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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.28 MILLION TO THE REPUBLIC OF MALAWI AND IN THE AMOUNT OF US$2.54 MILLION TO THE REPUBLIC OF ZAMBIA FOR THE SUSTAINABLE MANAGEMENT OF THE NYIKA TRANSFRONTIER CONSERVATION AREA PROJECT March 22, 2011 Environment and Natural Resource Management Unit Southern Africa 3 Malawi, Zambia, Zimbabwe Africa Region Report No: AFR 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.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of January 31, 2011) Currency Unit Malawian Kwacha, Zambian Kwacha US$1 MWK153.5 US$1 ZMK4,850 July 1 January 1 FISCAL YEAR June 30 (Malawi) December 31 (Zambia) ABBREVIATIONS AND ACRONYMS AAA ACB ADC AIA AMU AWF AWP BOP BP BZDP CABS CAS CBD CBNRM CBO CCA CEO CIA CIPS CNP COMACO COMPASS CP CQ CRB CSO DA DC DED DDCC DEAP DNPW DoF ECF ED Analytical and Advisory Activities Anti-Corruption Bureau Area Development Committee Autonomous Implementing Agency Area Management Unit African Wildlife Foundation Annual Work Plan Balance of Payment Bank Procedure Border Zone Development Project Common Approach to Budget Support Country Assistance Strategy Convention of Biological Diversity Community-Based Natural Resource Management Community-Based Organization Community Conservation Area Chief Executive Officer Central Intelligence Agency The Chartered Institute of Purchasing and Supply Chama Nature Park Community Markets for Conservation Community Partnership for Sustainable Resource Management Cooperating Partner Consultant s Qualification Community Resource Board Civil Society Organization Designated Account District Commissioner Deutscher Entwicklungsdienst District Development Coordination Committee District Environmental Action Plan Department of National Parks and Wildlife Department of Forestry Extended Credit Facility Executive Director 2

3 EIA ELAMU EMP ESA ESAMI ESMF ESW EU FAO FM FMR FR FY GDP GEF GEF-M GEF-Z GEO GIMPA GIS GMA GMP GoM GoZ GPN GPS GTZ Ha HPI HQ HWC IA IBRD IBA ICB IDA IDDP IFMIS IFR INT IS ISDS IUCN JMP JPCC JSC KfW LAB MC MCC MDG MEET METT Environmental Impact Assessment East Luangwa Area Management Unit Environmental Management Plan Environment and Social Assessment The Eastern and Southern African Management Institute Environment and Social Management Framework Economic and Sector Work European Union Food and Agricultural Organization Financial Management Financial Monitoring Report Forest Reserve Fiscal Year Gross Domestic Product Global Environment Facility Global Environment Facility - Malawi Global Environment Facility - Zambia Global Environmental Objective Ghana Institute of Management and Public Administration Geographical Information System Game Management Area General Management Plan Government of Malawi Government of Zambia General Procurement Notice Global Positioning System Gesellschaft für Technische Zusammenarbeit Hectare Human Poverty Index Headquarters Human Wildlife Conflict Implementing Agency International Bank for Reconstruction and Development Important Bird Area International Competitive Bidding International Development Association Integrated District Development Plan Integrated Financial Management Information System Interim Financial Report Department of International Integrity Implementation Support Integrated Safeguards Data Sheet International Union for Conservation of Nature Joint Management Plan Joint Permanent Commission of Cooperation Joint Steering Committee Kreditanstalt für Wiederaufbau Local Advisory Board Ministerial Committee Millennium Challenge Corporation Millennium Development Goal Malawi Environmental Endowment Trust Management Effectiveness Tracking Tool 3

4 MGDS M&E MWK MoU MP MTENR MTR MTWC MZ TFCA NA NBSAP NCB NIA NP NGO NMT NRC NRM NVANRD NWT ODPP OP OP ORAF PA PAP PDO PEMFA PF PFM PIF PIM PPF PPG PPP QCBS PR PR RAP REMNPAS RFP RPF SA SADC SAG SBD SEA SEED SO SOE SP SSS TA Malawi s Growth and Development Strategy Monitoring and Evaluation Malawian Kwacha Memorandum of Understanding Management Plan Ministry of Tourism, Environment and Natural Resources Mid-Term Review Ministry of Tourism, Wildlife and Culture Malawi Zambia Transfrontier Conservation Area Not Applicable National Biodiversity Strategy and Action Plan National Competitive Bidding Nyika Implementation Agency National Park Non-Governmental Organization Nyika Management Team Natural Resources Committee Natural Resource Management Nyika-Vwaza Association for Natural Resource and Development Nyika Vwaza Trust Office of the Director of Public Procurement Operational Policy (WB) Operational Program (GEF) Operational Risk Assessment Framework Protected Area People Affected by the Project Project Development Objective Public Expenditure Management and Financial Accountability Process Framework Public Financial Management Project Identification Form Project Implementation Manual Peace Park Foundation Project Preparation Grant Public-Private Partnership Quality and Cost-Based Selection Project Report Public Relations Resettlement Action Plan Reclassification and Effective Management of the National Protected Areas System Project Request for Proposal Resettlement Policy Framework Special Account Southern Africa Development Community Sector Advisory Group Standard Bidding Document Strategic Environmental Assessment Support for Economic Expansion and Diversification Strategic Objective Statement of Expenditures Strategic Program Single Source Selection Technical Assistance 4

5 TAC TBD TFCA TLC TOR TTL UK UN UNDP UNOPS USAID US$ VC VDC WB WCS WCSZ WR WTTC WWF YR ZAWA FD ZMK Technical Advisory Committee To Be Defined Transfrontier Conservation Area Total Land Care Terms of Reference Task Team Leader United Kingdom United Nations United Nations Development Program United Nations Office for Project Services United States Agency for International Development United States Dollar Video Conference Village Development Committee World Bank Wildlife Conservation Society Wildlife Conservation Society of Zambia Wildlife Reserve World Travel and Tourism Council World Wide Fund for Nature Year Zambia Wildlife Authority Zambia Forestry Department Zambian Kwacha Regional Vice President: Acting Country Director: Sector Director: Sector Manager: Country Manager Zambia: Country Manager Malawi: Task Team Leader: Obiageli Katryn Ezekwesili Olivier Godron Jamal Saghir Idah Z. Pswarayi-Riddihough Kapil Kapoor Sandra Bloemenkamp Jean-Michel G. Pavy 5

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7 MALAWI, ZAMBIA Sustainable Management of the Nyika Transfrontier Conservation Area Project Contents I. Strategic Context...1 A. Country Context...1 B. Sectoral and Institutional Context...1 C. Higher Level Objectives to which the Project Contributes...5 II. Project Development Objectives...6 A. Project Beneficiaries...6 B. PDO Level Results Indicators...6 III. Project Description...7 A. Project Components...7 B. Project Financing...9 IV. Implementation A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. Key Risks VI. Appraisal Summary A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social F. Environment Annex I: Results Framework and Monitoring Annex II: Detailed Project Description Annex III: Implementation Arrangements A. Project Institutional and Implementation Arrangements B. Project Implementation C. Financial Management, Disbursement and Procurement D. Environmental and Social (including Safeguards) E. Monitoring and Evaluation... 49

8 F. Role of Partners Annex V: Implementation Support Plan Annex VI: Team Composition Annex VII: Incremental Cost Analysis A. Baseline Scenario B. Alternative Scenario Annex VIII: Nyika TFCA Assessment A. Location B. Core Justification C. Positive Contributing Factors D. Management Issues E. Socio-economic Situation F. Policy and Legal Framework for Community Involvement G. Agriculture as Main Land Use H. Biodiversity Threats Annex IX: First 18-Months Procurement Plan Annex X: Maps of Nyika TFCA and Project Area 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. 7

9 PAD DATA SHEET Malawi, Zambia Sustainable Management of the Nyika Transfrontier Conservation Area Project PROJECT APPRAISAL DOCUMENT AFRICA REGION AFTEN Date: March 22, 2011 Acting Country Director: Olivier Godron Sector Director: Jamal Saghir Sector Manager: Idah Z. Pswarayi-Riddihough Country Manager Zambia: Kapil Kapoor Country Manager Malawi: Sandra Bloemenkamp Team Leader: Jean-Michel G. Pavy Project ID: P Lending Instrument: Specific Investment Loan Project Financing Data: Proposed terms: [ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other: Source Total Amount (US$M) Total Project Cost: Sector(s): General agriculture, fishing and forestry sector (100%) Theme(s): Biodiversity (P); Environmental policies and institutions (S); Other financial and private sector development (S) EA Screening Category: B (Partial Assessment) Total Cofinancing: Norway (Malawi) - Parallel PPF - Parallel Borrower: Government of Malawi Government of Zambia Total Bank Financing: GEF (Malawi) GEF (Zambia) Total GEF Recipient: Republic of Malawi and Republic of Zambia through Ministry of Tourism, Wildlife and Culture in Malawi and Ministry of Tourism, Environment and Natural Resources in Zambia Responsible Agencies: Malawi Department of National Parks and Wildlife, Zambian Wildlife Authority, and Zambian Forestry Department Malawi Zambia Contact Person: Leonard Sefu Contact Person: Jack Chulu Telephone No.: Telephone No.: dpw@wildlifemw.net infozawa@zawa.co.zm

10 Estimated Disbursements (Bank FY/US$m) MALAWI FY Annual Cumulative ZAMBIA FY Annual Cumulative Project Implementation Period: Start: April 2011 End: February 2016 Expected effectiveness date: June 30, 2011 Expected closing date: June 30, 2016 Does the Project depart from the CAS in content or other significant respects? If yes, please explain: Does the Project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? If yes, please explain: Does the Project meet the Regional criteria for readiness for implementation? If no, please explain: Yes Yes Yes Yes X Yes X No X No No Project Development Objective and Project Global Objective: To establish more effective transfrontier management of biodiversity in the Nyika Transfrontier Conservation Area. X No No Project description The Project consists of the following parts: Component 1: Institutional and Planning Framework The objective of this component is to establish and operationalize the governance and planning functions for the Nyika TFCA by financing the design of TFCA-wide planning instruments. Component 2: Sustainable Financing The objective of this component is to develop mechanisms for financial sustainability of TFCA management through the institutions responsible for the long term management and financing of the Nyika TFCA. Component 3: Protected Areas Management The objective of this component is to improve management effectiveness of three Nyika TFCA management blocks : the Nyika, the Vwaza and the Chama blocks (see maps in Annex X). Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) X Yes X Yes X Yes Yes Yes Yes X Yes Yes Yes Yes No No No X No X No X No No X No X No X No 9

11 Conditions and Legal Covenants: Financing/Project Agreement Reference Section 5.01 Malawi Grant Agreement Section 5.01 Zambia Grant Agreement Schedule 2, Section IV, B1 Malawi Grant Agreement Schedule 2, Section IV, B1 Zambia Grant Agreement Description of Covenant (a) The Malawi Ministry of Tourism, Wildlife and Culture and the Zambia Ministry of Tourism, Environment and Natural Resources have established a Joint Steering Committee (b) The Zambia Grant Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of Zambia to make withdrawals under it (other than the effectiveness of the Malawi Grant Agreement) have been fulfilled. (c) The Ministry of Tourism, Wildlife and Culture has adopted a Project Implementation Manual. (d) The Ministry of Tourism, Wildlife and Culture has assigned the financial management staff for the Project, with qualifications, experience and terms of reference satisfactory to the World Bank. (a) The execution and delivery of the Grant Agreement on behalf of the Ministry of Tourism Environment and Natural Resources and the Project Agreement on behalf of the Zambia Wildlife Authority have been duly authorized or ratified by all necessary governmental and corporate action. (b) If the World Bank so requests, the condition of the Zambia Wildlife Authority, as represented or warranted to the World Bank at the date of the Project Agreement, has undergone no material adverse change after the date of effectiveness. (c) The Zambia Wildlife Authority and the Ministry of Tourism, Environment and Natural Resources have signed a subsidiary agreement. (d) The Zambia Ministry of Tourism, Environment and Natural Resources and the Malawi Ministry of Tourism, Wildlife and Culture have established a Joint Steering Committee. (e) The Malawi Grant Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of Malawi to make withdrawals under it (other than the effectiveness of the Zambia Grant Agreement) have been fulfilled. (f) The Ministry of Tourism, Environment and Natural Resources has adopted a Project Implementation Manual. (g) The Zambia Wildlife Authority assigned the financial management staff for the Project, with qualifications, experience and terms of reference satisfactory to the World Bank. Withdrawals up to an aggregate amount not to exceed $125,000 may be made for payments made prior to the date of signature of the Grant Agreement but on or after January 1, 2011, for Eligible Expenditures under disbursement Categories (1) and (3). Withdrawals up to an aggregate amount not to exceed $100,000 may be made for payments made prior to the date of signature of the Grant Agreement but on or after January 1, 2011, for Eligible Expenditures under disbursement Categories (1) and (3). Date Due Before effectiveness of the grants. Retroactive Withdrawal Conditions 10

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13 I. STRATEGIC CONTEXT A. Country Context 1. The Nyika Transfrontier Conservation Area (TFCA) traverses Malawian and Zambian territories. It harbors natural ecosystems and biodiversity that are unique to the world but also to the two countries. It also plays a major watershed function as it is upland of large sections of Lake Malawi and of the Luangwa River. The Nyika pictures rolling hills covered with grassland in a misty ambiance that provides tourists with a peaceful or sporting visit that is significantly different from the usual African wildlife experience. The Nyika is however affected by various forces which threaten its biological diversity and natural resources as well as curtails the sustainable and equitable development of its stakeholder communities. The next paragraphs identify some of the issues and the context through which they currently impact the Nyika. Subsequent chapters describe the Governments proposal to address some of these issues and how the World Bank, through a GEF grant to Malawi and Zambia, intends to assist. B. Sectoral and Institutional Context Rural Development, in spite of abundant resources, does not successfully dent rural poverty 2. In 2009, Malawi s Human Poverty Index (HPI-1) scored 28 % (90 th rank among 135 countries) while Zambia scored 35 % (110 th rank among 135 countries) 1. The percentage of population living under the poverty line in Zambia is 68 and in Malawi 65. In both countries rural poverty is significantly higher than urban poverty. This is worsened in Malawi by the high rural population densities and even fewer economic alternatives at the country level. The Nyika Districts, Rumphi in Malawi and Chama in Zambia, are among the poorest areas in their respective countries. In 2006, 79 % of the population in Zambia s Eastern Province lived under the poverty level, classifying this region as the second poorest in Zambia (after Western Province) Such high poverty, and its underlying human development indicator, creates a context whereby communities have few alternatives but transform natural ecosystems for energy, farm land and food. Both Governments have recognized that a cross-sectoral and integrated rural development approach including biodiversity conservation and promotion of eco-tourism through their protected area network is an opportunity to enhance rural livelihood strategies and options. The challenge is to achieve cost-effective conservation while enhancing livelihoods particularly of adjacent communities around protected areas. 4. Malawi has a mainly rural population of 13 million people resulting in significant human pressure on natural resources. The conservation of the country s natural resource base is therefore an important factor that contributes to achieving sustainable national economic growth. Malawi s Growth and Development Strategy (MGDS) aims to reduce poverty through sustained economic growth and infrastructure development. In the strategy, the Government prioritized nine areas to foster its economic growth base including agriculture and 1 UNDP Human Development Report Central Statistical Office, Living Conditions Monitoring Survey 2006

14 food security, integrated rural development, irrigation and water development, health, youth and enterprise development, energy, education and transport infrastructure development. 5. Zambia is endowed with favorable climate, arable and plentiful land and rich natural resources conducive to a vibrant agriculture sector. About 85 % of the population s employment is related to the agricultural sector. Most agricultural producers are asset-poor smallholders, who use simple technologies and cultivation practices to produce rain-fed maize, groundnuts, roots, and tubers, mostly for their own consumption. Low productivity and low return to labor and land lead to chronically low farm income for smallholders. Zambia s Fifth National Development Plan (2005/2010), Sixth National Development Plan (2011/2015) and its Vision 2030 focus on broad-based wealth and job creation for its citizens. The conservation of the country s natural resource base is also an important factor that contributes to achieving sustainable national economic growth. Tourism An emerging growth sector largely based on nature products 6. The biodiversity rich and spectacularly scenic 3,000 km 2 large Nyika conservation area is built by Malawi s largest, and Zambia s smallest, National Parks. It has the potential to attract significant revenues from nature-based tourism (enriching existing eco-tourism circuits in both countries). Importantly, the area is a significant catchment area (Nyika meaning where the water comes from ). The 2,500 meter high Nyika Plateau contains leopards, roans, elands and elephants as well as Africa s richest orchid communities and a number of endemic plant and bird species. 7. In Malawi, tourism has been identified as one potential new economic growth sector. In 2009, tourism contributed directly and indirectly to about 7 % of Malawi s GDP and 5 % of employment (WTTC, 2009). Tourism in Malawi thrives on natural resources and major resource attractions include water bodies, protected areas, mountains and cultural heritage. It is recognized that tourism growth is not necessarily benefitting the poorer population. 8. Malawi s geographic position between established tourism destinations such as Tanzania, Zambia and Mozambique is a potential advantage to tap into existing tourism streams. Besides the attractive Lake Malawi, the country possesses other currently less developed areas of interest for tourism products such as in the north the highland Nyika National Park with the adjacent lowland marshland Vwaza Wildlife Reserve. 9. Zambia s tourism sector is regarded as one of the three main pillars for economic growth of the country and focuses on the development and expansion of the Northern Tourism Circuit which includes the Nyika National Park in the Eastern Province and North and South Luangwa. 10. In Zambia, a Bank supported report on the Economic and Poverty Impact of Nature Based Tourism in 2007 demonstrated that the economic impact of nature based tourism is higher than previously perceived. According to the study results, nature-based tourism accounts for about 3.1 % of the GDP and 10 % of the formal employment. The challenge is to increase the opportunities for local communities to participate in the tourism economy (shared growth). 11. Zambia s Government also focuses on diversifying its economy in expanding its tourism sectors. The country has 19 National Parks and 34 Game Management Areas covering 33 % of 2

15 the country of which approximately 5 % has been developed for tourism. Medium and long term financial sustainability is a critical issue for national parks that needs to be addressed through delegation of management functions, better commercial management and externally generated financial support. Biodiversity and Watershed Nyika ranks top in both countries for both functions 12. The Nyika TFCA is centred on the Nyika Plateau, a high undulating montane grassland plateau that rises over 2,000 m above the bushveld and wetlands of the Vwaza Marsh. The Nyika Plateau has been classified as one of Africa's Centers of Plant Diversity (WWF and IUCN 1994) as well as one of Global 200 WWF priority regions for conservation, namely the Rift Valley Lakes, Zambezi-Miombo. Both the Nyika national parks of Malawi and Zambia have been classified as Important Bird Areas (IBA). The Nyika National Park in Malawi has the highest number of large mammals and the highest concentration of roan antelopes in Africa. It supports the world s largest breeding population of blue swallow (Hirundo atrocaerulea) and is an area of high plant biodiversity with about 215 Orchid species. The Vwaza Marsh Wildlife Reserve is listed as IBA due to its biome-restricted birds. 13. Further, the Nyika Plateau is a major water catchment and sponge area for both Lake Malawi and the Luangwa River. The Chire/Luwumba, a major tributary of the Luangwa originate on the Zambian Nyika, and four rivers that are responsible for providing water to a large part of the Northern region of Malawi have their source on the Nyika plateau. Protected Areas First class wildlife products managed with difficulties 14. Malawi has 5 National Parks, 4 Wildlife Reserves and 3 sanctuaries. In spite of its high rural population density, Malawi has been able to maintain its significant network of protected areas, some of which, like Liwonde National Park, are spectacular wildlife habitats. However, wildlife is now absent outside protected areas. In recent years, the country has allocated a significantly higher budget to the Department of National Parks and Wildlife (DNPW). However, this budget remains insufficient to manage the parks effectively. As a consequence, DNPW has established partnerships with organizations better endowed and capacitated. Two parks, under such scheme have shown major wildlife recovery; Majete and Liwonde. The National Parks and Wildlife Act 2004 provides for collaborative management schemes with rural communities as managers of wildlife on customary land and for partnerships with all interested parties to effectively manage wildlife resources both inside and outside protected areas. 15. Zambia has 19 National Parks (NPs) and 34 Game Management Areas (GMAs) covering 33 % of the country. Noteworthy, the protected area network in Zambia includes 476 national and local forest reserves. Some parks have a long history of quality management, such as the South Luangwa National Park and are now well branded in the international market. Other parks, like the Kafue National Park, are rapidly developing by attracting partnerships with Non Governmental Organizations (NGOs) and private investors. Wildlife in the Liuwa Plain and Kasanka National Parks is said to have largely recovered as a consequence of such partnerships which have been in existence for some years. In spite of this, the Zambia Wildlife Authority (ZAWA) continues to be insufficiently staffed and receives insufficient budget to effectively 3

16 manage all its protected areas. To improve overall management of forest and wildlife, the MTENR has launched a preparation of new wildlife and forest policy with bills. 16. In both countries, medium and long term financial sustainability is an issue for national parks and wildlife that needs to be addressed through delegation of management functions, better commercial management and externally generated financial support. Transfrontier Conservation Area 3 - Ecosystems management across political boundaries 17. Based on unsatisfactory experiences with management of protected areas located along country borders, the establishment of TFCAs is growing worldwide. In some cases, it can create a political climate and management conditions that facilitates cross-border coordination leading to better biodiversity management and opens additional opportunities for livelihood improvements. 18. In Africa, the Southern Africa Development Community (SADC) member states including the Governments of Malawi and Zambia demonstrated their commitment to the conservation of biodiversity by signing of the TFCA related Protocol on Wildlife Conservation and Law Enforcement in 1999 and ratifying at the end of The first step toward establishing the Nyika TFCA was taken by the respective Malawian and Zambian Ministers of Tourism and Environment on August 13, 2004 when they signed a Memorandum of Understanding (MoU) to establish two proposed Malawi-Zambia Transfrontier Conservation Areas. The proposed TFCAs have been endorsed by the Joint Permanent Commission of Cooperation (JPCC). The proposed Nyika TFCA has been prioritized by the two Governments. The MoU mandated the two current management authorities responsible for the parks, the Department of National Parks and Wildlife of Malawi (DNPW) and the Zambia Wildlife Authority (ZAWA) to develop the Nyika TFCA and manage jointly the Nyika TFCA related protected areas. 20. The Nyika TFCA covers a total of 19,280 km 2 split into 4,182 km 2 on the Malawian and 15,098 km 2 on the Zambian side and includes areas under differing conservation regimes. 5 The TFCA includes the Nyika National Park and Vwaza Marsh Wildlife Reserve in Malawi and the Nyika National Park, Lundazi, Mitenge and Mikuti Forest Reserves and Musalangu Game Management Area in Zambia. In the next few years, the two countries intend to formally establish the TFCA through an international treaty. 3 TFCA: Zone where formal protected areas and other multiple use areas fall under a common management objective of sustainable development of several countries. It is a politically-grounded instrument to foster biodiversity conservation, livelihood improvements and cross-border coordination. SADC Protocol defines the TFCA as the area or component of a large ecological region that straddles the boundaries of two or more countries encompassing one or more protected areas as well as multiple resource use area. 4 The article 4 (f) of this Protocol commits the SADC member states to promote the conservation of the shared wildlife resources through the establishment of transfrontier conservation areas. 5 Nyika NP Malawi 3,200km 2, Nyika NP Zambia 106 km 2, Lundazi FR (Zambia) 839 km 2, Mitenge FR (Zambia) 186 km 2, Mikuti FR (Zambia) 388 km 2, Vwaza Marsh WR (Malawi) 1,982 km 2, Musalangu GMA (Zambia) 17,350 km 2. 4

17 21. The draft bilateral Treaty and the implementation protocol developed by the two Governments over the past years refer to the potential establishment of an autonomous agency, the Nyika Implementation Agency (NIA), to implement the Governments strategy for the Nyika TFCA. Positive context for community livelihoods and buy in 22. Already, outside of the Project areas, two projects are making successful foray into supporting community livelihoods in relation to natural resources management and conservation agriculture. One is the Norway-funded WCS-implemented Community Market for Conservation (COMACO) model in Zambia and the other is the United States Agency for International Development (USAID) funded Total Land Care-implemented Kulera Biodiversity Project in Malawi (see more details in Annex III, F). Currently the bulk of conservation-related benefits to households come in the form of food security and livelihood benefits primarily from crop diversification and conservation farming as a result of the COMACO program. COMACO s 2008 mid-term evaluation survey suggests a possible increase of household cash income to as much as an average of US$ 600 per household per year. In Malawi, the Kulera Biodiversity Project began to focus on conservation farming and crop diversification as well as the identification of buyers and markets. It started in late 2009 and its results have not yet been assessed. These projects in Zambia, supplement the positive community livelihood works by the Kambombo Community Resources Board (CRB) in Chama District. The CRB has over time used funds generated from the hunting activities, in Musalangu GMA to promote women clubs, construct community schools and clinics. 23. Over the next five years, the economic impacts of COMACO and Kulera Biodiversity, in their respective communities are expected to be much greater than present Project impact. COMACO intends to reach and improve the livelihoods and trading capacity of 7,500 farmers while the Kulera Biodiversity Project will target 45,000 households (225,000 people) living in rural communities just outside the selected protected areas. 24. The presence of these two substantial livelihood operations around the Project areas enables the GEF and Norway (Malawi) to focus on the other threats to protected areas such as poor management, inadequate infrastructure and unsustainable financing. Still, the approach for the Chama Nature Park in Zambia is very closely anchored in the previous success of COMACO which has helped mobilize the communities and the district stakeholders toward a protected area management where the livelihood dimension is built in from the start. The development of the Chama Nature Park will be supported by the Project (see more details in Sections III, B and Annex II, C 3.2.6). C. Higher Level Objectives to which the Project Contributes 25. Global biodiversity benefits will stem from consolidating protected areas with globally important biodiversity, supporting ecological connectivity, improving ecosystem resilience to climate change through adaptation and mitigation efforts including enhancing carbon sequestration. 5

18 26. The Project responds to GEF Biodiversity Strategic Objective (SO) #1 Catalyzing Sustainability of Protected Areas as it contributes to the national priorities of the Governments of Malawi and Zambia to create a new transboundary protected area system through expansion and consolidation of the Malawian and Zambian Nyika National Parks and other protected areas. The Project supports interventions that address the three aspects of protected area management in order to catalyze the long-term sustainability of the system including: (1) defining and setting up a sustainable cross-boundary financing mechanism to cover recurrent costs of the Nyika Implementation Agency and the protected areas; (2) coverage of ecologically viable ecosystems and habitats; and (3) building institutional and systemic cross-boundary capacity to manage the TFCA to achieve commonly set and agreed objectives. The establishment of the Nyika TFCA is seen as a fully integrated protected area management scheme within the context of broader and country-wide differing landscapes, threats and biodiversity value of Malawi and Zambia. 27. The Project is further fully aligned with the GEF Strategic Program (SP) #3 Strengthening Terrestrial Protected Area Networks as it includes in-situ conservation of sites containing globally relevant biodiversity and training and capacity-building/strengthening of governmental and other stakeholders for conservation of the TFCA. 28. The Project is also aligned with the GEF Strategic Program (SP) #1 Sustainable Financing of Protected Area Systems at the National Level, as it includes the potential establishment of a sustainable financing institution, the Nyika Implementation Agency, which is expected to be tasked with commercial revenue generation, fund raising and management of endowment accounts. II. PROJECT DEVELOPMENT OBJECTIVES 29. The combined Project Development Objective (PDO) and Global Environmental Objective (GEO) of the Project is to establish more effective transfrontier management of biodiversity in the Nyika Transfrontier Conservation Area. A. Project Beneficiaries 30. The Project benefits several groups of beneficiaries: (1) some of the rural peoples livelihoods in the protected areas fringes depend on the natural resources within or around the Nyika TFCA and some will ultimately benefit through alternative employment in tourism and conservation management though in the short term employment creation is expected to be relatively modest; (2) Malawian and Zambian people and the world at large for the maintenance of a biodiversity asset of national and global value; and (3) private tourism investors who will benefit from being able to offer a better nature tourism product and thereby increase tourism related revenues. B. PDO Level Results Indicators 31. The Project outcome will be measured with three indicators: 6

19 Transfrontier planning instruments adopted by Ministerial Committee (Joint Management Plan, Integrated District Development Plans (IDDP), Business Plans, etc.) Area with signs of illegal land use inside the protected areas of the Nyika TFCA remains 5 % for Nyika, 0 % for Vwaza; and decreases from 10 % to 6 % in Chama Nature Park. Score of Protected Area Management Effectiveness: 38 to 60 for the Nyika block, 44 to 58 for the Vwaza block, and 11 to 48 for the Chama block. III. PROJECT DESCRIPTION 32. This Project supports transboundary biodiversity conservation through planning, institution building, fundraising and capacity building for protected area management within three blocks belonging to the Nyika TFCA (see Annex X for a map of the Project area). It is implemented through the following 3 components (see Annex II for detailed Project description): Component 1: Institutional and Planning Framework Component 2: Sustainable Financing Component 3: Protected Areas Management A. Project Components Component 1: Institutional and Planning Framework (Total US$1.89m - GEF Zambia US$0.63m, GEF Malawi US$0.71m, Norway US$0.32m, PPF $0.23m) 33. The objective of this component is to establish and operationalize the governance and planning functions for the Nyika TFCA by financing the design of TFCA-wide planning instruments and assisting with the establishment and capacity building of the implementation agencies. 34. The intermediate outcome of this component is measured by the following indicator: Number of training-days attended by (i) Management team from ZAWA, FD, DNPW and Chama Nature Park; and (ii) by the same organization field staff, resource protection staff and community partners (indicator met if 20 % training-days are received by females). 35. The component has two subcomponents: (A) Project management and (B) Strategic planning. The activities proposed under Subcomponent A include: (1) financing for the procurement and financial management technical assistants and short-term TA on planning, monitoring and evaluation to support implementation agencies teams; (2) purchase of vehicles, office and field equipment of the implementation teams in both countries; (3) capacity building for the implementation teams in both countries through hiring of trainers, training courses, planning and consultation workshops; and (4) the annual external audits of all funds. The activities proposed under Subcomponent B include: (1) the transboundary integrated district planning for the Chama District in Zambia and the Rumphi District in Malawi; (2) the review and up-date of the draft Nyika TFCA Management and Tourism Plans; and (3) the diagnostic of national legal barriers for full TFCA operationalization. 7

20 Component 2: Sustainable Financing (Total US$0.27m - GEF Zambia US$0.10m, GEF Malawi US$0.17m) 36. The objective of this component is to develop mechanisms for financial sustainability of TFCA management through the institutions responsible for the long term management and financing of the Nyika TFCA. 37. The intermediate outcome of this component is measured by two indicators: (1) Funds and revenues raised to finance operating expenditures collected by both countries in addition to the GEF/Norway/PPF grants reach more than US$1.0 million; and (2) Financial Sustainability Score Card for TFCA improved (mandatory as per GEF but baseline to be established by MTR). 38. The activities under component 2 include: (1) a feasibility study for the Nyika Implementation Agency including a business plan, fund raising strategy, and an investment strategy; (2) a broker tasked with advertising concessions to attract private investors for tourism, logging of an exotic pine forest or hunting concessions; and (3) promotion material for fund raising, investment promotion, development of partnerships as well as events, trips, workshops, etc. Component 3: Protected Areas Management (Total US$8.93m - GEF Zambia US$1.81m, GEF Malawi US$1.40m, Norway US$3.88m, GoM US$1.37m, GoZ US$0.47m) 39. The objective is to improve management effectiveness of the agglomerated three Nyika TFCA management blocks : the Nyika, the Vwaza and the Chama blocks 6. The Project design assures that, by increasing the protection of the blocks the Project does not generate poverty but rather provides alternative livelihoods to poachers and other illegal resource users. 40. The intermediate outcome of this component is measured by two indicators: (1) Abundance index of 2 indicator mammals (Nyika: eland and zebra; Vwaza: elephant and buffalo; Chama: elephant and kudu) trend is > 0; (2) percent area covered by patrols increases as follows: 45 to 70 for Nyika block, 70 to 90 for Vwaza block, 0 to 80 for Chama block; (4) trend in number of signs of illegal activities per patrol-day decreases in all 3 blocks; and (4) increase in tourism-based employment as follows: 47 to 63 for Nyika block, 7 to 12 for Vwaza block, 0 to 10 for Chama block. Number 4 is met if 40 % of new employees are females. 41. The management of the Nyika and Vwaza blocks will be conducted jointly by ZAWA and DNPW. The management of the third block, the proposed Chama Nature Park in Zambia, will be supported by a joint venture between Forest Department (FD), ZAWA, NGO Partner, Community association. In Zambia, the GEF-Zambia will fund all eligible Project activities in the Nyika and Chama blocks. In Malawi, the GEF-Malawi will fund all eligible Project activities in the Vwaza block. Also in Malawi, the Norwegian grant will fund all eligible Project 6 Although the initial project concept envisaged covering the entire TFCA which includes Musalangu GMA (19,280 km 2), the Musalangu GMA is not included in the Project Area since GEF funds are insufficient to cover more than the three blocks mentioned. Notably, the proposed Chama Nature Park is carved out of the GMA/Lundazi National Forest which will contribute to mainstreaming biodiversity into production systems while also contributing to the livelihood of communities. 8

21 activities in the Nyika block as well as research-related activities in the Vwaza block. The activities proposed in each block include: (1) capacity building for planning, management and reporting; (2) infrastructure development and maintenance such as staff houses, offices, workshops, airstrips, water crossing structures, tracks, fences and firebreaks; (3) habitat management and resource protection and monitoring including patrol operations; (4) research and monitoring such as data collection, aerial surveys and research programs; (5) implementation of an action plan to address community livelihoods around the blocks to be designed on a case by case basis using the Process Framework and which objective is to ensure that the Project provides livelihood alternative to poachers and other illegal users of resources; and (6) establishment of two tourism camps in the Chama Nature Park as well as training and mentoring of its employees issued from the community including illegal users of resources. B. Project Financing Lending Instrument 42. This Project will be financed through a US$4.82 million GEF Grant under the biodiversity focal area with US$2.28 million to Malawi and US$2.54 million to Zambia. Project Financing Table 43. Total Project financing is estimated at US$11.09 million, inclusive of price and physical contingencies and taxes. Total co-financing is US$6.27 million. 44. Parallel Project co-financing in the amount of US$4.43 million has been secured from the Peace Park Foundation (PPF) and the Royal Norwegian Embassy to Malawi. Both organizations will execute their grant agreements with Malawi and Zambia by December 31, PPF will contract directly suppliers and service providers. Norway will channel its funds to the Ministry of Tourism, Wildlife and Culture (MTWC) of Malawi based on a bilateral financing agreement and procedures similar to the ones of World Bank funded projects. Both, the PPF and the Royal Norwegian Embassy will retain fiduciary accountability for their funding. 45. The Department of National Parks and Wildlife (DNPW) and the Zambia Wildlife Authority (ZAWA) are contributing in kind - staff salaries and all revenues generated within the TFCA which, respectively, amount to US$0.47 million for Zambia and US$1.37 million for Malawi. 46. Details of the GEF financing and co-financing are provided in the cost breakdown and allocation per component in Table 1 and Table 2 below: 9

22 Table 1: Project costs by component and use of financing Project Cost By Component (US$) Local Foreign Total Component 1: Institutional and Planning Framework 1,260, ,000 1,890,000 Component 2: Sustainable Financing 170, , ,000 Component 3: Protected Areas Management 7,130,000 1,800,000 8,930,000 Total Project Costs 1 8,560,000 2,530,000 11,090,000 Total Financing Required 8,560,000 2,530,000 11,090,000 Table 2: Project costs by component and source of financing Project Cost By Component and Financier GEF Financing Co- Total Malawi Zambia Financing US$ US$ % US$ % US$ Component 1: Institutional and Planning Framework 710, ,000 71% 550,000 29% 1,890,000 Component 2: Sustainable Financing 170, , % 0 0% 270,000 Component 3: Protected Areas Management 1,400,000 1,810,000 36% 5,720,000 64% 8,930,000 Total Financing Required 2,280,000 2,540,000 43% 6,270,000 57% 11,090,000 Lessons Learned and Reflected in the Project Design 47. The following lessons learned from other Bank and non-bank supported projects in Sub- Saharan African countries have guided the Project design. Projects which have been reviewed include the two phases of the Bank/GEF Mozambique TFCA and Tourism Development Project; the Bank/GEF Maloti-Drakensberg TFCA Project in South Africa and Lesotho; the Malawi Mulanje Mountain Conservation Trust; the Malawi Environmental Endowment Trust (MEET); the Uganda Bwindi Trust Fund; the Bank/GEF Regional Lake Victoria Project; the Bank/GEF Regional Lake Malawi Project 7 ; World Wide Fund for Nature (WWF) Beyond Boundaries: Transboundary Natural Resources Management in Sub Saharan Africa (2001); and African Wildlife Foundation (AWF) Impacts of Transboundary Protected Areas on Local Communities (2003) as well as past support from German cooperation agencies to the Malawi Nyika National Park (Malawi Border Zone Development Project, closed in 2004). 48. The main lessons are: 7 See also the Bank review of Transboundary Reserves and implementation of the Ecosystem approach,

23 Transboundary Natural Resources Management 49. A review of cases has shown the following key elements to success: (1) More effective addressing of cross-border threats and higher derivation of benefits from defined and recognized collaboration by participating countries: (2) a bottom-up approach of participating buy-in and ownership of the process at the local level where the resources are managed is more effective; (3) regular monitoring and evaluation of the effectiveness of the collaboration and adaption is required; (4) TFCA increases the efficiency of PA management; (5) visible synergism (avoiding/reducing duplication of efforts, create economies of scale, enhancing economic opportunities such as increased tourism); and (6) greater collaboration across sectors enhances TFCA effectiveness. Nonetheless TFCA requires additional investments of resources and time and funding; hence the incremental financial approach for the proposed project. 50. The Project design is fully aligned with these principles. Institutional development 51. The complexity, politics and time-consuming processes for creating, staffing and operationalizing new institutional structures is often under-estimated. The envisaged creation of the Nyika Implementation Agency (NIA) has been challenging, and slow due to limited funding and need to build acceptance and capacity with both Governments. Much remains to be done including a new feasibility study before the NIA establishment can be finalized. There are discussions on its role, its staffing, its legal basis and its operational modalities. The simple design of the Project responds to the currently weak capacity of the Nyika TFCA executing agencies and uncertainties related to the final set-up of the NIA. As such, the set represents: (1) a flexible arrangement; (2) a limited project geographical scope which in this first phase does not cover the entire Nyika TFCA; (3) a strong capacity building program for officers and staff to bring planning, procurement, contract management and financial function to a suitable level; and (4) a focus on protected areas. Communal participation and collaborative management 52. The participation of local stakeholders in planning and investment processes would contribute to anchor the TFCA into district development but also supplement the incentive framework sought by Kulera Biodiversity and COMACO to decrease the threats to habitat and wildlife. In theory, this would also lead to lower management and protection costs. 53. Complementary to the Project s activities to address community livelihood in the Nyika TFCA surrounding areas, the Project preparation team has developed a Process Framework which outlines the principles of community participation and mitigation of loss of livelihoods. 54. The design and management of the proposed new Chama Nature Park will spearhead a Public-Community-(Private)-Partnership arrangement involving NGO Partners (or private sector), a community association, and the Government of Zambia (ZAWA and FD). 11

24 Knowledge for conservation 55. Many protected areas in less rich countries of the world are managed using ad hoc knowledge and incomplete data. In such context, decision making is rarely optimal making scarce conservation finance less effective than it could be. Good information and good data has proven helpful for decision making as well as helping with the documentation of facts when reporting on biodiversity to the national or international arena. To this effect, in continuation of the work started with the National Herbarium and Botanic Gardens of Malawi in the early 2000 s, Norway will build on this experience to establish a field biodiversity research facility in the Nyika NP Malawi. This center will not only be a forum where Zambian and Malawi institution can establish research programs, but given the high biodiversity and endemism of the Nyika, it is also expected to attract world class research institutions which would be generating both knowledge, revenues and employment. Sustainable financing 56. One of the greatest challenges of TFCA and protected area managers is the availability of funds for recurrent costs. Lessons from the past indicate that generating such funds for commercial concessions or fund raising is difficult, sometimes unsustainable and often insufficient. As a consequence, financial sustainability requires diversification of sources including annual budget allocation by Government, retention of commercial revenues. Dedicated trust funds can help overcome the shortage of funds and buffer non-steady flow of resources. Noteworthy, the experience from all over the world has shown that trust funds administrative costs are often high due to the need to employ extra staff to provide technical assistance and capacity building. 57. The potentially high administrative costs of independent single-purpose institutions will be considered by the two countries when studying options for the design of the NIA, including the potential of an endowment fund. In addition, ZAWA and DNPW will continue funding all park management staff; various partnerships are and will be established, and fund raising and commercial development are built in as essential dimensions of the Project. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements TFCA legal architecture 58. Both countries signed an MoU on the establishment of TFCA in It is expected that both countries will sign a Treaty and an Implementation Protocol for the management of the TFCA in the next few years. The current draft of the Treaty defines: the Ministerial Committee (MC) which approves the TFCAs Joint Management Plan (JMP); the Joint Steering Committee (JSC) which reviews and approve AWP and Annual Reports; the Technical Advisory Committee (TAC) mobilized, as needed, to advice on transfrontier issues; and 12

25 the Local Advisory Board (LAB) which includes traditional, administrative and political representatives to provide guidance on land tenure and land use as well as other local and political issues. Project execution 59. The Project is coordinated and implemented by the country line Ministries respective implementing agencies (DNPW, FD and ZAWA). The ZAWA Warden, the FD Principal Extension Officers (in Chipata) and the DNPW Provincial Director (in Mzuzu) will serve as Project Managers. In the event that the NIA would be established during the life of the project, the countries would have the choice of transferring the Nyika TFCA coordination to the NIA. This will not impact on the achievement of the project's PDO. The transfer of responsibilities to NIA will depend on: (1) the two countries having fully completed the political dialog on the Nyika TFCA and on the role of the NIA; (2) the NIA being registered and its Board having approved the by-laws, the Administration Manual and completed the selection of staff for its Executive Secretariat; and (3) the NIA having been appraised by the World Bank as being sustainable by design and as having sufficient staff, funds and capacity to handle Project funds. 60. The two countries will establish a Joint Steering Committee (JSC) with equal membership from each country. The JSC will physically meet twice a year with one meeting held in each country. Other meetings will be organized using advanced communication technology. The JSC will review and approve the Annual Work Plan (each October) as well as the Annual Report (each March). 61. Project activities funded through Malawi are implemented by the DNPW Regional Office in Mzuzu. Project activities funded through Zambia are jointly implemented by the existing ZAWA and FD staff in Chipata offices. They will be supported by two Technical Assistants to support functions that have been identified by the Bank s fiduciary staff in need of support, namely Procurement and Financial Management. 62. Each protected area block will be managed, or co-managed, by its designated agencies under various arrangements (see below). A Project-funded study on legal barriers to transfrontier management will guide the two countries in formalizing practical institutional arrangements for bi-national teams on the ground. Also, during the course of the Project, each executing agency is encouraged to establish Public-Private-Partnerships (PPPs) for the management of protected areas blocks, of tourism or logging concessions or for infrastructure development, research and community development. Partnerships can originate from communities, from NGOs or from the private sector. 63. The proposed pilot Chama Nature Park, which is located in the Lundazi National Forest, will remain under the responsibility of the FD. The Department will delegate the management of the area proposed for the nature park to a consortium/partnership constituted of itself, ZAWA, a NGO partner and a Chama Community Association which will employ a small management team and resource protection staff. 64. Vwaza Marsh Wildlife Reserve and Bambanda-Zaro Sanctuary will continue to be managed by DNPW with assistance from a team of wildlife police officers from ZAWA. 13

26 65. Nyika National Park Malawi, Nyika National Park Zambia and Mitenge National Forest Zambia will be co-managed by DNPW-ZAWA-FD teams. During Project implementation, the three institutions will design an arrangement whereby a clear distribution of roles for the whole block is designed and implemented. 66. After following internal procedures, the three agencies will each prepare in September of each year an Annual Work Program and Budget which they will together consolidate into a Project-wide Annual Work Program and Budget (AWP). The Project Managers from both countries will also meet on a quarterly basis to exchange experience and consolidate quarterly reports. They will report quarterly to the JSC and the Bank and produce and disseminate a comprehensive Project Report (PR) every semester (with one of the two being the Annual Report). The AWP and the PR are subject to the approval of the JSC and no objection from the Bank. B. Results Monitoring and Evaluation 67. DNPW and ZAWA/FD will each appoint one staff, as M&E Officers, for planning and for monitoring and evaluation and recruit on short term basis M&E backs stoppers to organize the M&E systema dn train the M&E officers. The M&E officer function will consolidate and strengthen overall M&E efforts, ensure alignment and harmonization of data reports from different sources, evaluate overall results and produce consolidated AWP, Quarterly and Annual Reports. The M&E officer will also train staff of the agencies (DNPW, ZAWA, FD) in planning including budgeting and monitoring/reporting of activities, outputs and impacts. 68. Planning and reporting will be guided by an M&E volume, which is Volume III of the Project Implementation Manual (PIM) including all level procedures for preparation of the Annual Work Plan, Quarterly and Annual Reports. It is estimated that all activities related to M&E will cost in the order of estimated US$1.02 million. The manual contains indicator sheets with baseline and target values and defines data needs, sources, collection, quality-control, processing and reporting modalities. The M&E system will link up with on-going M&E efforts from ZAWA, DNPW, FD and other research institutions to ensure cost-effectiveness, consolidation and avoid duplication. 69. The Nyika and Vwaza blocks are regularly monitored jointly by DNPW and ZAWA through patrols (habitat, mammal sightings, illegal resource use and extractions, rainfall, fires, etc). The proposed biodiversity research center that will be established in the Nyika National Park Malawi will develop and carry out during the course of the Project at least two biodiversity conservation scientific research programs (focusing on a spatial study of vegetation and agriculture trends, on the invasive bracken fern in Nyika National Park Malawi and on the status/decline in freshwater species at Lake Kazuni in Vwaza Marsh Wildlife Reserve) filling knowledge gaps for critical management issues. Other M&E efforts for the TFCA include aerial surveys every two years. For the proposed Chama Nature Park in Lundazi Forest Reserve in Zambia, no monitoring has taken place until now. Here, monitoring and evaluation tasks following a baseline assessment will be carried out by the management structure once training has been provided. In addition, the Project will consider and aim at developing a methodology and monitoring scheme by Mid-Term Review (MTR) pending availability of additional funds for 14

27 assessing climate change adaptation and mitigation benefits through preserved natural ecosystem related carbon stores and sinks. 70. The M&E plan also includes the use of the GEF mandatory Management Effectiveness Tracking Tool (METT) for the three management blocks of the Nyika TFCA. Due to lack of baseline data, the use of the financial scorecard will only start around the mid-term and would be evaluated by end of the Project. C. Sustainability 71. The Project has been designed with a particular focus on long term sustainability. The key elements of sustainability include: Financial sustainability 72. One of the biggest challenges for conservation worldwide and protected area management is assuring a permanent flow of funds to sustain operation and maintain results. Financial sustainability of the Project outcomes will rest on five pillars: (1) Continuous and same-level, albeit low, funding by the two Governments; (2) commercial revenues from concessions in tourism, hunting, or logging of an exotic pine forest; (3) fund raising both from private charities and benefactors but also to regular cooperating partners supporting Zambia and Malawi; (4) partnerships with organizations which have technical and fundraising capacity and can alleviate the financial burden on the TFCA; and (5) design and possibly establishment of an endowment or sinking fund to secure core NIA funding (when and if it is established) and increasingly funding the financial gap of operations towards the end of the Project. The Project targets to have at least one functional partnership (the Chama Nature Park), to ensure that all executing agency staff remain funded by Government, that commercial revenue reach about US$200,000 per year which would cover the cost of patrols in the two blocks not under partnership and raise US$1 million to operations within the TFCA. This target is not unrealistic when compared to the funds obtained from GEF, Norway and PPF for the upcoming five years. Environmental sustainability 73. The core Project objective relates to improving the environment and reversing its degradation. Sustaining this will depend on funds raised, capacity built and incentives for better resources stewardship by communities. To help with the above, the Project has several strategies. The main one is to help both countries institutions increase the development level of the three Nyika TFCA management blocks, build management and resource protection capacity, leverage investment, stimulate research and partnerships. To assist with community support, the two main districts will, together, undergo an Integrated District Development Planning process using strategic environment assessment as the key approach. The plan issued from this process will be synchronized with the TFCA Joint Management Plan to harmonize development goals and activities. Sustainability will also be influenced by the success of other community livelihood projects around the Nyika in creating the incentive framework for stakeholder community buy-in to modify behavior and adopt new farming technologies such as conservation farming and for district planners to implement district plans that account for environment plans. 15

28 Institutional sustainability 74. The Project is implemented by three existing Government institutions which constitute the main state apparel for forest and biodiversity management in each country. Other institutional partners have also demonstrated their support and commitment to these districts and to the Nyika TFCA: The Peace Park Foundation (PPF) 8 which has orchestrated and supported the process leading to current results, the COMACO 9 which is an increasingly successful Zambian enterprise working outside the Project area, and the Malawian Nyika-Vwaza Trust (NWT) 10 which has been able to maintain its support throughout the past 10 years. Replicability Other TFCAs are awaiting Nyika results 75. The approach taken is pioneering in terms of designing a single institution to ultimately manage a TFCA. There are few examples of transfrontier organizations that take such an active role in the coordination of field actors. Replicability will largely depend on its level of success which will largely depend on the political commitment to make it happen. The design is relatively straight forward and should be exportable to other areas of both countries and to other countries. There are other potential TFCAs in southern Africa which are observing the development of the Nyika and will likely adopt it if the model works. 76. The first and logical candidate for the Project s replication would be the second Malawi/Zambia TFCA: the Kasungu/Lukusuzi TFCA. This TFCA is created under the same Treaty as the Nyika. The long-term big picture scenario also assumes that the Lundazi FR could provide a protected area link between the Nyika TFCA and the Kasungu/Lukusuzi TFCA. 77. To enable replication of the Project approach for the Nyika TFCA, it will be essential to not only monitor activities and outcomes but also watch for unintended consequences and carry out in depth evaluations (see also IV. Implementation, B. Results Monitoring and Evaluation). V. KEY RISKS 78. Potential risks and mitigation measures have been identified and are summarized in the Operational Risk Assessment Framework (ORAF; see Annex IV) and will be given special attention during the course of Project implementation. The overall risk rating of the proposed intervention is estimated as High, largely because: (1) the political discussions between Malawi and Zambia on the institutional arrangement for the TFCA have not been concluded; and (2) the Project would be entrusted to Government agencies with modest implementation capacity which will need to be supplemented by technical assistance in procurement and financial management

29 VI. APPRAISAL SUMMARY A. Economic and Financial Analysis 79. An incremental cost analysis, mandatory for GEF financed projects, of the Nyika Program (meaning all projects operating in the general area of the TFCA) has been prepared (see additional Annex VII). It concludes that the difference between the cost of the baseline scenario (US$7.40 million) and the cost of the Project (US$16.82 million) is US$9.42 million which represents the incremental cost to achieve the global environmental objective of which US$4.82 million is provided by GEF. For the interventions selected the focus has been on cost-effective solutions mainly emerging from joint and more effective management of the Nyika TFCA. 80. At the local level, the main economic benefit would originate from some improvement of the livelihood of some of the villagers who would be employed in tourism operations or in protected area management. At the national level, there would be very modest increase in foreign exchange and fiscal revenues from tourism. At the global level, the benefit would be related to conservation of biodiversity of global value and a contribution to climate change mitigation. 81. While no formal economic analysis was computed, the Project is expected to have a small-scale positive economic impact. During the Project life it is not expected that the additional number of tourists visiting the area will have a large economic impact. Using economic figures (averages) from the Zambia report on the Economic Impact of Nature Tourism (2007), it could be inferred that the expected additional 6,000 tourism-days 11 per year in Nyika TFCA would generate US$1.14 million 12 as a direct contribution to GDP and establish about 315 permanent tourism jobs An initial assessment of the projected tourism revenues of the three blocks over a five year period concluded that commercial revenues would be between US$0.2 million to US$0.4 million per year after five years of the Project. B. Technical 83. The management of protected areas is a low tech activity that mostly follows the same standards. Infrastructure and equipment requirements are simple (vehicles and gravel tracks) and technological applications more dependent on good organization (e.g. for procurement and maintenance) than technical knowledge. 11 Increase of length of stay for a day. 12 US$190 was identified as a nature tourist s average expenditure per person per day (without airfare) on a local package tour (ESW of World Bank: Zambia Economic and Poverty Impact of Nature-based Tourism, 2007). So 6,000 tourists times US$190 per tourists equals US$1.14 million. 13 Every three nature tourists, or 19 tourism-days, generate one full-time equivalent job in the formal sector (World Bank report: Zambia Economic and Poverty Impact of Nature-based Tourism, 2007) so 6,000 tourism/day divided by 19 tourism-days equals 315 employees. 17

30 C. Financial Management 84. The management of the Project funds from Norway and the GEF will be entrusted through the Ministry of Tourism, Wildlife and Culture (MTWC) in Malawi and the Ministry of Tourism, Environment and Natural Resources (MTENR) in Zambia to the Implementing Agencies (IAs) which are the Department of National Parks and Wildlife (DNPW) in Malawi and the Zambia Wildlife Authority (ZAWA) in Zambia, respectively. 85. A financial management assessment of the IAs at Chipata for Zambia and at Mzuzu for Malawi, was carried out in accordance with the Financial Management Manual for World Bank- Financed Investment Operations, issued by the Financial Management Board on March 1, 2010 and the ORAF Financial Management Draft Interim Guidance Note issued by the AFTFM unit on September 30, The overall financial management residual risk for the project is assessed as Medium-Low. The details of the project financial management arrangements are included in Annex III-B. 86. A financial management specialist will be recruited as a Consultant to be based in Chipata, Zambia. The consultant will provide technical assistance and work with the executing agencies Project accounting staff at Chipata (Zambia) and Mzuzu (Malawi). The accounting staff and the consultant will have written Terms of References (ToRs). All agencies will be guided in their operations by a single Project Implementation Manual (PIM) which in volume 2 describes the financial management procedures. The financial management systems at Mzuzu and Chipata will be computerized by installing two off-the-shelf accounting software once the financial management staff and the necessary office equipment is in place. 87. The assessment has taken note of the lack of experience by the IAs in the implementation of a Bank or donor assisted project. Consequently, training will be provided to the key staff, in financial management and disbursements in World Bank procedures, to make them familiar with the Bank s requirements. An independent audit firm will be selected through competitive bidding to audit the Project accounts and operations on an annual basis using International Standards on Auditing and audit ToR acceptable to the Bank. Furthermore, in Zambia the operations will also be subject to internal audit oversight from the ZAWA headquarters and the Permanent Secretary s provincial office. Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and updated January 2011, shall apply to the Project. 88. The overall conclusion of the financial management assessments of the two proposed IAs is that the Bank s OP/BP minimum requirements will be satisfied provided the agreed financial management actions in Annex III-B are fully implemented. D. Procurement 89. Procurement will be entrusted to the IAs: DNPW (Malawi) and ZAWA (Zambia). Each has identified a procurement focal point. An additional procurement specialist will be recruited as a consultant for technical support to the procurement officers of all IAs. The procurement staff will be guided by the Procurement section of the Finance and Administration volume of the 18

31 PIM. A detailed procurement plan for the first eighteen months of implementation has been prepared (see Annex IX). 90. An analysis of the procurement plan and expected future procurement for GEF and Norway s financing, indicates that there will be no complex procurement, except the building contract for the research center estimated at US$602,000 (funded by Norway). All other civil work will be implemented through small works contracts, community-based civil work, or force account. There are less than five contracts for consulting firms each of which is less than US$100,000. There is one single source service contract estimated at US$175,000. Vehicles will be purchased through UNOPS. There will be less than 10 National Competitive Bidding (NCB) contracts for lorries, motorbikes, office equipments, field equipments, the largest of which would be less than US$200, A procurement assessment has been carried out and has concluded that the proposed setup of the Project will be adequate to carry out procurement activities related to the Project. However, capacity of staff assigned to procurement is low. As a result, procurement risk is assessed as Substantial. Risk mitigation measures, e.g. provision of training and selection of a procurement TA, have been discussed with the recipients and agreed and will bring the residual risk to Moderate. The procurement plan for the Project has been received by the Bank and found to be acceptable. It will be updated at least annually to reflect project implementation needs. A brief summary of the procurement capacity assessment and procurement arrangements are provided in Annex III. More details are available in the Project files. 92. Procurement would be carried out in accordance with the World Bank s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004, revised in May 2010; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 2004, revised in May Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and updated January 2011, shall apply to the Project. E. Social 94. The Project is rated as a Category B project because the environmental and social impacts are expected to be minimal, site-specific and manageable to an accepted level. Two World Bank safeguard policies (Operational Policies, OPs, and Bank Procedures, BPs) with social dimensions are triggered: OP/BP 4.01 on Environment Assessment and OP/BP 4.12 on Involuntary Resettlement. The parallel cofinanciers, Norway and PPF, are committed to comply with these safeguards. 95. A social assessment was undertaken as part of the safeguard activities during Project preparation. In addition, a baseline assessment of the socio-economic situation in the Rumphi District in Malawi has been carried out. The results are reflected in the safeguard documents and the project design. 19

32 96. OP 4.12 on Involuntary Resettlement is triggered as the project, as many conservation projects with an element of improved resource protection and law enforcement, may restrict access to wildlife and natural resources from people who were using it before, albeit illegally. 97. Also, in the Lundazi Forest Reserve on the Zambian side, the Project will facilitate the creation of a new protected area with a different conservation status: the pilot Chama Nature Park. The design process so far has been fully participatory. Still this process may lead to increased limitation in access to natural resources and agricultural land from some of the community members. As a consequence, community engagement needs to follow a process that is in accordance with the Bank resettlement policy. 98. A Process Framework (PF) proposes a process to assist in better identifying all protected area stakeholders, who, even though they reside outside the Project area, illegally enter to use natural resources. As such, they stand to lose access to natural resources as a result of the Project. These are considered People Affected by the Project (PAP). The PF proposes a process whereby PAP would become eligible for support through PAP Action Plans. The Project has set aside a budget of about US$390,000 to implement the PAP Action Plans. Because such PAP reside outside the Project area, where other projects operate, it may be that one of them is already providing such PAP with support toward alternative livelihoods. If and when this is the case, the Project would assess whether or not the PAP requires additional livelihood support from the Project. 99. No resettlement is anticipated under this Project. Still, since there are a few households inside the proposed boundary of the Chama Nature Park. A Resettlement Policy Framework (RPF) has been developed just in case the unlikely situation that resettlement is unavoidable arises. If that were to become the case, the Government of Malawi and the Government of Zambia would use the RPF to prepare Resettlement Action Plans (RAPs) and be responsible in full to leverage financing for these RAPs which would require World Bank clearance if within the footprint of the Nyika TFCA Project. Already, current parallel cofinanciers - the Royal Norwegian Embassy in Malawi and Peace Parks Foundation - have agreed to abide by the RPF The PF and the RPF have been disclosed in both countries and in the World Bank s InfoShop. F. Environment 101. As a Category B Project, OP 4.01 on Environmental Assessment is triggered but no significant adverse impact on the environment was identified for the type of project activities being considered. Rather, anticipated impacts will be positive. Small infrastructure investments and activities such as anti-poaching can affect locally the environment as well as the local communities. The impacts of specific investments could not be identified during preparation but may materialize only during implementation. As a consequence, an Environmental and Social Management Framework (ESMF) proposes a process to detect and mitigate environment and social impacts when small infrastructures are designed OP 4.04 on Natural Habitats is triggered as a large part of the TFCA is a natural habitat such as miombo, mopane and Nyika grassland. The Project aims to enhance its conservation but 20

33 there is a possibility that new tracks through sensitive areas locally increase the ecosystem s disturbance. A portion of about 3,000 hectare of the Lundazi National Forest that is already occupied by agriculture and habitations has been identified to be formally excised during the Project period. That land has been settled and little natural habitat remains. This will be largely compensated by the increased conservation status of another 100,000 hectare of that national forest land. OP 4.36 on Forests is triggered since a concession for logging of an exotic pine forest is currently implemented and might continue during implementation in the Nyika National Park Malawi as part of a program for the eradication of species that now have become invasive In the ESMF, mitigation measures have been designed to reduce any potential negative impacts. An assessment of the IAs (DNPW, ZAWA, FD) capacity concluded that they have reasonable capacity to carry out the simple activities necessary to comply with the countries and Bank s safeguards requirements. Additional training is necessary and has been budgeted for An appraisal ISDS has been prepared and disclosed at the Infoshop following appraisal. The ESMF has been disclosed locally in both countries and in the InfoShop. 21

34 Core ANNEX I: RESULTS FRAMEWORK AND MONITORING MALAWI, ZAMBIA: Sustainable Management of the Nyika Transfrontier Conservation Area Project Project Development Objective (PDO) and Global Environment Objective (GEO): Results Framework 14 To establish more effective transfrontier management of biodiversity in the Nyika Transfrontier Conservation Area. PDO Level Results Indicators Indicator 1: Transfrontier planning instruments adopted by Ministerial Committee (Joint Management Plan, IDDPs, Business Plans, etc.) Indicator 2: Area with signs of illegal land use inside the protected areas of the Nyika TFCA (illegal land use being defined as settlement, cultivation, mining, logging, etc.) Unit of Measure Baseline Cumulative Target Values** Frequency Data Source/ Methodology YR 1 YR 2 YR3 YR 4 YR 5 # Annually Monitoring Reports Ha Nyika: 5% 5% 5% 5% 5% Every two 5% 15 years Vwaza: 0% Chama: 10% 0% 0% 0% 0% 0% 10% 10% 10% 8% 6% Monitoring Reports of each PA block based on GIS and satellite images Responsibility for Data Collection M&E Officer M&E Officers and GIS Specialist at partner organization Description (indicator definition etc.) Point system score with each instrument scoring 2 points (1 when ready, 1 when adopted) Foot print of illegal use is calculated using satellite images Indicator 3: Score of Protected Area Management Effectiveness Score Nyika: 38 Vwaza: Annually PA mgt office staff report using METT 44 Chama: M&E Officers and Project leaders GEF-mandatory score (0-3) based on 32 criteria of protected area management 14 The outcomes and intermediary outcomes that are delivered through GEF financing are indicated in bold letters in the Results Framework. The division of results follows this rule: (1) In the Nyika National Park Malawi the Project outcome and intermediary outcomes are the results of Norway financing; and (2) all outcomes and intermediary outcomes from activities in Component 1 and 2 as well as in protected areas others than Nyika National Park Malawi are the result of GEF financing. 15 Estimated baseline value to be revised after baseline survey is completed (expected March 2012 when satellite images are acquired and analyzed). 22

35 Core INTERMEDIATE RESULTS PDO Level Results Indicators Unit of Measure Baseline Cumulative Target Values** YR 1 YR 2 YR3 YR 4 YR 5 Component 1 : Institutional and Planning Framework Intermediate Result: Improved capacity of ZAWA, FD and DNPW for management and planning of the Nyika TFCA. Intermediate Result indicator 1: Number of training-day attended by (1) Management team from ZAWA, FD, DNPW and Chama Nature Park and (2) by same organization field staff and partners (indicator met if 20% training-days are received by females). Frequency Data Source/ Methodology # Mgt: Annually Monitoring Reports # Field: Component 2: Sustainable Financing Intermediate Result: Improved revenue collection and fund-raising supports biodiversity conservation in the Nyika TFCA. Intermediate Result indicator 2: Funds and revenues raised to finance operating expenditures and that are additional to the start-up GEF-Norway-PPF grants Intermediate Result indicator 3: US$m Annually Monitoring Reports Score TBD at MTR Financial Sustainability Score Card for TFCA improved Component 3: Protected Areas Management Intermediate Result: Improved management effectiveness of the three Nyika TFCA management blocks. Intermediate Result indicator 4: Abundance index of 2 indicator mammals (Nyika: eland and zebra; Vwaza: elephant and buffalo; Chama: elephant and kudu) Intermediate Result indicator 5: Area covered by patrols increased Index Nyika: E: 656 Z: 112 Vwaza: E: 151 B:99 Chama: E: 50 K: TBD TBD TBD TBD TBD Starting by MTR, then annually Same as baseline Same as baseline Same as baseline Same as baseline Same as baseline Same as baseline E: 682 Z:117 E:156 B:104 E: 55 B:110 E: 695 Z:119 E:156 B:104 E: 60 B: 115 E:702 Z:120 E:157 B:105 E: 65 B:120 Annually Progress Reports Monitoring Reports of each PA block % Nyika: Annually Monitoring reports based Vwaza: 70 Chama: on analysis of patrol logbooks/ GPS Responsibility for Data Collection M&E Officer M&E Officer Financial Managers and accountants M&E Officers and ZAWA Ecologists DNPW Research Officer M&E Officer/ PA rangers Description (indicator definition etc.) Year 1 focused on fiduciary functions for management team and gradually evolving after to protected area management skills for field staff Accounting of fund raised and revenues GEF-mandatory indicator based on sustainable financing criteria Abundance index is calculated from aerial survey observations and/or vehicle or foot transect Monthly patrol monitoring reports based on GPS record from patrol report projected on 2x2 km grid over park area. 16 Estimated baseline value to be revised after baseline survey is completed (expected October 2011). 23

36 Intermediate Result indicator 6: Trend in # of signs of illegal activities per patrol day decreased Intermediate Result indicator 7: Employment in tourism and conservation funded by TFCA revenues or commercial operations increased (indicator is met if 40% new employees are females). Intermediate Result indicator 8: Cumulated number of direct Project beneficiary of livelihood alternative support, of which female. # Nyika: <0 <0 <0 <0 <0 Monthly/ annually Days./ year Days./ year Vwaza: <0 <0 <0 <0 <0 Chama: <0 <0 <0 <0 <0 Monthly consolidated reports based on law enforcement monitoring Nyika: 47 Vwaza: Annually Monthly report of each operator and agency Chama: Nyika: (0) 8 (2) (4) 24 (6) Annually Monthly Vwaza: (0) 8 (2) 16 (4) 24 (6) Chama: (0) 8 (2) 16 (4) 24 (6) report of each operator and agency PA rangers M&E Officer. Commercial officiers M&E Officer. Monthly patrol monitoring reports Annual survey of tourism operation conservation pay roll Annual report 17 The proportion of female is low since most people who will be benefiting from alternative livelihoods are poachers who are likely to be male. 24

37 ANNEX II: DETAILED PROJECT DESCRIPTION MALAWI, ZAMBIA: Sustainable Management of the Nyika Transfrontier Conservation Area Project 1. The Nyika Project supports the two countries within the limit of three protected area blocks included in the Nyika TFCA (see Map in Annex X) and with a focus on biodiversity conservation in natural ecosystems. 2. The Nyika Project (the Project) is implemented in 3 components: Component 1: Institutional and Planning Framework Component 2: Sustainable Financing Component 3: Protected Areas Management 3. This annex describes also activities funded by: (1) Norway even though these are implemented in parallel through a separate legal agreement between the Embassy of Norway and the Government of Malawi; and (2) PPF even though these are implemented as a parallel activity. Component 1: Institutional and Planning Framework (Total US$1.89m - GEF Zambia US$0.63m, GEF Malawi US$0.71m, Norway US$0.32m, PPF US$0.23m) 4. Sub-component 1.1 pertains to the management of the Project. Sub-component 1.2 pertains to the establishment and operation of the governance functions of the Nyika TFCA as well as planning conservation and development at the TFCA level. Sub-component 1.1. GEF Zambia financing C GEF-Z will finance (1) a financial management technical assistant for the Project implementing agencies and a short term consultant to support the M&E and planning functions and law enforcement; (2) vehicles, office equipment such as computers, office furniture, and minimal field equipment such as tents, GPS, etc.; (3) operating expenditure for the ZAWA and FD teams to assure its functions such as Project-related national and international travel for implementing agency staff, the JSC, utilities, vehicle insurance, operation and maintenance, office building maintenance, etc. C GEF-Z will finance training sessions and training workshops for the ZAWA and FD staff as well as joint steering committee members. Envisaged training include: (a) functioning of a steering committee; (b) team building; (c) fundraising; (d) procurement; (e) financial management and operation of software; and (f) monitoring and evaluation. C GEF-Z will co-finance with GEF-M the external auditors who will be auditing not only the funds provided by GEF-Z and GEF-M, but also those of Norway, the revenues collected 25

38 from concessions and any other funds that transit through the Project or implementing agencies channeled to the Nyika TFCA. They will also carry out procurement audits and asset verifications. GEF Malawi financing C GEF-M will finance (1) a procurement technical assistant for the Project implementing agencies and a short term consultant to support the M&E and planning functions and law enforcement; (2) vehicles, office equipment such as computers, office furniture, and minimal field equipment such as tents, GPS, etc.; and (3) operating expenditure for the DNPW teams to assure its functions such as Project-related national and international travel for implementing agency staff, the JSC, utilities, vehicle insurance, operation and maintenance, office building maintenance, etc. C GEF-M will finance training sessions and training workshops for the DNPW staff as well as joint steering committee. Envisaged training include (a) functioning of a steering committee; (b) team building; (c) fundraising; (d) procurement; (e) Project financial management and operation of software; and (f) monitoring and evaluation. C GEF-M will co-finance with GEF-Z the external auditors who will be auditing not only the funds provided by GEF-Z and GEF-M, but also those of Norway, the revenues collected from concessions and any other funds that transit through the Project or implementing agencies channeled to the Nyika TFCA. They will also carry procurement audits and asset verifications. Norway financing C Norway will finance a law enforcement advisor for a period of three years. PPF financing C PPF will finance (1) the annual ministerial meetings; (2) the Technical Committee meetings; (3) a full program stock-taking in year 5; and (4) the regional coordinator. Sub-component 1.2. GEF Zambia financing C GEF-Z will finance two studies: (1) the review of the Nyika TFCA Joint Management Plan; (2) the diagnostic of national legal barriers to TFCA full operationalization; and (3) a lawyer, in retainer, for legal advice and contract reviews. This is particularly important when the implementing agencies will enter into concession contracts and when establishing a long term financial mechanism. GEF Malawi financing C GEF-M will finance (1) the cross border integrated district planning using strategic environment assessment which will be carried out by a consultant facilitator, and include the 26

39 production of maps, workshops in both countries and will require operating expenditures for stakeholders meetings, travel, etc.; and (2) a lawyer, in retainer, for legal advice and contract reviews. This is particularly important when the implementing agencies will start entering into concession contracts and when establishing a long term financial mechanism. Norway financing C Norway will finance an annual cross-frontier knowledge sharing week bringing together the cumulated knowledge and experience of all different projects in the area. Component 2: Sustainable Financing (Total US$0.27m - GEF Zambia US$0.10m, GEF Malawi US$0.17m) 5. Component 2 pertains to fund-raising activities, establishment and monitoring commercial ventures (tendering and managing tourism or logging concessions) as well as design and possibly establishment of endowment and/or sinking fund accounts. 6. Specific activities supported under the Project include: GEF Zambia financing C2.1. GEF-Z will co-finance with GEF M consultations on: (1) the design of a feasibility study for the NIA including a business plan, a fund raising strategy, and investment strategy; and (2) the services, on retainer, of a broker tasked with advertizing concessions to attract private investors for lodge development, safari operators, logging of exotic pines, etc. C2.2. GEF-Z will finance operational expenditures for fund raising and monitoring of concession contracts. This entails vehicle operation and maintenance, travel to Project sites, to travel shows (e.g. Indaba), to potential investors and benefactor, organization of fund raising events (art show, ceremonies, conference, etc.), fund raising material (posters, pamphlets, etc.) and preparation/tracking of financial proposals with various cooperating partners and sponsors. GEF Malawi financing C2.1. GEF-M will co-finance with GEF-Z consultations on: (1) the design of a feasibility study for the NIA including a business plan, a fund raising strategy, and investment strategy; and (2) the services, on retainer, of a broker tasked with advertizing concessions to attract private investors for lodge development, safari operators, logging of exotic pines, etc. C2.2. GEF-M will finance operational expenditures for fund raising and monitoring of concession contracts. This entails vehicle operation and maintenance, travel to Project sites, to travel shows (e.g. Indaba), to potential investors and benefactor, organization of fund raising events (art show, ceremonies, conference, etc.), fund raising material (posters, pamphlets, etc.) and preparation/tracking of financial proposals with various cooperating partners and sponsors. Component 3: Protected Areas Management 27

40 (Total US$8.93m - GEF Zambia US$1.81m, GEF Malawi US$1.40m, Norway US$3.88m, GoM US$1.37m, GoZ US$0.47m) 7. The Project will focus on three protected area management blocks: The Nyika Block, the Vwaza Block and the Chama Block. Although the second and third blocks are one ecological unit it was agreed that during the Project they would be managed as two blocks until the capacity of the Chama partnership is compatible with that of the Vwaza team. 8. The Nyika TFCA includes two other blocks, the Musalangu GMA and the Mikuti Forest. It is hoped that Zambia will be able to raise additional funds to initiate their development. However, these areas are not considered to be included in this Project. 9. In each block, financing will cover the standards protected area management activities to various degrees of depth and scale through three main functions: (1) Capacity building for planning, management and reporting which includes staffing, training, design of management plans etc.; (2) habitat management, infrastructure development and maintenance of housing, offices, airstrip, tracks, firebreaks, small water retention structures, etc.; (3) resource protection which includes staffing, equipment, and patrol operations; (4) resource and biodiversity monitoring which includes data collection, aerial surveys, and several research programs; and (5) implementation of an action plan to be designed on a case by case basis using the Process Framework to ensure that the Project provides livelihood alternative to poachers and other illegal users of resources. 10. Specific activities defined per each block are as follows: Nyika Block (Total US$5.22m - GEF Zambia US0.30m, Norway US$3.59m, GoZ US$0.36m, GoM US$0.97m) 11. The Nyika block, which comprises the Nyika National Parks, the Mitenge Forest and the northern lip of the Lundazi National Forest will remain the flagship block in terms of size, biodiversity, landscape and tourism. DNPW and ZAWA will work with the Nyika Vwaza Trust in scaling up the current management and ensuring that it can respond effectively to transfrontier management needs. 12. One of the central pieces will be the construction of a Research Center and establishment of partnerships with universities of Malawi and Zambia including the Malawi National Herbarium. Norway Financing C Norway will finance the purchase of minimal equipment to replace the current derelict equipment. This will include vehicles, tractor/trailers, uniforms and field equipment. It will also include some office furniture and equipment such as desks, computers, radios, etc. C Norway will fund the design and construction of a Research Center complete with laboratory and staff/guest housing. It will help with the annual grading and opening of firebreaks 28

41 and gravel roads and the airstrip. Given the importance of housing and offices in staff morale and capacity, there will be a major effort to rehabilitate existing houses, the workshop, patrol room, offices, etc. and build several small offices and gates. This includes substantial work on water provision and electrification as well as rehabilitation and maintenance of the airstrip and hangars. C Norway will finance a number of research projects with a strong focus on biodiversity status/trends plus. Already some themes have been identified as essential and as a priority: (1) a time-based analysis of the spatial condition of vegetation types of the whole Nyika TFCA, including agriculture encroachment, and comparison with existing records so as to establish trends and update status; (2) given their impact on biodiversity, a study on an invasive exotic plant, the bracken fern, to assess its impact on biodiversity and to explore options for controlling it; and (3) Aerial Wildlife Survey every other year which will also cover the Vwaza aerial survey and cover also the Chama Nature Park. C Norway will also finance one consultancy: updating and upgrading to transfrontier dimension the General Management Plan to include the entire block as single management entity. C Norway will finance part of the Nyika block operating costs with a focus on patrol operations (fuel and rations), office stationary, equipment operation and maintenance including assurances as well as various habitat management activities such as early burning. C Norway will finance the implementation of action plans geared at assisting illegal users usually coming from outside the Project area to provide incentives to engage those into a legal and more productive livelihood for PAP likely to originate from the area adjacent to Nyika National Park in Rumphi District in Malawi. GEF Zambia financing C GEF-Z will finance the purchase of minimal equipment to replace the current derelict equipment of ZAWA. This will include one vehicle, uniforms and field equipment. It will also include some office furniture and equipment such as desk, computers, radios, etc. C GEF-Z will finance the rehabilitation of existing staff houses, offices and a rest camp in the Nyika. C GEF-Z will finance part of the Nyika block operating costs with a focus on patrol operations (fuel and rations), office stationary, equipment operation and maintenance including assurances as well as various habitat management activities such as early burning. C GEF-Z will finance the implementation of action plans geared at assisting illegal users usually coming from outside the Project area to provide incentives to engage those into a legal and more productive livelihood in Nyika NP and Mitenge Forest Reserve (Zambia) for PAP likely to originate from the Isoka District in Zambia. 29

42 Vwaza Block (Total US$2.09m - GEF Malawi US$1.40m, Norway US$0.29m, GoM US$0.40m) 13. The Vwaza block includes the Vwaza Marsh Wildlife Reserve and the Bambanda-Zaro Sanctuary. The objective here is to secure this important reserve with a focus on understanding better and resolving water issues facing this reserve as well as scaling up the development of tourism. The Bambanda-Zaro Sanctuary which lies across Malawi and Zambia already provides a test-area where both countries are experimenting with transfrontier management. GEF Malawi financing C GEF-M will finance the purchase of minimal equipment to replace the current derelict equipment. This will include vehicles, tractor, truck, motorbikes, uniforms and field equipment. It will also include some office furniture and equipment such as desk, computer, radios, etc. C GEF-M will finance the annual grading and opening of firebreaks and gravel roads and the airstrip. Given the importance of housing and offices in staff morale and capacity, there will be a major effort to rehabilitate existing houses (46), build new houses as well as rehabilitate the workshop, patrol room, offices, etc. This includes work on water provision and electrification. The GEF will also fund the annual maintenance, and partial upgrade the fence which limits the park on three sides as well as on dredging the lake until a solution is found to control upstream erosion. C GEF-M will finance two assignments: (1) updating and upgrading to transfrontier dimension the General Management Plan; and (2) Aerial Wildlife Survey every other year which will actually be consolidated with the Nyika aerial survey and cover also the Chama Nature Park. C GEF-M will finance part of this Reserve s operating costs with a focus on patrol operations (fuel, rations, incentives), office stationary, equipment operation and maintenance including assurances as well as various habitat management activities such as early burning, tse tse fly control and trypanosomes. C GEF-M will finance the implementation of action plans geared at assisting illegal users usually coming from outside the Project area to provide incentives to engage those into a legal and more productive livelihood. These activities will be eligible for PAP likely to originate from the area adjacent to Vwaza Marsh Reserve in Rumphi District in Malawi. Norway financing C Norway will finance two research projects including one on fresh water fish collapse in Vwaza Lake (or Lake Kazuni) and one to be identified. Chama Block (Total US$1.62m - GEF Zambia US$1.51m, GoZ US$0.11m) 14. The Chama Nature Park is still on the drawing board and has no staff at Project start. It will take reality with the Project and with the establishment of a joint venture between Forest Department (FD), a District stakeholder association and an NGO partner to be identified. The 30

43 goal is to establish a protected area where local people are fully in charge and owners of the outcome. Over the first five years, the protected area status will be formalized and its development will start including various forms of tourism, both consumptive and non consumptive. 15. Specific activities supported by the GEF Zambia include: C GEF-Z will therefore finance (1) legal counseling to assist the FD-Community-NGO gradually establish a joint venture; (2) 15 to 25 community resource protection staff as well as their training and the training of their managers and their board as well as of the small community enterprise which will manage the bush camps; and (3) training of up to 200 volunteer reservists who could be called upon for temporary interventions such as extinguishing fires, addressing a specific poaching threat, etc. C GEF-Z will finance the purchase of minimal equipment. This will include one vehicle, one motorbike, bicycles, uniforms and field equipment. It will also include some office furniture and equipment such as desks, computers, radios, etc. C GEF-Z will finance the annual opening of tracks and firebreaks using local labor instead of machinery and the establishment of a bush airstrip. Given the importance of housing and offices in staff morale and capacity, there will be a major effort to rehabilitate existing houses and a school in an abandoned village as well as construct a rudimentary workshop, patrol room, offices, etc. This includes some work on water provision and electrification. C GEF-Z will finance two consultancies: (1) The design of the first Chama Nature Park General Management Plan; and (2) Technical assistance to the joint venture. C GEF-Z will finance part of this park s operating costs with a focus on baseline studies by stakeholders, patrol operations (fuel and rations), office stationary, equipment operation and maintenance including assurances as well as various habitat management activities such as early burning, control of tse tse flies and prevention of tripanosomiasis. C GEF-Z will finance the implementation of action plans geared at assisting illegal users to provide incentives to engage those into a legal and more productive livelihood. These activities will be eligible for PAP likely to originate from the areas adjacent to Chama Nature Park in Chama and Isoka Districts. C GEF-Z will also finance the construction of a modest tourism camp in Chama Nature Park (Zambia) as well as the training and mentoring of staff and the initial marketing and/or linkage with private partners. 31

44 ANNEX III: IMPLEMENTATION ARRANGEMENTS MALAWI, ZAMBIA: Sustainable Management of the Nyika Transfrontier Conservation Area Project A. Project Institutional and Implementation Arrangements 1. The existing Government agencies will handle the day to day management of the parks. For that reason the Project will be implemented by each country s respective line agencies, as implementing agencies, to oversee the project implementation. If and when the Nyika Implementation Agency (NIA) is established implementation responsibilities could be transferred if so desired. B. Project Implementation 2. The Project is coordinated and implemented by the countries line Ministries respective implementing agencies (DNPW, FD and ZAWA). If the NIA is established during the life of the project, the countries will have the choice to transfer Nyika TFCA coordination to the NIA. This will not impact on the achievement of the project's PDO. The transfer to NIA will be dependent upon when (1) the two countries have fully completed the political dialog on the Nyika TFCA and on the role of the NIA; (2) the NIA is registered and its Board has approved the by-laws, the Administration Manual and completed the selection of staff for its Executive Secretariat; and (3) the NIA has been appraised by the World Bank as being sustainable by design and as having sufficient staff, fund and capacity to handle Project funds. 3. To ensure that the Project is fully coordinated between the two countries, the two Governments will establish a Joint Steering Committee (JSC) with equal country membership. The JSC will physically meet once a year. Other meetings will be organized using advanced communication technology. The JSC will provide policy guidance to implementation agencies, review and approve the Annual Work Plan (each October) as well as the Annual Report (each March). 4. In each country the Project will be implemented by each Ministry s implementing agencies guided by a set of instruments: The Project Implementation Manual (PIM) including a Finance and Administration volume (vol. 2) and an M&E volume (vol. 3). 5. On behalf of each Government, the agencies will manage and account for GEF funds and Embassy of Norway (Malawi) funds. Malawi: The Project will be lead by the Provincial Director of DNPW who will provide office space in Mzuzu (Malawi) which is the closest location to the Nyika TFCA that has banking facilities, suitable utilities and access to markets. Zambia: The Project will be jointly led by the ZAWA Warden and the FD Principal Extension Officer. They will operate from their respective offices in Chipata (Zambia) which also is the closest location to the Nyika TFCA that has banking facilities, suitable utilities and access to markets. 32

45 6. In each country, the line ministries will nominate their staff (4) to carry out specific project functions: Coordination, M&E, accounting, procurement. Because of the expected low staff capacity in World Bank procurement procedures and financial management, two technical assistants, one in procurement and one in financial management, will be contracted and funded by the Project to support these functions in both countries. 7. The agencies will each prepare and together consolidate an Annual Work Plan (AWP). The JSC will carry out arbitration. Once approved by the JSC as well as by the World Bank, the AWP will be eligible for implementation. The Project will have the possibility to revise the AWP once during the year. Field implementation in the protected area blocks 8. ZAWA, DNPW and FD will operate according to the Project s instruments, and according to the various master plans which will be updated during the Project: (1) the Nyika TFCA Management and Tourism Plan; and (2) the Block s Management Plans as available. 9. Each block will be managed by their respective agencies: 10. Proposed Chama Nature Park, which is located in the Lundazi National Forest, will remain under the responsibility of the FD. FD will delegate the management of the area proposed for the partnership park to a consortium constituted of itself, ZAWA, an NGO Partner and a Chama Community Association. 11. Vwaza Marsh Wildlife Reserve and Bambanda-Zaro Sanctuary will continue to be managed by DNPW with assistance from a team of wildlife police officers from ZAWA. 12. Nyika National Park Malawi, Nyika National Park Zambia and Mitenge National Forest Zambia will be co-managed by DNPW-ZAWA-FD teams, staff, like the Bambanda-Zaro Sanctuary. During Project implementation, the three institutions will design an arrangement whereby a clear leadership for the whole block is designed and implemented. C. Financial Management, Disbursement and Procurement C.1. Financial Management 13. A financial management capacity assessment of ZAWA at Chipata (Zambia) and DNPW at Mzuzu (Malawi) was carried out in accordance with the Financial Management Manual for World Bank-Financed Investment Operations, issued by the Financial Management Board on March 1, 2010 and the ORAF Financial Management Draft Interim Guidance Note issued by the AFTFM unit on September 30, The overall financial management residual risk for the project is assessed as Medium-Low. The objective of the assessment was to determine whether the IAs have adequate minimum financial management arrangements to ensure that: (a) the funds are properly accounted for and used only for the purposes intended, in an efficient and economical way; (b) capacity exists for the preparation of accurate, reliable and timely periodic financial reports; (c) internal controls exist which allow early detection of errors or unusual 33

46 practices as a deterrent to fraud and corruption, (d) the project s assets are safeguarded; and (e) the project is subject to external audit oversight. 14. The key FM risks under the ORAF matrix for environment, design and capacity have been assessed as high. This is mainly due to the poor control environment and fiduciary management arrangements at the country and implementing levels and the lack of experience by the IAs with the implementation of World Bank or Donor assisted projects. Some risk mitigation measures have been proposed and the overall financial management residual risk for the project is assessed as Moderate (Medium-Low). The following is the detailed risk assessment: Financial Management Risk Assessment Risk Risk Rating Risk Mitigation measures incorporated into Inherent Risk Country Level 18 Development Programs or Grant design Risk after Mitigation Malawi Lack of capacity to implement, account for and report on expenditures at all levels. To date International Accounting and International Auditing standards are yet to be adopted fully. High Government is strengthening systems at all levels including roll out of IFMIS and recruitment of key fiduciary staff. Substantial Zambia Lack of a robust financial management information system coupled with a weak control environment arising from lack of compliance and enforcement of existing rules and financial regulations; poor internal audit functions; lack of and inadequate remedial actions on internal/external audit findings. Entity Level The fact that the Project will be implemented by two Governments presents logistical challenges and complexities in coordinating activities and timeliness of decisions. Program Level The main challenge is that the Project teams at Mzuzu and Chipata have not yet been fully set up. The Malawi Government has released a circular where the establishment of Project Implementation Units is halted. Documentary evidence that the Malawi Government has approved the formation is required. High High High Overall Inherent Risk High Substantial The Bank and other donors are supporting capacity building in Government through the public sector management and Public Expenditure Management and Financial Accountability reform programs (PEMFA). Partners are also implementing reforms with oversight institutions such as the Office of the Auditor General and the Parliament. The Government under PEMFA has introduced IFMIS at the Ministry of Finance on a test basis which will shortly be rolled out to Ministries and other spending agencies. Both countries signed an MoU on the establishment of the TFCA in 2004 and are expected to sign a Treaty and an Implementation Protocol that are expected to address these challenges. For the Project, the two countries will establish a Joint Steering Committee (JSC) that will meet regularly to resolve contentious issues. The two Governments are working at appointing their staff to the various function required by the project including accountants. In Zambia the IAs, MTENR and ZAWA have agreed to an establishment of a Project team at Chipata and have identified the staff categories to man the unit. Substantial Substantial Moderate 18 General assessment from various Bank fiduciary reviews and included in all PAD to describe the overall financial management environment in which the Project will operate. 34

47 Risk Risk Rating Risk Mitigation measures incorporated into Development Programs or Grant design Risk after Mitigation Control Risk Budgeting: There is no major risk to budgeting except potential lack of adherence to budget. Accounting The Accounting consultant has not been recruited yet, the existing accountants have no experience in Bank-funded projects and the accounting software packages have not been installed in Chipata or Mzuzu. Internal Controls DNPW or ZAWA may not institute appropriate internal control systems resulting in a weak control environment. Financial Reporting The project may not be able to produce acceptable reports with the required frequency in a timely manner. Moderate Budgeting will be guided by the already prepared Budget Framework for the Project. The JSC will review and approve the Annual Work Plan with related budget every November as well as the Project Report every Semester. The quarterly IFRs will compare actual expenditures with budgets and significant variances will be investigated, explained and reported on a quarterly basis. Substantial The Project has a draft financial management procedures manual covering all accounting aspects and related administrative activities to guide staff in the execution of their functions. The two governments and the IAs have agreed in principle to recruit a qualified and experienced consultant and appoint dedicated accountants. The Bank will be involved in the recruitment process by clearing the TORs and ensuring that the agreed procurement process is followed. Start the FM consultant recruitment process and staff appointment process. The accounting software packages are off-the-shelf and have been identified; FINPRO TOMPRO for Malawi which has been ordered and an existing SUN Accounting package at ZAWA, Zambia requiring an extra license for the Chipata office. The Bank will provide training to the IAs and Project teams in financial management and disbursements requirements in World Bank assisted projects. Substantial The Project has adopted a common Finance and Administration Manual (Volume II of PIM) which documents accounting & reporting procedures, approvals and authorization controls, segregation of duties, procedures for safeguarding project assets and external audit oversight. The accounting staff to strictly adhere to and enforce the manual. Moderate The Financial and Administration Manual has documented the financial reporting responsibilities that specify the formats, contents, frequency and the submission dates. The reports will compare actual and budgeted expenditures and program allocations. The IAs will employ qualified and experienced accounting staff who will be Low Moderate Moderate Low 35

48 Risk Risk Rating Risk Mitigation measures incorporated into Development Programs or Grant design up to the job. Funds Flow Substantial The Financial and Administration Manual includes a section on disbursements and the flow of funds listing common problems that cause delays and how these can be avoided. Risk of delayed disbursement largely due to delays in accounting for funds by the IAs and the lack of experience with the Bank s disbursement procedures. External Audit Failure to get the project financial statements audited, annually as they fall due, by a technically competent and independent auditor, in accordance with acceptable auditing standards Malawi: Substantial Zambia: Moderate Train the IAs and Project staff in financial management and Disbursement Guidelines based on practical country (Malawi & Zambia) specific examples and experiences. Make available sources of additional information such as Disbursements Guidelines, Disbursement Handbook. Introduce the Project team to Client Connection website and get the Project to open accounts to have access to online information and monitor disbursements for the project. The procurement process for the external auditor will be in accordance with the requirements of section I and IV of the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the World Bank in May 2004 and revised in October 2006 and May 2010 ( Consultant Guidelines ) which will afford the Bank the chance to review and clear the audit TORs; and clearing the shortlist. Risk after Mitigation Moderate Moderate Overall Control Risk Substantial Moderate Overall Project Risk Rating Substantial Moderate Strengths 15. The Project has already developed a Finance and Administration Manual (volume II of the PIM) that will guide the operations of the IAs. In addition, the Malawi DNPW and ZAWA have had some experience of World Bank assisted project requirements gained albeit limited for over a year of managing the Project Preparation Grant (PPG) in Malawi and for 6 years in implementing part of the Support for Economic Expansion and Diversification (SEED) Project in Zambia. The two Ministries responsible for parks and wildlife in Malawi and Zambia will provide oversight. Weaknesses 16. There are two main weaknesses identified: (1) The IAs (except ZAWA at headquarters) experience in implementing Bank-funded projects is modest, and (2) the envisaged project teams at Mzuzu and Chipata have not yet been fully constituted. However, the Governments are making all the preparations for a smooth take off. Financial Management Action Plan Low 36

49 17. As a result of the foregoing risks and weaknesses, an action plan has been developed. As can be seen critical actions are effectiveness conditions. Actions Target date Conditionality Responsibility Agree IFR formats and contents 31 January 2011 Yes, During Negotiations MTENR/ZAWA DNPW Adoption of the Finance and Administration Manual (volume II of Project Implementation Manual) 31 January 2011 Yes, Before Effectiveness MTENR/ZAWA DNPW Appoint Government accounting staff to all key project functions and select the FM technical assistant Provide FM and disbursements training to the IAs staff. Install and operationalize the FINPRO and SUN Accounting Software at Mzuzu and Chipata Open designated accounts and operating accounts in Malawi and Zambia Agree external audit Terms of Reference Budgeting Arrangements 31 April 2011 Yes, Before Effectiveness MTENR/ZAWA DNPW Within two months of project effectiveness Within three months of project effectiveness No No World Bank MTENR/ZAWA DNPW 31 July 2011 No Malawi Government, Zambia Government Within two months No MTENR/ZAWA of project DNPW effectiveness 18. The budgeting operations of the Nyika TFCA will be guided by an already prepared Budget Framework for the 5 years of implementation. Annually, the Project will prepare an Annual Work Plan (AWP) detailing the planned activities and including a consolidated budget. The AWP will require the approval by the JSC and the World Bank. The M&E Officer will be responsible for collecting and collating information from the Project teams to draft the AWP. The Project accountants, assisted by the financial management technical assistant, will be responsible for translating the work plan into a budget in the AWP. The whole process including approval by both Governments will be completed in October of every year. Staffing 19. The Finance Departments of both Ministries are headed by a qualified and experienced accounting staff. In addition, each agency possesses accountants in their respective Mzuzu and Chipata office. A Financial Management Officer will be recruited as a technical assistant to provide support and mentoring. It is recommended that there be at least one account clerk each in Malawi (Mzuzu and in Nyika Park HQ) and Zambia (Chipata office). It is anticipated that the Project will maintain adequate FM staffing levels throughout the Project period. Accounting Arrangements 20. The Project will use two accounting software packages to record and report on the transactions. In Malawi FINPRO TOMPRO accounting software will be used, while in Zambia the SUN accounting software currently available at ZAWA will be used. The accounting basis will be a cash basis. The Ministries will adopt appropriate accounting standards. However, as 37

50 the systems will take a few months to be put in place and tested, it is expected that the first few months of the project accounts would be prepared manually using excel based spreadsheets. It is reasonably estimated that this transition should take no more than six months. All accounting staff will need to be trained in the FINPRO TOMPRO and SUN Accounting systems. The Project will be expected to keep accounting records in line with best practice and maintain a sound filing system. Internal Control and Internal Audit 21. The Internal Controls as described in the Finance and Administration volume of the PIM will be used. The manual covers such controls as authorizations, accounts reconciliations, segregation of duties and procurement controls. These will be under continuous review by management. To a great extent the success of the FM system will depend on the Project s compliance with the manual. 22. Given the amount of funds involved, an Internal Auditor for the Project is not recommended. It is expected that the FM system of the Project, FM reviews by the Bank, independent external audit should cover the risk. However, this is subject to review at the end of the first year of operations. Depending on the issues emanating from the reviews and external audit management letter an Internal Auditor might become a priority. External Audit Arrangements 23. The Project will prepare annual Financial Statements at the end of each fiscal year for all sources of funds (GEF Malawi, GEF Zambia and Norway Malawi). The Financial Statements will be audited by an independent external auditor acceptable to the Bank. The audit Terms of Reference will be prepared by the Project for the first audit and every year thereafter before the audit. The auditors will produce an audit report with a single and clear audit opinion and complete with a Management Letter highlighting issues which will require addressing. The Project will be required to submit the audit report (together with the Management Letter) to the Bank and to the Royal Norwegian Embassy no later than six months after the end of the financial year. The Project funds will meet the cost of the audit. Reporting and Monitoring 24. Each implementing agency will submit Interim unaudited Financial Reports (IFR) in a format and quality acceptable to the Bank covering each calendar quarter. The IFR will be submitted no later than 45 days after the end of each quarter. The IFR format was agreed on at negotiations. The IFR should as a minimum consist of the following: Sources and Uses of Funds by Funding Source Uses of Funds by Project Activity/Component Annual Financial Statements 38

51 25. In addition to the monthly reconciliations and quarterly IFRs, the Project will produce annual Project Financial Statements for analytical and audit purposes. 26. These Financial Statements will comprise of: A Statement of Sources and Uses of Funds / Cash Receipts and Payments which recognizes all cash receipts, cash payments and cash balances controlled by the entity; and separately identifies payments by third parties on behalf of the entity. The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on the Statement of Cash Receipts and Payments being cross referenced to any related information in the notes. Examples of this information include: o a summary of fixed assets by category of assets; o a summary of Statements of Expenditure (SOE) Withdrawal Schedule, listing individual withdrawal applications; o a Management Assertion that Bank funds have been expended in accordance with the intended purposes as specified in the relevant World Bank legal agreement. Disbursement Arrangements 27. The schematic diagram below depicts the flow of funds for both GEF and Norwegian financing. PPF financing Is not represented since PPF will execute its own grant. 28. Two Designated Accounts (DA) in United States dollars will be opened in Lusaka and Lilongwe to receive funds from the GEF Grant to be operated by the IAs ZAWA and DNPW for Zambia and Malawi respectively. Operating accounts linked to the above DA in local currency, the Kwacha, will be opened at, and operated by, the IAs teams at Chipata and Mzuzu respectively. All these bank accounts will be opened at commercial banks acceptable to the World Bank. Periodic transfers from the DA, based on planned activities and obligations will be made to the operating accounts. 29. The Project will report eligible expenditures paid from the DA using the SOE. The SOE will fall into two categories: Statement with supporting documentation and statement without supporting documentation. All expenditure replenishment applications must be supported by documentation evidencing the expenditure, exceptions will be made for: (a) services of individual consultants costing less than US$50,000 equivalent per contract; (b) services of consulting firms costing less than US$100,000 per contract; (c) goods costing less than US$200,000 per contract; (d) works costing less than US $500,000 per contract; and (e) training and operating costs. 30. There will be a Disbursement Letter as part of the Financing Agreement with the Project. The Disbursement Letter sets out and summarizes all the disbursement arrangements and procedures under the Project. 31. The disbursement methods for the Project will include Designated Account advance; direct payments by the Bank to the suppliers; and reimbursement. Disbursements to the DA will be based on statements of expenditure. Except for the DA replenishments, the other methods are 39

52 subject to the minimum withdrawal application size of US$70,000 or 20 % of the amount advanced to the DA. Applications for direct payment and reimbursement shall be supported by records of such expenditures and evidence of payments made in the case of reimbursements. All expenditure documentation for the project shall be retained by IAs and shall be made available for audit, and to the Bank and its representatives upon request. FLOW OF FUNDS CHART 19 Allocation of Grant 32. The proceeds of the GEF Grant will be disbursed over a period of five years under the following expenditure categories, representing 100 % expenditures to be financed inclusive of taxes. Category Disbursement Schedule GEF Malawi Amount (in US$) 1 Goods 520,000 2 Works 430,000 3 Consultant services and Training 580,000 4 Operating Costs 750,000 Total Amount 2,280, The flow of fund does not include PPF funds since PPF will execute its own grant. 40