in the national Biodiversity Strategy and Action Plan as being among the
country’s most important in terms of regional and global biodiversity significance. These
mountains are also important cultural heritage areas, as well as serving as a major watershed for
the capital of Baku and other urban and industrial areas.
A sound regulatory framework for environmental management is in place, although
implementation capacity and compliance need strengthening. The Ministry of Ecology and
Natural Resources (MENR) was created in 2001 to integrate all aspects of environmental
protection and management, including environmental assessment and monitoring (including
reporting on the state of the environment), management of forests and wildlife resources, and of
specially protected natural areas26. Azerbaijan has made significant progress since 1992 in
25
IDA, 1998
There is an independent Ministry of Environment and Natural Resources in the Nakhchivan Autonomous
Republic, with similar responsibilities
26
31
international cooperation on nature protection, by becoming Party to five international
conventions dealing with biodiversity and adopting laws on protection of nature, wildlife and
protected areas27. In addition to the Law on Environmental Protection, the most recent and
important is the Law on Specially Protected Natural Areas and Objects (2000) and the associated
Presidential Decree for its application. This law provides the legal basis for protecting and
preserving natural areas in the territory of Azerbaijan. Such areas are defined for the “protection
of biological variety and ecology,” and to provide for tourism and recreation. The law includes
provisions for taking into consideration social and economic factors and interests of local people,
and for participation of the population and social organizations in preserving PAs. The Law on
Wildlife (1999) defines principles of wildlife management including monitoring, habitat
preservation, conservation of wintering and nesting grounds and forms and rights of use
(including fee-based hunting). Similarly, the Forest Code (1997) defines State ownership of all
forests and makes provisions for use of this forest fund based on lease agreements and
permits/licenses.
The National Strategy and Action Plan on Biodiversity Conservation (NSAPBS)28
identifies priorities for biodiversity conservation, including developing strategic plans for
protection of biodiversity “hotspots;” updating and completing biological inventories;
developing realistic, ecologically-driven and participatory forest management plans; improving
financial resources for management and expansion of Protected Areas (including through
partnership with other government agencies, NGOs and local communities), and revising the
legal and regulatory framework to support these objectives. The strategy is built upon two main
pillars: (i) preservation, improvement and rehabilitation of key ecosystems and natural habitats
by enhancing and efficient management of protected areas; and (ii) optimal utilization of the
co8untry’s economic and social potential at the national and regional level, including sustainable
usage of the biological diversity of Azerbaijan. The NEAP also identifies specific biodiversity
conservation priorities, including strengthening of the PA network through: (i) the adoption of
national parks as instruments for the sustainable use of biodiversity, to complement the existing
protected area network which emphasizes strict nature reserves; (ii) creation of new protected
areas (including Shah-Dag National Park and Ordubad National Park among the top priorities),
and (iii) the implementation of pilot projects in sustainable uses of biodiversity which address
rural poverty as a root cause of biodiversity degradation and loss. These priorities have been
included in a “Development Chart of the Specially Protected Natural Territories Network of
Azerbaijan to 2010,” prepared by the national Academy of Sciences.
Currently PAs cover approximately 7 percent of the country29, but most are small and
fragmented, and the overall network is incomplete in terms of ecosystem coverage. The GOA
signed the Convention on Biological Diversity in 2001, and has made a major commitment to
protecting biodiversity, including maintaining and substantially increasing expanding the
nation’s Protected Area (PA) system. This includes the establishment of a national ecological
27
Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES); Convention on
Wetlands of International Importance (RAMSAR), Convention on the Conservation of European Wildlife and
Natural Habitats (Bern), Convention for the Protection of the World Cultural and Natural Heritage (Paris)
28
Preparation begun in 2003, by the State Committee for Ecology, I cooperation with stakeholders inside and
outside Government (funding and Technical Assistance from GEF/UNDP)
29
Comprised of 38 PAs: 14 Strict Nature Reserves, 20 sanctuaries, 4 national parks
32
network of specially protected natural areas (AZECONET), incorporating the most important
terrestrial habitats and ecosystems requiring protection. By 2010 the PA system is to be
expanded by 500,000 hectares. Creation of the Shah Dag NP and expansion of the ONP are
among the highest priorities.
However, management of existing PAs remains insufficient, due to factors such as
institutional weakness and inadequate human and financial resources, and poverty and pressure
for economic development in rural areas. Furthermore, the prevailing model for PAs in
Azerbaijan, as in much of the CIS, is based on centrally controlled, Strict Nature Reserves
(Zapovedniks)30.
While strict reserves are needed to protect the highest value and most
vulnerable ecosystems, as a rule this model is not well suited to current socio-economic and
political conditions, which call for greater attention to economic sustainability and to addressing
the needs of local communities. Also, in view of development pressures in rural areas, it will
clearly not be possible to establish an additional 500,000 hectares of exclusive, strict nature
reserves. Therefore, in accordance with the NSAPBC, the GOA created the country’s first four
National Parks in 2003-200431. National Parks have the status of PAs32 but, unlike Strict Nature
Reserves, allow for zones of limited economic activity (primarily tourism). However, current
legislation describing objectives and responsibilities of NPs does not include any provision
regarding benefiting communities, and the four National Parks created to date do not make any
such provisions in their management. The opportunity to pilot and demonstrate a more inclusive
approach on a large scale is one of the main benefits and objectives of the proposed project.
NATURAL RESOURCE MANAGEMENT
Virtually all natural forest in Azerbaijan belongs to the State and is designated as Forest
Fund land. The effectiveness of forest management in the country is limited by financial
constraints and by a lack of technical and institutional experience in forest inventory and
planning. Prior to independence, forest inventory and planning was centralized in Moscow, and
field inventory work were the responsibility for by the Caucasian Forest Stocks Projection
Institute in Georgia. The completed management plans were simply given to the Azerbaijani
forestry staff to implement. Since 2002, the Forestry Development Department and its Forest
Protection and Rehabilitation Units (MENR) have been responsible for developing forest
management plans, but they lack the necessary training and experience, particularly in modern
methods and approaches. Since 2003, all forest cutting, for either commercial or sanitary
purposes have been suspended by the MENR, and officially only forest residues are collected
and sold. However, it is generally recognized that large quantities of standing trees (an estimated
30,000 – 40,000 m3/year of wood) continue to be cut illegally.
According to the most recent comprehensive forest inventory (1984), the total woodland
area of Azerbaijan was 1,213,700 hectares, or 14% of the total territory33. By 2001 it was
30
The other main category of PA under the Soviet system, Wildlife Sanctuaries (Zakazniks), are primarily for
control of hunting and are generally not managed as actual PAs
31
Ordubad, Shirvan, Ag-Gel and Absheron NPs
32
Nature Protection Institution and Research Institution under the Ministry of Ecology and Natural Resources
33
Compared with 34% forest cover in Russia and 40% in Georgia
33
estimated to have declined to 11%, or lower. A National Programme on the Rehabilitation and
Extension of Forests (established by Presidential Decree in December, 2001) aims to restore
20,000 hectares of existing forest and plant some 43,000 hectares of new forest. However, due
to insufficient funding, only about 3000 hectares of planting were completed in 2003.
All high elevation summer pastures and a large proportion of mid-elevation winter
pastures belong to the State, as part of the Azerbaijan Republic national land fund. There are
also some pasture areas and hayfields belonging to, or under the management of, local
municipalities. Municipal pastures are free from taxation, while State pastures are leased by the
State Land Committee, together with Rayon Executive Authorities, to individuals or companies
for fee on the basis of grazing permits. Lease periods are typically 10-15 years. Those applying
for grazing permits indicate the number of animals to be grazed, and are allocated suitable land
areas based on official stocking rates that take into account factors such as vegetation coverage,
soil condition, etc. On average the official rates are 4-6 head per hectare for winter pastures and
somewhat higher for summer pastures. However, there are no legal provisions in the grazing
contracts, and no monitoring on the part of authorities, to ensure that these stocking limits are
followed. In fact, it is estimated that in the Shah Dag area, actual stocking level are as much as
five times higher than the official rates (a total of about 2.5 million animals, as opposed to
500,000).
As a whole, Azerbaijan has a serious problem of water deficit and poor water quality.
While this is more of an issue in arid lowland areas, mountain regions also experience low
rainfall, placing a major constraint on agricultural production. Rivers carry heavy sediment
loads due to soil erosion from overgrazing and deforestation. The Water Code (1997), the Law
on Amelioration and Irrigation, and the Law on Water Supply and Wastewater (1999) set the
legal basis for water use and management in Azerbaijan. The Water code encompasses
principles of economic development and environmental protection, and calls for water
management to be based on river basins. In practice, however, it is based on administrative units
with little coordination within river basins. The State Committee of Amelioration and Water
Management (SCAWM) is primarily responsible for management of water resources in the
Azerbaijan, including allocation of abstraction rights for surface water and monitoring of use
levels34. However, since its creation, the MENR has overall responsibility for the conservation
of water resources and the prevention of pollution, and for monitoring water quality and
abundance, so there is overlap in the mandates. In practice, the SCAWM focuses mainly on
irrigation, including improvement of irrigated land. Agriculture in lowland areas is heavily
dependent upon irrigation, but irrigation is poorly developed in mountain areas. Water use for
irrigation has declined significantly since independent, in large part as a result of deterioration in
infrastructure. Fees for water abstraction have not kept up with inflation, and water payment
systems are generally not based on actual water use. Thus there is little incentive for
downstream users (such as lowland farmers and urban populations) to save water or to support
watershed protection.
34
The National Geological Exploration Service (MENR) is responsible for regulating
and controlling abstraction of groundwater.
34
GLOBAL BIODIVERSITY SIGNIFICANCE
Azerbaijan lies at a crossroads where the flora and fauna of three biogeographic regions
converge, resulting in high biodiversity. The region contains species typical of Europe (e.g.
bear, lynx, chamois, red deer), Central Asia (e.g. wild goat, leopard) and Asia Minor (e.g. striped
hyena, Persian gazelle). The Caucasus mountains have been identified by the World Wide Fund
(WWF) for Nature as a Global 200 Ecoregion, and by Conservation International as one of the
world’s 25 biodiversity “hotspots” (the only one in the ECA region)35. These designations are
based on criteria such as high species richness, levels of endemism, and taxonomic uniqueness.
The Caucasus “hotspot,” which spans six countries, has one of the highest levels of endemism in
the temperate world, and is believed to contain more than twice the animal diversity found in
adjacent regions of Europe and Asia. It has been named a large herbivore hotspot by WWF's
Large Herbivore Initiative, as eleven species of large herbivores, as well as five large carnivores,
are found over a relatively small area. The flora is particularly rich in endemic and relict plants
that escaped a series of glaciations in sheltered pockets. The vegetation of the Caucasus
represents one of the richest gene banks of plant species useful for agriculture and medicine. It
includes over 7,000 plant species, of which 4500 can be found in Azerbaijan (along with 600
species of vertebrates and at least 14,000 species of insects). Seven percent (270) of
Azerbaijan’s plant species are endemic to the country.
The Greater and Lesser Caucasus regions in Azerbaijan are represented by vast forests,
which make up over 48 percent of all the forest areas of the country. The flora is dominated by
oak species, mixed with others such as hornbeam, lime, sweet chestnut, ash and others at lower
altitudes, and burch, beech and maple in the higher zones. Pine forests are restricted to several
areas in the east. The mountain zone also contains Caucasian pear (Pyrus caucasicum) and
Oriental apple (Malus orientalis), and other wild relatives of major horticultural species. From
2500 to 3000 meters above sea level, the rich sub-alpine zone contains regionally endemic birch
and oak species. Above that lies the alpine zone, dominated by short-grass meadows, alpine
meadows and Rhododendron, and a sub-nival zone with over 300 plant species, many of them
associated with rock and talus substrates.
Through a series of analytical reports and stakeholder workshops, the Critical Ecosystem
Partnership Fund36 has recently completed an ecosystem profile and five year investment
strategy for the Caucasus eco-region. The ecosystem profile emphasizes conservation outcome
targets defined at three levels: species (extinctions avoided); sites (areas protected); and
landscapes (corridors created). Local conservation experts and other stakeholders identified 10
corridors that encompass the vast majority of outcomes defined for the Caucasus hotspot,
including most of the 51 globally threatened species. Five of these areas were identified as top
priority for conservation action, taking into account representativeness, level of biodiversity,
threats, current investments and other factors. These five corridors, covering 14.2 million
hectares, account for 68 percent of the total area and 66 percent of the site outcomes of all
35
The Caucasus hotspot spans 500,000 km2 of mountains between the Black Sea and Caspian Sea, including parts
of Georgia, Armenia, Azerbaijan, and small parts of Russia, Iran and Turkey.
36
joint initiative of Conservation International (CI), the Global Environment Facility (GEF), the Government
of Japan, the MacArthur Foundation and the World Bank
35
10 corridors. Ninety percent (46) of the species outcomes are found in these five corridors,
including all six critically endangered species. All 18 landscape species are represented within
the five target corridors, as well as half of the bird congregation areas, and 14 of the 17
restricted-range species that are found in all 10 corridors. All major habitats are represented in
the target corridors.
Two of these five target corridors are the Greater Caucasus (including the proposed Shah
Dag NP) and the East Lesser Caucasus (including the Ordubad NP). The Greater Caucasus
Corridor consists of about 4.68 million hectares of middle and high mountain areas of the
Greater Caucasus Range. The profile identified 40 specific “outcome sites” in the Greater
Caucasus corridor, making up almost half the total area, containing twenty globally threatened
and seven restricted-range species. About 35 percent of the corridor is currently under some
form of protection, including 15 strict nature reserves, three national parks and 23 sanctuaries
and other areas. In several cases there are adjacent reserves on opposite sides of national
borders, offering great potential for transboundary cooperation, for example in the form of
wildlife corridors to facilitate migration. Illegal logging, overgrazing, poaching and political
strife were identified as the main threats to biodiversity in the region. The Easet Lesser
Caucasus Corridor is home to 14 globally threatened species, including leopard and hyena. The
Ordubad NP includes portions of transboundary migration corridors for four endangered
ungulate species.
In addition to their significance as global, regional and national biodiversity assets, both
the SDNP and ONP represent important economic assets, due to their rich natural resources and
tourism potential. The proposed expanded ONP contains a large proportion of all high elevation
pasture in the Nakchchivan Autonomous Republic. Shah Dag is Azerbaijan’s second highest
mountain and serves as a watershed which provides much of the water for Baku and the
Absheron Peninsula, which is home to nearly 30 percent of the country’s population.
THREATS TO BIODIVERSITY
During the Soviet era, Azerbaijan imported large amounts of wood from Russia and other
parts of the USSR, and also distributed subsidized natural gas in mountain areas. Since the
collapse of the USSR, deforestation has become a major threat to Azerbaijan’s biodiversity, due
to both illegal harvesting of timber and uncontrolled fuelwood exploitation. The presence of
large numbers of internally displaced people from the war with Armenia has further aggravated
the situation, as has a greatly weakened government forest service. Forest edges are also being
pushed back (to higher elevations) through grazing pressure.
Overgrazing of pastures due to overstocking has also become a major problem, beginning
in the late 1980s as herds grew in response to growing unemployment and declining economic
opportunities in other sectors. There is clear evidence of overgrazing at all altitudinal levels
(montane, sub-alpine and alpine), with a visible trend of replacement of the original grassland
species by unpalatable or grazing-resistant species such as sedges, flatweeds, and mat-grass. In
sub-alpine meadows, which serve as summer pastures overgrazing and associated disturbance is
contributing to declines in wild goats and chamois. In the lowland grasslands, where the same
sheep herds go for winter pasture, severe overgrazing is significantly impacting the endemic
36
flora and fauna of steppe ecosystems. Competition for grazing has contributed to the decline of
Persian gazelle and, indirectly, striped hyena. Traditionally, sheep were grazed in alpine
meadows, with subalpine meadows reserved for fodder production and used during the winter
months. However, traditional grazing areas in the north Caucasus (Dagestan, Georgia) are no
longer accessible, and livestock is kept nearer to villages all year round, resulting in overgrazing
of subalpine meadows as well as degradation of fragile subalpine woodland ecosystems.
There is evidence of significant declines in populations of large mammals, particularly
ungulates and predators such as wolf, lynx and brown bear. While there is little by way of
concrete data, it is believed that illegal hunting has a significant impact, along with habitat loss
and competition with domestic livestock.
RELATION TO GEF OPERATIONAL PROGRAMS
The proposed project falls under the Biodiversity Conservation Focal Area of the GEF,
and is consistent with several GEF Operational Programs: Biodiversity, Mountain Ecosystems,
Forest Ecosystems, and Integrated Ecosystem Management.
The project’s proposed
interventions follow the GEF OP guidance by emphasizing the creation of an enabling
environment for biodiversity conservation, forest and rangeland management; supporting
sustainable protected areas; the strengthening of institutional capacities at local, regional and
national levels; and investing in sustainable natural resource management.
37
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
AZERBAIJAN: Rural Environment Project
PROJECT/DATE
DONOR
SECTOR ISSUES
ADDRESSED
Urgent Environmental
Investment Project
IDA
Cultural Heritage
Project (1999)
IDA
Caspian Environment
Programme
GEF/UNDP
Trans Caucasus
Tourism Initiative (Pilot
Program)
Small CDD Grants
Program
Preparation of
Biodiversity Strategy,
Action Plan and
National Report
Caucasus Ecosystem
Profile
WB/ Govt. of
Switzerland
Building institutional capacity
for environmental management
(MENR),
Restoring cultural heritage sites
in Baku, Sheki and Khatum
(Nakhchivan); supporting
community-led tourism, training
and capacity-building
Develop and implement
strategies for restoring and
managing biodiversity and
environmental quality of the
Caspian Sea (including a small
grants program implemented by
WB)
Development of infrastructure
and capacity for communitybased tourism
Transboundary Grants
Programme
Swiss
Government,
through
Regional
Environment
Center for
Caucasus
WB/Norwegian
Trust Fund
GEF/UNDP
Critical
Ecosystem
Partnership Fund
Identified priority conservation
areas and targets; will provide
small grants to NGOs to support
implementation of the resulting
strategy
Conservation of highland
ecosystems, community-based
natural resource management,
protection of endangered species
38
OED Rating or IP/DO
ratings from PSR
(For WB-financed
Projects)
Annex 3: Results Framework and Monitoring
AZERBAIJAN: Rural Environment Project
Outcome Indicators
PDO
To introduce improved natural
resource management and related
economic activities in two
mountainous areas of Azerbaijan,
in order to enhance the ecological
quality and the sustainable
productivity of high elevation
forests and pastures
Establishment of a pasture
management and monitoring
system over approximately
35,000 ha
Preparation of forest
management plans based on
updated inventories
Adoption of improved livestock
husbandry methods by at least
20% of residents of target
villages
Global Objective
To protect biodiversity in two
globally significant biodiversity
areas within the Caucasus and
Zangezur mountains, and
introduce and pilot an inclusive
model of Protected Area
management in Azerbaijan
Addition of 353,000 ha to the
Protected Areas system of
Azerbaijan
Adoption of key elements of
stakeholder participation and
multi-purpose management
approach in other PAs in
Azerbaijan
39
Use of Outcome Information
Monitoring data from pilot
pasture areas will be used to
assess and raise awareness
concerning the benefits of
improved pasture management.
The quality of forest
management plans will indicate
success of capacity building in
forest management.
The extent to which farmers in
participating villages adopt
improved livestock methods
under the project will indicate
whether a broader economic
transition is likely to be
successful in the longer term
Successful establishment of
SDNP and expansion of ONP
will indicate that the multiple
use/multiple ownership model of
PA is feasible in the Azerbaijan
context
Successful involvement of
stakeholders in park planning and
management under the project
will indicate that Azerbaijan is
ready to move beyond the
traditional centralized control
model
Intermediate Results
One per Component
Component 1 (Park
Establishment and
Management)
Results Indicators for Each
Component*
353,000 additional hectares
legally designated as protected
area (approval of NP charters)
Establishment and increasingly
effective management of two
model large, multiple-use
National Parks (Shah Dag and
Ordubad)
100% of planned NP
management positions, and 75%
of planned staff positions filled
with qualified personnel
NP Governing Board established
Management and zoning plans
completed for SDNP and ONP
Increase in number of people
entering SDNP park, who
indicate their primary purpose is
tourism
Percent increase in dry
vegetation biomass in Priority 1
pasture
conservation/management areas
Component 2 (Communitylevel investment in sustainable
agriculture and natural
resource management)
Traditional economic activities
(particularly livestock
husbandry) shifted towards more
modern, value-added approaches
that place less demand on natural
resources
Increase in average value of
ecological forest quality index
for SDNP
Hectares under forage crop
production in the target village
clusters
Percent increase in average
household income from dairy
products in target village clusters
Number of cows/village/year
artificially inseminated in target
village clusters
Number of hectares of trees
planted (on municipal &
unforested Forest Fund land)
Number of village pasture
management plans prepared (for
municipal pastures)
40
Use of Results Monitoring
Establishment of Governing
Board and filling of management
and staff positions will signal
readiness to move into
implementation of Component 1
activities
Completion of management and
zoning plans will indicate that
mechanisms for participatory
planning and management are in
place, and will trigger investment
in infrastructure, equipment, etc.
Increase in tourist entries to
SDNP will indicate infrastructure
investment and other support for
tourism development is
successful
Improvements in measures of
pasture and forest quality will
indicate that technical approaches
are appropriate and management
institutions are functioning as
intended
Adoption of forage crop
production and artificial
insemination, and preparation of
pasture management plans, will
confirm local farmers’
commitment to shifting to more
modern and sustainable livestock
production
Increase in average household
income from dairy products will
indicate strategies for
transforming livestock
production are successful and
profitable
Meeting tree planting targets will
confirm local communities’
commitment to become more
self-sufficient in fuel production
and reduce pressure on natural
forest
Component 3 (Rural
Enterprise Development)
Opportunities for development of
environmentally friendly local
small/medium enterprises
demonstrated (with particular
emphasis on tourism)
Number of business plans
developed with assistance of
Mobile Business Advisory teams
Percentage of the business plans
that relate to tourism
Number of grants awarded for
small enterprises
Meeting the target for total
number of business plans (200),
and a high proportion of
proposed enterprises (150)
qualifying for grants, will
confirm demand and
commitment on the part of local
entrepreneurs and indicate that
the Business Advisory Teams are
functioning well
If a substantial proportion (30%
or more) of business plans relate
to tourism enterprises, it will
confirm that tourism is regarded
as a promising economic sector
and strengthen the case that it can
become a viable alternative to
destructive natural resource use
Component 4 (Project
Management and Monitoring)
Project objectives and targets of
multi-sectoral coordination and
implementation achieved
Project Monitoring and
Evaluation indicators identified
and tracked
Socio-economic impact
indicators identified and tracked
Survey results show significant
increased local knowledge and
understanding of, and support
for, the two multi-purpose
National Parks
Shah Dag region tourism strategy
and plan prepared and supported
by broad stakeholder group
Percent of activities in Annual
Work Plans completed on
schedule
*Quantitative targets provided in results monitoring table
41
Achievement of these targets will
indicate the PIU is functioning
effectively, and that there is
commitment to cross-sectoral
coordination.
Results from the socio-economic
impact monitoring may lead to
changes in project design or
implementation, aimed at
avoiding negative impacts and
maximizing local benefits
Arrangements for results monitoring
Outcome Indicators
Baseline
Target Values
YR2
YR3
YR1
YR4
Data Collection and Reporting
Frequency and
Data Collection
Responsibility for
Reports
Instruments
Data Collection
Results Indicators for Each
Component
Component One :
Approval of NP charters
0
75% of NP planned management
staff positions filled
0
NP Governing Board established
0
1
Management and zoning plans
completed
0
inventories;
staff
training
Increase in number of people
entering park who indicate their
primary purpose is tourism
TBD in Yr. 1
with survey
1
Signed Charter
100% dept.
heads;
30% staff
100% dept.
heads;
75% staff
PIU
MENR
PIU
1
MENR
25%
Hectares under protection (Protected
Area)
SDNP
Ordubad NP
84,000 ha
12,200 ha
343,000 ha
137,000 ha
Increase in biomass in highest
priority pasture areas (as determined
by management plans)
TBD by NP
management
plan
Baseline
determined
Change in average value of a forest
quality index in SDNP
Determined
by inventory
in Yr. 1
10%
Baseline
determined
42
NP Authority
Resolution of the
Cabinet of
Ministers
PIU
NP management
plans, M&E
reports
NP Authority
>0
NP Authority
Outcome Indicators
Baseline
Target Values*
YR2
YR3
YR1
YR4
Data Collection and Reporting
Frequency and
Data Collection
Responsibility for
Reports
Instruments
Data Collection
Component Two :
Hectares under forage crop
production
Negligible
(~ 0 ha)
TBD
TBD
TBD
TBD
Rayon Executive
Authority
Number of hybrid cows in project
area
TBD
TBD
TBD
2000
5000
Rayon Executive
Authority
Increase in average household
income from dairy products in
villages receiving assistance
TBD by
appraisal
10% over
baseline
20% over
baseline
Hectares of trees planted
(municipal & deforested Forest
Fund land)
0
300 ha
Number of village pasture
management plans for municipal
pastures
0
5
15
During 3rd and 4th
year
Household income
survey
PIU
1000 ha
Municipality &
PIU
25
PIU
Component Three:
Mobile teams of business advisors
hired and equipped
0 mobile
teams
Business plans developed
0
Grants provided for small
enterprises
0
150
% of business plans related to
tourism
0
30%
5 mobile
teams
PIU
100
200
43
Business Service
providers
PIU
Business Service
providers
Component Four:
I.R.
indicators
identified
All
indicators
Identified;
baselines
completed
Tracking
Increased knowledge,
understanding and support for
multiple-use parks
No info
Design
survey &
baseline
Interim
survey
E.O.P.
survey
survey
PIU
Socio-economic impact indicators
developed and tracked
No info
Design
survey &
baseline
Interim
survey
E.O.P.
survey
survey
PIU
Shah Dag regional tourism strategy
developed and supported by broad
stakeholder group
General
MoT
strategy
exists
Mechanism
in place
Draft
strategy
and plan
Stakeholder
endorsement
80%
80%
80%
Monitoring and Evaluation
indicators identified and tracked
% of activities in annual work plans
completed on schedule
Tracking
* cumulative values
44
Tracking
Yearly
PIU
PIU
80%
Progress reports
PIU
Annex 4: Detailed Project Description
AZERBAIJAN: Rural Environment Project
The project will support the restoration, protection and improved management of
economically and biologically important forest and pasture land, much of which is currently
poorly managed and heavily degraded. It also aims to reduce pressure on these natural resources
by assisting local communities to develop alternatives (e.g., woodlots and livestock fodder), to
improve the productivity and sustainability of their traditional economic activities (particularly
livestock husbandry), and to diversify into other economic activities such as tourism, handicrafts,
and marketing of sustainably harvested non-timber forest products.
The main instrument for achieving these objectives will be the creation of two large,
inclusive national parks (NPs). These will differ from the four existing NPs in the country,
which have no resident populations and in which tourism is the only permitted economic activity
or land use other than protection and research37. The Shah Dag National Park (SDNP) and the
enlarged Ordubad National Park (ONP) will be created using a multiple-use/landscape
management model, including an institutional structure park management which includes local
communities and other stakeholders. Also unlike existing NPs, the parks will have an explicit
objective (stated in their Charters) of providing benefits for local communities, in addition to
protecting biodiversity and natural ecosystems. While common in western and central Europe,
this model of PA is new to most CIS countries, including Azerbaijan.
The multiple-use model will allow existing residents of the park areas to remain in place,
retain ownership of their land, and to engage in environmentally sustainable agriculture and other
activities, based on jointly developed zoning and management plans. Updated inventories and
assessments to be undertaken during the first year of the project will be used to identify core
conservation areas for strict biodiversity protection, and to determine the types and levels of
acceptable land and resource use in other areas. The project will also include a variety of
measures to help close the gap between local demand for, and sustainable supply of, wood
products. Similarly, pressure on natural pressures will be reduced by promoting and supporting
fodder production and stall feeding.
Tourism represents one of the few sectors in which biodiversity-rich areas, including
mountains, have a comparative advantage, and there is growing interest in and support for
transboundary tourism in the Caucasus ecoregion. Therefore, developing park infrastructure and
management capacity for ecotourism, and assisting local communities to develop tourism-related
economic activities, are also important project objectives. Tourism development planning for the
parks will emphasize integration both with national tourism strategies and priorities (e.g. propoor rural tourism, cultural heritage attractions, national circuits) and regional (transboundary)
initiatives.
37
Strict Nature Reserves (Zapovedniks) do not even allow tourism
45
The economic development aspect of the project consists of two elements: (i)
community-level investment to restore and improve the productive base for agriculture and
livestock (e.g. pasture improvement, small scale infrastructure, access to agricultural machinery,
basic services to support genetic improvement of livestock, etc.); and (ii) assistance to individual
entrepreneurs to start or expand environmentally and economically sound commercial
enterprises. The first element addresses the urgent, short- term need for poverty alleviation and
for mitigating potential negative impacts of new restrictions on access to forests and pastures.
While priority will be given to the villages most affected by such restrictions, it is expected that
most or all villages within the project area will benefit from some assistance under this
component. The second element is intended to help lay the groundwork for a longer-term shift
of the local economic base away from activities based on large-scale, low-value consumption of
natural resources, towards more sustainable alternatives such as tourism, stall-based dairy cattle
and high value, specialty tree crops. This economic evolution will take a considerable period of
time and investment and support from many sources. The aim under this project is necessarily
modest: to provide demonstrations and models, and to catalyze the development of local
financial and technical services and systems to support this type of commercial development
over the long term.
COMPONENT 1. National Parks Establishment and Management (US$ 8.72 million):
This component will support the legal establishment (Shah Dag) and expansion
(Ordubad) of the two national parks, creation and strengthening of modern park management
institutions and systems, and the development and implementation of management plans. The
multiple-use model will be implemented by establishing different management zones within the
parks, including: core conservation zones, restoration zones, sustainable natural resource
management zones, tourism development zones, and residential and economic development
zones. Almost all of the State Forest land in the SDNP (ca. 90,000 ha) is likely to fall into the
core conservation, ecological protection or restoration zones. The 1500 ha of forest that will be
incorporated into the expanded Ordubad NP is expected to become core conservation area.
With respect to pastures, in SDNP, about 10,000 ha is expected to be placed into core
conservation zones, with most of the remaining area zoned for controlled grazing. The existing
Ordubad NP contains about 12,000 ha of high elevation pasture land from which grazing has
already been eliminated and which is likely to become core conservation. The additional
125,000 has to be included in the expanded park will continue to be used for grazing. In both
areas, livestock density is far in excess of the sustainable carrying capacity (in some areas, up to
five times higher). However, their numbers cannot be drastically reduced in the short term, both
because of political pressures and because it would have unacceptable impacts on local
livelihoods. In addition, institutional and technical capacity for pasture and grazing management
will have to be built over time, as there is virtually no existing local experience or capacity. This
is particularly true as the objective is to develop community-based management systems. The
project will focus on starting a transition towards sustainable use by restoring and introducing
management in about 10-20% of the total pasture area, identified as highest priority on the basis
of biodiversity value and ecological functions such as erosion control. These grazing restrictions
46
will be implemented in parallel with measures to compensate for their economic impacts (e.g.
increased fodder production, developing alternative sources of income.
According to Azerbaijan legislation, all land within PAs belongs to the State and falls
under the sole jurisdiction of the Ministry of Ecology and Natural Resources (MENR).
However, the proposed SDNP area contains State, municipal (Balladiya 38) and privately owned
land, and the intention is that the current owners will retain ownership rights, subject to the
park’s restrictions and regulations39. It also covers parts of six Rayons, with ten more holding
grazing rights within the area. A number of central government Ministries and agencies also
have mandates and programs within the area. The project will provide technical and financial
support to establish an institutional structure that provides for the effective participation and
coordination of all these stakeholders (e.g., through a multi-sectoral Board and stakeholder
advisory committees). The expanded ONP will include only a few villages and therefore will not
need a similar institutional structure. The project will support measures to modernize and
improve park management capacity and increase participation of stakeholders in both parks.
Specific activities to be financed under this component include: delineation and
demarcation of park boundaries; technical assistance and training for institutional capacity
building; preparation of zoning and management plans and annual operating plans;
implementation of management plans, including rehabilitation and limited construction of
critical infrastructure needed for park management and supporting activities (e.g. tourism) and
essential equipment; establishment and implementation of an ecological monitoring system; and
operating costs (with GEF covering incremental costs associated with the creation and testing of
new institutional structures and addressing new mandates, such as building partnerships with
local communities and other stakeholders). The component will be implemented by the Ministry
of Ecology, Department of Biodiversity Conservation and Development of Specially Protected
Natural Areas (DBCDSPNA), with support and assistance from the Project Implementation Unit
(PIU). The component will be financed by GEF ($ 2.11 million), IDA ($ 3.65 m), PHRD ($1.70
m) and GOA ($1.27 m).
COMPONENT 2. Community-level investment in sustainable agriculture and natural resource
management (US$ 4.42 million):
This component will assist communities living inside or immediately adjacent to the two
national parks to shift their traditional agricultural and natural resource use practices towards
more modern and efficient approaches that place less pressure on natural resources and natural
ecosystems. The main focus is on livestock husbandry, which is the economic mainstay of local
communities, and also one of the greatest threats to the area’s biodiversity and ecological
systems, particularly in the vulnerable high elevation summer pastures. Component 2 will help
make it possible to reduce grazing pressure, by assisting local communities to shift away from
their reliance on grazing sheep on deteriorating natural pastures, towards a more intensive
Under Azerbaijan law, Municipalities (Balladiyas) are not government structures but are recognized as” nongovernmental systems of organization of citizens’ activity” legally empowered to settle issues of local importance.
They are legal entities and can own land and property and hold bank accounts.
39
Under the principle of “servitude” under Azerbaijan law
38
47
livestock production system involving fodder production and stall feeding of higher quality
animals. In particular, the aim is to promote dairy cattle, which are typically kept close to home
and also offer the greatest potential for a return on investment. Assistance will also be provided
for restoring and improving badly degraded municipal pastures close to villages, and for
development of community-based grazing management plans for these areas. The objective is
not to eliminate extensive sheep grazing on natural pastures entirely, but to make it ecologically
sustainable. For example, due to a shortage of fodder, shepherds currently bring herds into
summer pastures too early, before the vegetation has had a chance to become established. This
destructive practice can only be eliminated through a combination of better controls and
providing viable alternatives such as increased availability of fodder. With the help of a technical
advisory team, communities will develop village investment plans, drawing up on a menu of
options aimed at facilitating this transition in livestock production (inputs, equipment and small
scale irrigation for fodder production; milk collection and storage systems; artificial insemination
services; barn improvement; restoration and management of nearby municipal pastures; etc.).
Villagers have also indicated that access to agricultural machinery and irrigation will enable
them to resume growing potatoes and other crops which were important income earners in the
past.
With the end of subsidized natural gas and timber from the Soviet Union, local forests
have become the main source of wood for fuel and construction in the project areas. Current
local demand for wood in the SDNP area is estimated at 100,000 m3 per year, while sustainable
wood off-take may be as little as 5,000 m3 per year40. The gap is currently being met through
illegal, unsustainable cutting. Restoration and long-term sustainable management of the forests
will require stricter enforcement but, as in the case of pastures, this will have negative impacts on
local welfare and livelihoods. To help address this problem, the project will support communitybased reforestation and management of currently treeless or badly degraded municipal and State
forest lands as an alternative source of wood. It will also support demonstrations of the benefits
of more efficient heating stoves and development and promotion of alternative sources of energy.
Villages will be organized into Village Clusters (VC) for efficiency of service delivery
and to achieve a critical mass of users for sustainability of investments such as agricultural
mechanization centers and milk collection centers. The project will provide such support to 55
villages, in 15 VCs, representing about half of the total population in the two parks41. The
villages and VCs will be selected on the basis of criteria including their dependence on the
natural resources of the park areas (and consequently the threat they currently represent to the
park and their potential to be negatively affected by access restrictions imposed by park
management); their interest in participating and willingness to organize themselves and to
contribute time and labor; the amount of cultivatable land potentially available for forage
production, etc..
40
The precise figure will only be known when new forest inventories and management plans are completed during
Years 1-2 of the project
41
Including 67% of the population inside the SDNP, and 29% of the population of villages inside or close to the
boundaries of the ONP. It should be noted that the expansion of the ONP will have relatively little impact on these
villages, compared to potential impacts on those inside SDNP.
48
Specific activities to be financed under this component include: technical assistance,
small scale works (ponds and pipelines for irrigation; facilities for the MEs); goods and
equipment for the village investments and services; and operating costs for the Municipal
Enterprises that will implement Component 2 activities. This component will be financed by
GEF ($1.19 m), IDA ($2.29 m), PHRD ($ 0.46 m), and Government ($ 0.48 m).
COMPONENT 3: Rural Enterprise Development (US$ 1.96 million)
There is presently little commercial activity in the project areas, other than low value
livestock production. Crops are grown mainly for family use or sold locally. In the past there
were some medium-sized factories and workshops for carpet-making, leather work and other
handicrafts, juice-processing, etc. in the larger towns, but the plants have almost all closed since
the end of the Soviet era. These activities now continue only at a household level with very
limited sales, mainly on an ad hoc basis to tourists. Tourism itself is limited, with approximately
100,000 people per year visiting the Shah Dag area, many of whom are low-spending day
trippers. The few relatively modern accommodations and services are mainly owned by people
from outside the area, while some local families and businessmen running low-end guest houses,
home stays, small restaurants and shops. The project areas are rich in tourism potential and in
natural resources such as wild fruits and nuts, herbs and medicinal plants, honey, etc., but the
revival of commercial activity is severely hampered by a lack of accessible and affordable credit,
poor infrastructure and market access resulting in uncompetitive products; outdated equipment
and facilities, and most of all by a lack of familiarity with modern production, business and
marketing practices. Stimulating small and medium enterprise (SME) development is a popular
focus of both Government and donor-funded programs in the country, but mostly targets urban
and low-elevation (irrigated) agricultural areas. However, people in the project area are highly
motivated to embark upon commercial enterprises, both in familiar (e.g. handicrafts, fruit) and
less familiar (tourism) sectors.
Component 3 aims to stimulate economic diversification in the areas by assisting local
entrepreneurs to obtain the technical and business information and advice and the financing they
need to start or expand small and medium commercial enterprises. The information and advice
will be provided by small mobile business advisory teams funded by the project 42 that will assist
interested clients to identify and assess the viability of commercial ventures, prepare business
plans and, where necessary, obtain financing. The technical advisors will also help PIU and
Government to identify and alleviate policy, regulatory and other types of constraints to SME
development,
The project will support a matching grants program to provide start-up grants of about
$2000 - $10,000, based on an independent evaluation of the business plans. When the business
plans call for a larger amount or longer term financing, the advisors will assist the prospective
entrepreneurs to apply for loans from existing banks or other credit institutions. For both the
technical assistance and matching grants, priority will be given to activities that are linked to
national park objectives, including tourism-related enterprises, alternative energy and energy
efficiency (e.g. improved heating stoves), and value-added processing of sustainably harvested
42
five teams of two long-term local consultants each, with overall support from a short term international consultant
49
(non-threatened) natural resources such as fruits and nuts. Enterprises that support Component
2 objectives (e.g. processing of dairy products) will also be particularly encouraged. Proposals
from the poorest villages, or with a strong public goods element, will receive a higher proportion
of grant financing, up to 100% in some cases. However, grants will only be provided based on a
solid business plan (including market analysis) that indicates the enterprise is likely to be
commercially viable. (Rehabilitation of key access roads under Component 1 is also expected to
contribute significantly to the likelihood of success of businesses, by improving access to inputs
and markets).
Given the time and resources available, the scale of intervention will be relatively small,
with a target of 200 business plans completed and 150 grants awarded by the end of the project43.
The objective is not to achieve a large scale transformation of local economies, but to catalyze a
shift by stimulating interest, demonstrating and testing different types of business opportunities,
building local understanding and capacity for business planning and development, and creating
an environment that will encourage other SME programs and micro-credit institutions to increase
their presence in the project areas. This component will be financed by IDA ($ 0.65 million),
GEF (0.63 million), PHRD ($0.53 million) and Government (0.15 million).
COMPONENT 4: Project Management, Monitoring and Evaluation, and Communications (US$
1.78 million)
This component will support overall project management and administration, including
the staffing and operating costs of a central Project Implementation Unit and three “branch” PIUs
(two in Shah Dag area, one in Ordubad area). The branch offices are needed because of the
remoteness, difficulty of access and poor communications infrastructure of many of the project
sites. They will provide day-to-day support and oversight for project activities and serve as the
home base for long and short term consultants in the field, including the mobile technical teams
described in Component B. The PIU will be responsible for procurement, financial management
and general administration, including facilitating inter-Ministerial and inter-agency coordination.
It will also develop and implement a Monitoring and Evaluation (M&E) system addressing both
project operations and impacts, and be responsible for progress reporting.
Under this component, the PIU will also coordinate several cross-cutting activities,
including the development and implementation of a communications plan (in collaboration with
local authorities and NGOs) to increase awareness and knowledge of the project and its
objectives and activities at all levels and to disseminate information on results; evaluation of the
socio economic impacts of the project (including a detailed baseline survey and assessment, to
fill important existing gaps in the site-specific data socio-economic survey); design and oversight
of monitoring and evaluation of the project as a whole; and facilitating the development of a
cross-sectoral, multi-stakeholder tourism development plan for the greater Shah Dag area. This
component will be financed by GEF ($1.07 m), IDA ($ 0.37 m), and Government ($0.32 m).
43
Since the mobile technical teams will work closely with applicants throughout the process, it is assumed that most
business plans that reach the stage of completion will be eligible for grants
50
Annex 5: Project Costs
AZERBAIJAN: Rural Environment Project
Project Cost By Component and/or Activity
1. National Park establishment and management
2. Community-level investment in agriculture and
natural resource management
3. Small enterprise development
4. Project management, monitoring and evaluation,
and communications
Total Baseline Cost
Physical Contingencies
Price Contingencies
Total Project Costs1
Front-end Fee
Total Financing Required
1
Local
Foreign
Total
US $million US $million US $million
5.46
2.36
7.82
2.68
1.23
3.91
1.64
1.42
0.26
0.24
1.90
1.66
11.20
0.45
0.80
12.44
4.10
0.11
0.22
4.43
15.30
0.56
1.02
16.88
12.44
4.43
16.88
Identifiable taxes and duties are US$m ___, and the total project cost, net of taxes, is
US$m___. Therefore, the share of project cost net of taxes is ___%.
51
Annex 6: Implementation Arrangements
AZERBAIJAN: Rural Environment Project
Project implementation arrangements will be detailed in the Project Implementation
Manual (PIM), which will include Operational Manuals (OM) for Components 2 (community
level investment) and 3 (rural enterprise development). These OMs will be concise and written
in a user-friendly manner to be easily understood and followed by those responsible for
implementation of these activities and by the beneficiaries. A draft PIM will be reviewed at
project appraisal, and an approved final version will be a condition of project effectiveness.
Overall project coordination, implementation and cross-cutting Activities (Component 4)
The Project Implementation Unit (PIU) of the Ministry of Ecology and Natural Resources
(MENR) will be responsible for overall coordination of project implementation, including
program planning, administration, procurement and financial management (except where this is
specifically delegated to others, such as Municipal Enterprises), monitoring and evaluation, and
reporting. The PIU has been in existence for over five years and has considerable previous
experience with World Bank-financed projects.
The PIU Director will have overall
responsibility. However, because the PIU also has other functions (including implementation of
other projects), a Project Coordinator and Assistant Project Coordinator will be engaged
specifically for the REP. They will be selected based both on project administration experience
and on their technical backgrounds, with the aim of covering both the biodiversity
conservation/NRM and the rural development aspects of the project. The Assistant Project
Coordinator will spend half or more of his/her time developing and coordinating the
implementation of the cross-cutting programs for which PIU is directly responsible (M&E,
assessment of socio-economic impacts and tourism plan for the greater Shah Dag area). As
needed, training will be provided to prepare him/her for these responsibilities. The central PIU
will also include a procurement specialist, a financial management specialist and an accountant.
Due to the distances involved and the poor infrastructure in the project areas, three small
Project Coordination Units (PCUs) -- decentralized branches of the PIU -- will also be
established for the life of the project (one in the Ordubad area, one in eastern Shah Dag and one
in western Shah Dag). Each PCU will have a staff of two people: a Local Project Coordinator
with experience in project administration and natural resource management and/or rural
development, and an assistant with experience in procurement and financial
management/accounting. The PCUs will be the local “face” of the project. They will provide
day-to-day advice and support to the implementers of all three components, will be primarily
responsible for liaison between beneficiaries and local governments and the PIU, will keep
records and collect information for the M&E program, and will provide logistical assistance and
serve as a home base for the short and long term technical advisors.
52
Component 1: National Parks Establishment and Management
Under the Law on Specially Protected Natural Areas and Objects (2000), the Ministry of
Ecology and Natural Resources (MENR) has the legal mandate to manage all Specially
Protected Natural Areas (SPNA). MENR therefore will have overall responsibility for
implementation of this component, through its recently established Department of Biodiversity
Conservation and Development of Specially Protected Natural Areas (DBCDSPNA). However,
the DBCDSPNA is a small, central policy and coordination unit, not an implementing body. In
Azerbaijan, each SPNA is established as a separate legal entity with its own Charter, which lays
out its objectives, rules and regulations and a management body (hereafter called the Park
Administration, or Administration). As is the case for all SPNAs, the salaries and basic
operating costs of the ONP and SDNP Administrations will be the responsibility of Government
(recurrent cost budget). However, the project will provide capital investment (additional
facilities and equipment), training and technical assistance, and incremental operating costs
associated with building their capacity to increase their effectiveness and to implement the new
model of a multi-purpose national park.
Ordubad National Park
The ONP is an existing PA, with an approved Charter, and an Administration (ONPA).
Its current size is 12,200 hectares, and it is classified as a Strict Nature Reserve. Under the
project, the ONP will be expanded to over 137,000 hectares, and it will be reclassified as a
National Park. It will encompass large, multiple use areas (mainly wildlife migration corridors)
in addition to the existing Reserve, which will become a core conservation area within the park..
Therefore, the existing ONPA will be expanded, both at the field level (increased number of
“rangers,” and at the management level to increase capacity in areas such as natural resource
management, community relations and tourism development and management. The MENR will
provide a proposed expanded structure for the ONPA at project appraisal, including an indication
of the additional staff to be hired and associated costs.
Shah Dag National Park
The proposed SDNP presents a greater institutional challenge than the ONP. It covers a
much larger area, includes large areas of State forest as well as State pasture land, and
encompasses more Rayons, villages and municipal and private lands. Municipalities and private
individuals will retain ownership of their land that falls within the park, and will continue to use
it for agriculture, tourism and other economic purposes. Therefore, the SDNP’s administrative
structure must include mechanisms to bring these diverse interests together and enable them to
participate in decision-making and implementation of management plans. The creation of a new
entity provides the opportunity for piloting an innovative approach in the country, which will be
modeled on similar multiple use and multiple ownership PAs elsewhere (e.g. national parks in
many European countries, and a variety of protected landscapes and marine reserves around the
world).
A structure has been proposed by the PIU and project preparation team and is currently
under review by Government. The MENR will provide a proposed version for discussion
among the Government, the Bank and key stakeholders at project appraisal. The final, approved
53
version of the institutional structure, and its relationship to the MENR and DBCDSPNA, will be
described in the SDNP Charter and/or Bye-laws, which will also legally establish the subsidiary
bodies described below and detail their respective authority and responsibilities. The Charter
and Bye-laws will be finalized and approved prior to project effectiveness, or during the first
year of the project.
The proposed structure consists of three main elements:

A multi-sectoral, multi-stakeholder Governing Board, to which MENR will delegate
overall responsibility for managing the SDNP and its resources.
Among its
responsibilities will be the approval of SDNP Management Plans, which should be
prepared every five years. The Board will include representatives from key central
Ministries and departments (see below), Rayon Executive Authorities (1 or 2
representatives, rotating among the six Rayons within SDNP), Municipalities (2 or 3
representatives, rotating among the approximately 60 within SDNP), an
environmental/conservation NGO active in the area, and local business (particularly
tourism). The resulting Board will be large (about 10-13 members), but it would be
difficult to make it smaller without excluding important stakeholders;

A SDNP Administration, reporting to the Governing Board. Because of the large area
and difficult communications, it is proposed that the SDNP will be divided into three
semi-autonomous regional operational units, each headed by a Deputy Director, under
the coordination of one overall Director.
This will involve establishing four
administrative basis (although the overall park headquarters can share facilities with one
of the regional headquarters). A draft initial staffing plan for the SPNA has been
submitted to Government for review. In addition to the administrative, security, research
and other functions that are common to park Administrations elsewhere in the country,
the SPNA will have departments or units responsible for management of forests and
pastures, community/stakeholder partnership, and tourism development and management;

Three Stakeholder Advisory Groups, one for each sub-region, to complement the
Governing Board, and provide for a wider range of stakeholders to provide input to
management decisions and express their views and concerns;
As noted above, there are a number of government agencies and departments with direct
interests and active programs in the SDNP area. Some of these will be subsumed by the SDNPA
while others will continue in parallel and partnership with SDNPA:

44
45
Existing SPNAs in the SDNP area will be dissolved as separate legal entities and will
become parts of the SNPA. This includes the Ismayilly and Pirgulu State Natural
Reserves (zapovedniks44), and the Ismayilli and Gusary (Gebele) State Nature Preserves
(zakazniks45). The SDNP management planning process will determine their status of
these areas, but it is expected that most of their areas will become core conservation
Strict nature reserves, where no exploitation of living resources or modification of habitat is allowed
Wildlife reserves, where particular species are protected from hunting
54
zones within the SDNP. The staff and facilities of the existing SPNAs will be taken over
by the SDNP as appropriate. The Ismayilly SNR has a staff of about 37, including a
Director, Deputy Director, Economist, Bookkeeper, 3 Administrators, 3 Researchers, 8
Circuit Inspectors (8) and 18 rangers (Chasseurs). The Pirgulu SNR has a staff of about
28 with a similar structure. Both have small, old administration buildings in poor repair
and are lacking in equipment and facilities. The Ismailly and Gusary SNPs do not have
separate Administrations, but are subordinated to the two SNRs. Each has several field
staff (Chasseurs) mainly tasked with anti-poaching.
46
47

State forests in Azerbaijan are under the jurisdiction of the MENR Department of Forest
Extension and Development (DFED), which delegates management responsibility for
specific forest units to State Enterprises for Forest Conservation and Restoration
(SEFCR). The functions of the SEFCR include protection of forests against illegal
cutting, fire and pests; rational, managed cutting of forests46; improving forest quality
through replanting; and protection of biological and landscape diversity. Their structure
is inherited from the Soviet era, with forest utilization and forest protection carried out by
the same staff. There are currently six such forest management units and SEFCRs within
the SDNP area (Gusary, Guba, Shemaha, Ismayilly, Gabala, Orghuz), with a total of
about 375 staff. Under the proposed structure, these six SEFCRs will be dissolved.
Responsibility for management of State forests within SDNP will be transferred to a
forest management department or unit within the SDNPA, which will take on many
(although probably not all) of the current SEFCR staff.

The management of State pasture lands is legally complex and practically non-existent at
this time, aside from administration of grazing rights. Winter and summer pastures are
owned by the State, and are leased out to individuals for use through a
permitting/contract system. Because pastures fall into the category of Lands of
Agricultural Destination47, they are under the overall responsibility of the Ministry of
Agriculture (MA). Regional representatives of the MA must agree to any contracts for
leasing agricultural lands under State ownership (including pastures). However, they do
not currently engage in any active management, such as planning, regulation, monitoring
or enforcement. Regional representatives of the State Land and Cartography Committee
(SLCC) at the Rayon level (RLCD) are responsible for some aspects of control and
protection of land, including in principle the monitoring and reporting on soil quality,
prevention of land degradation (e.g. erosion, salinization, etc.). However, they have little
capacity for this and do not appear to have relevant programs or activities in the project
areas. Chief Local Executive Authorities (CLEA) of the Rayons are key players, in that
they actually issue and sign the individual grazing contracts, in consultation with the MA
and RLCD. These contracts only specify the area of summer pasture involved and the
duration of the license (maximum 15 years). The area covered in the contract is in
principle based on the number of animals to be brought there (based on standard stocking
rates), but the contracts do not actually specify an allowable number, so it is not possible
to enforce. In practice shepherds typically bring much larger flocks, resulting in
overgrazing. The contracts also do not set dates for the grazing season, with the result
However, MENR imposed a ban on forest cutting in 2003, aside from very limited sanitary cutting
Under the Land Code of Azerbaijan
55
that herds are often brought into the summer pastures early in the Spring, before the
vegetation has had a chance to become well established.
Introducing effective
management for sustainable use of pastures is one of the main objectives of bringing
these areas into the SDNP. Overall responsibility for State pasture lands will transfer
from MA and SLCC to the SDNPA, which will designate areas available for grazing and
establish overall parameters and conditions for the contracts (e.g. numbers of animals and
entry and exit dates). The Rayon CLEAs will continue to issue the contracts to
individuals and sign grazing contracts. The SDNPA will include a pasture management
unit which will be responsible (in partnership with the users) for assessing pasture quality
and ecological status, identifying priority areas for temporary closure or improved
management, setting quotas and other use parameters, enforcing contracts and monitoring
ecological impacts.
However, capacity for pasture management is virtually non-existent at this time, and
limiting access to certain areas or sizes of herds will undoubtedly be difficult both
politically and socio-economically (risk of creating unacceptable negative impacts on
poor local communities). Building capacity and acceptance will both take time.
Therefore, pasture management will be phased in gradually, with only about 10-15% of
the available grazing area in the SDNP expected to be brought under effective,
sustainable management by the end of the project. These priority areas will be identified
in the first SDNP Management Plan, based on factors such as biodiversity significance,
ecological function (e.g. controlling soil erosion), and level or imminent threat of
degradation. erosion control)Because of the lack of experience with such management
and the need to. The remaining (non-priority) pasture area will be administered in the
same way (grazing contracts issued by CLEAs based on the SDNP Management Plan and
general conditions established by the SDNPA Director), but without the detailed use
specifications, enforcement or monitoring.

Other agencies with responsibility for management of land and/or natural resources
within the proposed SDNP area include: the MENR Biodiversity Department and
Scientific Coordination Council for Hunting Issues48 (setting hunting quotas and issuing
hunting licenses);
the MENR Department of Environmental Policy and Nature
Protection (enforces environmental regulations in general); the State Committee on
Amelioration and Water Resources (SCAWR) under the Cabinet of Ministers (rational
use of water resources, including irrigation); the Ministry of Sport, Youth and Tourism
(standards and regulations for tourism facilities); and the Municipalities, which own and
control small areas of municipal forest and pasture land. In addition, there are important
non-governmental stakeholders, including local residents, other livestock owners with
existing grazing rights within the park, owners of tourism facilities, hunting associations,
conservation organizations, etc. In other PAs in Azerbaijan such sectoral interests are
usually limited to small scale infrastructure (e.g. telephone lines or pipelines) within the
park, or narrowly defined use rights (e.g. mineral extraction at certain sites). In SDNP
they will be much more significant, and cross-sectoral cooperation will be essential.
48
Comprised of the Head of the MENR Biodiversity Dept., representatives from scientific institutions, enterprises
and NGOs
56
This will be achieved through adoption and implementation of a park Management Plan
approved by the multi-sectoral Governing Board. .
Component 2: Community-level Investment in Sustainable Agriculture and Natural
Resource Management
This component will finance goods, works and services to assist farmers in the project
areas to modernize their livestock production methods, with the overall objective of catalyzing a
shift away from a reliance on extensive grazing of sheep on natural pastures towards more
intensive rearing of livestock (particularly dairy cattle) with much greater use of forage crops. It
will support investments that are implemented by and benefit community groups rather than
individuals. The implementation approach involves three main elements:
Village clusters
Because villages49 in the project area are small and scattered, it is not cost-effective to
deliver goods and services to them individually. Furthermore, a critical mass of users is needed
to make some types of investments (e.g. agricultural mechanization centers, milk collection
equipment) economically viable and sustainable. The 63 villages within the proposed SDNP
and the 33 villages within or adjacent to50 the proposed expanded ONP have therefore been
grouped into Village Clusters (VCs). In view of the limited time and resources available, 11 of
the 18 SDNP VCs identified in SDNP and 4 of the 10 ONP VCs will receive technical assistance
and direct investment support under the project51. The proposed 15 VCs have been identified
and prioritized based on criteria such as proximity of the villages to one another, population
density, ease of access, availability of agricultural land for fodder crop production, and the extent
to which the villages represent a source of pressure on the natural resources in the parks (and are
likely to suffer negative impacts due to grazing restrictions).
Municipal enterprises
Providing investment and implementing activities at the community level is a particular
challenge in Azerbaijan, because there are few substantial community organizations, and many
people are wary of entering into arrangement that remind them of Soviet era communal
structures. The legal mechanisms for establishing NGOs and community-based organizations
can also be time consuming and difficult, for example requiring multiple visits to Baku. The
Municipalities (balladiyas) provide a good basis for community-level investment and action in
that they are local (village level), well-recognized and established legal entities (able to own
property and hold bank accounts), and have an elected leadership which is empowered to make
decisions on local-level issues. They are independent of the central government, and may be
regarded as quasi-NGOs in which village level decision-making and community property are
vested. However, they do not themselves have the structure or staff to implement project
activities. Therefore, it is proposed that the VCs will establish a Municipal Enterprises (MEs)
49
Essentially the same as municipalities, or Balladiyas
Within about 10 km of the proposed boundary
51
With three Technical Advisory teams working for 3 years, this amounts to 4 months of TA support per village
cluster
50
57
for this purpose.
MEs are non-profit corporations created and legally owned by the
Municipalities. As such, they can hold assets and earn revenues, but these belong to the
Municipalities (and thus to the villagers whom they legally represent), rather than to government
or any individuals. MEs can be established through a relatively simple and clear legal process,
including the establishment of an accountable governance structure and adoption of Bye-laws to
create legally binding objectives and administrative procedures.
Each VC will establish one ME (either by an elected “lead” Municipality or through a
joint ownership mechanism), which will be responsible for implementation and operation of all
community-level investments. The project will finance a few full-time staff and simple office
and storage facilities for the MEs, and will provide the staff with training in procurement,
accounting and key technical skills. The MEs’ activities will be financed through grants made
by the project and deposited into their bank accounts. They will be responsible for procurement
of goods and services, following the World Bank’s Guidelines for Community Level
Procurement. The local PCUs will advise and support the MEs to help ensure they meet Bank
and Government appropriate procurement and accounting requirements.
The project will provide initial capital equipment and supplies and cover the staff and
operating costs of the MEs for 18 months. However, it is expected that the MEs will continue to
operate beyond the life of the project, maintaining the assets (equipment, storage facilities) and
providing services which are not taken over by private sector providers. (For example, milk
collection is likely to remain a community level activity, while artificial insemination and leasing
of agricultural machinery are likely to become an attractive private business once the project has
helped to stimulate demand in the project areas). To enhance their long-term sustainability,
MEs will charge for their services from the beginning, probably below-cost in the first
(introductory) year, but at a cost-recovery level by the end of the project (with a small profit
margin for future capital reinvestment).
Component 3: Rural Enterprise Development
This component will provide technical assistance and business advice, and start-up
financing for prospective entrepreneurs in the project areas to establish or expand
environmentally and socially sound small and medium enterprises. While it would be
preferable to work with and build capacity among local (long-term) technical and financial
service providers, these are virtually non-existing in or in reasonable proximity to the project
areas, and it is beyond the scope of the project to support their establishment. Instead, the PIU
will engage experienced companies or NGOs to field five small (two-person), mobile Business
Advisory teams for the life of the project, and to administer a modest matching grants facility. It
is not expected that either will continue beyond the end of the project. Sustainability in this
component will derive from the viability of the enterprises that this technical and financial
support helps to launch, and from the demonstration effect that will stimulate others to initiate
similar types of enterprises in the future.
The Business Advisory Teams will be responsible for raising awareness and stimulating
interest among prospective entrepreneurs, helping them to identify potential business
opportunities and analyze their viability, develop business and financing plans, prepare
58
applications for the matching grants program and, where larger amounts or longer term financing
are required, to identify and apply for credit from existing lending institutions.
The company or NGO selected to administer the matching grants facility will be
responsible for evaluating proposals for their technical, financial, environmental and social
viability and passing recommendations to an awarding committee (headed by the PIU);
administering and monitoring the use of grant funds; and regular reporting to PIU on progress of
implementation of these activities.
59
Annex 7: Financial Management and Disbursement Arrangements
AZERBAIJAN: Rural Environment Project
THIS ANNEX IS UNDER PREPARATION AND WILL BE FINALIZED PRIOR TO
APPRAISAL, AS PER BANK REQUIREMENTS.
60
Annex 8: Procurement
AZERBAIJAN: Rural Environment Project
THIS ANNEX IS UNDER PREPARATION AND WILL BE FINALIZED PRIOR TO
APPRAISAL, AS PER BANK REQUIREMENTS.
Table A: Project Costs by Procurement Arrangements
(US$ million equivalent)
Procurement Method1
Exenditure Category
1. Works
2. Goods
3. Services
4. Community
Procurement
5. Training
6. Grants
7. Incremental
Operating Costs &
Recurrent Costs
Total
ICB
0.00
(0.00)
0.42
(0.38)
0.00
(0.00)
0.00
NCB
2.59
(2.33)
1.86
(1.67)
0.00
(0.00)
0.00
Other2
0.14
(0.13)
0.66
(0.60)
4.48
(3.85)
3.72
N.B.F.
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(3.28)
0.35
(0.35)
1.00
(1.00)
1.36
(0.00)
0.00
(0.00)
0.00
(0.00)
0.31
(3.28)
0.35
(0.35)
1.00
(1.00)
1.67
(0.00)
(0.00)
(1.09)
(0.00)
(1.09)
0.42
(0.38)
4.44
(4.00)
11.50
(10.10)
0.31
(0.00)
16.88
(14.48)
Total Cost
2.73
(2.46)
2.94
(2.65)
4.48
(3.85)
3.72
1
Figures in parentheses are the amounts to be financed by the {Loan/Credit/Trust Fund}. All costs include
contingencies.
2
Includes civil works and goods to be procured through national shopping, consulting services, services of
contracted staff of the project management office, training, technical assistance services, and incremental operating
costs related to (i) managing the project, and (ii) re-lending project funds to local government units.
61
Table A1: Consultant Selection Arrangements (optional)
(US$ million equivalent)
Selection Method
Consultant Services
Expenditure Category
A. Firms
B. Individuals
Total
QCBS
QBS
SFB
LCS
CQ
Other
N.B.F.
2.88
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
0.06
(0.00)
0.00
(0.00)
0.85
(0.00)
0.00
(0.00)
0.00
(0.00)
0.70
(0.00)
0.00
(0.00)
0.00
(0.00)
Total
Cost1
3.79
(0.00)
0.70
(0.00)
2.88
(0.00)
0.00
(0.00)
0.00
(0.00)
0.06
(0.00)
0.85
(0.00)
0.70
(0.00)
0.00
(0.00)
4.48
(0.00)
Table B: Thresholds for Procurement Methods and Prior Review1
Expenditure Category
Contract Value
Threshold
(US$ thousands)
Procurement Method
Contracts Subject to
Prior Review
(US$ millions)
1. Works
2. Goods
3. Services
4. [fill in]
5. [fill in]
6. [fill in]
1
Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation"
and contact the Regional Procurement Adviser for guidance.
Total value of contracts subject to prior review: {value}
Overall Procurement Risk Assessment: {High/Average/Low}
Frequency of procurement supervision missions proposed: One every {number} months
(includes special procurement supervision for post-review/audits)
62
Table C: Allocation of IDA Proceeds
Expenditure Category
Works
Goods
Training
Grants
Incremental Operating Costs
Unallocated
Total Project Costs
Front-end Fee
Total
Amount in US$ million
1.91
3.34
0.21
0.50
0.65
0.36
6.96
Financing Percentage
60%
60%
55%
50%
40%
6.96
Table D: Allocation of GEF Proceeds
Expenditure Category
Works
Goods
Consulting Services – foreign
individuals and firms
(a) Components 1 through 3
(b) Component 4
Consulting Services –
individuals and PIU staff
(a) Component 4
Consulting Services – local
firms
(a) Component 4
Training
Grants
Incremental Operating Costs
Unallocated
Total
Amount in US$ million
0.95
1.67
Financing Percentage
30%
30%
0.11
0.04
5%
85%
0.43
75%
0.29
0.17
0.50
0.65
0.18
5.00
85%
45%
50%
40%
63
Table E: Allocation of PHRD Proceeds
Expenditure Category
Consulting Services – foreign
individuals and firms
(a) Components 1 through 3
Consulting Services –
individuals and PIU staff
(a) Components 1 through 3
Consulting Services – local
firms
(a) Components 1 through 3
Total
Amount in US$ million
Financing Percentage
1.75
80%
0.27
75%
0.68
2.70
95%
Use of statements of expenditures (SOEs): {if applicable}
Special Account: {if applicable}
64
Annex 9: Economic and Financial Analysis
AZERBAIJAN: Rural Environment Project
THIS ANNEX IS UNDER PREPARATION AND WILL BE FINALIZED PRIOR TO
APPRAISAL, AS PER BANK REQUIREMENTS.
65
Annex 10: Safeguard Policy Issues
AZERBAIJAN: Rural Environment Project
SEE SECTIONS D4, D5 AND D6 FOR A PRELIMINARY DISCUSSION OF SAFEGUARD
POLICY ISSUES. THIS ANNEX WILL BE FINALIZED PRIOR TO APPRAISAL, AS PER
BANK REQUIREMENTS.
66
Annex 11: Project Preparation and Supervision
AZERBAIJAN: Rural Environment Project
THIS ANNEX IS UNDER PREPARATION AND WILL BE FINALIZED PRIOR TO
APPRAISAL, AS PER BANK REQUIREMENTS.
Planned
Actual
PCN review
Initial PID to PIC
Initial ISDS to PIC
Appraisal
Negotiations
Board/RVP approval
Planned date of effectiveness
Planned date of mid-term review
Planned closing date
Key institutions responsible for preparation of the project:
Bank staff and consultants who worked on the project included:
Name
Title
Bank funds expended to date on project preparation:
1. Bank resources:
2. Trust funds:
3. Total:
Estimated Approval and Supervision costs:
1. Remaining costs to approval:
2. Estimated annual supervision cost:
67
Unit
Annex 12: Documents in the Project File
AZERBAIJAN: Rural Environment Project
THIS ANNEX IS UNDER PREPARATION AND WILL BE FINALIZED PRIOR TO
APPRAISAL, AS PER BANK REQUIREMENTS.
68
Annex 13: Statement of Loans and Credits
AZERBAIJAN: Rural Environment Project
Difference between
expected and actual
disbursements
Original Amount in US$ Millions
Project ID
FY
Cancel.
Undisb.
P070989
2003
Purpose
ED SECT DEV (APL #1)
IBRD
0.00
IDA
18.00
SF
0.00
GEF
0.00
0.00
18.69
P008286
2003
IRRIG DIST SYS & MGMT IMPROVMT
0.00
35.00
0.00
0.00
0.00
P066100
2002
IBTA 2
0.00
9.45
0.00
0.00
0.00
P040716
2001
HIGHWAY
0.00
40.00
0.00
0.00
P069293
2001
HEALTH REF LIL
0.00
5.00
0.00
P070973
2001
FIN SCT TA
0.00
5.40
0.00
P008284
2000
IRRIG/DRAINAGE REHAB
0.00
42.00
P058969
1999
CULT HERITAGE PRSV
0.00
P057959
1999
EDUC REF
0.00
P035770
1999
PILOT RECON
P035813
1999
P055155
P040544
P008288
Orig.
Frm. Rev’d
0.00
0.00
36.40
0.00
0.00
9.77
-0.16
0.00
0.00
42.62
-1.97
0.00
0.00
0.00
3.18
-2.27
0.00
0.00
0.00
3.97
-1.89
0.00
0.00
0.00
0.00
32.50
12.42
0.00
7.50
0.00
0.00
0.00
3.60
3.37
-1.11
5.00
0.00
0.00
0.00
1.14
1.17
1.16
0.00
20.00
0.00
0.00
0.00
13.30
2.35
-7.44
AGRIC DEVT & CREDIT
0.00
30.00
0.00
0.00
0.00
15.72
14.10
0.00
1998
URG ENV INVST
0.00
20.00
0.00
0.00
0.00
9.43
8.66
3.28
1997
FARM PRIV
0.00
14.70
0.00
0.00
0.00
0.19
1.29
0.00
1995
BAKU WS
0.00
61.00
0.00
0.00
0.00
14.60
9.24
9.22
0.00
313.05
0.00
0.00
0.00
205.11
46.31
5.11
Total:
STATEMENT OF IFC’s
Held and Disbursed Portfolio (In Millions of US Dollars)
Committed
Disbursed
IFC
IFC
FY Approval
Company
Loan
Equity
Quasi
Partic.
Equity
Quasi
Partic.
1999
Amoco Caspian
21.87
0.00
0.00
0.00
21.87
0.00
0.00
0.00
1998
Azerb. JV Bank
0.00
1.00
0.00
0.00
0.00
1.00
0.00
0.00
0/03
Azerigazbank
1.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1997/98
Baku Coca Cola
2.33
0.00
0.00
0.00
2.33
0.00
0.00
0.00
1999
Baku Hotel
10.21
0.00
0.00
0.00
10.21
0.00
0.00
0.00
1999
Early Oil Fin
10.29
0.00
0.00
0.00
10.29
0.00
0.00
0.00
2002
MFB Azerbaijan
0.00
1.75
0.00
0.00
0.00
1.75
0.00
0.00
0/03
Rabitabank
1.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1999
Turkish Petrol
8.68
0.00
0.00
0.00
8.68
0.00
0.00
0.00
1999
Unocal Chirag
12.93
0.00
0.00
0.00
12.93
0.00
0.00
0.00
2.75
0.00
0.00
66.31
2.75
0.00
0.00
Total portfilio:
68.71
Loan
Approvals Pending Commitment
FY Approval
Company
2001
Azer JV Increase
Loan
0.00
Total pending committment:
0.00
69
Equity
Quasi
Partic.
0.00
0.00
0.00
0.00
0.00
0.00
Annex 14: Country at a Glance
AZERBAIJAN: Rural Environment Project
Azerbaijan
P R IC E S a nd G O V E R N M E N T F IN A N C E
D o m e s t ic pric e s
(% change)
Co nsumer prices
Implicit GDP deflato r
G o v e rnm e nt f ina nc e
(% o f GDP , includes current grants)
Current revenue
Current budget balance
Overall surplus/deficit
19 8 2
19 9 2
2001
2002
..
..
..
..
1.5
2.5
2.7
0.7
Inf la t io n ( %)
30
20
10
0
97
-10
..
..
..
..
..
..
21.5
4.7
0.9
28.0
5.4
-0.5
98
99
00
01
02
-20
GDP deflator
CPI
TRADE
19 8 2
19 9 2
2001
2002
(US$ millio ns)
To tal expo rts (fo b)
n.a.
n.a.
M anufactures
To tal impo rts (cif)
Fo o d
Fuel and energy
Capital go o ds
..
..
..
..
..
..
..
..
..
..
..
..
788
..
..
..
2,046
..
..
205
1,465
..
..
138
1,969
..
..
226
2,136
..
..
732
Expo rt price index (1995=100)
Impo rt price index (1995=100)
Terms o f trade (1995=100)
..
..
..
..
..
..
262
98
268
259
98
264
2002
E xpo rt a nd im po rt le v e ls ( US $ m ill.)
2,500
2,000
1,500
1,000
500
0
96
97
98
99
00
Exports
01
02
Imports
B A LA N C E o f P A Y M E N T S
19 8 2
19 9 2
2001
(US$ millio ns)
Expo rts o f go o ds and services
Impo rts o f go o ds and services
Reso urce balance
..
..
..
..
..
..
2,369
2,130
239
2,667
3,121
-454
-10
Net inco me
Net current transfers
..
..
..
..
-367
77
-385
70
-20
Current acco unt balance
..
..
-52
-768
Financing items (net)
Changes in net reserves
..
..
..
..
317
-266
965
-197
M emo :
Reserves including go ld (US$ millio ns)
Co nversio n rate (DEC, lo cal/US$ )
..
..
..
54.2
725
4,656.7
721
4,860.7
19 9 2
2001
2002
..
..
..
1,266
0
235
1,438
0
314
C urre nt a c c o unt ba la nc e t o G D P ( %)
0
96
97
98
99
00
01
02
-30
E X T E R N A L D E B T a nd R E S O UR C E F LO WS
19 8 2
(US$ millio ns)
To tal debt o utstanding and disbursed
..
IB RD
..
IDA
..
-40
C o m po s it io n o f 2 0 0 2 de bt ( US $ m ill.)
To tal debt service
IB RD
IDA
..
..
..
..
..
..
132
0
2
187
0
2
Co mpo sitio n o f net reso urce flo ws
Official grants
Official credito rs
P rivate credito rs
Fo reign direct investment
P o rtfo lio equity
..
..
..
..
..
..
..
..
..
..
45
88
36
227
0
..
179
-79
..
..
G: 82
B: 314
F: 190
C: 279
E: 453
D: 120
Wo rld B ank pro gram
Co mmitments
Disbursements
P rincipal repayments
..
..
..
..
..
..
50
28
0
70
82
57
0
A - IBRD
B - IDA
C - IM F
D - Other multilateral
E - Bilateral
F - Private
G - Short-term
Annex 15: Incremental Cost Analysis
AZERBAIJAN: Rural Environment Project
1. Overview
The project’s global objective is to restore and protect biodiversity in two globally
significant biodiversity areas in the Caucasus (Shah-Dag) and Zangezur (Ordubad) mountains
through the establishment of an inclusive model of Protected Area management. The project
will allow the GoA to pioneer a new model of Protected Area in Azerbaijan that will help shift
biodiversity and protected area policies and practices away from the highly centralized and
exclusive model inherited from the Soviet era towards a more modern, inclusive approach that
combines the objectives of biodiversity and ecosystem protection with the objectives of
providing economic and other benefits to local communities. The project will also contribute to
lasting poverty alleviation in the project areas by introducing and supporting the adoption of
more modern, sustainable, and value-added approaches to natural resource use and agricultural
production and diversification of economic activities (particularly the development of rural/ecotourism).
The cost of achieving the GEF alternative is US$16.88 million, of which US$8.99 is for
baseline activities and US$7.89 is for incremental activities. GEF financing is requested to cover
US$5.00 million of the incremental costs. The remaining US$2.89 million in incremental costs
is financed by a PHRD technical assistance grant (US$1.70 million) and the government
counterpart contribution (US$1.19 million).
2. Context and Broad Development Goals
Azerbaijan is a mountainous country of 86,600 km2 that lies on the western coast of the
Caspian Sea among the mountain ranges of the Talish mountains and Greater and Lesser
Caucasus. The Caucasus have been identified by the World Wide Fund for Nature as a Global
200 Ecoregion, based on selection criteria such as species richness, levels of endemism,
taxonomic uniqueness, unusual evolutionary phenomena, and global rarity of major habitat
types. It is also one of Conservation International’s 25 global biodiversity “hot spots.”
The proposed Shah Dag National Park, located in the Greater Caucasus mountain range,
is in a watershed that drains to the Caspian Sea. The area encompasses the highest peaks of the
Greater Caucasus, and the highest peak (Shah Dag Mountain) in Azerbaijan. The proposed park
and its surrounding buffer zone form a microcatchment that serves as a conservation unit
containing essential elements of the Caucasus mountain ecosystem. The natural habitats, which
consist mainly of broadleaf forests and rangeland (mostly alpine and subalpine meadows), play a
critical role in watershed protection, and contribute to local economy and subsistence.
The recently established Ordubad National Park covers 12,200 ha in the southern slopes
of the Zangezur mountains, located in the Nakhichevan Autonomus Republic, which is adjacent
to Armenia and Iran. The park is rich in biodiversity, with a number of endemic and endangered
71
or threatened species of mammals, birds, reptiles and plants, and represents an important area for
transboundary migratory wildlife. The proposed Park extension covers an additional 125,000 ha.
In recent years, large parts of the park’s forest and pasture land have become badly
degraded through over-use. While grazing land is allocated on a permit basis, there is no
management, monitoring or enforcement of grazing activities, resulting in pastures that are
heavily over-utilized and deteriorating. Similarly, lack of access to affordable energy has led to
an increase in harvesting for fuelwood by the local population, resulting in degraded forest lands.
The over-use and degradation of the forests and pastures presents an important economic
problem, due to declining productivity, and a serious threat to globally significant biodiversity.
3. Baseline Scenario
The Government recognizes the negative trend in natural resources management, and has
prepared analyses and actions plans to address them, including a National Environmental Action
Plan (1998) and Biodiversity Strategy and Action Plan (2000). In addition to these priority
setting and consensus building activities, the GoA has: (i) created a Ministry of Environment and
Natural Resources, which was recently elevated from state committee status as a means to
integrate forestry, range management, and protected areas management functions; (ii) enacted
several codes for natural resource conservation and use (forests, fisheries, wildlife); and (iii)
collaborated with FAO and counterparts in Turkey and Georgia as a first step in understanding
how other countries in the region are dealing with these problems.
The Government has made a major commitment to conserving biodiversity, including
substantially increasing the network of Protected Areas (PAs) in the country. However, the
prevailing model for PAs in Azerbaijan, as in much of the CIS, is based on centrally controlled,
Strict Nature Reserves (Zapovedniks). These strict reserves can be useful for protecting small
areas of high value and vulnerable ecosystems, but are insufficient for the long term conservation
of the region’s biodiversity. Moreover, management of the PAs is generally ineffective, due to:
(i) poverty and pressure for economic development; (ii) gaps in legislation and institutional and
governance weaknesses; and (iii) inadequate staffing, lack of modern management plans, and
lack of financial resources for effective administration.
Under the Baseline scenario, the following outputs would be expected:
Establishment and management of National Parks along the lines of the traditional system
of protected areas. Parks would focus primarily on strict nature reserves and would not
incorporate biodiversity conservation on a broader, multiple- use, landscape level. Forest
and pasture inventories/assessments would be carried out over several years (rather than
through a rapid assessment), limiting the ability of the park managers to establish and
implement effective management plans. As a consequence, forest areas would continue to
decline as the local population continued to cut down trees and branches for fuelwood. Overgrazing on alpine pastures outside of the Parks’ core reserve areas would also continue,
resulting in reduced grass cover, erosion, increased flooding and sedimentation downstream,
and loss of biodiversity. Overall, biodiversity would continue to decline due to the loss of
72
forests, overgrazing, uncontrolled hunting and collection of non-timber forest products, and
unregulated, increased development.
Community livestock intensification, resulting in increased numbers of hybrid cattle and
improved and increased dairy production. However, intensifying livestock production
without sufficient environment management could easily result in increased pressure on the
Parks’ resources, especially sensitive high alpine summer pastures, and further degradation
of community pasture lands.
Increased development of enterprises in and around the Park based on Park amenities and
natural resources, without environmental management. Focus on tourism-based business
results in the establishment of additional resorts, restaurants and recreational activities
without appropriate zoning or development regulation to ensure that impacts on natural
resources and biodiversity are controlled.
While the baseline scenario would generate domestic benefits, it would have very limited
global impacts. It would not be sufficient to address the existing threats to the most critical
areas of the highest biodiversity and international conservation importance. Moreover, it would
not adequately integrate biodiversity conservation on a broader, landscape-level, which is
necessary for long-term ecosystem management and biodiversity conservation.
Total
expenditures under the Baseline are estimated at US$8.99 million.
4. Alternative Scenario
The GEF Alternative Scenario would build on the baseline by supporting incremental
activities in the project areas needed to achieve global environmental benefits. The proposed
alternative would strengthen management capacity for biodiversity conservation by expanding
protected area management from small, strictly protected reserves, to broad, multi-purpose
national parks. The model of large, multi-purpose parks with diverse land ownership and
management zones is well established in many western and central European countries, but it is
quite new to Azerbaijan. There is as yet no national park that encompasses a variety of land and
resource uses, or has a substantial resident human population. The multiple-use model being
introduced under the GEF Alternative will create a mechanism for involving local communities
and other key stakeholders in park management, and ensuring that they benefit from the
conservation and improved management of the park’s valuable natural resources.
The multiple-use protected areas will be implemented by establishing different
management zones with different levels of management intervention, from core conservation
zones (where biodiversity is main maintained in a natural state with no intrusive use or
management) to sustainable natural resource management zones (where controlled grazing and
timber harvesting is allowed, based on ecological targets and monitoring). The park will also
include tourism, residential and economic development zones.
In addition to the direct global benefits resulting from the increased protection of the
internationally significant ecosystems, the project will establish strategic partnerships with local
land owners, land users, and communities which would greatly contribute to the long-term
73
sustainability of the conservation effort. The community natural resource activities and small
business development assistance are expected to be instrumental in strengthening the partnership
with and commitment of local land owners, land users, and communities to conservation of the
Park’s natural and globally important resources.
Specifically, the GEF Alternative would support the following activities:
Establishment and management of National Parks through pioneering a new, multipurpose model of Protected Area that not only conserves biodiversity through core
conservation zones, but also protects and enhances biodiversity over a larger area by
combining the objectives of biodiversity and ecosystem protection with the objectives of
providing economic and other benefits to local communities. Under the GEF Alternative, the
parks will have larger core conservation zones, better monitoring and increased stakeholder
participation. Pasture and forest assessments will be undertaken rapidly, to allow park
managers to prepare and implement management plans within the first year or two of park
establishment.
Improved community-level livestock management. The GEF Alternative will build on the
baseline by incorporating environmental practices into livestock management, including
demonstrating the value of pasture restoration through pasture management trails. Over the
long-term, the increased income from improved livestock management should reduce the
communities’ dependence on traditional livestock, thereby reducing grazing pressure on the
park’s pasture resources, particularly the high-altitude summer pastures with highest
biodiversity values.
Support for developing small enterprises that improve livelihoods for the local population
while reducing impacts on the Park’s natural resources and biodiversity. Technical
assistance will identify and encourage business ideas that are linked to conservation
objectives. Specific focus will be given to ecotourism development (versus mainstream
tourism development) that intentionally limits visitor impacts on park resources and strives to
preserve the Park’s globally important ecosystems and associated biodiversity.
Project management, monitoring and evaluation and communications. The GEF
Alternative will support implementation of project activities with global values. It will
improve monitoring and evaluation of project activities and measure the project’s
environmental and social impact. A communications program will increase public awareness
and understanding of biodiversity conservation and, in particular, the role of multiple-use
national parks in protecting, conserving and managing the country’s unique biodiversity.
Total expenditures under the Alternative Scenario are estimated at US$16.88 million.
5. Incremental Costs
The estimated Baseline and GEF Alternative project costs are summarized in the
Incremental Cost Matrix below. The difference between the costs of the Baseline ($8.99 million)
and the cost of the GEF Alternative ($16.88 million) is $7.89 million, of which $5.00 million are
74
GEF costs. This represents the incremental cost for achieving global environmental benefits. A
GEF grant of $5.00 million is requested. The reminder of the incremental costs will be financed
by the PHRD grant ($1.70 million) and the Azerbaijan Government ($1.19 million).
75
Incremental Cost Matrix
Component
National Parks
establishment
and
management
Category
Baseline
GEF Alternative
Communitylevel investment
in sustainable
agriculture and
natural resource
management
Cost (US$
million)
3.97
8.72
Incremental
Costs
4.75
Baseline
3.11
Domestic Benefits
Global Benefits

Improved infrastructure
and equipment for park.


Technical assistance to
improve park
management.

Less stakeholder
participation in park
management.

Increased recreation and
tourism and associated
benefits (e.g. recreational
enjoyment, expenditure,
profits and economic
development), but
potential for uncontrolled
development that damages
natural resources.
Increased area under
protection, but managed
through traditional models
of strict reserves, resulting
in limited protection of
biodiversity
Same as above, plus:
Same as above, plus:

Increased technical
capacity to manage multiuse National Parks


Recreation and tourism
opportunities managed for
environmental benefits
Conservation of
globally significant
biodiversity mainstreamed
into management of
multi-use National Parks


Reduced erosion of the
pastures and associated
reduction in mudslides,
downstream flooding, and
downstream
sedimentation in irrigation
systems.
Larger core
conservation zones and
larger overall park area
under some form of
protection and
management.

Rapid assessment of
forest and pasture
resources allow
management regimes to
be put in place quickly.

Increased stakeholder
participation in park
management planning.

Increased livestock
intensification without
environmental
management.

Improved livelihoods
from improved livestock
and increased dairy
production.
76
None.
Category
Cost (US$
million)
Domestic Benefits
Global Benefits
GEF Alternative
4.42
Same as above, plus:

Shift from traditional
livestock production to
hybrid livestock reduces
pressure on park’s
pastures, especially highalpine pastures with
global biodiversity

Increased tourism
services for international
visitors.
Component
Rural enterprise
development
Increment
1.31
Baseline
1.29
GEF Alternative
Project
management,
monitoring and
evaluation, and
communications
TOTAL
1.95

Additional indirect
benefits from reduced
grazing pressure and new
forest growth (e.g.
watershed protection,
erosion and sedimentation
control).

Increased revenues,
income and jobs for local
people.

Indirect and induced
economic benefits as
purchases of raw
materials and spending of
incomes flow through the
local economy.
Same as above, plus:
Same as above, plus:

Environmentally
sensitive businesses
maintain Park resources
for local and national
benefits (recreation,
environmental services).

Environmentally
sensitive businesses
reduce pressures on
natural resources of Park,
resulting in conservation
of globally significant
biodiversity.
Park activities carried
out efficiently.

Some increased
knowledge of ecological
areas of global
significance.
Increment
0.66
Baseline
0.62

GEF Alternative
1.78
Same as above, plus:
Same as above, plus:

Better monitoring and
evaluation of social and
environmental impacts.


Increased recreational
consumer surplus and
non-use values as
people’s understanding of
wildlife and features in
the National Parks
improves.
Increased awareness of
global values of critical
biodiversity and
ecosystems in new
National Parks

Increased support for
conservation of globally
significant areas.
Increment
1.16
Baseline
8.99
GEF Alternative
16.88
Increment
7.89
Requested from GEF:
5.00
77
Annex 16: STAP Review and World Bank Response
AZERBAIJAN: Rural Environment Project
1.
OVERVIEW
This project is within the GEF Biodiversity Focal Area, is relevant to GEF Operational
Programmes 3 (Forest Ecosystems), 4 (Mountain Ecosystems) and 12 (Integrated Approach to
Ecosystem Management), and it appears to comply with all GEF criteria. The project aims to
restore and conserve forests and grassland ecosystems in parts of the Greater Caucasus and
Zangezur mountains, while introducing an approach to ecosystem management that will relive
future pressures and that is new in the Azerbaijan context. The target area is of exceptional
global significance for biodiversity, being located within one of the world’s 200 most speciesrich and endemic-rich ecosystem complexes. These biodiversity resources are threatened by
over-harvesting of timber and fuelwood, and by over-grazing. The project is adequately
designed and responds to considerable local input as well as lessons learned, although certain
apparent weaknesses (such as an over-reliance on tourism and limited exploration of sustainable
financing mechanisms) could be corrected as it is developed further.
2.
OBSERVATIONS IN RELATION TO KEY GEF ISSUES
2.1
SCIENTIFIC AND TECHNICAL SOUNDNESS.
From the project documents it seems that the central issues to be addressed by this project in the
mountains of Azerbaijan are:

A demand for locally-sourced timber and fuelwood to replace the wood and gas provided
by the former Soviet Union, combined with a lack of resources for the government
agencies responsible for managing production and protection forests, leading to forest
ecosystem damage.

The closure of traditional transfrontier grazing as a result of political and military events
in neighboring territories, preventing flocks of Azerbaijan sheep from being herded into
seasonal grazing areas and greatly increasing the continuity of grazing in the vicinity of
Azerbaijan villages and the intensity of grazing in seasonal pastures within Azerbaijan,
leading to grassland ecosystem damage.
This combination of circumstances means that montane forest and grassland ecosystems are
steadily being degraded in areas that are among the most important regionally and globally for
dryland temperate biodiversity, and that are also economically vital as water catchments for
Baku and other towns and cities of Azerbaijan. The project therefore aims to encourage and
enable the various stakeholders in two large mountain areas to cooperate in understanding the
constraints and opportunities in their environments and to negotiate and establish new ways of
using their resources so that their livelihoods can become more sustainable, while preserving the
economic and biodiversity services provided by those environments to the Azerbaijan and global
communities.
78
It is understood that the four project components will focus respectively on:

National Parks Establishment and Management. This will support the legal establishment
(Shah Dag) and expansion (Ordubad) of two multiple-use national parks, creation and
strengthening of park management institutions and systems, and the development and
implementation of park zoning and management plans. Specific activities will include:
delineation and demarcation of park and zone boundaries; technical assistance and training;
preparation of zoning and management plans and annual operating plans; implementation
of management plans, including rehabilitation and construction of infrastructure for park
management and supporting activities such as tourism and procurement of equipment;
establishment and implementation of an ecological monitoring system; and operating
costs.

Community-level investment in sustainable agriculture and natural resource management.
This will assist communities living inside or immediately adjacent to the two national
parks to make their agricultural and natural resource use practices more efficient and
sustainable. Communities will be encouraged to develop investment plans for more
intensive livestock production systems involving fodder production and stall feeding of
higher-quality animals, and particularly the promotion of dairy cattle. It hoped that these
measures can allow grazing to be managed and livestock numbers regulated so that overgrazed ecosystems can recover. Pressure on forests will meanwhile be relieved by
providing alternative sources of wood through reforestation of degraded lands, and more
efficient stoves will also be introduced to reduce fuelwood demand.

Rural Enterprise Development. This aims to stimulate economic diversification by helping
local entrepreneurs to obtain the technical and business information, advice and financing
to start or expand environmentally-friendly commercial enterprises. Business advisory
teams will assist clients to identify and assess the viability of commercial ventures, prepare
business plans and, where necessary, obtain financing. The project will support a matching
grants program to provide start-up grants, based on an independent evaluation of the
business plans. Priority will be given to activities that are linked to park objectives,
including tourism-related enterprises, alternative energy and energy efficiency, and valueadded processing of sustainably harvested natural resources, or to those that support
community objectives such as the value-added processing of dairy products.

Project Management, Monitoring and Evaluation, and Communications. This will support
overall project management and monitoring, while also including activities to build
awareness of the project, evaluate its socio-economic impacts, and facilitate the
development of a cross-sectoral, multi-stakeholder tourism development plan for the
greater Shah Dag area.
The project documentation contains an analysis of lessons learned from other projects, and how
these are reflected in the project design. The following lessons are mentioned:

Focus. The project design should be focused in terms of geographic area and types of
activities, piloting new approaches before mainstreaming them at national level.

Realism. Project designers should be realistic about what can be achieved, particularly
when the project involves introducing new ideas, approaches and skills, establishing new
79
institutional structures (or strengthening weak ones), and community mobilization and
participation.

Cost of pilot activities. Pilots and demonstrations of new approaches and technologies
can carry high transaction costs, and should not be required to achieve the economic
efficiency or cost-effectiveness that would be expected of large-scale implementation.

Symmetry. For effective protection and sustainable management of biodiversity and
natural systems, enforcement and more positive incentives should be applied in a
balanced way.

Pace of change. Restrictions on natural resource use and access should be phased in,
based on institutional capacity to make, implement and enforce plans and regulations, and
on the ability to provide realistic alternatives and compensation to local communities for
short-term economic losses.

Stakeholder involvement. Key stakeholders should be involved early in the project
design and preparation, to ensure ownership and that the design and investments make
sense in the country and local contexts.

Business planning and incentives. Combine financial assistance for SME startups/expansion with professional business advice (for market analysis, business planning,
evaluation of technologies, etc.), while also addressing constraints in the overall
environment for business (tax and other policies, regulatory processes, infrastructure,
etc.).

Technical assistance. Limit the amount of international technical assistance in favor of
local TA and local capacity building.
In general, these lessons are reflected in the project design, although it remains an ambitious
enterprise in a demanding environment, with a challenging set of aims for a four-year project.
While the design is technically sound, it would be surprising if implementation were to be
smooth and an extension were not to be needed in the end.
2.2
GLOBAL ENVIRONMENTAL BENEFITS.
The Caucasus mountains have been identified by WWF as a ‘Global 200 Ecoregion’, and by CI
as one of the world’s 25 biodiversity ‘hotspots’. The area spans six countries, has one of the
highest levels of endemism in the temperate world, and is believed to contain more than twice
the animal diversity found in adjacent regions of Europe and Asia. The flora of the area contains
over 7,000 species, many of them endemic and/or associated with human uses in agriculture and
medicine. Azerbaijan itself has a flora of about 4,500 species, seven percent of which are
endemic to the country. There are also about 600 vertebrate species and at least 14,000 species
of insects. Recent studies have identified ten areas in the Caucasus mountains where focused
action would help achieve most conservation priorities, and two of the five most important are in
target areas of this project, which therefore demonstrably addresses a number of global
biodiversity targets. Expected global environmental benefits can be assessed by comparing the
without-project and with-project scenarios:
80

Without-project scenario. Protected areas would continue to be established and
managed in traditional, top-down ways, without much local participation and support,
and without addressing landscape-scale processes of biodiversity loss. Information about
forest and range condition would accumulate slowly, limiting management effectiveness,
and ecosystems would continue to be degraded through over use. There would be some
community investment in livestock intensification, but this would likely increase pressure
on ecosystem resources and pasture lands. Unsustainable and environmentally-damaging
tourism development would continue, and overall the without-project scenario would
provide some local and national benefits, though not necessarily sustainable ones, while
contributing little to meeting global aims.

With-project scenario. Protected area management would be expanded from small,
strictly protected reserves, to broad, multi-purpose national parks, with capacity to
manage these being strengthened. This will create a mechanism for involving local
communities and other key stakeholders in park management, ensuring that they benefit
from the conservation and improved management of the park’s natural resources.
Community natural resource activities and small business development assistance will
help strengthen partnerships with local land owners, land users, and communities. The
parks will have larger core conservation zones, better monitoring and increased
stakeholder participation. Environmental practices will be incorporated into livestock
management, including demonstrating the value of pasture restoration through pasture
management trails. Meanwhile, small enterprises will be encouraged that improve local
livelihoods and reduce poverty while reducing impacts on natural resources and
biodiversity. Educational programmes will increase public awareness and understanding
of biodiversity conservation and the role of multiple-use national parks in protecting,
conserving and managing the country’s biodiversity resources.
2.3
GEF CONTEXT.
The project addresses GEF strategic priorities for biodiversity conservation by: catalyzing
sustainability of protected areas; mainstreaming biodiversity in production landscapes and
sectors; and generating and disseminating best practices for addressing current and emerging
biodiversity issues. Project activities will support innovative practical approaches called for by
the 7th Conference of the Parties of the Convention on Biological Diversity in its Decisions
VII/1 “Forest Biological Diversity”, VII/11 “Ecosystem Approach”, and VII/28 “Protected
Areas”. The project follows the GEF Strategic Guidelines and incorporates elements of several
GEF Operational Programs, notably the following:

No. 12 (Integrated Ecosystem Management): by emphasizing the creation of an enabling
environment for biodiversity conservation, forest and rangeland management, the
strengthening of institutional capacities at local, regional and national levels as well as
investments in sustainable natural resource management.

No. 4 (Mountain Ecosystems): by supporting in-situ conservation and sustainable use of
biological resources, expanding and improving connectivity of the protected area system
in the Greater and Lesser Caucasus mountains, and combining productive, socioeconomic
and conservation goals.
81

No. 3 (Forest Ecosystems): by supporting in-situ protection of ecologically mature
temperate forest ecosystems under threat, and combining strict protection and multiple
use to achieve sustainable forest management. Among other things, it will support the
first comprehensive forest inventory and status assessment since 1984, making it possible
to make sound forest management decisions.
The GEF grant would help meet the costs of activities required to achieve global conservation
benefits, which would be incremental to the baseline national program undertaken by the
Government with support from elsewhere.
2.4
REGIONAL CONTEXT.
The collapse of the Soviet Union in 1991 fundamentally transformed the circumstances of the
whole Caucasus region, as external subsidies and political controls were lost and various of the
former Soviet republics opted for independence or generated armed movements designed to
obtain independence. As with several other newly independent countries in the region, the
political economy of Azerbaijan underwent a major transformation during the 1990s, as the
important Caspian Sea oil fields were developed and a coalition of international oil companies
moved in and exerted their influence, including BP-Amoco, Exxon-Mobil and the Turkish
Petroleum Corporation. Major pipelines are being built to move Caspian oil and gas to western
markets, including the Baku-Tbilisi-Ceyhan (BTC) Oil Pipeline and the Baku-Tbilisi-Erzerum
(BTE) Gas Pipeline. These are multi-billion dollar investments, and the medium-term future of
Azerbaijan seems destined to be as a resource provider for western Europe and beyond, with all
that implies. Whether this will contribute to or further inflame the instability of the region as a
whole is unclear, and much will depend on the equity with which petroleum revenues are
invested and the opportunities for meaningful participation in governance and economic activity
are distributed.
2.5
REPLICABILITY.
The project is designed to strengthen the ability of communities to manage and conserve their
environmental resources (e.g. by clarifying tenure, educating, promoting conflict resolution, and
improving relations between communities and with government). This approach is adapted to
ongoing processes of reform in Azerbaijan, and is in principle applicable in other countries
where similar reforms are implemented. Such reforms can be done in various ways, with
differing outcomes, but in general the future seems likely to hold an increasing number of
countries where accountable executive power has been transferred to smaller political units.
Hence the lessons of this project may be expected to become more relevant to more places in the
future. The most replicable aspects will be to do with processes by which local societies are
empowered and by which new relationships are negotiated and maintained, rather than with the
technical interventions appropriate to any particular social and ecological system. It might be
suggested that interchange among projects within the GEF and other investment portfolios in
countries where fundamental governance reform is underway or planned would help promote the
spread of successful ideas and practices in this context.
82
2.6
SUSTAINABILITY.
The project will contribute to the implementation of the National Environmental Action Plan
(NEAP), which was completed in 1998 and which identified environmental issues and proposed
short, medium and long term actions in several priority areas that are relevant to the project,
including:

Protecting biological diversity and forest, pasture and agricultural land management;

Cultural heritage;

Ecological problems with regional or global impacts; and

Development of the institutional and policy framework to monitor, coordinate and
manage environmental issues more effectively.
The NEAP also identified specific biodiversity conservation priorities, including strengthening
of the protected area network through:

the adoption of national parks as instruments for the sustainable use of biodiversity, to
complement the existing protected area network which emphasizes strict nature reserves;

creation of new protected areas (including Shah-Dag National Park and Ordubad
National Park among the top priorities); and

the implementation of pilot projects in sustainable uses of biodiversity which address
rural poverty as a root cause of biodiversity degradation and loss.
According to the project documents, a sound regulatory framework for environmental
management is now in place in Azerbaijan, although implementation capacity and compliance
need strengthening. A ministry, MENR (variously called in the project documents the Ministry
of Ecology and the Ministry of Environment and Natural Resources) was created in 2001 to
integrate environmental protection and management, including environmental assessment,
monitoring and reporting, management of forests and wildlife resources, and of protected areas.
A number of laws have also been adopted, which together provide a legal basis for forest
management (1997), wildlife management (1999), and protected area management (2000).
These laws envision a degree of consideration of the interests of local people and their
participation in decisions regarding the management of natural resources. In 2003, Azerbaijan
initiated a process of preparing a National Strategy and Action Plan for Biodiversity
Conservation (NSAPBC), which has built on the existing legislation by recommending a new
category of multiple-use protected area, that of national parks, which are modeled on the
‘protected landscape’ concept and which allow for the inclusion of zones of limited economic
activity (primarily tourism). The first four of these were created in 2003-2004, including one
(Ordubad) that is a target of this project, but further development of legislation and management
arrangements will be needed before these areas can meet the vision of the NSAPBC in terms of
local participation and benefit capture. The project document observes that “the opportunity to
pilot and demonstrate a more inclusive approach on a large scale is one of the main benefits and
objectives of the proposed project.”
83
Thus the project is positioned within and anticipates the direction of government policy and
legislation, so its accomplishments should eventually be embedded in a supportive administrative
environment. It is also likely that local people living in an around the new or expanded national
parks will, in the course of the project, become used to participating in their management and
these arrangements also have the potential to be socially sustainable. Less clear are
arrangements for financial sustainability. National park management is expected to be a fiscal
burden upon government pending some unspecified measures for cost recovery, largely from
tourism, following modernization of the whole protected area system. Some of the municipal
enterprises to be financed under Component 2 and private ones to be financed under Component
3 may prove to be viable, but as with the park system there is a large assumption in the project
document about the growth of tourism in the mountains of Azerbaijan, and this is unsupported by
detailed analysis.
On this issue the recent history of Azerbaijan is not particularly encouraging, as organized crime
and corruption are believed to have accompanied the growth of petroleum investments and
revenues, the war in Nagorno Karabakh continues, and there are rumors of security problems
linked to the presence of training grounds for paramilitary nationalist and Islamic extremists.
This contextual background is not mentioned in the project documentation, yet even an
optimistic assessment of the situation in Azerbaijan would suggest that the country is not quite
ready for a project that relies so much on tourism. On the other hand, the country is westwardlooking and allied to Europe and the USA via its treaties and business links, so it may be realistic
to believe that as it becomes more closely engaged with the western economic system the
position may become more favorable. Meanwhile, implementation of the proposed project
would provide a mechanism for dialogue and capacity building with local stakeholders, laying
the foundations for more effective intervention later on.
A final point is that two kinds of partnership that might contribute to the sustainability of the
mountain national parks are not explored in the project document. One is the possibility of
building links with the private oil companies that have become established in Azerbaijan, that
have invested heavily in the country, and that clearly intend to stay there for decades. Private
sponsorship of conservation areas and associated community development activities has become
widespread internationally, and many large companies now see this as an essential part of their
corporate social responsibility policies and duties. The other possibility would be to seek ways
for the cities and businesses downstream of the mountain parks and dependent on water from
them, to contribute to their maintenance costs. It has long been accepted by conservationists that
communities which participate in maintaining valuable water catchment ecosystems have a valid
claim to share in the profits of economic activities that they indirectly support, and this project
could be used as a way to explore the policy implications of this with the government of
Azerbaijan and the municipal authorities of Baku and other cities. Either of these approaches
might be used to establish a trust fund or similar mechanism outside direct government control,
to provide for permanent grant financing of community-based and other conservation initiatives
in and around the mountain parks. A commitment to explore such mechanisms would add
credibility to the project documentation, as it would help to render the financing of the postproject situation less nebulous than it is at present.
84
3.
OBSERVATIONS IN RELATION TO SECONDARY GEF ISSUES
3.1
LINKAGES TO OTHER FOCAL AREAS.
Preventing further deforestation in the Caucasus would provide a link to carbon storage and the
reduction of net greenhouse gas emissions.
3.3
LINKAGES TO OTHER PROGRAMMES AND ACTION PLANS.
The project will contribute to implementing the Azerbaijan NEAP and NSAPBC, and to the
further development of protected area and natural resource management capacity.
3.4
OTHER ENVIRONMENTAL EFFECTS.
The overall environmental impact of the project should be favorable if its key outputs are
obtained. There remains, however, the usual concern that substantial project investment in a
poor, rural area may stimulate in-migration, leading to worse pressures at project completion
than would otherwise have been the case. This risk should be mitigated by the strengthening
effect of the project on local resource tenure, but is also another reason why clearer arrangements
for sustainable financing of conservation and community-based activities after the project would
be desirable.
3.5
INVOLVEMENT OF STAKEHOLDERS.
Stakeholder input to project design to date has involved a series of consultative meetings
attended by more than 700 local residents and field-based representatives of the concerned
ministries, the National Academy of Sciences, officers of forestry units and Nature Reserves,
heads of municipalities and other municipal officers, village opinion leaders (e.g. school
directors), and local NGOs. Further meetings are planned for early 2005.
3.6
CAPACITY-BUILDING ASPECTS.
According to the project appraisal document, the project will support the establishment of a new
type of institutional structure to provide for the effective participation and coordination of park
stakeholders, including building the capacity of the management and staff. It is clear that all the
specific activities to be supported in and around the parks imply that the capacity of participants
will need to be strengthened, or else will become strengthened through implementation. There is
a strong reliance throughout on the notion that teams of consultants will be responsible for
building this new capacity, presumably through training, but the precise modalities are not
specified. Likewise, the process of encouraging and guiding the development of village
investment plans and business plans is expected to have a significant impact on local capacity in
certain respects.
85
3.7
INNOVATIVENESS.
In the Azerbaijan context, the attention paid to local stakeholder participation in project design,
implementation, and the flow of benefits from resource use, is innovative, as it aims to help
replace an older, command-based model of conservation and resource management inherited
from the former Soviet Union.
4.
CONCLUSION
The main reservations that this reviewer has with the project are as follows, and they should be
addressed as the project is developed further:

Over-ambition. There is the sense that a great deal has to be achieved quickly, much of
it innovative in the local context, over a large area with poor infrastructure and
communications, in collaboration with numerous highly-conservative villages and a
government system that is still weak. It may be desirable to substitute a slower-paced
project building on existing strengths, more educational in nature, and more oriented to
capacity building.

Over-reliance on tourism. It seems unlikely that international tourist arrivals will
increase anytime soon in Azerbaijan because of the security situation, and even if they
did experience has shown that tourists can easily be deterred by unpredictable acts of
terror or other crime. On the other hand, the internal recreational market for the
Azerbaijan middle classes and expatriates working in the energy sector may be more
reliable. A more careful analysis of this whole issue would be desirable.

Missed opportunities for sustainable financing. There is scope for new kinds of
partnerships to be developed, especially with the energy and water sectors, which could
allow long-term funding arrangements to be put in place to support community-based
education, conservation and livelihood development activities in and around national
parks. These should at least be explored to give more of a sense that the project may be
able to establish something durable in the long term.
86
World Bank Response to STAP Review
1.
The Reviewer’s main concern is that the project appears ambitious, particularly in view
of the limited country capacity and the four-year time frame. In fact, the length of the project
will be revisited during Appraisal and it is quite possible that it will be increased to five years.
At the same time, it is important to balance caution regarding implementation capacity with the
need to begin addressing urgent issues and achieve impacts on the ground in a reasonable time
frame.
This balance was discussed at length during the pre-appraisal mission, and detailed
implementation schedules were prepared for all activities, on a quarterly basis. In each case,
time was built in explicitly for elements such as recruiting consultants, establishing institutions,
completing initial assessments and inventories, etc.. As a result, many activities are only
projected to begin in Year 2, and some only in Year 3, and quantitative targets were scaled down
accordingly. For example, it was agreed that improved grazing management can only be
established on 10-20% of the total pasture area within the two parks during the life of the project,
since introducing this new approach must begin with detailed pasture inventories, building
institutional and technical capacity, awareness-raising, and consultations and negotiations with
stakeholders. (The last could be particularly time consuming, as there may be resistance on the
part of some stakeholders who benefit from the status quo.) We agreed it is better to carry out a
sound process for a small area, rather than target a larger area and risk a rushed job. Similarly, it
was agreed that only about half the villages in the project areas can be covered under Component
2, because the Technical Advisory Teams will need to spend at least 4 months working with each
Village Cluster to help them prepare and implement village plans.
Some of the activities under Component 1 can only begin after the park management
plans have been completed, while others can begin earlier. A good example of how the project
design accommodates this is the road rehabilitation component. An initial US$ 377,000 has been
allocated up-front for rehabilitation of 130 km of key segments of access roads and bridges,
which can already be identified as essential for improving park management, tourism potential
and the financial viability of local enterprises, and which do not involve construction in or near
sensitive biodiversity areas. The bidding documents for these works will be prepared prior to
project effectiveness so that work can begin in Year 1. An additional US$ 435,000 has been
placed in reserve for rehabilitation of about 150 more km of roads, tracks and trails that will be
identified in the park management plans.
2.
A second issue is the financial sustainability of the parks, and to what extent growth in
tourism revenues will be able to cover future operating costs. In response, Sections C4 and D1
of the Project Brief have been revised to clarify the situation and expectations in this regard. In
fact, while tourism revenues (e.g. entry and concession fees) should contribute to park
management in the longer term, this is not expected to be the case for the next few years. The
Government does not plan to introduce entry fees initially, based on regional experience (e.g.
from Georgia) that public awareness must be raised and park facilities and services must first be
improved. There will be concession fees for private operators, but these fees will initially be set
at a low level to attract “pioneers.” Grazing fees may also contribute in the future, but this will
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require transferring this revenue from the Rayon Executive Authorities to the park
administration. Finally, under existing legislation, Pas in Azerbaijan cannot retain any revenues
earned, although this is likely to change within the next few years, partly as a result of the
project.
Tourism development is regarded more as a means of increasing benefits for the parks’
neighbors and contributing to the national economy through taxes, rather than as a source of
direct funding for the parks. Funding for park operations is expected to come mainly from the
central government budget. This is a realistic expectation, given the projected growth in
government revenues from the rapidly developing oil sector, and the President’s personal and
public commitment to expand and improve the national PA system. At the same time, attention
has been paid to limit investment and operating costs during the life of the project, to avoid the
all-too-common “boom and bust cycle” when project funding ends.
Finally, tourism is indeed expected to become a significant economic activity in the
project areas (particularly Shah Dag) in the future. It is one sector where these mountain areas
have a clear competitive advantage, and there are numerous initiatives underway to support
development of tourism in the Caucasus region (see Section C1). However, this project is
regarded mainly as a means of securing the natural assets, developing local capacity and
catalyzing investment. In the project economic and financial analysis (in progress), estimates for
growth in tourism income during the life of the project are modest. Most of the short term local
economic benefit is expected to come from improvements in livestock productivity and related
income.
3.
We have taken the point regarding opportunities for partnership with the private sector
(especially the oil industry) and water sector (see Section C1).
4.
The Reviewer raises the issue of possible in-migration to the project area as a result of
project investment. We recognize that this is often a legitimate concern, but feel it does not
apply in this case, and we have revised Section C5 to clarify this point. The project areas have
been steadily losing population rather than gaining, as the majority of school leavers (as much as
80% in some villages) depart to seek better employment opportunities and living conditions.
The scale of development assistance or employment associated with the project are not expected
to be sufficient to affect this trend in any significant way. The expectation is that it will be
sufficient to achieve a modest improvement in quality of life in these poor villages, and to
compensate for negative economic impacts of the project, such as restrictions on grazing and
stronger enforcement against illegal woodcutting.
5.
At the Reviewers suggestion, we have elaborated on the capacity building that the various
consultants will provide (Section B5 and B6).
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