IMPLEMENTATION COMPLETION AND RESULTS REPORT (Credit No.s 4426-GH & 4627-GH & 4746-GH) CREDITS

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (Credit No.s 4426-GH & 4627-GH & 4746-GH) ON CREDITS IN THE AMOUNT OF SDR 25.9 MILLION (US$ 40 MILLION EQUIVALENT) TO THE REPUBLIC OF GHANA FOR Report No: ICR1947 NATURAL RESOURCES AND ENVIRONMENTAL GOVERNANCE FIRST, SECOND AND THIRD DEVELOPMENT POLICY OPERATIONS Environmental and Natural Resources Sustainable Development Department Africa Region December 28, 2011

2 CURRENCY EQUIVALENTS (Exchange Rate Effective December 28, 2011) Currency Unit = Ghana Cedis (GHS) 1.00GHS = US$0.60 US$ 1.00 = GHS 1.65 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AFD ASM CAS CBO CEA CEPS CHRAJ CIDA CSO CRM CSIF DA DFID DPO DP DSA EA EC EGPRC EIA EITI EKN ENRAC EPA EU FC FLEGT GoG GEF GDP GESS GNPC GEITI Agence Française de Développement Artisanal & Small-scale Mining Country Assistance Strategy Community Based Organization Country Environmental Analysis Customs, Excise & Preventive Service Commission on Human Rights and Administrative Justice Canadian International Development Agency Civil Society Organization Community Resource Management Country Strategic Investment Framework (for sustainable land management) District Assembly Department for International Development of the United Kingdom Development Policy Operation Development Partner Debt Sustainability Analysis Environmental Assessment European Community Economic Governance and Poverty Reduction Credit Environmental Impact Assessment Extractive Industries Transparency Initiative Embassy of the Kingdom of the Netherlands (Ghana) Environment and Natural Resources Advisory Committee Environmental Protection Agency European Union Forestry Commission Forest Law Enforcement, Governance & Trade Government of Ghana Global Environment Facility Gross Domestic Product Ghana Environment Sector Study Ghana National Petroleum Corporation Ghana Extractive Industries Transparency Initiative

3 IBRD ICR IDA IMF IMP IMS ISR IRS IMAT MEST M&E MC MDBS MDAs MEST MLFM MLGRD MLGRDE MLNR MoFEP MoV MTEF MTR MSSP NCOM NDPC NGO NRE NREG NRMP OASL PAD PAF PAMAB PDO PES PFM PHRD PRSC PSIA REDD SBS SDAP SEA SLM International Bank for Reconstruction and Development Implementation Completion Report International Development Association International Monetary Fund Information Management System Information Management System Implementation Status and Results Report Internal Revenue Service Independent Monitoring & Advisory Team Ministry of Environment, Science & Technology Monitoring & Evaluation Minerals Commission Multi-Donor Budget Support Ministries, Departments & Agencies Ministry of Environment Science & Technology Ministry of Lands, Forests & Mines (former) Ministry of Local Government & Rural Development Ministry of Local Government & Rural Development Environment (former) Ministry of Lands & Natural Resources Ministry of Finance & Economic Planning Means of Verification (of achievement of PAF targets & triggers) Medium-Term Economic Framework (GoG budget planning tool) Mid-Term Review Mining Sector Support Program National Coalition on Mining National Development Planning Commission Non-Governmental Organization Natural Resources & Environment Natural Resources & Environmental Governance Natural Resources Management Project Office of the Administrator of Stool Lands Project Appraisal Document Performance Assessment Framework Protected Area Management Advisory Board Program Development Objective Payment for Environmental Services Public Financial Management Policy & Human Resources Development (Japanese Trust Fund) Poverty Reduction Support Credit (World Bank DPL in support of national development strategy; latterly renamed EGPRC in Ghana) Poverty & Social Impact Assessment Reduced Emissions from Deforestation & Degradation Sector Budget Support Sustainable Development Action Plan Strategic Environmental Assessment Sustainable Land Management

4 SMART SSM SRMC TA TCC TIDD ToR WD UNFCC VAT VLTP VPA Specific, Measurable, Attainable, Relevant & Time-bound (indicators) Small Scale Mining/Miners Savannah Resource Management Center Technical Assistance Technical Coordination Committee Timber Industry Development Division (of Forestry Commission) Terms of Reference Wildlife Department United Nations Framework Convention on Climate Change Value Added Tax Validation of Legal Timber Programme Voluntary Partnership Agreement (Forestry) Vice President: Country Director: Sector Manager: Project Team Leader: ICR Team Leader: Obiageli K. Ezekwesili Sergiy V. Kulyk (Acting) Idah Pswarayi-Riddihough John W. Fraser Stewart Stephen Ling

5 THE REPUBLIC OF GHANA Natural Resources and Environmental Governance First, Second and Third Development Policy Operations Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring CONTENTS 1. Program Context, Development Objectives and Design: Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Bank Lending and Implementation Support/Supervision Processes Annex 2. Stakeholder Workshop Report and Results Annex 3. Summary of Borrower s Comments on Draft ICR Annex 4. Comments of Cofinanciers and Other Partners/Stakeholders Annex 5. List of Key Supporting Documents Annex 6. Full text of PDO indicators and triggers Annex 7. NREG Program Matrices Annex 8. DPO1 Program Matrix targets for 2007 & 2008 that were not carried through (as opposed to re-worked) into the revised DPO2/3 Program Matrix Annex 9. Participation and Demand For Good Governance mechanisms in the NRE sectors Annex 10. Six main risks identified at the appraisal of DPO Annex 11. Key findings of the NREG Mid-Term Review (August 2010) on sector management systems Annex 12. MAP... 58

6

7 A. Basic Information Country: Ghana Program Name: Natural Resources and Environmental Governance (NREG) Program Program ID: DPO-1: P DPO-2: P DPO-3: P L/C/TF Number(s): DPO-1: IDA-4460 DPO-2: IDA-4470 DPO-3: IDA ICR Date: 12/28/2011 Lending Instrument: DPL Original Total Commitment: DPO-1: XDR 12.5 M DPO-2: XDR 6.8 M DPO-3: XDR 6.6 M ICR Type: Core ICR Borrower: Government of Ghana Disbursed Amount: DPO-1: XDR 12.5 M DPO-2: XDR 6.8 M DPO-3: XDR 6.6 M Implementing Agencies: Ministry of Finance & Economic Planning Cofinanciers and Other External Partners: Embassy of the Kingdom of the Netherlands (EKN), European Union (EU), Department for International Development (DFID, UK), Agence Française de Développement (AFD) B. Key Dates (all fields are entered by the system) First Natural Resources and Environmental Governance Development Policy Operation P Process Date Process Original Date Revised/Actual Date(s) Concept Review: 09/13/2007 Effectiveness: 08/05/ /05/2008 Appraisal: 02/19/2008 Restructuring(s): N/A Approval: 06/03/2008 Mid-term Review: N/A 1 N/A Closing: 06/30/ /30/2009 Second Natural Resources and Environmental Governance Development Policy Operation P Process Date Process Original Date Revised/Actual Date(s) Concept Review: 10/09/2008 Effectiveness: 10/14/ /14/2009 Appraisal: 05/20/2009 Restructuring(s): N/A Approval: 06/30/2009 Mid-term Review: N/A N/A Closing: 06/30/ /30/2010 Third Natural Resources and Environmental Governance Development Policy Operation P Process Date Process Original Date Revised/Actual Date(s) 1 The Bank did not conduct Mid-Term Reviews for each operation. A Mid-Term Review exercise for the whole NREG Program was conducted under the leadership of EKN and GoG early in FY11, and is discussed below. i

8 Concept Review: 12/16/2009 Effectiveness: 12/08/ /02/2010 Appraisal: 04/12/2010 Restructuring(s): N/A Approval: 06/03/2010 Mid-term Review: N/A N/A Closing: 06/30/ /30/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcome: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately satisfactory Moderate Moderately unsatisfactory Moderately satisfactory C.2 Detailed ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Quality of Supervision: Overall Bank Performance: Moderately unsatisfactory Moderately unsatisfactory Moderately unsatisfactory Government: Implementation Agency/Agencies: Overall Borrower Performance: C.3 Quality at Entry and Implementation Performance Indicators NA NA Moderately satisfactory Implementation Performance Indicators QAG Assessments (if any) Rating Potential Prob. Program at any time (Yes/No): No Quality at Entry (QEA): None Problem Program at any time(yes/no): No Quality of Supervision (QSA): None DO rating before Closing/Inactive status: Satisfactory D. Sector and Theme Codes First Natural Resources and Environmental Governance Development Policy Operation P Original Actual Sector Code (as % of total Bank financing) Forestry 29 General Energy Sector 14 General Transportation Sector 14 Mining and other extractive 29 Other Social Services 14 Theme Code (as % of total Bank financing) Environmental policies and institutions 67 Other environment and natural resources management 33 ii

9 Second Natural Resources and Environmental Governance Development Policy Operation P Original Actual Sector Code (as % of total Bank financing) Forestry 33 General agriculture, fishing and forestry sector 17 Mining and other extractive 33 Other Industry 17 Theme Code (as % of total Bank financing) Biodiversity 18 Climate change 18 Environmental policies and institutions 36 Other rural development 10 Rural policies and institutions 18 Third Natural Resources and Environmental Governance Development Policy Operation P Original Actual Sector Code (as % of total Bank financing) Forestry 40 Mining and other extractive 40 Oil and gas 20 Theme Code (as % of total Bank financing) Biodiversity 18 Environmental policies and institutions 54 Lead administrations and management 10 Rural policies and institutions 18 E. Bank Staff Positions At ICR At Approval Vice President: Obiageli K. Ezekwesili Obiageli K. Ezekwesili Country Director: Sergiy V. Kulyk (Acting) Ishac Diwan Sector Manager: Idah Pswarayi-Riddihough Marjorie-Anne Bromhead TTL: John W. Fraser Stewart Jean-Christophe Carret ICR Team Leader: Stephen Ling ICR Primary Author: Sylke von Thadden / Stephen Ling iii

10 F. Results Framework Analysis Program Development Objective: The objectives of the three operations in this DPO series were to: (a) ensure predictable and sustainable financing for the forest and wildlife sectors and effective forest law enforcement; (b) improve mining sector revenue collection, management, and transparency; (c) address social issues in forest and mining communities; and (d) mainstream environment into economic growth through Strategic Environmental Assessment (SEA), Environmental Impact Assessment (EIA), and development of a climate change strategy. Revised Program Development Objective: No substantive changes (see section 1.3). The PDO indicators below are taken from 3-year outcomes identified under the 1 st operation (DPO-1), and substantially revised as the Key Outcome Indicators during the preparation of DPO- 2. However, the outcome indicators were not given appropriate attention during the remainder of the DPO series and therefore do not fully reflect the agreed triggers. Section 2.1 presents the PDO indicators alongside the triggers for a clearer understanding of the disconnect between the two and the achievements in focal areas of the Program. (a) PDO Indicator(s) PDO Indicator 1: Value (quantitative or qualitative) Date achieved Comments (incl. % achievement) PDO Indicator 2: Value (quantitative or Qualitative) Baseline Value (from approval documents) Original Target Values (from approval documents) Strengthen institutions and governance [in forestry sector] Baseline study on percentage of legal timber in the domestic market completed in September Reduced level of illegality by X% 100% timber exports verified legal Formally Revised Target Values (a) 10% increase in legal wood supply to domestic markets; (b) first Forest Law Enforcement Governance and Trade (FLEGT) license issued. Actual Values Achieved at Completion or Target Years (a) Baseline share of domestic timber market from legal sources (sawmills and bush mills) estimated at 16%. (b) First license awaiting completion of tracking system pilot expected shortly. Partially achieved. Draft policies for increasing legal domestic supply require further development. Baseline estimated through market surveys, but not yet repeated. Strong implementation of FLEGT systems, but 1 st license delayed by pilot stage. Sustainably finance and promote investment in forestry sector Baseline revenue study in June 2009 Budget allocation FC: 95% Approved district (a) Timber Revenues increased by 15%; (b) plantation forest area increased by (a) Revenues increased by 30% between 2006 and iv

11 Date achieved Comments (incl. % achievement) PDO Indicator 3: Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) PDO Indicator 4: Value (quantitative or Qualitative) Date achieved Comments budgets released: 80% Revenues collection rate: 80% 15%, through increased private investment. 2008, but then declined by almost 50% to (b) Plantation forest area increased by 19% from 2007 to 2009, with private investment contributing a third of the total. Partially achieved. Revenue collection performance increased, but overall revenue has fallen recently due to shortage of commercial timber. Plantation expansion exceeded target, but mostly through government action. Reduce social conflict issues in mining communities and improve support to small scale miners (SSM) No tool or tracking of perception of social conflicts in mining communities 2 cooperatives in existence (2006 baseline) Reduced social conflicts and other negative impacts as a result of consultations among government, mining communities/civil society, and mining companies including implementation of guideline (a) design of a survey tool and carrying out of at least one survey, (b) SSM established through three cooperatives in mining areas with improved performance (a) Tool developed and piloted in three areas as part of baseline study. (b) SSM cooperatives have not yet been established as survey processes to identify suitable areas have taken longer than anticipated. Mostly achieved. 3a fully achieved. Over 60 candidate SSM sites. Survey activities have been conducted at 7, but 2 of the first sites explored proved unsuitable and no site has yet been formally designated or formal cooperatives established. Improve mining sector revenue collection, management, and transparency Zero mine fiscal models in use (2006 baseline) No mining macromodel Data on local mining incomes, royalties, and local revenues and their distribution not published No tracking of perception of use of local mineral revenues Increased mining revenues to government (a) fiscal model applied to three mines; (b) up to date data on mining incomes, royalties and local revenues published at district level; (c) survey tool to track perception of use of mining revenues at local level designed, and one survey undertaken. (a) Application of fiscal models completed. Macro model created. (b) Sub-national transfers have been included in Extractive Industry Transparency Initiative (EITI) reports. (c) Social specialist hired, but tool not developed by close of DPO-3. Mostly achieved. 4a & 4b were achieved, although traditional authorities are blocking v

12 (incl. % achievement) PDO Indicator 5: Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) PDO Indicator 6: Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) publication of details of royalty payments they receive. Revenue perception survey tool was not a PAF target, and has not been prioritized. Promote investment in climate change adaptation and mitigation No investments for adaptation to climate change in the 2008 budget Climate change adaptation and mitigation measures are adopted by all relevant Ministries, Departments and Agencies (MDAs) at different levels and the National Development and Planning Commission (NDPC). preparation of one long-term investment plan Partially achieved. A general National Climate Change Framework has been developed, and investment planning is underway in specific sectors, but a comprehensive investment plan had not yet been formulated. Strengthen national environmental impact assessment system Strategic Environmental Assessment in need of update vis-a vis legislation and development of sector guidelines needed 30% of EIA applications processed within the prescribed time frame and with the requested consultation and disclosure procedures Enhanced EIA service delivery, including application of 8 sectoral guidelines and enhanced consultation and disclosure procedures, Polluter Pays Principle implemented (a) updated legislative instrument on Strategic Environmental Assessment (SEA), sector guidelines for oil, mining, forestry, energy, transport sectors for environmental assessment; (b) 60% of EIA applications processed within the prescribed time frame. Investment plan was not prepared by the end of DPO3, due to the decision to drop preparation of a national adaptation strategy in favor of a comprehensive National Climate Change Framework. (a) Preparation of a law on SEA has begun. Sectoral EIA guidelines have been produced. Environmental guidelines for the oil sector have been issued. (b) Performance target met in assessed sectors. Mostly achieved. Sector guidelines prepared and SEA institutionalized, although SEA law is still being drafted. 6b was achieved based on an assessment of the last year of the NREG Program using the new on-line EIA processing system. (b) Intermediate Outcome Indicator(s) Intermediate Outcome Indicators were not identified in the program documents. G. Ratings of Program Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (US$mil.) vi

13 1 - P /27/2009 Satisfactory Satisfactory P /11/2009 Satisfactory Satisfactory P H. Restructuring N/A. vii

14

15 1. Program Context, Development Objectives and Design: 1.1.Context at Appraisal Macro-economic Context 1. The first development policy operation (DPO-1) was prepared in the context of a strong macroeconomic performance with GDP growth at 6.3 percent in 2007, down slightly from 6.4 percent in Performance was driven by several sectors (mining, finance and insurance and real estate, construction and in services), which greatly outweighed the output declines in other sectors (such as manufacturing, electricity and water production). Stimulus was also provided by fiscal policy, with government services rising by 6 percent, and yielding an additional 1 percent of real GDP growth. 2. Additionally, export revenues increased due to a continuous rise in prices for cocoa and gold by 60 and 125 percent respectively over the previous seven years. However, despite a good performance of the export sector as well as positive net capital inflows, the surge in imports (attributed in particular to a 17 percent increase in oil and non-oil imports) led to a weakening in the country s external position. The current account deficit widened to 12 percent of GDP (including official transfers) in 2007, from 10 percent in Since the second half of 2006, government expenditures have risen faster than revenue collections, leading the overall fiscal deficit to reach 7.5 percent of GDP in The main driver of growth in government spending has been the public sector wage bill and energy sector subsidies. Nevertheless, government spending maintained its pro-poor orientation in 2007 at 9.4 percent, though slightly lower than in 2006 (10.5 percent) but up from 8.5 percent in Fiscal and balance of payments factors have influenced the interest and exchange rates. Between September 2007 and mid March 2008, the exchange rate (Cedis to the US$) declined by 5.2 percent (against an already declining US Dollar), prompting the Bank of Ghana to increase its prime rate twice over the same period to 14.2 percent by mid March Meanwhile, the consumer price index rose from 10.9 percent in 2006 to 12.7 percent by end of 2007, driven by external supply-side shocks (e.g. higher crude oil prices, higher imported food prices) and internal pressures (e.g. higher food prices following the drought and flood in northern Ghana and adjustments in utility tariffs). 5. At the start of implementation of the DPO series, the Ghanaian economy continued its strong GDP growth performance (7.3 percent in 2008), driven by a surge in export revenues and sustained public and private domestic demand for goods and services. Estimates for 2009 and 2010 suggested a significant slowing of GDP growth (down to an average of 4 percent), due to the global slowdown and decelerated domestic demand, and through the combined impact of fiscal stabilization, tighter credit conditions, and lower remittances and foreign direct investment. Continued fiscal expansion in 2008, combined with exogenous shocks led to a fiscal deficit of 15.5 percent. In response, the Government adopted a multi-year fiscal stabilization plan, supported by the IMF, with complementary support is provided by the Bank s Economic Governance and Poverty Reduction Credit (EGPRC). Government has faced some fiscal and balance of payments challenges during the course of the NREG Program, especially with the advent of the crisis, but has responded through sound planning in coordination with key development partners. Sector background 6. Ghana s growth has historically been fueled by natural resources. At preparation, the forestry, wildlife and mining sectors accounted for 15 percent of Ghana s GDP, 25 percent of Government revenues, 60 1

16 percent of foreign exchange, and significant employment. Over 70 percent of the population was dependent on natural resources for their basic food, water, and energy requirements. However, absence of effective regulatory institutions, lack of effective inter-sectoral collaboration among the natural resources sectors and weak mechanisms for citizen participation led to institutional inefficiencies and put both sustainability and long-term economic growth at risk. Ghana s resources were being depleted at an alarming rate: (i) 50 percent of the original forest has been converted to agriculture, while timber and non-timber forest products, and biodiversity were in serious decline; (ii) mining and forestry revenues were suspected not to be well captured; and declining environmental quality has affected the quality of life and productivity of Ghana s population, notably through air pollution and inadequate clean water supply and sanitation. According to the findings of the Country Environmental Analysis (CEA) 2, the high rate of natural resource degradation represented an annual cost of about 10 percent of GDP, representing almost half of Ghana s US$ 1.5 billion annual Official Development Assistance In this context, the Government of Ghana (GoG) decided to launch a five-year Natural Resources and Environmental Governance (NREG) program to address governance issues related to the mining and forestry sector and to improve environmental management with the overall objective of ensuring economic growth, poverty alleviation, increasing revenues and improving environmental protection. Rationale for Bank assistance & contribution to higher level objectives 8. The Bank s involvement in NREG built upon on support already provided for natural resources management and the environment over the previous decade, centered around the Natural Resources Management Project (NRMP) and two related GEF grants the High Forest Biodiversity Conservation Project and the Northern Savanna Biodiversity Conservation Project. NRMP was envisaged as a 10-year, 3- phase APL, but was discontinued after the initial 2-year phase because the structure of the project was considered to be too complex, and policy and governance gaps limited the effectiveness of project investments 4. A renewed policy dialogue, anchored in a series of analytical studies shared among key development partners, was considered necessary to identify and lay the groundwork to overcome the systemic weaknesses (see summary of background analysis in section 2.2). Involvement of the Bank was seen as critical in order to convene support of the other DPs, not only through its financial contribution, but also due to the Bank s experience in policy lending for the natural resources and environment (NRE), including DPOs in Cameroon and Gabon, as well as a multi-sector NRE DPOs in Brazil, Colombia, Mexico, and Peru. 9. The program was consistent with Government s national priorities as described in the nd Growth and Poverty Reduction Strategy (GPRS II), and was intended to complement the EGPRC DPO series, allowing greater focus on natural resource and environmental policy issues. The GPRS II laid the foundation for the NREG program with the Government s commitment to reducing environmental degradation and identified priorities for environmental management through an SEA for each of the GPRS II key pillars (private sector competitiveness, human resource development, and good governance and civil 2 World Bank, AFD, EKN & DFID (2007) 3 Out of the total US$730 million costs of lost productivity due to damage to five classes of natural assets (agriculture land, forest and savanna woodlands, coastal fisheries and wetlands, wildlife, and Lake Volta) and of damages to human health (incurred from urban air pollution, indoor air pollution and inadequate potable water supply, sanitation and hygiene), the two highest costs are from timber depletion (US$270 million) and inadequate potable water supply, sanitation and hygiene (US$180 million). 4 NRMP ICR (2003): There were several serious flaws in project design, however that were largely responsible for the problems encountered during Project implementation... Project design failed to identify as a risk, that it would be very difficult to complete the myriad of policy reforms in a complex sector such as Forestry in 2 years. Thus, the project was overly ambitious given the number of activities in each sub-component, the number of co-financiers and the weak human capacity 2

17 responsibility). NREG was also aligned with the CAS which has a substantial section on sustainable management of natural resources as well as a number of specific priorities aligned with the NREG Program, including: (a) transparent fiscal and revenue frameworks in natural resources management; (b) the analysis and governance of extractive industries through a value chain approach; (c) engagement and dialogue with civil society organizations and local communities; (d) increased coordination between natural resource/environment ministries and agencies; (e) increased attention to climate change mitigation and adaptation; and (f) sound environmental management of the oil and gas sectors. 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) 10. The objectives of the three operations in the DPO series were to: (a) ensure predictable and sustainable financing for the forest and wildlife sectors and effective forest law enforcement; (b) improve mining sector revenue collection, management, and transparency; (c) address social issues in forest and mining communities; and (d) mainstream environment into economic growth through Strategic Environmental Assessment (SEA), Environmental Impact Assessment (EIA), and development of a climate change strategy. 11. The PDO indicators are based on the six key outcome indicators identified in the DPO-2 & -3 program documents, which are linked to the PDO (see annex 6). They are drawn from the 16 3-year ( ) expected outcomes in the revised NREG Performance Assessment Framework (PAF). The DPO-1 program document did not identify key outcome indicators, but did identify 3-year outcomes for the 8 (of an original 24) program / policy objectives corresponding to the DPO triggers. The outcome indicators and baselines in the DPO-1 document were generally qualitative, and substantially revised during the preparation of DPO Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 12. The same statement of objectives was included in all three program documents, although it was first explicitly labeled as the Program Development Objective and linked to a set of Key Outcome Indicators in the DPO-2 program document. 1.4 Original Policy Areas Supported by the Program (as approved): 13. The NREG DPOs supported reforms in three natural resource sectors forestry and wildlife, mining, and environmental protection under the institutional mandate of three semi-autonomous agencies, the Forestry Commission (FC), the Minerals Commission (MC), and the Environmental Protection Agency (EPA), respectively. The selection of policy areas was based on the findings of a number of analytical studies carried out prior to the NREG preparation 5 as well as policy interventions and reforms implemented by the Government under the GPRS I. 14. The forestry and wildlife sector was identified as an important pillar of economic growth. The formal sector employed about 120,000 Ghanaians, and is dominated by sawmills that focus on international markets. Processed wood products accounted for only 11 percent of exports, and Government did not capture high levels of timber values. The residual forest rent not collected by government was estimated to be typically US$10 to US$45 million per year. Of the total industry turnover of US$500 million in 2004, GoG captured only US$22 million. The potential of the timber industry had not been realized as market practices were inefficient in their utilization of wood extracted, employed outdated technology and considerably exceeded the annual allowable cut required to sustain the productive base of the industry. 5 See section 2.2 for further details. 3

18 Domestic demand for timber was estimated to be roughly equal to that of the export market yet there was insufficient supply from legal sources to meet this demand. The illegal chainsaw industry provided US$ 1.3 million in income for an estimated 50,000 people in 2003, yet was un-regulated, unsustainably managed, and wasteful due to processing of logs by chainsaw as opposed to sawmills. 15. Data across 46 forest reserves, comparing inventories in the 1950 s, 1970 s and 1990s showed that forest stocks were being degraded, with a loss of 0.13m 2 /ha/yr in average basal area of stems. Degradation of forest reserves accelerated dramatically in the last decade from over-logging, encroachment, illegal logging, and bushfires. Off-reserve, losses arose from the combined expansion of farming (especially cocoa) and demand for timber for domestic (informal) markets. The CEA estimated that timber depletion results in an annual cost of about 3.5 percent of Ghana s GDP. A key challenge for the FC was insufficient budget that hindered performance of its management, regulatory and enforcement mandates. Furthermore, opportunities existed for attracting investment in ecotourism and plantation development, and for the promotion of value-added processing, but had not received sufficient attention. 16. In order to ensure good governance in the forestry sector, the Government prioritized its actions under four strategic policy areas: (i) strengthening institutional capacity of the sector to ensure effective policy implementation and law enforcement and securing predictable and sustainable financing of the forestry sector, (ii) promoting collaborative resource management, promoting forest and wildlife investments, (iii) increasing supply of legal timber on the domestic market and (iv) securing the natural ecosystem and strengthening monitoring and evaluation and information communication technology. 17. At preparation, revenues from Ghana s mining sector represented about 5 percent of GDP and 12 percent of Government s revenues and the mining industry accounted for 37 percent of Ghana s total exports. Ghana has one of the worlds largest gold ore reserves, ranking around tenth worldwide in gold production and second in Africa. Ghana is also a significant producer of manganese ore, and diamonds. Metal prices have risen greatly in recent years, and gold prices more than doubled. Nonetheless, with the use of older calculation procedures along a sliding scale and lack of capacity for collection, it was widely suspected that GoG was not benefitting from mining revenues as fully as it should have been, given the increase in resource prices. Ghana s EITI (Extractive Industries Transparency Initiative) reports also illustrated inadequate scrutiny of mining sector revenues, estimating that this could cost Ghana a significant amount in terms of foregone revenue. 18. At the time of the program, seven large and one medium-scale gold mining company formally employed about 15,000 people, with an additional 5,000 working on other minerals. A further 500,000 people are estimated to work in artisanal and small-scale mining (ASM), although the actual figure is not reliably known. Mining in Ghana has been characterized by divergent interests, cultures and institutions, lack of clarity over legal compensation and the distribution of benefits, conflict and a lack of trust between communities, industry and Government, as well as tensions between local communities and migrants. With increasing gold price and government strategy to attract more foreign investment, disputes have been on the rise. Moreover, large-scale mining operations often cause involuntary resettlement, resulting in loss of land, livelihoods and resources for local communities. Another area of concern has been the environmental damage resulting from mining activities, especially unregulated ASM. Conscious of these challenges, GoG and its development partners (DPs) identified establishment of a modern policy and regulatory framework, the improvement of mining sector revenue collection, management, and transparency and the tackling of social issues in mining communities as critical areas for reform under NREG. 19. With respect to environmental protection, health costs related to water supply, sanitation and indoor air pollution were identified as one of the key sources of the high cost of environmental degradation in Ghana. EIA systems are relatively well-established in Ghana, and the country has been a regional pioneer in the application of Strategic Environmental Assessment (SEA). However, several challenges remained for 4

19 effective regulatory mechanisms, especially enforcement of compliance. There was a need to improve coverage and effectiveness of the current EIA systems, including decentralizing the EIA review process to avoid bottlenecks in Accra, and developing sectoral guidelines. Ghana also needed to consolidate its leadership in SEA through mainstreaming application to sectoral policies and district plans. Monitoring and enforcement of the recommendations of various environmental assessment tools has also been weak partly due to resource constraints for the EPA. To enhance environmental governance, there was also a need to establish mechanism and a platform for more comprehensive dialogue and partnership between government agencies and sector stakeholders. In the context of an assessment of Ghana s vulnerability to the impacts of climate change under the Initial National Communication to the UNFCCC, there was also increasing appreciation of the potential vulnerability of Ghana s coastal zone, agriculture (including fisheries, cocoa, cereals, and root crops production), and water resource sectors, as well as human health, poverty, and women s livelihoods, to climate change and variability. 20. To improve the effectiveness of environmental management, NREG identified as key areas of reform: (i) carrying out SEAs to inform decision-making and mainstream environment in sector planning; (ii) improving cross-sectoral environmental management, including development and implementation of an inter-sectoral climate change strategy; (iii) strengthening of the EIA process and compliance bydecentralizing environment management, reinforcing monitoring and effective dissemination; and (iv) regularizing funding for EPA and ensuring better civil society participation. 21. Two other natural resource sectors were considered for inclusion in NREG, but not carried forward as core pillars of the program. Discussions were held with the Fisheries Department, but given its institutional home within the Ministry of Food and Agriculture, it was considered more appropriate to support fisheries policy reform through the Bank s Agricultural Development DPO series. Anticipation of rapid development of the oil and gas sector in Ghana was growing at around the time that the NREG Program was being developed, and consideration was given to how this sector might be supported in parallel to mining and forestry. NREG partners were concerned, however, that the expected rapid growth of the oil and gas sector might overwhelm the already broad NREG agenda, and, therefore, it was decided not to address it directly under the present program. 1.5 Revised Policy Areas (if applicable): 22. No changes were made to the general policy areas during the course of the three DPOs, although the Performance Assessment Framework (PAF) was streamlined during the preparation of DPO-2 with a reduction in the policy objectives (from 24 to 16) and targets (from more than 60 to around 40), together with considerable efforts to tighten the indicators to make them more precise and measurable. Support for sustainable management of the oil sector through a SEA was also included. In the context of the third DPO, the prior action on submission of a climate change adaptation strategy to cabinet was dropped as it was superseded by the Government s new policy to develop a comprehensive (i.e. adaptation and mitigation) National Climate Change Framework. In general terms, however, attention to climate change issues has intensified during and with support of NREG, through publication of the Economics of Adaptation to Climate Change, and emergence of new opportunities for forest carbon financing. 1.6 Other significant changes: 23. Changes since preparation of DPO-1: IDA financing. During the identification and preparation of the NREG program the indicative IDA allocation for the Bank s support to the program, rose from US$3 million for the first year, to US$10 million, and eventually to US$20 million, when the potential for inclusion of considerable activities in the oil and gas sector appeared high. Following resistance from other development 5

20 partners (DPs) to inclusion of major oil and gas activities, however, it was decided that the IDA allocation for the subsequent two years would remain at $10m per year. Despite these amounts being discussed and agreed with the Ministry of Finance & Economic Planning (MoFEP), it created an impression amongst the NREG ministries, departments and agencies (MDAs) that funding had been reduced relative to expectations. Whilst this was unlikely to have had much material effect on the implementation of the NREG program, given that absorption by the three core agencies has lagged behind the available funding, the perceived cut did create some tension, adding to existing sensitivities in the forestry sector over the Bank s earlier decision to discontinue support to NRMP. Institutional setting. When NREG was first under preparation, EPA was under the Ministry of Local Government, Rural Development and Environment (MLGRDE). Prior to Appraisal of DPO- 1, however, it became effectively independent, although formally still under the oversight of the Ministry of Local Government and Rural Development. Then in 2009, it was included within the reformed Ministry of Environment Science and Technology (MEST). As a result, the routing of funds to the EPA for NREG activities has changed a number of times, as has the autonomy with which it could act. This has at times led to some delays in the transfer of funds to the EPA as well as in the implementation of its activities. Change of government. National elections were held in autumn 2008, shortly after DPO-1 became effective, and a new government was installed in early As with the institutional changes above, this did not lead to any appreciable change in the policy content of the program, but it did delay certain activities, particularly policy dialogue and coordination with senior levels of government. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance: 24. The Performance Assessment Framework (PAF) for the NREG Program details annual targets grouped under policy objectives. Six triggers were drawn from the targets for each operation 6. Outcome indicators were also specified for each policy objective at 5 years (end of the GoG NREG Program) and, during development of DPO-2, also at 3 years (end of the Bank s DPO series). Annex 7 summarizes the PAF for the 3 years of the Bank DPO series, based on the streamlined version created for DPO-2, but including relevant parts of the DPO-1 matrix. 25. All triggers for all three DPOs were met, with the exception of the dropped DPO-3 trigger on submission of a climate change adaptation strategy which was waived (see section 1.5 above). However, there is a performance gap between the achievement of the triggers and achievement against the PDO indicators, largely due to a disconnect between the triggers (which received particular attention during the Program) and the PDO indicators (which did not). The PDO indicators were not referenced in the legal documents, and after their initial formulation were not given much emphasis, nor were they revised during preparation of DPO-3, despite changes to related PAF targets. The following tables summarize achievements within each sector in relation to both the triggers and corresponding PDO indicators, to give a clearer picture of achievement within the focal areas of the Program than is evident from review of the PDO indicators alone. The disconnect with the triggers is evident in the occurrence of PDO indicator targets which: 6 Annex 6 lists all the triggers according to the exact language in the legal agreements. Triggers were used as a basis for World Bank approval of each operation. Other DPs disbursed against a more holistic assessment of progress against PAF targets. 6

21 are not directly related to any PAF targets e.g. survey to track perception of use of mining revenues at local levels, and updated legislative instrument on SEA. are directly related to PAF targets, but not to the triggers e.g. increase in the legal wood supply to domestic markets, increase in plantation forest area, and establishment of SSM cooperatives. were not updated after DPO-2, and are therefore out of sync with revised DPO-3 action targets, e.g.: - increase in legal timber supply, although the end-of-dpo-3 target was only for a baseline to be evaluated. - FLEGT license to be issued, although the DPO-3 target was only for completion of the wood tracking pilot. - design and implementation of a conflict tracking tool, although the DPO-3 target was only to initiate development of an annual tracking mechanism. - establishment of 3 SSM cooperatives, although the DPO-3 target was only to conduct exploration in new areas after the initial areas identified appeared unsuitable. - long-term climate investment plan, although the DPO-3 target was only for a consolidated National Framework for Climate Change, which did not include the identification of specific investments. Forestry: Key Outcome Indicator Strengthen institutions and governance Sustainably finance and promote investment in forestry sector Triggers Outcome indicator targets 7 DPO-1 (2008) DPO-2 (2009) DPO-3 (2010) Pilot wood tracking (a) 10% increase in legal wood supply to Define elements VPA signed commenced domestic markets; of VPA [Achieved] with at least 3 (b) first FLEGT license issued. [Achieved] companies [Partially achieved] [Achieved] Implementation of FLEGT systems in the formal forestry sector has progressed well through a consultative process. The Voluntary Partnership Agreement (VPA) was signed with the EU, outlining the safeguards that Ghana would follow to retain access to EU timber markets, a tracking system to verify the legality of timber has been piloted with 4 companies, and a Timber Verification Department established in FC to issue FLEGT licenses. Implementation of the tracking system has been complex and slower than anticipated, and therefore issuance of the first license is somewhat delayed. In the meantime, faced with a largely uncontrolled informal industry, the stocks of quality timber available for the formal, export sector appear to be rapidly dwindling. Ghanaian sawmills are required to provide 20% of output to the domestic market. In reality the figure is probably closer to around 5%, as domestic buyers are unwilling to pay export prices. A proposal to increase domestic supply by allowing chainsaw operators to retrieve stumps and residues from licensed timber coupes is delayed by questions over legal rights. Other proposals, to (i) better enforce the requirement on sawmills to supply the domestic market or (ii) regularize informal chainsaw operators more generally, have yet to be developed into detailed policies. Procedures to Financial Implement improve Framework approved transparency of submitted to Financial forestry revenue cabinet Framework disbursement [Achieved] [Achieved] [Achieved] (a) Timber Revenues increased by 15%; (b) plantation forest area increased by 15%, through increased private investment. [Partially achieved] Under the Financial Framework, measures were implemented to improve the collection rates of stumpage fees and debts, and revenue collection performance has risen to 95%. A number of legislative options for increasing revenues were proposed by FC, but have met with obstacles: Park visitor fees have been revised upwards, but this is a very small component of overall forest 7 Details of assessment of achievement of PDO indicators are in Section F above. 7

22 revenues. Timber export levy was decreased from 3% to 1.5% following complaints by the timber companies that this is no longer ear-marked for re-investment in the industry. Conversion of timber concessions to Timber Utilization Contracts is subject to legal review. Linking stumpage fees to exchange rates is under consideration, but resisted by the industry. Proposals to establish a payment for environmental services (PES) system to fund forest areas are at an exploratory stage. Timber revenues did initially increase, but then declined in 2009 and Changes are likely due mainly to cutting cycles and the general decline in the availability of valuable timber the available data do not reveal the impact of improved collection performance. On revenue transparency, district revenues have been published, although dissemination at the local level remains rudimentary. Ghana plans to make forestry EITI-compliant, and combining with mining and oil sectors offers potentials for strengthening dissemination of sub-national revenue that Ghana is attempting to pioneer through its EITI program. NREG targets on the signing of leases and benefit-sharing agreements contributed to expansion of plantations beyond the 15% target, but FC struggled to attract as much private sector investment as desired, and most of the increase was through direct government action. Mining: Key Outcome Indicator Reduce social conflict issues in mining communities and improve support to small scale miners (SSM) Improve mining sector revenue collection, management, and transparency Triggers DPO-1 (2008) DPO-2 (2009) DPO-3 (2010) Proposal on social responsibility guidelines [Achieved] Consultations on social responsibility guidelines [Achieved] Social responsibility guidelines issued [Achieved] Outcome indicator targets (a) design of a conflict survey tool and carrying out of at least one survey, (b) SSM established through three cooperatives in mining areas with improved performance [Mostly achieved] Social responsibility guidelines (non-binding) for mining companies in mining communities have been developed. These consist of principles and a set of operating guidelines designed to serve companies, regulators, communities and civil society as benchmarks for development and implementation of social responsibility activities. These have been assessed to be of high quality and focus on corporate governance and ethics, human rights, employment and labor standards, health and safety, environmental stewardship, supply-chain stewardship, community development, stakeholder engagement, and compliance and reporting. M&E systems will need to be strengthened going forward to assess the implementation and impact of the guidelines and other conflictmitigating measures. A conflict monitoring instrument has been developed, and used for a baseline study, but needs to be developed into a regular conflict monitoring process, however. Over 60 candidate SSM sites have been identified, and survey activities conducted at 7 of them, with a further 8 planned for However, the process has taken longer than anticipated as two of the first sites proved unsuitable (gold deposits too deep), and no site has yet been formally designated. In the meantime, the MC have carried out capacity-building and monitoring activities with smallscale miners, but formal cooperatives have yet to be established. Draft mining policy and regulations [Achieved] Revenue Task Force, action plan, and fiscal model piloted [Achieved] Pilot audit of one mine and fiscal model applied to three mines [Achieved] (a) fiscal model applied to three mines; (b) up to date data on mining incomes, royalties and local revenues and their distribution published at the district level; (c) at least one survey to track perception of use of mining revenues at district and municipal level. [Mostly achieved] The development of the Mining Policy has helped re-orient the minerals sector towards improving durable economic outcomes for Ghana (including revenue generation, diversification, generating employment, support industries and infrastructure) with due regard to social and environmental issues. The Multi-Agency Minerals Revenue Task Force is considered to have worked effectively. The 8