DOCUMENTS. November 25, Public Disclosure Authorized

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1 Public Disclosure Authorized DOCUMENTS The World Bank " N Q"Adr 2 LoteA Tel 55 (61) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Ed. Corporate rinancial Center, 70 Andar Fax 55 (61) Brasilia - DF, BRASIL November 25, 2013 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized His Excellency Mr. Jorge Fontes Hereda President Caixa Econ6mica Federal - CAIXA Setor Bancario Sul, Quadra 4, Lotes / , Brasilia, DF Brazil Fax: (21) Her Excellency Ms. Rosa Lemos de Sd General Secretary Fundo Brasileiro para a Biodiversidade - FUNBIO Rua VoluntArios da Pitria 286, 50 andar , Rio de Janeiro, RJ Brazil Fax: (61) BRAZIL: TFO91515 (National Biodiversity Mainstreaming and Institutional Consolidation Project) Amendment and Restatement of the Grant Agreement /Amendment to the Disbursement Letter Please refer to the GEF Grant Agreement dated March 14, 2008, for the above-captioned Project (the "Grant Agreement") between the International Bank for Reconstruction and Development (the "World Bank") acting as implementing agency of the GEF; and Caixa Economica Federal ("CAIXA") and Fundo Brasileiro para a Biodiversidade ("FUNBIO") (the "Co-Recipients"). Capitalized terms used in this letter ("Amendment Letter") and not defined herein have the meaning ascribed to them in the Amended and Restated Grant Agreement. In response to the Co-Recipients' letter No. 001/2013/MMA/FUNBIO/CAIXA dated May 21, 2013, and letter No. 002/2013/MMA/FUJNBIO/CAIXA dated September 12, 2013, requesting the World Bank to restructure the Project, and consequently prepare an amendment and restatement of the Grant Agreement in order to: (i) capitalize the Opportunities Fund under Part 2 (c) of the Project; (ii) extend the Project's Closing Date for 12 months, until December 31, 2014; and (iii) reallocate grant proceeds among Categories of disbursement, we are pleased to inform you that the World Bank hereby concurs with your request, and proposes to amend and restate the Grant Agreement to read as set forth in Annex A ("Amended and Restated Grant Agreement") to this Amendment Letter. The World Bank also hereby issues revised instructions, in accordance with Section [V.A. 1. of Schedule 2 to the Grant Agreement, as set forth in Annex B ("Disbursement Letter") to this Amendment Letter. The Disbursement Letter replaces the previous version of the Disbursement Letter dated July 26, C

2 set forth in Annex B ("Disbursement Letter") to this Amendment Letter. The Disbursement Letter replaces the previous version of the Disbursement Letter dated July 26, This Amendment Letter is to be read and construed in accordance with the Amended and Restated Grant Agreement attached herewith. Please confirm your agreement with the foregoing, on behalf of the Co-Recipients, by signing and dating three originals of this Amendment Letter in the space provided below, and returning one fully signed original to us. The provisions of the Amended and Restated Grant Agreement will become effective as of the date of your countersignature, upon receipt by the World Bank of one duly executed original of this Amendment Letter. Please also note that the restructuring paper dated October 23, 2013 (a copy of which is attached herewith) will be disclosed on the World Bank's external website. Sincerely yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By: /lo1, //4 DeboralL etzel Director Brazil Country Management Unit Latin America and the Caribbean Region AGREED: AGREED: CAIXA ONOMICA FEDERAL FUNDO BRASILEIRO PARA By: F =, BIODIVERSIDADE By: C Aut ize epresentative By: \O L. w c Authorized Representative Name: Rosa Maria Lemos de S6 Name: SecretAria Geral Title: Fnl Date: ~Title: Date: )c 4, 2, J

3 Cc: Sr. Roberto B. Tan, Diretor Executivo para o Brasil, Banco Mundial Sr. Rogério Studart, Diretor Executivo Adjunto para o Brasil, Banco Mundial Sr. João Guilherme Machado, Secretário, SEAIN/MP - Fax: , seain@planejamento.gov.br Sr. Dyogo Henrique de Oliveira, Secretário Executivo Substituto, MF - Fax: , gabinete.se.df@fazenda.gov.br Sr. Marcelo Estrela Fiche, Chefe de Gabinete, MF - Fax: , sec.chgabin.gmf@fazenda.gov.br Sra. Adriana Queiroz de Carvalho, Procuradora-Geral, PGFN/MF - Fax: , adriana.carvalho@pgfn.gov.br Sr. Amo Augustin Filho, Secretário, STN/MF - Fax: , gab.df.stn@fazenda.gov.br Sr. Carlos Márcio Bicalho Cozendey, Secretário, SAIN/MF - Fax: , gabinete.df.sain@fazenda.gov.br Sra. Eva Maria Cella Dal Chiavon, Secretária-Executiva, MP - Fax: , secretario.executivo@planejamento.gov.br Sr. Carlos Alberto de Mattos Scaramuzza, Diretor de Conservação da Biodiversidade, MMA - Fax: (61) , carlos.scaramuzza@mma.gov.br Sra. Rosa Maria Lemos de Sá, Secretária Geral, FUNBIO - Fax: (21) , rosa.lemos@funbio.org.br Sr. Jucemar José Imperatori, Superintendente Nacional, Superintendência Nacional Fundos de Governo/CEF - Fax: (61) , sufus@caixa.gov.br p 89

4 Document of The World Bank FOR OFFICIAL USE ONLY Report No: RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE GRANT APPROVED ON JANUARY 31, 2008 FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND (TF ) TO THE CAIXA ECONOMICA FEDERAL AND THE FUNDO BRASILEIRO PARA A BIODIVERSIDADE (FUNBIO) FOR THE NATIONAL BIODIVERSITY MAINSTREAMING AND INSTITUTIONAL CONSOLIDATION PROJECT October 23, 2013 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Ci

5 Regional Vice President: Country Director: Sector Manager / Director: Task Team Leader: Hasan Tuluy Deborah L. Wetzel Emilia Battaglini/Ede Ijjasz-Vasquez Adriana Moreira 2r~

6 BRAZIL NATIONAL BIODIVERSITY MAINSTREAMING AND INSTITUTIONAL CONSOLIDATION PROJECT GEF TF CONTENTS Page A. SU M M A RY... 4 B. PROJECT STATUS... 4 C. PROPOSED CHANGES... 5 Annex 1- Brazilian Biodiversity Fund (FUNBIO) l of a 3

7 GEF NATIONAL BIODIVERSITY MAINSTREAMING AND INSTITUTIONAL CONSOLIDATION PROJECT RESTRUCTURING PAPER A. SUMMARY 1. This restructuring paper seeks to extend the Closing Date of the GEF National Biodiversity Mainstreaming and Institutional Consolidation Project (the Project, PROBIO II) for one year, from December 31, 2013 to December 31, 2014, and to ensure that capitalization of the Opportunities Fund is in compliance with OP Global Environment Facility Operations. This would be the first extension of the Grant's Closing Date. The rationale for the proposed changes is: (a) to allow the Grant Co-Recipients to finalize ongoing project activities, and (b) to permit capitalization of the Opportunities Fund. 2. On May 21st, 2013, through Official Letter no 001/2013/MMA/FUNBIO/CAIXA and on September 12, 2013 through official letter no 002/2013/MMA/FUNBIO/CAIXA (see Attachment 1) the Grant Co-Recipients, Caixa Econ6mica Federal and Fundo Brasileiro para a Biodiversidade (FUNBIO) in conjunction with the Ministry of Environment (MMA), requested a one-year extension of the Grant's Closing Date and for the Opportunities Fund to be considered a Conservation Fund according to the World Bank's OP It has been confirmed that for requesting the above-mentioned changes the approval of the Secretariat for International Affairs (SEAIN) is not required. B. PROJECT STATUS 3. The Project Development Objective (PDO) is rated Satisfactory. The results to date show that the Project is supporting Brazil's achievement of 21 of the 50 quantitative national targets defined by the UN Convention on Biological Diversity. The Project has promoted wide consultations on the "2020 Aichi Targets" with the private, non-governmental (including Indigenous Peoples organizations), and academic sectors, and is supporting the elaboration of the National Action Plan to achieve Aichi's Targets, including extensive interministerial discussions and collaborations. The Project has developed innovative biodiversity criteria and policy guidelines for strategic sectors (agriculture, fisheries, energy and health) and is supporting implementation of the private sector subprojects in more than four million hectares, in three major Brazilian biomes (Amazonia, Cerrado and Atlantic Forest) and involving various productive sectors and approaches (traditional cattle ranching, forest management, agriculture/biofuels, cocoa and chocolate production, tropical silviculture, and corporate sustainability). 4 Cons 4a 1d

8 4. The Project's Implementation Progress (IP) is also rated Satisfactory. The US$22.0 million Grant for the Project was approved by the Board on January 31, The Grant Agreement was signed on March 14, 2008, and became effective on September 11, 2008, with a Closing Date of December 31, This is an innovative project, both in its multi-sectorial institutional arrangements, as well as in its scope of work involving challenging transformations in production practices and strategies. Although the Grant Agreement was signed in 2008, project implementation was slow at first and effectively commenced in 2009, once roles and procedures for project implementation became clearly defined and structured. In addition, important project activities related to the mainstreaming and adoption of biodiversity policies in public and private sectors took longer than planned due to the need to sensitize both sectors while looking for opportunities for negotiating the incorporation of principles of conservation and sustainable use of biodiversity which appeared strategically complex. After these initial start-up delays, project implementation has progressed satisfactorily. The Grant has an undisbursed balance of US$ 7.21 million, and is 67 % percent disbursed. C. PROPOSED CHANGES 5. During the supervision mission held in May 2013, a proposal was presented by Brazilian counterparts for an extension of the Project's implementation deadline and for modification of the Opportunities Fund so as to ensure that its capitalization conforms to the Bank's operational policies. The proposed restructuring of the GEF National Biodiversity Mainstreaming and Institutional Consolidation Project would respond to the clients' request, entailing the following changes to allow for achievement of the two main goals described above: a. Extension of the Grant's Closing Date by one year, from December 31, 2013 to December 31, 2014; b. Capitalization of the Opportunities Fund, under Component 2(c), in accordance with the requirements for Conservation Funds stated in OP Global Environment Facility Operations; c. Re-categorization of Eligible Expenditures under Category 4 from "Goods, works and consultants' services financed by Private Sector Transfers under Component 2(a) of the Project" to "Capitalization of the Opportunities Fund" under Component 2(c) of the Project; and d. Reallocation of US$1,000,000 from Category 2 to Category The PDO is to promote mainstreaming of biodiversity at the national level in key public and private sector planning strategies and practices, as well as to consolidate and strengthen institutional capacity to produce and disseminate relevant biodiversity information and concepts. No change is being proposed to as foria r 5

9 the PDO or to the Project's Key Outcome Indicators. The proposed changes would, help to ensure that the Project's indicator targets are met, including indicator 4 (1 million hectares pertaining to Private Sector Sub-beneficiaries adopting criteria associated with biodiversity conservation in their areas of operation) and indicator 5 (5 private sector stakeholders adopting criteria linked with biodiversity conservation and sustainable use). 6. Closing Date Extension. A one-year extension to the Closing Date of PROBIO II is proposed, from December 31, 2013, to December 31, This would allow finalization of ongoing activities under all components, and permit a general assessment of the Project's results. This is particularly relevant for sectors which implement policies that often have significant impacts on biodiversity, such as fisheries, energy, and agriculture, and for which negotiations regarding the incorporation of conservation principles and sustainable use of biodiversity were more difficult. 7. Capitalization of Opportunities Fund. The objective of the Opportunities Fund (the Fund) is to support/catalyze/pilot the mainstreaming of biodiversity principles into private sector initiatives. Project activities under Component 2 of the Project comprise two phases: (a) prospecting and negotiating, and (b) implementing subprojects. As project implementation was initiated at the onset of the 2008 financial crisis, and subprojects aimed at changing production processes so as to incorporate biodiversity concepts and practices in the business strategies, prospecting and negotiating subprojects with the private sector took longer than anticipated. In addition, most subprojects have negotiated a medium/long term implementation period (3-5 years), which means that they will not be able to account for funds received from PROBIO II before the Grant's December 31, 2013 Closing Date. 8. The Opportunities Fund is a sinking fund sheltered under FUNBIO's legal personality, created as part of Component 2(c) activities. It has been established as a separate account under FUNBIO, who acts as a trustee for the funds. It is similar to the type of conservation fund established under the Brazil Amazon Region Protected Areas Project (TFO51240). 9. Although no private sector subprojects have been financed to date, four private sector subprojects have been identified and negotiated by FUNBIO. These have been submitted to the Opportunities Fund Technical Commission, which in turn has recommended them for financing to the FUNBIO Board; the assessment of a fifth subproject by the Commission is pending. The four subprojects will commit a total of approximately US$11.8 million in co-financing (and an additional US$ 4.85 million for the fifth subproject). 10. To allow for the implementation of the private sector biodiversity mainstreaming strategy that contemplates actions which have both a geographical focus and a sectorial approach, leading to a stronger impact of project activities, it is necessary to adjust the Opportunities Fund to the requirements for Conservation Funds as stated in OP Global Environment Facility Operations. The 6

10 specific requirements contained in OP 10.20, dated July 2009 and revised in April 2013, will be addressed as follows: a. Audits of the Fund will be conducted annually by FUNBIO and made available to the World Bank, and will follow procedures acceptable to the World Bank. b. The Opportunities Fund Technical Commission, composed of one representative from the MMA, one from the private sector, and two nominated by FUNBIO, is responsible for reviewing, recommending and overseeing progress of subprojects; for identifying funding priorities; and for proposing fundraising strategies for the Fund. As Secretariat of the Fund, FUNBIO is responsible for the day-to-day operations of the Fund, including support to the implementation of subprojects, as well as subproject monitoring and reporting. (Background information on FUNBIO is provided in Annex 1.) To execute such tasks, FUNBIO counts on staff with ample experience and capacity in project management, financial management, and procurement. The Fund's resources are administrated by FUNBIO's Asset Management Committee. Private sector subprojects are selected according to the Project's selection criteria, which require that subprojects contribute to the Project's PDO and satisfy other World Bank requirements, as set forth in the Opportunities Fund Operational Manual. Disbursement, auditing and reporting requirements, as well as monitoring and evaluation procedures, follow those cited in the Fund's Operational Manual, as well as those contained in the Project's Operational Manual, all of which are in agreement with World Bank procedures and guidelines and with FUNBIO's practices. c. The Operational Manual for the Opportunities Fund has been approved by the World Bank and is in line with World Bank procedures for procurement and anticorruption policies. Also, model forms pertaining to the Project Operational Manual for Private Sector Transfer Agreements will include anti-corruption clauses stating that implementation has to be done in accordance with the World Bank's guidelines, and will be submitted for a no objection before being signed. d. Subproject implementation, including financial reporting, will be carried out in accordance with the rules set forth in the Opportunities Fund Operational Manual and which abide by the conditions stipulated in the Grant Agreement. These include annual subproject audits to be conducted throughout the duration of each subproject, as well as annual audits of the Fund (see item (a)). e. These requirements will be included in the amendment to the Grant Agreement. 7

11 11. Re-categorization of Eligible Expenditures and Reallocation of Funds. In addition, it is proposed that the original allocation of funds among categories of disbursement be altered, so that (a) Category 4 expenses become "Capitalization of the Opportunities Fund", and (b) US$1,000,000 be reallocated from Category 2 to Category 4, as shown in the disbursement table below: Amount of the Percentage of Category Grant Expenditures to Allocated Proposed be Financed (expressed in reallocation inclusive of USD) Taxes (1) Goods, works, non-consultants' services and consultants' services 8,730,000 under Components 1(a), 1(b)(i), 8,730, % 3(a) and 3(b)(i) of the Project (2) Goods, non-consultants' 1,095,000 services and consultants' services (- 1,000,000 to 100% under Component 2(b) of the 2,095,000 Category 4) Project (3) Goods, works, non-consultants' services and consultants' services 100% of amounts financed by Public Sector Transfers 5,500,000 disbursed by under Component 1(b)(ii) and CAIXA under 3(b)(ii) of the Project such items (4) Capitalization of the Opportunities Fund under Component 2(c) of the Project (+ 1,000,000 from 100% which will finance Private Sector 4,500,000 Category 2) Sub-projects under Component 2(a) of the Project (5) Operating Costs under 100% Component 2(d) of the Project (6) Unallocated 0 0 TOTAL AMOUNT 22,000,000 22,000, This restructuring will allow sub-projects to continue to be implemented beyond the Grant's Closing Date, according to the rules set forth in the Opportunities 9 Fund Operational Manual and which abide by the conditions stipulated in the Grant Agreement. It is proposed that disbursements to the Opportunities Fund take place once the amendment to the Grant Agreement is signed. 13. During a Financial Supervision Mission held from September 16 to 20, 2013, it to is was noted that only 10% of funds under Category 2 had been disbursed to date. 8 O

12 Even if all planned activities under Category 2 are implemented, it is anticipated that not all of the funds under this category will be utilized. Category 4 already has four subprojects submitted to, and recommended by, the Opportunities Fund Technical Commission, and the current economic, post 2008 financial crisis context indicates that the private sector is once again engaging in long term planning. Thus, we propose to reallocate at least 25% of funds from Category 2 to Category 4, given that there are possibilities of negotiating new, additional private sector subprojects using these additional funds. The proposed reallocation of funds is shown in the disbursement table above. 14. The proposed changes modify Subcomponent 2(c) of the Project and they would ensure the necessary conditions for the Opportunities Fund, under Component 2(c), to be implemented and/or completed properly. As described in the Project Appraisal Document and other documents, the Opportunities Fund was to be initially supported by the GEF, but it was expected that over time the Fund would expand based on other investments and donations from new sources, so that the learning experience from the subprojects could be replicated in new productive landscapes and other economic sectors, making it a Conservation Fund as defined under OP Fundraising efforts are being conducted by FUNBIO with a view to securing additional capital to ensure continuation of the Fund after PROBIO II funds have been exhausted. The Project's funds will capitalize the Opportunities Fund, while co-financing will cover administrative costs. 15. The proposed restructuring would not trigger any new safeguard policies or result in a change in the Project's Environmental Category. As a result, all of the Project's safeguard documents remain appropriate and do not require to be updated for this restructuring. Component 2 was classified as Category B: moderate environmental risk operation, and is expected to continue in this category. The four Private Sector Subprojects that have been identified were assessed by FUNBIO's technical staff on their compliance with PROBIO II's criteria, including screening with the safeguards checklist and, as required, application of the Project's safeguard procedures as agreed in the Project's Operational Manual, before being submitted to the Opportunities Fund Technical Commission. No significant issues have been identified in the social and environmental assessment of the four private sector subprojects, and hence no Environmental Management Plan (EMP) is required. Preliminary assessment of the fifth subproject suggests no EMP will be required; in the unlikely event that it proves necessary, FUNBIO's team will be responsible for ensuring delivery and monitoring implementation of any EMP. 16. There are no overdue audits under the Project. CoAuftoria 9C 9

13 Annex 1 Brazilian Biodiversity Fund Fundo Brasileiro para a Biodiversidade FUNBIO 1. Established as part of Brazil's strategy to meet the goals of the Convention on Biological Diversity, FUNBIO is an environmental fund with the mission to invest strategic resources in the conservation of biodiversity. It is a not-for-profit civil association governed by a Board of Directors, with members from business, the environment, government and academia, and which is responsible for setting the general policy for the Fund, its targets and priorities. These are then translated into specific actions by FUNBIO's Executive Secretariat. The Asset Management Committee, made up of members of the Board and invited experts, is responsible for the selection of the professional asset manager, the investment policy for the different funds administrated by FUNBIO, and following up on results. FUNBIO abides by a number of institutional policies and safeguards, including Code of Ethics, Social and Environmental Safeguards Policy, Plan of Action for Gender Equality, Indigenous Peoples Policy, and Open Door Policy. 2. To implement and support biodiversity conservation projects and programs, FUNBIO manages assets derived from different sources, including international cooperation (Global Environment Facility (GEF), the German Government, through KfW banking group, and the US Treasury, through USAID) and contributions from NGO's and international foundations. FUNBIO also engages in financial management, and procurement and contracting activities, supporting its partners in designing annual operational plans, planning project demands, and making investments of resources in the form of goods, services or financial resources. All work is monitored and reported to its financiers on an ongoing basis, assuring complete transparency in how its resources are used. FUNBIO is audited every year by leading firms, and all the reports are divulged on its website. 3. Since 1996, FUNBIO has administrated US$400 million; supported 197 projects from over 150 organizations; supported 229 municipal, state and federal Protected Areas (PAs), representing around 51% of the protected surface in Brazil; and managed R$173 million in four endowment and fiduciary funds. 4. FUNBIO is a beneficiary of a number of World Bank-financed projects, including Phase II of the Amazon Region Protected Areas program (ARPA), expected to be completed in 2018, and has the adequate staff to exercise satisfactory control over the use of the Opportunities Fund as specifically required by OP FUNBIO has an operational procurement unit with extensive experience in the implementation of projects financed by the World Bank, and is responsible for all processes and procedures required by the guidelines of the World Bank. FUNBIO also has a financial management unit with staff experienced in J di

14 implementation of projects financed by the World Bank, and responsible for all processes and procedures required by the World Bank that support PROBIO II. Finally, FUNBIO is also empowered to monitor, support and relay all necessary information to subprojects executing entities., C 5 floria 11C

15 ANNEX A CONFORMED COPY GEF TRUST FUND GRANT NUMBER TF Amended and Restated Global Environment Facility Trust Fund Grant Agreement (National Biodiversity Mainstreaming and Institutional Consolidation Project) among INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT acting as an Implementing Agency of the Global Environment Facility and CAIXA ECONOMICA FEDERAL and FUNDO BRASILEIRO PARA A BIODIVERSIDADE - FUNBIO Dated March 14,2008 (Amended and Restated on November 25, 2013) Con

16 GEF TRUST FUND GRANT NUMBER TF GLOBAL ENVIRONMENT FACILITY TRUST FUND GRANT AGREEMENT AGREEMENT originally dated March 14, 2008, and amended and restated on November 25, 2013, entered into among: INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("World Bank"), acting as an implementing agency of the Global Environment Facility ("GEF"); and CAIXA ECONOMICA FEDERAL ("CAIXA", a Recipient of part of the hereinbelow defined Grant); and FUNDO BRASILEIRO PARA A BIODIVERSIDADE ("FUNBIO", a Recipient of the rest of the hereinbelow defined Grant). The World Bank, on the one hand, and CAIXA and FUNBIO, on the other hand, as Co-Recipients of the hereinbelow defined Grant hereby agree as follows: Article I Standard Conditions; Definitions The Standard Conditions for Grants Made by the World Bank Out of Various Funds, dated July 20, 2006 ("Standard Conditions"), constitute an integral part of this Agreement Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Standard Conditions or in the Appendix to this Agreement. Article II The Project The Co-Recipients declare their commitment to the objectives of the project described in Schedule 1 to this Agreement ("Project"). To this end, CAIXA shall carry out Component 4(c) and shall cause Components 1, 3, 4(a) and 4(b) of the Project to be carried out through CAIXA Cooperation Agreements and FUNBIO shall carry out Component 2 of the Project, all in accordance with the provisions of Article II of the Standard Conditions and with the CBD. (co

17 2.02. Without limitation upon the provisions of Section 2.01 of this Agreement, and except as the Co-Recipients and the World Bank shall otherwise agree, the Co-Recipients shall ensure that the Project is carried out in accordance with the provisions of Schedule 2 to this Agreement. Article III The Grant The World Bank agrees to extend on the terms and conditions set forth or referred to in this Agreement and to assist in financing the Project, a grant in an amount equal to twenty two million United States Dollars ($22,000,000) ("Grant") for the benefit of the Project Beneficiaries, the Public Sector Sub-beneficiaries and the Private Sector Sub-beneficiaries, to the Co-Recipients The Co-Recipients may withdraw the proceeds of the Grant in accordance with Section IV of Schedule 2 to this Agreement. Article IV Additional Remedies The Additional Events of Suspension referred to in Section 4.02 (i) of the Standard Conditions consist of the following: (a) The World Bank has declared any Co-Recipient ineligible to be awarded a contract financed by the World Bank. (b) CAIXA Legislation has been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of any Co-Recipient to perform any of their obligations under this Agreement. (c) FUNBIO Articles of Agreement have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of any Co-Recipient to perform any of their obligations under this Agreement. (d) The Procurement Commission Legislation has been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of CAIXA to perform any of its obligations under this Agreement. (e) The Project Coordination Committee Legislation has been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of any Co-Recipient to perform any of their obligations under this Agreement. ria

18 (f) FUNBIO, or any other authority having jurisdiction, shall have taken any action or adopted any policy that may result in the dissolution or disestablishment of FUNBIO or the Opportunities Fund or in the suspension of their operations. (g) FUNBIO, acting as trustee of the Opportunities Fund, shall have replaced key technical personnel for the operation of the Opportunities Fund so as to affect, in the opinion of the World Bank, materially and adversely, the implementation of Component 2 of the Project. Article V Effectiveness; Termination This Agreement shall not become effective until evidence satisfactory to the World Bank has been furnished to the World Bank that the conditions specified below have been satisfied. (a) The execution and delivery of this Agreement on behalf of the Co- Recipients have been duly authorized or ratified by all necessary governmental and corporate action. (b) The Project Operational Manual has been adopted by the Co-Recipients in form and substance satisfactory to the World Bank. (c) The Procurement Commission has been created in form and substance satisfactory to the World Bank. (d) The Project Coordination Committee has been created in form and substance satisfactory to the World Bank. (e) The CAIXA Cooperation Agreements have been signed on behalf of CAIXA and the Project Beneficiaries in form and substance satisfactory to the World Bank. (f) The FUNBIO Cooperation Agreement between FUNBIO and MMA has been signed on behalf of FUNBIO and MMA in form and substance satisfactory to the World Bank. (g) If the World Bank so requests, the condition of the Co-Recipients, as represented or warranted to the World Bank at the date of this Agreement, has undergone no material adverse change after such date As part of the evidence to be furnished pursuant to Section 5.01 (a), there shall be furnished to the World Bank an opinion or opinions satisfactory to the World Bank of counsel acceptable to the World Bank, showing the following matters: Cor Tia

19 (a) on behalf of the Co-Recipients, that this Agreement has been duly authorized or ratified by, and executed and delivered on their behalf and is legally binding upon them in accordance with its terms; and (b) on behalf of CAIXA, FUNBIO and the Project Beneficiaries, that their respective Cooperation Agreements have been duly authorized or ratified by, and signed and delivered on their behalf and are legally binding upon them in accordance with their terms Except as the Co-Recipients and the World Bank shall otherwise agree, this Agreement shall enter into effect on the date upon which the World Bank dispatches to the Co-Recipients notice of its acceptance of the evidence required pursuant to Section 5.01 of this Agreement ("Effective Date"). If, before the Effective Date, any event has occurred which would have entitled the World Bank to suspend the right of the Co-Recipients to make withdrawals from the Grant Account, if this Agreement had been effective, the World Bank may postpone the dispatch of the notice referred to in this Section until such event (or events) has (or have) ceased to exist Termination for Failure to Become Effective. This Agreement and all obligations of the parties under it shall terminate if it has not entered into effect by the date 90 days after the date of this Agreement, unless the World Bank, after consideration of the reasons for the delay, establishes a later date for the purpose of this Section. The World Bank shall promptly notify the Co-Recipients of such later date. Article VI Co-Recipients' Representative; Addresses The Co-Recipients' Representatives referred to in Section 7.02 of the Standard Conditions are the President of CAIXA and the General Secretary of FUNBIO, respectively for CAIXA and FUNBIO The Co-Recipients Addresses referred to in Section 7.01 of the Standard Conditions are: CAIXA ECONOMICA FEDERAL - CAIXA Presid6ncia andar Setor Bancirio Sul, Quadra 4, Lotes 3/4 Brasilia, DF, Brazil Facsimile: (55-61)

20 FUNDO BRASILEIRO PARA A BIODIVERSIDADE - FUNBIO Rua Voluntdrios da Pdtria andar , Rio de Janeiro, RJ Brazil Facsimile: (55-61) With copy to: SEAIN - Secretaria de Assuntos Internacionais do Minist6rio do Planejamento, Orgamento e GestAo Esplanada dos Minist6rios - Bloco K - 50 andar Brasilia, DF, Brazil Facsimile: (55-61) And with copy to: MMA - Secretaria de Biodiversidade e Florestas Esplanada dos Minist6rios, Bloco B, 70 andar Brasilia, DF, Brazil Facsimile: (55-61) The World Bank's Address referred to in Section 7.01 of the Standard Conditions is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C United States of America Cable: Telex: Facsimile: INTBAFRAD (MCI) or Washington, D.C (MCI)

21 AGREED at Brasilia, Federative Republic of Brazil as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT acting as an Implementing Agency of the Global Environment Facility By / s / John Briscoe Authorized Representative CAIXA ECONOMICA FEDERAL - CAIXA By / s / Maria Fernanda Ramos Coelho Authorized Representative FUNDO BRASILEIRO PARA A BIODIVERSIDADE - FUNBIO By / s / Pedro Wilson Leitio Filho Authorized Representative Consu!toria Juridica FUNBIO

22 SCHEDULE 1 Project Description The objectives of the Project are to promote mainstreaming of biodiversity at the national level in key public and private sector planning strategies and practices as well as to consolidate and strengthen institutional capacity to produce and disseminate relevant biodiversity information and concepts. The Project consists of the following Components: Component 1. Mainstreaming Biodiversity into Selected Public and Economic Sectors Implement a national biodiversity policy and promote the mainstreaming of biodiversity conservation and sustainable use through public sector pilot activities aimed at supporting relevant stakeholders in different economic sectors and in each Brazilian biome by: (a) assessing the bottlenecks and alternative solutions for biodiversity mainstreaming in the public sector while building consensus with stakeholders in order to develop sector plans, including a portfolio of activities and instruments, with policy recommendations; and (b) carrying out on-the-ground pilot activities, including those developed on the basis of recommendations adopted under Component 1(a) above, such as, inter alia, incorporation of biodiversity-friendly techniques into agricultural and livestock management practices, sustainable use of native species, sustainable agro-forestry development, and models to manage health risks for native wildlife, in order to draw lessons learned from the practical application of a portfolio of mainstreaming tools that can then inform a future discussion on biodiversity mainstreaming in the Member Country and elsewhere, through: (i) studies and assessments; and (ii) the implementation of public sector subprojects (the Public Sector Sub-projects). Component 2. Mainstreaming Biodiversity into the Private Sector Incorporate conservation and sustainable use of biodiversity into key private sector planning strategies and practices through the creation and capitalization of a fund (the Opportunities Fund) within FUNBIO by: (a) financing landscape level subprojects (the Private Sector Sub-projects) designed to test the mainstreaming of biodiversity in private productive practices following public policies at the regional level; /Co Ioria a8

23 (b) building a knowledge base (the Knowledge Base Facility) on high potential areas, financial mechanisms for promoting incorporation of biodiversity guidelines, tested tools and best practice for integrating biodiversity considerations into productive landscape processes and strategies, in order to facilitate the assessment and selection of Private Sector Sub-projects and to support future mainstreaming efforts in the private sector; (c) creating, capitalizing, managing and sustaining the Opportunities Fund to: (i) support mainstreaming initiatives in the private sector; and (ii) finance integrated landscape based Private Sector Sub-projects, best practice and innovations generated and disseminated through the Knowledge Base Facility; and (d) supporting FUNBIO to: (i) carry out Project administration, monitoring and evaluation of Component 2 of the Project, through financial management, procurement and audit activities; annual and mid-term reviews; independent assessments; and Project-closing activities; and (ii) ensure adequate information, dissemination and communication strategies through workshops, conferences and special events; coordination and oversight of Component 2 of the Project; and publication and dissemination of information generated by Project activities. Component 3. Institutional Strengthening and Generation of Biodiversity Information for Policymaking Promote technical, institutional and organizational capacity in the institutions responsible for developing and implementing biodiversity policy in the Member Country based on the establishment of mechanisms for coordination among these institutions while enhancing the production and exchange of biodiversity information to inform policy decisions and project design in all sectors by: (a) supporting: (i) institutional strengthening and capacity building for key institutions involved in biodiversity mainstreaming into economic sectors in the Member Country territory; (ii) creation of networks to fill knowledge gaps and practice; and (iii) establishment of a virtual institute (the Brazilian Virtual Institute for Biodiversity) to link existing scientific and academic institutions, create synergies and foster collaboration in mainstreaming biodiversity into the public and private sectors while ensuring access to biodiversity knowledge or identification of knowledge gaps relevant for policymaking and conflict resolution related to mainstreaming biodiversity; and (b) generating and managing biodiversity information through: (i) technical assistance; and (ii) implementation of Public Sector Sub-projects; all of these by assisting in the creation and/or strengthening of selected thematic specialized centers (the Thematic Specialized Centers for the Conservation of Fauna and Flora), in order to promote the production and exchange of biodiversity information, including through the Brazilian Virtual Institute for Biodiversity, relevant for policymaking and CBD compliance while offering training on biodiversity to institutions from different economic!'wc on Itoria

24 sectors where biodiversity has not previously been a priority or where identified capacity gaps hinder effective work to mainstream biodiversity considerations into sector policies and programs. Component 4. Project Coordination and Management Support efficient and effective implementation, supervision, coordination and administration of the Project by: (a) carrying out Project technical administration, monitoring and evaluation through: (i) procurement; (ii) annual and mid-term reviews; (iii) independent assessments; and (iv) technical Project-closing activities; (b) ensuring adequate information, dissemination and communication strategies through: (i) workshops, conferences and special events; (ii) Project coordination and oversight; and (iii) publication and dissemination of information generated by Project activities; and (c) carrying out Project financial administration, through: (i) financial management and audit activities; and (ii) financial Project-closing activities.

25 SCHEDULE 2 Project Execution Section I. Institutional and Other Arraneements A. Institutional Arrangements 1. (i) CAIXA shall carry out Component 4(c) of the Project and cause the Project Beneficiaries to carry out Components 1, 3, 4(a) and 4(b) of the Project, all in accordance with the Project Operational Manual, including the Environmental Assessment and the Procurement Plans, and except as the World Bank shall otherwise agree, shall not amend or waive any provision of these documents without the World Bank's prior written approval. In case of any conflict between the terms of said documents and those of this Agreement, the terms of this Agreement shall prevail. (ii) FUNBIO shall carry out Component 2 of the Project, all in accordance with: (A) the Project Operational Manual, including the Environmental Assessment and the Procurement Plans; and (B) the Opportunities Fund Operational Manual; and except as the World Bank shall otherwise agree, shall not amend or waive any provision of these documents without the World Bank's prior written approval. In case of any conflict between the terms of said documents and those of this Agreement, the terms of this Agreement shall prevail. 2. CAIXA shall ensure that, until the completion of the execution of the Project, and no later than one month after the Effective Date, the CAIXA Project Unit shall maintain competent staff in adequate numbers with qualifications and experience satisfactory to the World Bank, including the following key staff: a national manager, a procurement specialist (with knowledge of the Procurement and Consultant Guidelines) and a financial management specialist. 3. (i) FUNBIO shall ensure that, until the completion of the execution of the Project, FUNBIO Superintendence of Programs shall maintain competent staff in adequate numbers with qualifications and experience satisfactory to the World Bank, including the following key staff: a Project manager, an information/technology specialist, a procurement specialist, and a financial management specialist. (ii) FUNBIO shall maintain, throughout the operation of the Opportunities Fund: (A) the Opportunities Fund's Technical Commission comprised of competent staff in adequate numbers and with qualifications and experience satisfactory to the World Bank, responsible for assisting FUNBIO in providing strategic and implementation guidance regarding Private Sector Sub-Projects, including their evaluation, final approval and supervision; and (B) the Opportunities Fund's Asset Manager Committee comprised of competent staff in adequate numbers and with qualifications and experience satisfactory to the World Bank, responsible for administering the resources of the Opportunities Fund, (otria

26 all in accordance with the relevant provisions set forth to that effect in the Project Operational Manual and the Opportunities Fund Operational Manual. (iii) FUNBIO shall: (A) maintain records and accounts adequate to reflect its operations and finance condition in accordance with sound accounting practices, including records and separate accounts in respect of the proceeds of the Grant allocated to the Opportunities Fund under Component 2(c) of the Project; (B) have its records, accounts and financial statements (balance sheets, statements of income and expenses related statements), including those for the proceeds of the Grant referred to in (A) herein audited in accordance with appropriate auditing principles consistently applied by independent auditors acceptable to the World Bank; (C) furnish to the World Bank as soon as available the report of such audit by said auditors, of such scope and in such detail as the World Bank shall have reasonably requested; and (D) furnish to the World Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the World Bank shall from time to time reasonably request. (iv) FUNBIO, acting as trustee of the Opportunities Fund, shall recover from Private Sector Sub-beneficiaries and refund immediately thereafter to the World Bank any withdrawals or payments from the account for the Opportunities Fund, at the option of the World Bank if the World Bank has determined at any time that such withdrawal or payment made from the account for the Opportunities Fund was used for any expenditure not consistent with the provisions of this Agreement. 4. CAIXA shall cause: (i) MMA (through the respective Cooperation Agreement) to maintain until the completion of the execution of the Project, the Project Coordination Committee with at least bi-annual meetings and submit reports of said meetings to the World Bank; and (ii) the Project Beneficiaries (through their respective Cooperation Agreement) to maintain until the completion of the execution of the Project, the Procurement Commission. 5. At least once a year during Project implementation on or about November 30, commencing on any such date after the Effective Date, or such other date as the World Bank shall agree upon, CAIXA shall cause that MMA (through the respective Cooperation Agreement) meet with the Project Coordination Committee and the World Bank to evaluate and monitor Project progress during the preceding twelve months, select/approve Public Sector Sub-projects and furnish to the World Bank an annual operational plan (the Annual Operational Plan) for the Project for the following twelve months. 6. On or about August 31, 2010, or such other date as the World Bank shall agree upon, the Co-Recipients shall: (a) carry out jointly with the World Bank and with the Project Coordination Committee a mid-term review of the implementation of operations under the Project (Midterm Review). The Midterm Review shall cover the progress achieved in the implementation of the Project; and (b) following such Midterm Review, act promptly and diligently to take any corrective action as shall be recommended by the /Con Mt'ria

27 World Bank. 7. If at any time, the World Bank determines that any portion of the Grant proceeds was used for items improperly procured in violation of Section III to this Schedule, was not used for Eligible Expenditures or, in case of Public Sector Sub-projects or Private Sector Sub-projects was not supported by evidence of satisfaction of other criteria set forth in this Agreement or in the Project Operational Manual or the Opportunities Fund Operational Manual (including compliance with the Negative List and the eligibility criteria for Public Sector Sub-beneficiaries or Private Sector Sub-beneficiaries), the Co- Recipients shall refund any such portion to the World Bank as the World Bank shall specify by notice to the Co-Recipients. 8. The Co-Recipients shall, for the Public Sector Sub-projects under Components 1(bXii) and 3(b)(ii) of the Project and for the Private Sector Sub-projects under Component 2(a) of the Project: (a) have all the procurement records and documentation for each fiscal year of the Project audited, in accordance with appropriate procurement auditing principles by independent auditors acceptable to the World Bank; (b) furnish to the World Bank as soon as available, but in any case not later than six months after the end of each such fiscal year, the procurement audit report of such audit by said auditors, of such scope and in such detail as the World Bank shall have reasonably requested; and (c) furnish to the World Bank such other information concerning said procurement records and documentation and the procurement audit thereof as the World Bank shall from time to time reasonably request. B. Cooperation Agreements 1. To facilitate the carrying out of Components 1, 3, 4(a) and 4(b) of the Project, CAIXA shall make the proceeds of the Grant allocated from time to time to Categories (1) and (3) of the table set forth in Section IV.A.2 of this Schedule, together with relevant non-grant proceeds, available to the Project Beneficiaries under each cooperation agreement ("CAIXA Cooperation Agreement") to be executed and thereafter implemented under terms and conditions acceptable to the World Bank between CAIXA and each relevant Project Beneficiary in order to carry out their respective activities under said Components. 2. To facilitate the carrying out of Component 2(d) of the Project, FUNBIO shall execute and thereafter implement a cooperation agreement ("FUNBIO Cooperation Agreement") with MMA under terms and conditions acceptable to the World Bank. 3. CAIXA shall, under each respective CAIXA Cooperation Agreement, obtain adequate rights, including the right to: (i) suspend or terminate the right of the Project Beneficiary to use the proceeds under the respective CAIXA Cooperation Agreement, declare said CAIXA Cooperation Agreement to be terminated and/or obtain a refund of all or any part of the proceeds under said CAIXA Cooperation Agreement then withdrawn, upon the Project Beneficiary's failure to perform any of its obligations under

28 its respective CAIXA Cooperation Agreement; and (ii) require each Project Beneficiary to: (A) carry out its relevant activity under the Project with due diligence and efficiency and in accordance with sound technical, economic, financial, managerial, environmental and social standards and practices satisfactory to the World Bank as further described in the Project Operational Manual; (B) provide, promptly as needed, the counterpart funds and the resources required for the purpose of said activity; (C) cause the goods, works and services to be funded out of the proceeds of the respective CAIXA Cooperation Agreement to be procured in accordance with the provisions of this Agreement; (D) maintain policies and procedures adequate to enable it to monitor and evaluate in accordance with indicators acceptable to the World Bank, the progress of the activities carried out and the achievement of their objectives; (E) (1) maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the World Bank, both in a manner adequate to reflect the operations, resources and expenditures related to the activities carried out under the respective CAIXA Cooperation Agreement; and (2) at the request of the World Bank, have such financial statements audited by independent auditors acceptable to the World Bank, in accordance with consistently applied auditing standards acceptable to the World Bank, and promptly furnish the statements as so audited to the World Bank; (F) enable the World Bank or cause the World Bank to be enabled under each CAIXA Cooperation Agreement to inspect the activities carried out, their operation and any relevant records and documents; and (G) prepare and furnish to CAIXA and to the World Bank all such information as CAIXA or the World Bank shall reasonably request relating to the foregoing or cause all such information to be prepared and furnished to CAIXA and the World Bank under each CAIXA Cooperation Agreement. 4. FUNBIO shall, under the FUNBIO Cooperation Agreement, obtain adequate rights, including the right to: (i) suspend or terminate the FUNBIO Cooperation Agreement, upon MMA's failure to perform any of its obligations under the FUNBIO Cooperation Agreement; and (ii) require MMA to: (A) carry out its relevant activity under the Project with due diligence and efficiency and in accordance with sound technical, economic, financial, managerial, environmental and social standards and practices satisfactory to the World Bank as further described in the Project Operational Manual; (B) maintain policies and procedures adequate to enable it to monitor and evaluate in accordance with indicators acceptable to the World Bank, the progress of the activities carried out and the achievement of their objectives; (C) maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the World Bank, both in a manner adequate to reflect the operations, resources and expenditures related to the activities carried out under the Cooperation Agreement; (D) enable the World Bank or cause the World Bank to be enabled under the FUNBIO Cooperation Agreement to inspect the activities carried out, their operation and any relevant records and documents; and (E) prepare and furnish to FUNBIO and to the World Bank all such information as FUNBIO or the World Bank shall reasonably request relating to the foregoing or cause all such information to be prepared and furnished to FUNBIO and the World Bank under the FUNBIO Cooperation Agreement.