UNITED NATIONS DEVELOPMENT PROGRAMME

Regional Project with participation from the governments of:

Azerbaijan, Iran, Kazakstan, Russia, Turkmenistan

Classification Information:

ACC sector & sub-sector Primary type of intervention:

DCAS sector & sub-sector Secondary type of intervention:

Primary areas of focus/sub-focus Primary target beneficiaries:

Secondary areas of focus/sub-focus Secondary target beneficiaries:

Brief Description:

The current project proposed – the development of priority investment portfolios (PIP) for transboundary priorities – is a key element of the GEF project listed above. Implementation of this activity is to be undertaken by UNDP with execution by the World Bank. The purpose of the proposed project is to assist in the identification and early preparation of investment projects that meet the CEP criteria of high priority actions. These criteria include measures that:

• address a national priority

• have a positive, transboundary impact on the Caspian environment

• are financially feasible and have potential financial sources identified

• are socially and economically beneficial.

In addition, the following attributes are regarded as highly beneficial:

• the investment mitigates an urgent threat of irreversible damage to the environment; and

• protects human health in population centers

The proposed World Bank-executed project will be composed of four specific Subcomponents:

1. investment identification and pre-preparation;

2. institutional strengthening and training for project preparation;

3. matched small-grants program; and

4. project management.

This project document represents Component (IV) of the UNDP contribution to the GEF project 'Addressing Transboundary Environmental Issues in the Caspian Environment Programme'. The total project budget is: $2,406,023.

On Behalf of Signature Date Name/Title

Governments of:

Azerbaijan ____________________ _________ _______________

Islamic Republic of Iran ____________________ _________ _______________

Kazakstan ____________________ _________ _______________

Russia ____________________ _________ _______________

Turkmenistan ____________________ _________ _______________

On behalf of:

UNDP ____________________ _________ _______________

World Bank ____________________ _________ _______________

TABLE OF CONTENTS

I. CONTEXT 2

A. Description of the Region and the Subsector 2

B. Host Country Strategies 5

C. Prior and On-going Assistance Directed at the Same Subsector 6

D. Institutional Framework 7

E. The Need for a Regional Environment Programme 8

II. PROJECT JUSTIFICATION 9

A. Project Description Summary 11

B. Target Beneficiaries 13

3. DEVELOPMENT OBJECTIVE 13

3. IMMEDIATE COMPONENTS, OBJECTIVES, OUTPUTS AND ACTIVITIES 13

Component IV. Priority Investment Portfolios 13

V. INPUTS 15

VI. RISKS 15

VII. PRIOR OBLIGATIONS AND PREREQUISITES 15

VIII. INSTITUTIONAL FRAMEWORK, COORDINATION AND ADMINISTRATION 16

A. Institutional Arrangements 16

2. Coordination Arrangements 19

IX. PROJECT REVIEWS, REPORTING AND EVALUATION 19

X. LEGAL CONTEXT 19

XI. BUDGET 20

1. Budget Lines

2. Budget Description

ANNEX I Detailed Project Description 21

ANNEX II Component Work Plans 29

ANNEX III Investment Description: Subcomponent 1—GEF/PIPP 37

ANNEX IV TORs PCU-based Project Manager 38

ANNEX V TORs Lead Local Consultant in Each of the Five Caspian States 39

ANNEX VI Draft Proposal Evaluation Criteria for the Matching Small-Grants Program 40

ANNEX VII Draft Application for the Matching Small-Grants Program 41

Acronyms/ABBREVIATIONS 43

I. Context

A. Description of the Region and the Subsector

The Caspian Sea, surrounded by the five littoral countries, is the largest land-locked body of water on earth. Situated in a natural depression, below mean sea level, it receives water from the Volga, Ural and the Kura rivers and numerous other freshwater inputs, but has no outlet to the world oceans. Water-level fluctuations, a natural cyclic phenomenon, have nevertheless had serious consequences for the region, displacing thousands of persons, destroying investments in industry and infrastructure and causing severe pollution threats via inundation of nearshore waste sites. The isolation of the Caspian basin, its climatic and salinity gradients, have created a unique ecological system. Some 400 species are endemic to the Caspian waters, some of which, notably the sturgeon, are of major economic importance. Bird life is prolific with large populations during migration, when many birds rest and feed in the extensive deltas, shallows and other wetlands. Many Caspian biota are threatened by over-exploitation, habitat destruction and pollution.

The Volga River, the largest in Europe, drains 20% of the European land area and is the source of 80% of the Caspian’s freshwater inflow. Its overall contribution to the Caspian may have diminished somewhat over the years due to extensive dam construction and its lower reaches are heavily developed with numerous unregulated releases of chemical and biological pollutants. Although existing data is sparse and of questionable quality, there is ample evidence to suggest that the Volga is one of the principal sources of transboundary contaminants to the Caspian.

The Caspian basin is rich in commercially developable hydrocarbon deposits. Production of oil and gas is significant and new exploration activity is under way. Oil and oil products generate constant traffic that has been estimated to total approximately 10,000 shipping movements annually. The magnitude of oil and gas extraction and transport activity thus constitutes a risk to water quality. Underwater oil and gas pipelines have been constructed or proposed, increasing potential environmental threats. Commercial activity (fishing fleets, passenger, dry goods and other cargo traffic) utilizes the Caspian enroute to the Black Sea or the Baltic via the Volga-Don canal system. This combined traffic has a number of possible impacts on the Caspian’s environmental integrity. For example, the Volga-Don connection poses a threat in the form of introduction of exotic species through ballast waters inter alia, and stringent measures may be needed to prevent this threat. The traditional Caspian sturgeon fishery is well-known due to the economic value of Caspian-derived caviar. At its peak, the Caspian supplied more than 80% of the world’s sturgeon stock. In recent years, however, sturgeon landings have decreased dramatically: from 30,000 tons in 1985 to only 5,672 tons in 1995. A quota system, introduced together with a temporary ban on pelagic fishing, does not appear to have been effective in reviving the dwindling fish populations. While fishing methods have clearly become more efficient and overfishing has occurred, a severe impact on the sturgeon and other anadromous species is thought to arise from the construction of numerous dams on the Volga and Kura rivers. The latter structures effectively bar fish from their primary spawning areas. Point and non-point source pollution leads to bio-accumulation of metals and persistent organic pollutants in the sturgeon from these waters. Poaching, dramatically increased during recent years, is also a main cause of sturgeon decline.

According to UN data, an estimated human population of approximately 11 million is distributed around the Caspian shoreline. The main urban centres of population are concentrated on the western and southern shores. Coastal provinces in Iran and Azerbaijan, in particular, dominate the demography of the Caspian.

The current annual Gross National Products (GNP) per capita of the Caspian States are: Azerbaijan --US$510; Iran -- US$1780; Kazakstan -- US$1340; Russia -- US$2740; Turkmenistan -- US$630 (Source: World Bank Group Development Data, http://www.worldbank.org/data/countrydata/ countrydata.html, 1997 data using Atlas Method).

Principal economic activities in the Caspian basin include fisheries, agriculture, oil and gas production, and related downstream industries. At their peak, revenues to the riparian countries from sturgeon, including caviar, were as much as US$6 billion annually. Rice, vegetable cultivation and cattle and sheep husbandry are the prime agricultural activities in the catchment area. Oil exploration and production are increasing along all shelves of the Caspian by all countries, and are already well established in the Baku (onshore and offshore) and Tenghiz (onshore) regions. Oil production is expected to increase dramatically during the next few decades. Accompanying this oil production will be a significant increase in marine transport. Both crude and refined oil products, as well as goods and services associated with the oil and gas industry, will be transported both by surface routes and possibly by subsea pipelines.

B. Host Country Strategies

The Caspian Environment Programme (CEP) is a regional umbrella programme established by the Caspian littoral states and aided by the international agencies. Born out of a desire for regional cooperation, expressed through a number of regional agreements, including the Almaty Declaration on Environmental Cooperation of May, 1994, the CEP was agreed to in June 1995 during a joint mission by The World Bank, United Nations Environment Programme (UNEP), and United Nations Development Programme (UNDP). This mission marked the start of a close partnership between the region and the international community. The mission also cemented the collaborative mechanisms between the GEF implementing agencies.

As it now stands, the CEP is a regional programme that encompasses all Caspian States and numerous international agencies, including The World Bank, UNEP, UNDP, the European Union/Tacis (EU/Tacis), and many others. During meetings held at Ramsar, Islamic Republic of Iran, in May, 1998, the CEP was launched officially. A Steering Committee has been established, and the Caspian littoral states agreed that the Concept Paper produced during the previous year in collaboration with The World Bank will form the basis for the CEP. In addition, UNDP-led efforts towards a Global Environment Facility (GEF) project for the Caspian focusing on its priority transboundary issues was endorsed by the Caspian littoral states.

The countries are engaged in a number of national, donor and Implementing Agency (UNDP) financed activities that are directly or indirectly related to the Caspian; some of these activities represent ‘baselines’ in the context of the current project. These activities can be summarized as follows:

• All of the countries have or are developing National programmes which address the Caspian issues, some countries have some form of institutional framework for the protection of their own coastal and marine environments.

• ­ Several Caspian states are elaborating National Environmental Action Plans or other national environmental policy and strategic planning instruments, in which a section on the Caspian will be present. These Action Plans will specifically address domestic problems.

• With assistance from UNEP, all countries are actively involved in the preparation of Caspian Framework Convention on the Protection and Sustainable Management of the Caspian Environment and its Resources

• In each country a National data centre and a mechanism for data exchange exist in some form;

• In some countries, with donor support, modern equipped monitoring laboratories are established, in other countries monitoring capacities are weak and poorly focused;

• Most of the countries are financing or planning to finance the development of nature reserves, protection of biodiversity, preparation (if not available) of Red Data books describing endangered species etc.

• In all the countries national legislation on the exploitation of bioresources exist, but in most countries enforcement is lacking. All the countries are cooperating on the development of a regional legal mechanism;

• Each country is putting substantial efforts to the development of its coastal zone, special regulations have been developed in some countries, and are developing in others.

• Human health issues are of the first priority in most of the countries due to severe problems occurring in the region. The implementation of regulations and legislation is usually weak. Governments for the next three years allocate substantial financing.

• The national emergency response capabilities are poorly reinforced, legislation exists but is inadequately implemented.

The explicit commitment by each of the five Caspian states, and actions they have already undertaken, are the best indication of the sound foundation for this Programme and a guarantee that the activities and systems established by the Programme will endure beyond international funding support to it.

C. Prior and On-going Assistance Directed at the Same Subsector

A number of UN agencies have been active in the Caspian region mainly through fact-finding missions and the drawing up of project proposals. These include IAEA, IMO, WMO, UNESCO/IOC, FAO and WHO, April 1995 Joint Mission and the 1996 Tacis mission, through ongoing activities such as the preparations for a Framework Convention under UNEP auspices and the National Environmental Action Plan (NEAP) preparations underway in Azerbaijan (completed), Kazakstan, and Turkmenistan, and through various national Programmes in the Caspian countries. To ensure full participation and ownership of the Programme by the Caspian countries, ongoing consultations through open forum meetings with Government representatives, district and local officials, and the public are strongly encouraged. In addition, direct dialogues and negotiations between private sector, non-governmental interests, and governmental representatives in the region will be an important aspect of the Programme, to generate undertakings with tangible results. This process can mobilize technical expertise and private capital, and stimulate cooperative action including contracts that address the key issues facing the Caspian.

During the 1995 Joint Mission, the three participating international organizations and the Caspian governments agreed that the institution building and strengthening aspect of the Programme will be developed by UNDP, while UNEP will handle monitoring and the development of a Caspian Ecological Framework Convention. Initially, The World Bank’s role in the proposed joint Programme was to identify an Priority Investment Portfolio (PIP) that addresses short-term priorities connected to sea level rise. The World Bank also initiated measures to begin work on the Caspian Bio-Resources Network and oil-spill response capacity development.

The Project Development Facility (PDF-B) phase of the Caspian Environment Programme was initiated in October 1997 with the following objectives:

1. To establish an effective Coordination Framework for the Caspian Environment Programme, at the regional, country-specific and donor agency levels;

2. To identify the elements of a Transboundary Diagnostic Analysis for the Caspian region (e.g., Framework TDA); and

3. To prepare a GEF Project Proposal for the further development and implementation of a Transboundary Diagnostic Analysis and a Strategic Action Programme for the Caspian Environment.

More specifically the PDF project was responsible for:

1. undertaking a comprehensive review, synthesis and analysis of existing data and information concerning the sources and fate of transboundary pollution as a building block on which to design appropriate actions;

2. identifying degraded and threatened habitats, point and non-point pollution sources, overexploited living marine resources, and exotic species of concern;

3. reviewing existing national and regional environmental legislation relating to the Caspian and its surrounding environment; and

4. providing a framework to strengthen the institutional, legal and regulatory structure in the Caspian region.

Financial support to-date has included GEF preparatory (PDF-B) funding of $349,920, which did not include resources for preparation of Component IV, Priority Investment Portfolios.

As part of the project development process, the countries prepared national reports on the status of the Caspian ecosystem. Data provided in these reports formed the basis for the preparation of the Framework Transboundary Diagnostic Analysis. During the PDF-B phase, UNDP consultants (through Contracts) coordinated the preparation of a Framework Transboundary Diagnostic Analysis (TDA) for the Caspian, as well as organized and coordinated political and technical meetings.

The Framework Transboundary Diagnostic Analysis (TDA) will serve as the basis for the development of the TDA and SAP in the full project.

The European Union’s Technical Assistance for the Commonwealth of Independent States (EU/Tacis) Programme has allocated resources for the Caspian environment. In the end of 1997, a consortium led by Lahmeyer International was awarded the Tacis CEP contract.

During the period from 16 March to 9 April 1998, the Consultants from Lahmeyer International conducted missions to the four Caspian NIS countries. The overall objective of the country missions was to assess the institutional basis for operating the Caspian Environment Programme. The intent of the mission was not limited to visiting only institutions that could potentially host activity centres, but rather sought to get a full picture of the stakeholders in the region who could contribute to the CEP, their capabilities and limitations and their view of the situation. Specific objectives of the each country visit were to:

• Update the littoral states regarding Tacis participation in the CEP as it relates to the overall coordination of the programme with other donors;

• Assess the institutional capabilities with respect to the implementation of the CEP, including the networking of the institutions;

• Discuss proposed structure of the CEP with the stakeholders;

• Assess the concepts and ideas of the institutions; and

• Meet with and update Tacis Coordination Units, UNDP and The World Bank representatives in each country.

D. Institutional Framework

During the May, 1998, Ramsar Steering Committee Meeting, a structure was approved for the Caspian Environment Programme. Governance is provided by a Steering Committee of international organizations and recipient countries. Coordination and project management will take place through the Programme Coordination Unit (PCU). Implementation will take place through the National Intersectoral Coordinating Functions and the institutions and agencies contributing to the Caspian Regional Thematic Centres (CRTCs), which are distributed amongst the five Caspian littoral states.

The Steering Committee of the CEP will be ultimately responsible for directing the preparation of detailed workplans and their monitoring, as well as for guiding overall project implementation. The Steering Committee will include national representatives from each Caspian state, usually the National Focal Points (mostly Ministers or Deputy Ministers), respective UNDP, UNEP, the World Bank and EU/Tacis Project Managers. The Directors of the Thematic Centres will be invited to attend on an ad hoc basis. The Steering Committee will meet to review the previous year’s activities and to review and adopt the workplans and activities.

The Programme Coordination Unit will have individuals housed within it who will work on behalf of the Steering Committee to coordinate and manage the activities of the CEP. In addition, the PCU may house project-specific personnel who will have oversight for specific projects funded by various international partners. An agreement taken by the countries in Ramsar in May 1998 has placed the PCU in Baku, Azerbaijan, for four years. The PCU began operations under funding by EU/Tacis in July, 1998, in facilities provided by the Government of Azerbaijan. In July 2001, the PCU location will be moved to the Islamic Republic of Iran.

The PCU will be supported by the International Agencies (primarily UNDP/GEF and EU/Tacis) for a period of three years, following which support will be shared by the Caspian littoral states and the international agencies as appropriate.

The Intersectoral Coordinating Functions from each country will work to assure Interministerial and Intersectoral coordination within that country. These functions are well established in some Caspian littoral states, but new in others.

The Directors of the Thematic Centres, in close coordination with the PCU, will convene the Working Parties of the CEP network, to achieve the goals and objectives laid out in the work plans. The overall work of the Thematic Centres will be guided by the documents approved at Ramsar by the CEP Steering Committee in May 1998. Each Thematic Centre is responsible for coordination of their specific theme amongst the five Caspian Littoral States; however, as outlined in the Concept Paper for the CEP, activities within that theme will occur within all five littoral countries.

E. The Need for a Regional Environment Programme

The five States bordering the Caspian also recognize the uniqueness and value of their environment. They have repeatedly expressed their commitment to protect and manage the vulnerable ecosystems. Furthermore, they are fully aware of the need for a collaborative regional approach. The Caspian States also accept that, in protecting the Caspian environment, they are fulfilling an obligation to the global community, since the unique features and biological resources of the Caspian place it in a world category.

However, in spite of their commitment and their genuine intentions, the Caspian States have limited resources. The highest per capita GNP in the region is no more than US$2,740 per year and the average for the region is US$2,118. In addition to this, some of the Caspian states are burdened with legacies from previous administrative systems that permitted industrial development, oil and gas production and export, and other economic activities that pose serious threats to environmental resources. The situation is exacerbated by the demands made on the States’ modest financial resources by the consequences of fluctuating water levels.

The Caspian region suffers from various contributions to environmental stress:

• human activities in or near the Caspian;

• human activities in the catchments of rivers draining into the Caspian; and

• fluctuations in water level, especially flooding problems due to the high water level and onshore winds.

The measures that will have to be taken to address the above problems can be either long-term, integrated and strategic approaches, or short-term emergency responses or a mixture of both approaches.

Long term, strategic measures are best implemented jointly and coordinated on a regional basis by the five Caspian States. Short-term emergency measures can be undertaken by individual States as long as they do not have negative consequences for the other States or for the Caspian environment.

The need for protection and management of the Caspian environment and its resources has always preoccupied the Caspian States and since the dissolution of the former Soviet Union (1991), there has been heightened awareness of such a need. Important milestones in regional cooperation on the Caspian environment since 1991, include:

• A draft Convention on the Conservation and Utilisation of Bioresources of the Caspian;

• The Baku Resolution of June 1991;

• The Tehran Communiqué of October 1992;

• The Astrakhan Communiqué of October 1993;

• The Declaration on Environmental Cooperation in the Caspian, Almaty, May 1994;

• The Protocol of the Meeting on Programmes for the Protection of the Environment in the Caspian Region, Almaty, 1994;

• Joint World Bank, UNEP, and UNDP Mission to the Region in 1995;

• Istanbul CEP Concept Paper Review Meeting, Istanbul, May 1997;

• The report of the joint meeting of the task force and TDA experts, Almaty, 1997;

• National reports on the state of the Caspian, 1998;

• Report of TDA Experts Meeting (including Framework TDA), Tehran, April 1998;

• The decisions of the First meeting of the Interim Steering Committee of the CEP, Ramsar, 1998; and

• Baku 1999 Steering Committee Meeting.

II. PROJECT JUSTIFICATION

To date the five Caspian littoral countries have cooperated among themselves and with international partners and focused on these common problems. In joint efforts, they have developed the Caspian Environment Program, which facilitates collaborative efforts to address the problems faced by all five countries. The overall goal of the Caspian Program is to promote the sustainable development and management of the Caspian environment, a major and unique ecosystem under threat from pollution and loss of biodiversity.

The Global Environment Facility (GEF)’s participation in this overall program stems from the broad global and transboundary impacts currently prominent in the Caspian. The global environmental objective of the proposed project is: Environmentally sustainable development and management of the Caspian environment, including living resources and water quality, so as to obtain the utmost long-term benefits for the human populations of the region, while protecting human health, ecological integrity and the region's sustainability for future generations.

The GEF intervention in the Caspian is mainly based on the following assumptions:

• The public good characteristic of the Caspian currently provides littoral countries with an incentive to use and abuse (i.e., the tragedy of the commons effect). Regional cooperation will be of the essence to address the external costs of pollution; countries have little incentive to apply abatement measures unilaterally. Thus though technical solutions might exist, an enabling policy, institutional and structural framework is lacking.

• Even if countries were to take unilateral action, “external” threats and actions would continue to degrade the Caspian. A comprehensive approach is thus warranted involving all countries.

• High transactions costs impede regional cooperation to address waterbody degradation; these include the costs of communications between countries, building the basis of trust, convening multi-stakeholder forums, learning about current and emergent environmental problems, obtaining regional consensus on the need to intervene, and finessing regional agreements regarding pollution quotas, fishery takes, etc.

• A thorough analysis of the determinants of degradation is lacking, including the transboundary impacts of sectoral activities. While much data already exists, these need to be collated and/or interpreted to uncover and prioritize root cause issues that could be addressed through SAP implementation; the lack of such information poses the risk that interventions will be wrongly targeted, undermining their efficacy.

The current project proposed – the development of priority investment portfolios for transboundary priorities – is a key element of the GEF project listed above. Implementation of this activity is to be undertaken by UNDP with execution by the World Bank. The purpose of the proposed project is to assist in the identification and early preparation of investment projects that meet the CEP criteria of high priority actions. These criteria include measures that:

• address a national priority

• have a positive, transboundary impact on the Caspian environment

• are financially feasible and that potential financial sources are identified

• are socially and economically beneficial.

In addition, the following attributes are regarded as highly beneficial:

• the investment mitigates an urgent threat of irreversible damage to the environment; and

• protects human health in population centers

The proposed World Bank-executed project will be composed of four specific Subcomponents:

5. investment identification and pre-preparation;

6. institutional strengthening and training for project preparation;

7. matched small-grants program; and

8. project management.

Specifically, these sector issues encompass the remedial actions and preventive measures necessary to develop petroleum resources in an environmentally sustainable way and to address municipal, industrial and agricultural sources of pollution; also, the protection and sustainable management of bio-resources (e.g., sturgeon) are encompassed by the sector issues. Strategically, it was decided to address these shared problems through a joint program, rather than through individual country-specific programs, in order to accelerate the implementation of small- to mid-sized activities as well as to share information and results affecting the sustainability of the broader operation.

A. Project Description Summary

This Project will be composed of four Subcomponents, each of which is designed to maximize the results of using limited GEF resources. The first Subcomponent will assist the participating organizations to identify and begin to prepare high-priority investment projects that meet program criteria. It is expected that these will include, inter alia, measures to help cleanup or prevent future oil spills in the Caspian and help accelerate the recovery of sturgeon stocks in the Caspian. The second Subcomponent will provide targeted technical assistance to participating organizations. Areas of technical assistance will include training on project preparation and management as well as integrating individual investment projects with the wider national policy agenda. The third Subcomponent will establish a matched grants program whereby a small amount of GEF funds will be matched, one for one, with in-country and other sources of funds for the implementation of demonstration or pilot-scale projects in line with the overall objectives of the Caspian program. Finally, the fourth Subcomponent provides for transparent project management of coordinated activities. This will include recruitment of lead local short term consultants to advise the Caspian National Focal Points in each country, and the establishment of a Priority Investment Portfolio Project (PIPP) Baku-based Project Manager position to be based in the CEP PCU.

Subcomponent No. 1 –Investment Identification and Pre-Preparation

Much work has already been undertaken by the five littoral Caspian countries to identify environmental priorities and investment needs. By and large, many of the projects already identified through such efforts are consistent with GEF criteria, as many of the problems they address focus on transboundary priorities. This Subcomponent would support the identification and pre-preparation of investment projects, with emphasis on the financial feasibility and blended funding for implementation. It is expected that in the initial phase of this proposed Project, priority investments may include, but would not be limited to, transboundary environmental issues in two areas:

• ^{industrial pollution prevention and mitigation directly affecting the Caspian waters (including pollution from the oil industry),}

• the recovery of sturgeon stocks and their habitat.

Additional transboundary environmental problems may also be addressed through this Subcomponent as they are identified during the parallel TDA/SAP component.

Subcomponent No. 2 -- Institutional Strengthening and Training for Project Preparation

It is envisioned that this Subcomponent would address two main areas of institutional strengthening:

• Training of NFPs and other National personnel on project preparation, project cycle, financing, management and supervision, and

• Training or seminars for NFPs and other senior National personnel on the role of investments in implementing the national policy agenda.

The training on project preparation, financing, management and supervision would be targeted to coincide with pre-preparation activities undertaken as part of the first Subcomponent of this project. The investments envisioned under the first Subcomponent will take considerable time to implement, and proper management is vital if the expected results are to be realized. Moreover, additional investments may be undertaken – beyond the scope of those funded by this Project – and project management skills developed under Subcomponent two will be important for their success. The seminars on the role of investments in implementing the national policy agenda are designed to meet a macroeconomic need. Too often environmental projects are rejected because they do not fit well into an overall economic plan or policy agenda. If future projects are to be funded, they must be developed with a specific effort to focus on national policies and overall economic plans.

Subcomponent No. 3 – Matched Small-Grants Program for Transboundary Issues

Recognizing the strong desire of the Caspian states and international partners to achieve results on the ground as quickly as possible, and the fact that many projects actually require relatively small amounts of investment, a small-grants Subcomponent is included in this project. The small demonstration or pilot projects are in direct support of development of small-scale investment projects. As a result of the demonstration or pilot projects, it is expected that a number (order of 5 to 10) of the projects will develop either into larger scale investment opportunities, or projects that can be replicated in other locations around the Caspian Sea.

This Subcomponent would establish a grant program to support the implementation of small demonstration or pilot projects in compliance with the following specific criteria:

1. all procurement meets the criteria set out in the Project Implementation Plan (PIP) for this Project;

(ii) the GEF amount for each matched grant would be generally be no less than US$10,000 and limited to a maximum of US$ 100,000;

(iii) applications for grants would be open to all five Caspian littoral countries and would be awarded based on compliance with the criteria described in the PIP;

(iv) 100% matching by the applicant is required for each project (of which a maximum 50% could be for “in kind” goods or services); additional matching may include funds from third party sources;

(v) the project meets pre-defined objectives as set in the PIP for this Subcomponent,

which are in line with the overall objectives of this project and fully support GEF

criteria; and

1. the demonstration or pilot project is replicable or expandable to a full-scale

investment project.

This Subcomponent will advance implementation of small-scale priority projects as quickly as possible in order to take curative or preventative actions, as well as to develop the capacity for future activities. Projects funded under this Subcomponent will be highly leveraged and, because they are in line with GEF criteria by definition, they will address transboundary or biodiversity issues. It is envisioned that small-scale or pilot projects developed under this Subcomponent could complement projects to be identified or pre-prepared under the first Subcomponent of this proposed Project.

Subcomponent No. 4 – Project Management

A project of this complexity and the need for coordination among many parties requires a transparent mechanism for managing all the Subcomponents. In Subcomponent 4, the proposed Project would ensure transparency and the maximum use of resources by:

(i) establishing a Priority Investment Portfolio Project (PIPP) Baku-based Project Manager at the CEP PCU, who would be responsible for all coordination among the NFPs, CRTCs, and the PCU; and

2. establishing contracts with one lead local consultant on a half-time basis in each Caspian state to assist the NFP in implementation of the project.

B. Target Beneficiaries

The primary benefit from the overall CEP and from the specific proposed Project will be improvements in the long-term conservation and management of the coastal zone and bio-resources of the Caspian basin. In addition, the institutional strengthening activities will increase regional, national and local capacity to manage environmentally related investments in context of a nationally developed agenda. Specific beneficiaries include:

(a) Coastal and Neighboring Inland Communities will benefit from investments identified, prepared and implemented related to pollution prevention, control and remediation, such as the water supply and wastewater treatment; hazardous waste management; capping of flooded oil wells; cleanup of past pollution from oil exploration activities, both on-shore and off-shore; and the preparation of oil spill contingency plans and risk prioritization activities. Neighboring inland and coastal communities will also benefit from lower public health risks brought about by exposure to contaminants, and from increased opportunities for tourism in the long term.

(b) Fishing and Aquaculture Communities will benefit from investments identified, prepared and implemented related to the recovery of sturgeon stocks and habitat. The Project will also help revive employment opportunities to both individuals and private-sector organizations in the fishing and aquaculture industries.

III. DEVELOPMENT OBJECTIVE

Within the framework of the Caspian Environment Program and as a Subcomponent of the GEF Project “Addressing Transboundary Environmental Issues in the Caspian Environment Programme,” the development objective of the Priority Investment Portfolio Project is to increase the number and quality of priority environmental investments that have a positive transboundary environmental impact and that contribute to economic growth.

IV. IMMEDIATE COMPONENTS, OBJECTIVES, OUTPUTS AND ACTIVITIES

The immediate focus of the GEF Project is:

Component IV: Development of Priority Investment Portfolios for Transboundary Priorities.

In order to implement these activities, the present Project Document describes three major Subcomponents:

Subcomponent No. 1 –Investment Identification and Pre-Preparation

Subcomponent No. 2 -- Institutional Strengthening and Training for Project Preparation

Subcomponent No. 3 – Matched Small-Grants Program for Transboundary Issues

Subcomponent No. 4 – Project Management

These subcomponents are related to the Activities described in the Project Brief and in the table above as follows:

V. INPUTS

It is expected that inputs to the Caspian Environment Programme will come from following sources: (1) the Caspian country governments; (2) UNDP/GEF, (3) EU/Tacis, and (4) other donor countries/organizations.

1. To ensure maximum efficiency in the use of funds and access to the needed mix of skills for project management, the following implementation arrangements have been made for the Project. The five Caspian states have adopted the Caspian Environmental Program Concept Paper, which establishes the general framework of the CEP, have endorsed the GEF Project Brief, and have requested the World Bank to execute this Project. The key institutions involved in the implementation of the PIPP include:

• Caspian governments. The Caspian states’ national government bodies charged with coordination of Caspian environmental cooperation serve as lead agency in each country for the project. In most cases, the lead agency is the Ministry (State Committee, Department) of Environment, and the Caspian National Focal Point (NFP) is a Minister or Deputy Minister of Environment (or equivalent). The NFPs are responsible for national coordination of the CEP at the inter-ministerial, national and sub-national levels within their states. The NFPs will play a leading role in the development of Subcomponent 1 workplans, identification of training needs under Subcomponent 2, and in evaluating proposals to the small matched grants program (Subcomponent 3). Each NFP will be assisted by a part-time lead local consultant, who will liaise with the PCU, CRTCs, World Bank and other CEP partners.

• CRTCs. As part of their normal operations, the Caspian Regional Thematic Centers (CRTCs) are expected to provide input to the NFPs and other CEP partners to help identify priority investment needs, particularly regarding the transboundary impacts that a specific investment may bring.

• PCU. A PIPP, Baku-based Project Manager (to be appointed) will be located in the CEP PCU in Baku to assist in region-wide coordination of the PIPP through regular interactions with each lead local consultant, CRTCs, and international partners.

• World Bank/International Finance Corporation (IFC). As part of its role in execution, the World Bank, and the IFC when appropriate, will provide advice in the identification of investment needs, funding options, investment partners and training (Subcomponents 1 and 2), and will participate in the evaluation of proposals to the small matched grants program (Subcomponent 3). In addition, the Bank team will work closely with country teams at the World Bank (i.e., in Washington and at resident missions) for each of the five Caspian states to ensure that, where appropriate, activities comport with Country Assistance Strategies developed by the countries with the assistance of the World Bank.

• UNDP. As the implementing agent of the GEF grant, UNDP is be responsible for the overall results of the program. Consequently, UNDP will head the supervision and monitoring tasks related to this project.

2. Additional inputs to the PIPP Component IV:

In addition to the GEF funds requested for the PIPP, additional co-financing has been made available to assist the Caspian Environment Programme, and supporting the investment portfolio development. These funds have been or are being administered by the World Bank:

Japanese Policy and Human Resources Development: Two grants of $500,000 and $250,000 have assisted the World Bank and the Region in initiating the CEP activities, including investment portfolio issues.

A Norwegian Trust Fund is providing a Grant of approximately $500,000 for the recruitment of a full-time staff at the World Bank, who will assist in executing the CEP PIPP. A Norwegian Trust Fund is also providing $155,000 to help develop mutual aid for oil spills in the Caspian region.

A Japanese Trust Fund has provided $994,000 to conduct an Ecotoxicology Study within the CEP, which will assist in the TDA and investment activities in the CEP. This project had its kick-off meeting in October 1999 in Baku, Azerbaijan.

In addition, the matching requirement for the Small Grants Program for Transboundary Issues will bring in an additional $575,000 in co-financing, approximately half in local currency, half in in-kind costs.

The total amount of this co-financing is $2,974,000.

VI. RISKS

The Caspian states have demonstrated their commitment to regional cooperation for protecting the Caspian basin resources through their active participation in the CEP, including their support to develop a Framework Convention for the Protection of the Marine Environment of the Caspian Sea, under the auspices of UNEP. Also, most of the cooperating governments have identified the environmental problems of the Caspian basin as a high priority during their NEAP process. Investments identified by the project will be subject to close scrutiny and careful preparation to ensure the availability of adequate financing and implementation capacity. Demonstration of life cycle financing for projects supported by the match small-grants program will be required.

Critical Risks

Risk Rating - H (High Risk), S (Substantial Risk), M (Moderate Risk), L (Negligible or Low Risk)

VIII. INSTITUTIONAL FRAMEWORK, COORDINATION AND ADMINISTRATION

A. Institutional Arrangements

1. Regional Institutions

The CEP Steering Committee was composed during the PDF-B phase of representatives from Caspian countries at the level of Deputy Ministers of Environment or equivalent rank, individuals and representatives of international organizations, bilateral programs, and other organizations that actively support the CEP.

The Regional Steering Committee for the Programme, as the supreme decision-making and supervisory body of the CEP, will be responsible for approving strategic decisions and annual workplans, setting program direction, reviewing CEP progress, and identifying new and additional funding related to implementation of projects under the Caspian Environment Programme. Representatives of private sector and other organizations that contribute to the CEP will be encouraged to participate in the Steering Committee. The Steering Committee will provide policy-level liaison to national governments, through Intersectoral Coordination in each country, regarding implementation of the program on the country level, and will provide direction to the Programme Coordination Unit (PCU) regarding preparation of the Caspian Regional Strategic Action Programme (SAP) and National Caspian Action Plans (NCAPs).

The Programme Coordination Unit, which is accountable to and reports to the Steering Committee, will provide a coordination and management structure for the development and implementation of the Caspian Environment Programme in accordance with the rules and procedures of GEF/UNDP and EU/Tacis based on directions provided by the Steering Committee. Specific attention will be given to the development of a regional intersectoral coordination initiative so as to fully involve different government ministries and the private sector in the Caspian Environment Programme. This regional intersectoral coordination function will liaise closely with those national institutions and agencies that have been designated responsibility for such intersectoral coordination (see National Institutions below). As agreed by the Steering Committee at its 1998 Ramsar meeting, the PCU will be located in Baku, Azerbaijan for the first four years (1998-2002) and then move to Iran (location TBD).

Caspian Regional Thematic Centres shall be based upon existing institutions with the best available regional expertise in selected thematic areas. They will be responsible for: development of a work plan and implementation of activities in respective thematic area, regional coordination within area of competency, relevant regional recommendation development, guidance and strategy within area of competency, assistance in development of the TDA and UIP, assist in development and implementation of the National Caspian Action Plans (NCAPs) and Strategic Action Programme (SAP).

2. National Institutions

Intersectoral Coordinating Committees in each of the Caspian littoral states will provide guidance and ensure coordination of a wide range of National institutions and organizations directly responsible for the development and implementation of the Programme at the National level. The Intersectoral Coordinating Committee will have a full time, small secretariat (national and donor-supported) reporting to (under the direction of) the National Focal Point, and will serve as the national liaison with the PCU. Representation by the government will be expected at the deputy minister level.

As was done during the design of the framework TDA during the PDF-B, the governments of Caspian countries will nominate National TDA Experts for finalization of the Transboundary Diagnostic Analysis. These experts will assist the Intersectoral Coordination Committee in each country and advise the Programme on background information, transboundary environmental problem analysis, root causes, and needed sectoral and institutional changes for the successful management of Caspian resources.

3. Project Implementation

The World Bank will be Executing Agency for the UNDP-implemented portion of the Project. Roles of the Implementing and Executing Agents are listed below.

B. Coordination Arrangements

The PCU will play a crucial role in ensuring coordination of this project with other relevant activities in the region. The Programme Coordinator (who is the CTA for the GEF Project) will assist the PIPP Baku-based Project Manager in executing the project, by providing support services (e.g., fax, Xerox, local arrangements) and coordination with countries as required. To ensure donor coordination and cooperation, the lead international agencies (UNDP, The World Bank, UNEP, and EU/Tacis) will meet regularly and keep each other fully informed of their respective activities. The Steering Committee will provide the forum through which national representatives, donors and other relevant actors will coordinate their activities. The Intersectoral Coordinating Function in each of the Caspian littoral states will provide guidance and ensure coordination of a wide range of National institutions and organizations directly responsible for the implementation of the Programme at the National level.

IX. PROJECT REVIEWS, REPORTING AND EVALUATION

In line with UNDP procedures, the project will be subject to tripartite review (TPR) once every twelve months. An annual project report (APR) will be submitted two months in advance of the TPR meeting. The project will also participate in the Project Implementation Review (PIR) process. Meetings can also be organized ad hoc at the request of the coordinator of the PCU and/or on request by one of the participating countries. The Steering Committee will approve the final results of such meetings.

Periodic Status Reports would be prepared at the request of the Steering Committee for presentation at key meetings associated with the Project.

The project will also participate in the UNDP-GEF International Water (IW) LEARN Project through information exchange and sharing lessons learned with GEF and other regional waters projects.

Towards the end of year 3, a final independent evaluation of the project will be carried out by project evaluation specialists selected by UNDP-GEF. The evaluation will include: an assessment of (a) the outputs generated, (b) the processes used to generate them, (c) project impacts using indicators included in the logical framework matrix, and d) lessons learned.

X. LEGAL CONTEXT

For all five participating countries, Azerbaijan, Iran, Kazakhstan, Russian Federation and Turkmenistan, this Project Document shall be the instrument referred to as such in Article 1 of the Standard Basic Assistance Agreement (SBAA) between these governments and the United Nations Development Programme, signed by the parties previously. The host countries’ implementing agencies shall, for the purpose of the SBAA, refer to the governments’ cooperating agencies described in that Agreement.

The following types of revisions may be made to this Project Document with the signature of the Principal Project Resident Representative (PPRR) only, provided he or she is assured that the other signatures of the Project Document have no objection to the changes:

1. Revisions in, or addition of, any of the annexes of the Project Document.

2. Revisions that do not involve significant changes in the immediate Subcomponents, objectives, outputs or activities of the project, but are caused by the rearrangement of the inputs already agreed to or by cost increases due to inflation.

3. Mandatory annual revisions that re-phase the delivery of agreed project inputs or increased expert or other costs due to inflation or take into account agency expenditure flexibility.

11. BUDGET

Project Number: RER/98/G32/A/1G/42

Project Title: Addressing Transboundary Environmental Issues in the Caspian Environment Programme: Component IV: Priority Investment Portfolio Project (PIPP)

A. Budget Lines

Project Budget Covering UNDP Contribution (in U.S. Dollars)

B. Budget Description

The GEF budget implemented by the UNDP will be executed by the World Bank. Brief descriptions of aspects of the budget are included below:

Duty Travel: Duty travel is for the local project personnel (the Baku-based Project Manager) to coordinate activities in the PIPP in the Region.

Other missions: These expenses cover the cost of UNDP Evaluation Missions (costs are reasonable since they will be performed along with the UNDP overall project) and of World Bank travel to the Region to screen potential investment projects for next steps.

Personnel: These costs include those for World Bank experts to participate and oversee the Project, including short-term missions to the Region to assist in project development. They also include costs for Administrative Staff at the World Bank.

These costs include also National Project Professionals, recruited in the Region. The Baku-based Project Coordinator will be recruited from the Region, and will work in the Programme Coordination Unit (interacting closely with the CTA). Five in-country consultants will work closely with the National Focal Points (NFPs) of the region, to assist in Project Identification, Training, and Small Grants. They will be approximately half-time for the first 2.5 years of the project. Finally, at the PCU, the PIPP will share some secretarial costs with the PCU. TORs for the in-country consultants are included in Annexes IV and V.

Subcontracts: Several subcontracts are envisioned. The first for Identification studies will be a series of subcontracts for developing Work Plans within each country for the PIPP, and for seeking out investment opportunities. These subcontracts will be both with Regional and International Experts.

The Pre-preparation feasibility studies will involve subcontracts going to International and Regional Experts to prepare the studies for the identified investment opportunities, to the point where the World Bank can take these investments to the international finance community to seek funds for full feasibility studies for possible funding.

The Training providers will be largely Internationally recruited firms, with assistance from local experts and logistics providers.

The NGO Grants Administrator will be competed internationally through a tender process.

The Grants represent the GEF matching component for the Small Grants sub-component, to be expended at levels varying from $10,000 to $100,000 subject to the Small Grants Administration process.

Meetings and Training: These costs are for NFPs and other regional Experts to attend Training sessions for preparation of Investment Projects, including project cycle training. The regional consultant’s in-country travel expenses are covered under this item for national meetings.

Equipment: The PIPP Baku-based Project Manager will require minimal costs for purchase of furniture and computer equipment for their office in the PCU. Expendable supplies and equipment and communications costs are required for conduct of their activities.

Miscellaneous costs include expenses for the PPRR in Baku (0.5%) and the Iran UNDP country office (1%) to assist in executing this project. Sundries are for miscellaneous small items required under the contract.

Execution Fee: There will be no execution fee charged to this project.

ANNEX I

Detailed Project Description

A. Overview

1. Introduction. The Priority Investment Portfolio Project (PIPP) is designed as an element of the Caspian Environment Program (CEP), which was launched in April 1995 at the initiative of the Caspian littoral states. Participating international organizations include the European Union (Tacis), the United Nations Development Programme (UNDP), the United Nations Environment Programme (UNEP) and the World Bank. Preparation and implementation of the CEP has been supported by the Global Environment Facility (GEF). The overall goal of the Caspian Environment Program is to promote the sustainable development and management of the Caspian environment, a major and unique ecosystem under threat from pollution and loss of biodiversity. The Caspian governments and international partners also identified the following subsidiary goals:

• Understanding and learning to live with the Caspian water level fluctuations;

• Abatement of existing and prevention of new types of pollution and deterioration of the Caspian environment and its resources;

• Recovery and rehabilitation of those elements of the Caspian environment (including biological diversity) that are degraded and that still have the potential for recovery;

• Long-term sustainability of environmental quality and resources as assets for the present and future human populations of the region

2. Caspian Environment Program. The CEP is a framework program to address multiple environmental and bioresource issues. These issues can be understood as falling within two broad categories, with some overlap as indicated by italics:

3. Regional Thematic Centers. Nine Caspian Regional Thematic Centers (CRTCs) have been or will be established to facilitate implementation of priority actions to address the key issues, and the overall Caspian Environment Program is managed by a Program Coordination Unit (PCU) located in Baku. It is anticipated that the work of the CRTCs will help to identify priority investment needs. The topics and locations of the CRTCs are:

Location	Theme
Azerbaijan	Pollution Control/Data Management
Iran	Integrated Coastal Zone Management
	Emergency Response/Pollution Monitoring
Kazakhstan	Biodiversity
	Water Level Fluctuations
Russia	Fisheries and Bio-resources
	Legal, Regulatory and Economic Instruments
Turkmenistan	Desertification
	Sustainable Human Development and Health

4. CEP Projects. Within the framework of the CEP, several major projects are being implemented with the support of international partners and by the countries. The two primary international projects are the GEF supported CEP Project “Addressing Transboundary Environmental Issues in the Caspian Environment Programme,” which includes the present Priority Investment Portfolio Project, and the European Union (Tacis) supported Caspian Environment Project, which provides technical assistance and funding for several of the CRTCs and for the start-up and initial operations of the PCU. Several complementary studies, training and technical assistance activities are underway or planned for implementation with support from bilateral programs, industry and World Bank managed Trust Funds. Azerbaijan has begun implementation of the Urgent Environmental Investment Project, with support from the United Kingdom, Japan, Switzerland and the World Bank, which includes several components designed to benefit the Caspian environment.

B. Project Management

5. Role of GEF Partners. The GEF CEP project will be implemented cooperatively by the three GEF Partners - UNDP, UNEP and the World Bank. The 5 components of the GEF CEP Project and lead implementing agencies are:

1. Component I: Project Coordination (UNDP)

2. Component II: Transboundary Diagnostic Analysis (UNDP)

3. Component III: The Legislative Framework and Convention (UNEP)

4. Component IV: Priority Investment Portfolios (World Bank)

5. Component V: Formulation of the SAP and NCAPs (UNDP)

6. World Bank’s Role. The World Bank is the GEF executing agency for Component IV, the Priority Investment Portfolio Project (PIPP). The budget for this component is US$2,402,790 for expenditure over the three-year life of the project (1999-2002). The World Bank’s role as executing agency for the PIPP component of the CEP is to provide technical assistance for project identification, preparation and management for any investment meeting PIPP criteria; to assist in identifying additional sources of funding (both loans and grants) for blended support for investments; and to work with the Caspian states to raise policy level support for environmental investments in an effort to increase the probability of actual funding and implementation. In addition, the Bank CEP Team will work closely with country teams within the World Bank for each of the five Caspian states to ensure that, where appropriate, activities conform with Country Assistance Strategies. Specific measures will be taken to ensure that all activities will be coordinated with UNDP Resident Representatives and World Bank resident missions in the region as appropriate.

7. Coordination. The project will be conducted in close cooperation and with full information sharing with the Caspian National Focal Points (NFPs), the nine Caspian Regional Thematic Centers (CRTCs), and the PCU. The NFPs play a pivotal role in the Priority Investment Portfolio Project as the lead national officials responsible for the coordination of the CEP with national policies and programs. It is anticipated that each NFP will identify a half-time lead local consultant to assist in implementation.

8. Implementation Arrangements. To assure maximum efficiency in the use of funds and access to the needed mix of skills for project management, the following implementation arrangements have been made for the Project. The five Caspian states have adopted the Caspian Environmental Program Concept Paper, which establishes the general framework of the CEP, have endorsed the GEF Project Brief. The key institutions involved in the implementation of the PIPP include:

• Caspian governments. The Caspian states’ national government bodies charged with coordination of Caspian environmental cooperation. In most cases, the lead agency is the Ministry (State Committee, Department) of Environment, and the Caspian National Focal Point (NFP) is a Minister or Deputy Minister of Environment (or equivalent). The NFPs are responsible for national coordination (inter-ministerial, national and sub-national) of the CEP within their states. The NFPs will play a leading role in the development of Subcomponent 1 workplans, identification of training needs under Subcomponent 2, and in evaluating proposals to the small matched grants program (Subcomponent 3). Each NFP will be assisted by a part-time lead local consultant, who will liaise with the PCU, CRTCs, World Bank and other CEP partners primarily on business related to Subcomponent 1, Investment Identification.

• CRTCs. As part of their normal operations, the Caspian Regional Thematic Centers (CRTCs) are expected to provide input to the NFPs and other CEP partners to help identify priority investment needs, particularly regarding the transboundary impacts that a specific investment may bring.

• PCU. A PIPP Baku-based Project Manager (to be appointed from the Region) will be located at the PCU to assist in region-wide coordination of the PIPP.

• World Bank/International Finance Corporation (IFC). The Bank team will provide advice in the identification of investment needs, funding options, investment partners and training (Subcomponents 1 and 2), and will participate in the evaluation of proposals to the small matched grants program (Subcomponent 3). In addition, the Bank team will work closely with country teams at the World Bank for each of the five Caspian states to ensure that, where appropriate, activities comport with Country Assistance Strategies developed by the countries with the assistance of the World Bank.

C. Project Objective

9. Objective. The purpose of this project is to assist in the identification and early preparation of investment projects that meet the CEP criteria for high priority actions. Obligatory criteria are that the proposed investment:

• addresses a national priority

• has a positive, transboundary impact on the Caspian environment

• is financially feasible and that potential financial sources are identified

• is socially and economically beneficial.

In addition, the following attributes are regarded as highly beneficial:

• the investment mitigates an urgent threat of irreversible damage to the environment; and

• protects human health in population centers

10. Subcomponents. This project is comprised of four Subcomponents, each of which is designed to maximize the use of limited GEF resources. The first Subcomponent will assist the participating organizations to identify and begin to prepare high-priority investment projects that meet program criteria. It is expected that these will include, inter alia, measures to help cleanup or prevent future oil spills in the Caspian and assist in the recovery of sturgeon stocks in the Caspian. Other priority investments may be found in the areas of wastewater treatment, hazardous waste management, air pollution control, protection of habitats of threatened or endangered species, safe drinking water, etc. Short-term lead local consultants in each Caspian state will be recruited to assist primarily with implementation of Subcomponent 1. The second Subcomponent will provide targeted technical assistance to participating organizations. Areas of technical assistance will include training on project preparation and management as well as integrating individual investment projects within the wider national policy agenda. The third Subcomponent will establish a matched grants program whereby a small amount of GEF funds will be matched, one for one, with in-country sources of funds for the implementation of demonstration or pilot-scale projects in line with the overall objectives of the CEP. It is envisioned that projects identified under Subcomponent 1 and proposals submitted in accordance with Subcomponent 3 will mainly originate from the NFPs, CRTCs, NEAPs when available, and the TDA/SAP process. Finally, the fourth Subcomponent provide for project management through placement of a PIPP coordinator at the PCU and administration of the small grants program.

11. Preparatory Work. Much work has already been undertaken by the five littoral Caspian countries to identify environmental priorities and investment needs. Both Azerbaijan and Kazakhstan, for example, have completed NEAPs that investigated the current environmental situation and set out priorities for action. The Islamic Republic of Iran has completed an Environmental Strategy. The Russian Federation completed a National Report on the State of the Environment in 1992 and a National Action Plan on the Environment in 1994. Due to the scale of the country and its environmental problems, the Russian Federation has begun to review the situation using Regional Environmental Actions Plans as a main tool. Currently, Turkmenistan is preparing a NEAP. In addition to NEAPs, other activities by ministries, private-sector organizations, and non-governmental organizations have identified potential projects that address environmental priorities. Thus, in general, the five littoral Caspian countries have made substantial progress in identifying the primary problems that need to be addressed.

12. GEF Project Criteria. By and large, many of the projects already identified through such efforts are consistent with GEF criteria, as many of the problems they address focus on transboundary environmental issues. As stated in Component IV of the GEF Project Brief:

The main objective of the Priority Investment Portfolio component of the Caspian Initiative is...to facilitate the identification, selection and preparation of the highest priority investment projects to address the most urgent transboundary environmental problems in the Caspian region…..It is anticipated that the [Priority Investment Portfolio] will build on ongoing project identification and priority-setting efforts underway in several of the Caspian states (e.g., NCAPs). As the Caspian states are at different stages in their planning and execution of environmental investments, it is expected that [PIPP] projects may be identified and prepared for implementation on a schedule that differs from country to country. Investment projects that meet Caspian Environment Program PIPP criteria that have already been identified (and in some cases funded) will be incorporated into the CEP [PIPP] where they have transboundary priority implications.

13. The illustrative projects outlined below fall into the general framework of the Caspian Environment Program Strategic Action Programme (SAP), which will further refine identification of priority needs and actions. Because many of the problems identified are so acute, it is important to begin addressing some of them now. The projects identified and pre-prepared under this component will be coordinated with SAP development to ensure general consistency. As described in more detail in the Project Implementation Plan, a tailored workplan will be developed in cooperation with each Caspian state to reflect accurately the needs for investment preparation, and to take advantage of previous efforts. For example, where project concepts have already been identified, emphasis will be placed on developing financing and beginning the detailed project design. Where there is a need for more work to evaluate investments needs and prioritize actions, attention will be devoted to those aspects.

14. Possibilities of Co-financing. Many of the investment needs identified through earlier NEAP or CEP efforts have a potential for co-financing or parallel funding. As one of the overall goals of this project is to leverage resources, both local and international, to the greatest extent possible, focusing on pre-identified projects where appropriate will enhance the impact of the limited GEF resources. EU (Tacis) and the World Bank are working to establish a facility for project preparation that can contribute resources for feasibility and design studies in the Tacis countries of operation. Several bilateral donor agencies have indicated that they are receptive to requests for parallel funding and co-financing of the preparation of pre-identified priority projects in the Caspian region. The participation of the IFC will enable the active consideration of private sector investments.

D. Project Subcomponents

Subcomponent No. 1 –Investment Identification and Pre-Preparation

15. Project Areas. This Subcomponent would support the identification and pre-preparation of investment projects, with emphasis on the financial feasibility and blended funding for implementation. It is expected that in the initial phase, that is, within the first year of implementation, priority investments identified under this element may address transboundary environmental issues in the following two areas: (i) industrial pollution prevention and mitigation directly affecting the Caspian waters (including pollution from the oil industry), and (ii) the recovery of sturgeon stocks and their habitat. Additional priority investment needs are expected to be identified by the Caspian states during implementation of the PIPP and conduct of the TDA. These may include investments for municipal and industrial wastewater treatment, hazardous waste management, air pollution control, protection of habitats of threatened or endangered species, safe drinking water, and others to be determined. Contracts will be established with one lead local consultant on a half-time basis in each Caspian state to assist the NFP in implementation of Subcomponent 1.

Notional Project Area No. 1— Oil Spill/Pollution Prevention of Caspian Waters

16. Potential projects under this area would include those considered both curative actions and preventive measures. Existing and potential oil pollution of the Caspian waters is a major environmental and transboundary problem. The two potential projects listed below, which have been identified by earlier efforts, illustrate the types of projects that could be included in this area. It is important to note that these projects are identified only to provide examples of the types of investments whose early preparation could be supported by the PIPP. Their inclusion in the following description implies no present commitment on the part of the countries mentioned or the Bank for funding.

• Sample Project: Capping Flooded Oil Wells in Kazakhstan. Kazakhstan faces severe environmental problems related to past development and exploitation of oil and gas resources, and is determined to limit future damages caused by new development. Identified in the NEAP developed by the Government of Kazakhstan, among other priority projects, is a project to cap flooded oil wells. Earlier oil exploration in the Atyrau Oblast has resulted in more than 300 exploratory and production oil wells that have been flooded as the water level of the Caspian rose two meters since 1978. Dikes have been ineffective, and earlier attempts to plug the wells were inadequate; these flooded oil wells are contributing to sturgeon and fish larvae destruction, and pose a great threat to the Northern Caspian waters. Full preparation of this project would require a feasibility study and design of environmentally safe well capping. Additional funds would be required for a pilot/demonstration project to cap one well and verify the process and design parameters.

• Sample Project: Developing National Oil Spill Contingency Plans in all Caspian States. The potential for a massive oil spill resulting from off-shore exploration or production activities in the Caspian is, of course, a major threat to the Caspian waters. Perhaps equally threatening would be a series of continuing smaller oil spills, which, given the residence time of oil in surface water bodies, would accumulate and cause environmental degradation to shoreline habitats. The Caspian states have taken oil spill precautions in the past and have recently renewed interest in preventive measures. In December 1998, a workshop on oil spill prevention, recovery and response was convened in Almaty. The workshop, organized by the World Bank and co-sponsored by USAID, EU-Tacis, and five oil companies/consortia, included over 200 participants from the five Caspian states, international organizations, oil industry, and non-governmental organizations. Five key recommendations emerged from the workshop:

(i) Prepare national oil spill contingency plans with a pilot project as an early start item to be done by the Republic of Kazakhstan;

(ii) Conduct joint training and exercises between the countries, with the oil companies and with other international groups and NGOs. One of the early activities could be a crisis management exercise between the oil companies and the governments to test current emergency plans;

(iii) Map sensitive areas, including social and economic installations that should be protected in the event of a major oil spill;

(iv) Develop mechanisms for cooperation between the Caspian littoral states, including bilateral and multilateral agreement across the region, and cooperative agreements with international organizations, oil spills cooperatives, and the oil companies; and

(v) Establish mutual aid organizations, including pre-approval of custom clearances and immigration requirements of oil spills specialists.

Investment projects could be developed with each Caspian state to develop a suitable oil spill contingency plans, including identification the types of equipment and infrastructure investments needed to prevent or address potential oil spills.

Notional Project Area No. 2 – Recovery of Sturgeon Stocks and Habitat

17. Potential projects under this area would be mainly considered under the category of curative actions. With the exception of Turkmenistan, each of the former Soviet States has sturgeon and other pelagic fish hatcheries that are in disrepair or are currently not functioning. Poaching, combined with a rapid increase of pollution-induced disease and the loss of spawning grounds from the construction of dams have led to the virtual collapse of Caspian sturgeon stocks. Minimal investment in these facilities would be a first step towards sustainable use of Caspian bio-resources. Investment in aquaculture of sturgeon and other species would also remove some of the pressure from the sturgeon by promoting sustainable use of other bio-resources, thus improving local incomes and reducing the pressure to poach. To develop sustainable sturgeon resources, a regional approach addressing the threats to all stages of the sturgeon’s life cycle must be developed. This approach should include national and regional action plans that identify priorities, identification of affordable investments, regional monitoring systems, and measures to reduce poaching and sustainably manage the existing stocks. The sample project listed below, is illustrative of the types of projects that could be included in this area.

• Sample Project: Reconstruction of Hatcheries and Improved Aquaculture. Because the disrepair of the hatcheries in three of the Caspian states is so serious, efforts are needed for their reconstruction as well as general improvements in aquaculture. In the Lower Volga, for example, the situation is critical. Practically no equipment repair is being undertaken; moreover, about 30 percent of the ponds (300 hectares) require deepening. An investment project to address these problems would require funds for a feasibility study to determine the scope, cost and potential partners for the investment.

Subcomponent No. 2 -- Institutional Strengthening and Training for Project Preparation

18. While the first Subcomponent of the project addresses specific priority investments that could be initiated in the short term, this Subcomponent focuses on longer term capacity building. The two Subcomponents are clearly complementary. In fact, earlier work conducted as part of the NEAPs in Kazakhstan and Azerbaijan has highlighted the need for institutional strengthening in order for relevant government organizations to succeed with long term, sustainable environmental management. As with the first Subcomponent, the identification of activities under this element will draw largely on the work of NFPs and local experts as well as from the TDA/SAP process. It is envisioned that this Subcomponent would address two main areas of institutional strengthening: (i) training on project preparation, financing, management and supervision, and (ii) training or seminars on the role of environmental investments in implementing the national policy agenda.

• Training on Project Preparation, Financing, Management and Supervision. This training would be targeted to coincide with pre-preparation activities undertaken as part of the first Subcomponent of this project. The investments envisioned under Subcomponent 1 will take considerable time to implement, and proper management of the investments is vital if the expected results are to be realized. Moreover, additional investments may be undertaken by the appropriate organizations –investments outside the scope of those funded by this project – and project management skills developed under Subcomponent 2 will be important for their success.

• Training on the Role of Environmental Investments. The training or seminars (which may include study tours and twinning arrangements) on the role of environmental investments in implementing the national policy agenda is designed to meet a macro-economic need. Too often environmental projects are rejected because they do not fit well into an overall economic plan or policy agenda. If future projects are to be funded, they must be developed with a specific focus on local and national policies and overall economic plans. By coupling national level priorities—beyond environmental priorities—with project identification activities, it is likely that more projects focusing on sustainable environmental management will be financed, and that the profile of Caspian investments will be placed high on the national policy agenda.

19. It is envisioned that both types of technical assistance can be leveraged with other sources, including bilateral and multilateral organizations. For example, EU-Tacis has supported the development of comprehensive training materials on the project cycle that can be cost-effectively adapted for use under PIPP. It is also anticipated that the World Bank Institute (WBI), which undertakes training programs in all regions where the World Bank has clients, may be able to provide course materials and instructors for this Subcomponent.

Subcomponent No. 3 – Matched Small-Grants Program for Transboundary Issues

20. This Subcomponent would establish a matched grants program to support the implementation of small demonstration or pilot projects. The small demonstration or pilot projects are in direct support of development of investment projects. As a result of the demonstration or pilot projects, it is expected that a number (on the order of 5 to 10) of the projects will develop either into larger scale investment opportunities, or projects that can be replicated in other locations around the Caspian Sea.

A purpose of this element is to advance small-scale priority projects as quickly as possible in order to take curative or preventative actions, as well as to develop the capacity for future activities. Projects funded under this Subcomponent will be highly leveraged and, because they are in line with GEF criteria by definition, they will address acute transboundary or biodiversity issues. It is envisioned that small-scale or pilot projects developed under this Subcomponent may complement projects to be identified or pre-prepared under the Subcomponent 1 of the project. Candidate projects would be in compliance with the following specific criteria:

1. All procurement meets the criteria set forth in the accompanying Project Implementation Plan (PIP);

2. The GEF grant would be generally be more than US$10,000 and limited to a maximum of US$100,000;

3. Applications for grants would be open to various sectors (governmental, non-governmental, private sector, etc.) in all five Caspian littoral countries and would be awarded based on compliance with the specified criteria;

4. 100 percent matching is provided by the applicant for each project; additional matching may include funds from third party sources;

5. The project meets pre-defined objectives as set in the PIP for this Subcomponent, which are in line with the overall objectives of this project and fully support GEF criteria;

6. The small-grants project should be implemented co-terminously with the GEF project (that is, within three years from onset); and

7. The demonstration or pilot project is replicable or expandable to a full-scale investment project.

21. Application information and evaluation criteria would be developed jointly by the World Bank, the PCU-based Project Manager, and the NFPs to guide the competitive selection process. Applications for grants would be evaluated two times a year by a committee composed of a representative of the World Bank, the PCU director, and the five NFP representatives. The Small Grants Administrator will administer the grants program and supervise the implementation of the small investment projects, assisted by project staff based at the PCU.

Subcomponent No. 4 – Project Management

22. A project of this complexity and the requirement for ongoing coordination among many parties requires a transparent mechanism for managing all substantive elements. This Subcomponent is necessary to ensure professional management, transparency and the most efficient use of resources. Three actions will be undertaken by the World Bank as part of this Subcomponent:

1. Recruit from within the Caspian states a Baku-based Project Manager at the CEP, who would be responsible for coordination among the PCU, NFPs, and CRTCs;

2. Identify and contract local and international short term consultants for investment identification and pre-preparation (Subcomponent 1) and training (Subcomponent 2); and

3. Provide professional administration of the matched small grants program (Subcomponent 3).

ANNEX II

SUBCOMPONENT WORK PLANS

Subcomponent 1.

Investment Identification and Pre-Preparation

1. Introduction. The objective of this Subcomponent is to identify and develop high priority projects for investment. Emphasis is placed on identification of investments that can show ownership by the project beneficiaries, that meet the environmental criteria for transboundary and national impact, and that are financially as well as technically feasible. The identified investments may be funded by local, national, private, or international sources, or by a combination of sources. The purpose of this Subcomponent is to take an investment concept through the identification and pre-preparation stages only, and to seek to identify additional sources of funding for the full preparation (e.g., feasibility/design studies, pilot or demonstration projects) and for project implementation. This Subcomponent does not fund the full preparation or implementation of investments.

Much work has already been undertaken to identify environmental priorities and investment needs. For example, the NFPs and local experts, National Environmental Action Plans (NEAPs), and the TDA/SAP process have contributed to the identification of priority investment needs. By and large, many of the projects already identified through such efforts are consistent with GEF criteria, as many of the problems they address focus on transboundary environmental issues. It is expected that in the initial phase of this project, priority investments may include, but would not be limited to, transboundary environmental issues in two areas:

• industrial pollution prevention and mitigation directly affecting the Caspian waters (including pollution from the oil industry),

• the recovery of sturgeon stocks and their habitat.

Potential projects may also address additional priority environmental issues that have transboundary impact and meet the other criteria for consideration under this Subcomponent. These may include, for example, investments for wastewater treatment, hazardous waste management, air pollution control, protection of habitats of threatened or endangered species, safe drinking water, bioresources management, and tools for effective environmental management.

2. Subcomponent implementation arrangements

This Subcomponent will be undertaken by the World Bank in cooperation with the Caspian NFPs. The International Finance Corporation may also participate in investment identification and pre-preparation, so that projects suitable for either private-sector or public-sector financing can be considered. Private-sector participation is encouraged. The basic steps which would be followed during the implementation of the project are as follows:

• Development of national workplans. Under the leadership of the National Focal Point and with the assistance of the Bank team, each Caspian state will review candidate investments and known environmental priorities to develop an initial national workplan, if needed, to guide actions under Subcomponent 1. This review will be coordinated by the lead local consultant retained to work with each NFP, and assisted on a regional basis by the Project Investment Specialist based at the PCU. The workplan is intended to describe in general terms the types of projects that could be considered for potential investment. The workplan should highlight all significant existing project ideas in an organized, inclusive way; it is not intended to be a separate formal study. The workplan should encompass project ideas from all sectors (i.e., national and local governments, private sector, and NGOs) and should indicate the nature and degree of ownership of the potential investment. The workplan should contain a simple identification of the general topics, geographic focus area(s) and a preliminary schedule of actions for the first year of the project.

• Consultant services. Based on the national workplans, local or international specialist consultants may be retained by World Bank to assist in investment identification and pre-preparation, according to applicable World Bank procurement guidelines. Consultants may also be retained to assist in formulation of national workplans, if needed. Consultant teams would work under the guidance and with the assistance of the lead local consultant in each country.

• Investment selection criteria. Candidate investment ideas will be pre-screened by the lead local consultant against the basic criteria, then reviewed by the PCU Investment Specialist and the Bank team, and a decision to proceed or not to proceed will be made within six months. The basic criteria to be used are to ensure that the project:

• addresses a national priority

• has a positive, transboundary impact on the Caspian environment

• is financially feasible and that potential financial sources are identified

• is socially and economically beneficial.

In addition, the following attributes are regarded as highly desirable:

• the investment mitigates an urgent threat of irreversible damage to the environment; and

• protects human health in population centers.

• Additional candidate investments. On an ongoing basis, new project “ideas” may be put forward by the National Focal Points for consideration and possible inclusion in the portfolio. This process will be coordinated by the Project Investment Specialist at the PCU. Using the same criteria as above, decisions will be made within two months of submittal.

• From identification to pre-preparation. After identification of a project is complete, further review by the NFP with guidance from the Bank team will determine if the project warrants pre-preparation status and funds. The timing of the reviews will be ad hoc. Investment project summaries will be prepared by teams of local and international consultants for the investments that are selected for pre-preparation.

• Communicating lessons learned. An annual review will be completed for all projects identified and pre-prepared, and lessons learned will be communicated to all parties so as to improve the next group of project ideas. The communication of this information should be coordinated to occur close to or during the annual Caspian Environment Program Steering Committee meetings.

• Presentation to potential investors. After projects are identified and pre-prepared satisfactorily, information will be shared with funding agencies and potential financiers who will have been identified during pre-preparation. The timing of this information sharing will be ad hoc, depending on the schedule of pre-preparation and the number of available projects; however, at least once during the duration of this project (i.e., within 3 years of onset), the World Bank (assisted by the Project Investment Specialist) will work to organize one international donors’ conference to focus on these and associated Caspian environmental investments. The Project Preparation Committee (PPC), an organization set up by the Environment for Europe ministerial process, and closely linked with the Task Force for the Implementation of the Environment Action Plan for Europe, may serve as co-organizer of the donors’ conference.

• Budget. A notional allocation of $100K per country for consultant services under Subcomponent 1 has been made for planning purposes, in addition to the allocation for lead local consultants. Actual expenditures under Subcomponent 1 will reflect the demand for investments in each country, quality of the investment portfolio, and the relative priority placed on investment preparation in each country.

Subcomponent 2.

Institutional Strengthening and Training for Project Preparation

1. Introduction. The objective of this Subcomponent is to focus on longer term capacity building in relation to project preparation. This complements the first Subcomponent of the project, which addresses specific priority investments that could be initiated in the short term. Earlier work conducted as part of NEAPs in Kazakhstan and Azerbaijan, for example, have highlighted the need for institutional strengthening if the organizations are to succeed with long term, sustainable environmental management. As with the first Subcomponent, the identification of activities under this Subcomponent will draw largely on the work of NFPs and local experts as well as from the TDA/SAP process. It is envisioned that this Subcomponent would address two main areas of institutional strengthening:

1. training on project preparation, financing, management and supervision, and

2. training or seminars on the role of environmental investments in implementing the national policy agenda.

The training on project preparation, financing, management and supervision would be targeted to coincide with pre-preparation activities undertaken as part of the first Subcomponent of this project. The investments to be identified and pre-prepared under the first Subcomponent will take considerable time to implement, and proper management of the projects is vital if the expected results are to be realized. Moreover, additional environmental investments may be undertaken by various organizations; the project management skills developed under Subcomponent two will be important for their success.

The training or seminars (which may include study tours and twinning arrangements) on the role of investments in implementing the national policy agenda is designed to meet a macro-economic need. Too often environmental projects are rejected because they do not fit well into an overall economic plan or policy agenda. If future projects are to be funded, they must be developed with a specific effort to focus on national policies and overall economic plans. By coupling national level priorities – beyond environmental priorities – with project identification activities, it is likely that more projects focusing on sustainable environmental management will be financed, and that the profile of Caspian investments will be placed high on the national policy agenda.

It is envisioned that both types of technical assistance can be leveraged with other sources, including bilateral and multilateral organizations. For example, it is anticipated that the very useful project cycle training materials developed by Tacis could be accessed for cost effective application in the Caspian region. Also, the World Bank Institute (formerly Economic Development Institute), which undertakes training programs in all regions where the World Bank has clients, may be able to provide assistance for this Subcomponent.

2. Subcomponent implementation arrangements

This Subcomponent also will be implemented by the Bank team. The rationale for this arrangement is that activities under this Subcomponent will be related to projects identified or pre-prepared under the previous Subcomponent, and the activities need to be coordinated to the greatest extent possible to ensure the best use of limited resources. The basic steps during the implementation of the project are as follows:

• Identification of training needs and participants. Within the first three months after the onset of the project, each country—through the NFPs—will suggest to the Project Investment Specialist topics for institutional strengthening and training needs related to preparing investment projects and incorporating environmental issues into economic policy. Based on these suggestions and inputs from other sources, the World Bank team will prepare a preliminary schedule of training activities, and will consult with the CEP NFPs, PCU, and CRTCs to identify specific participants. The governing rational for this preliminary schedule would be to determine which training activities can be combined, or which materials can be reused, among all countries to leverage funds to the maximum extent possible. Training topics and schedule will be decided upon by the Bank, in consultation with all relevant representatives, as soon as practical.

• Scheduling and frequency. Training activities on the project cycle and preparing investment projects will be scheduled so that there will be at least one course in each country, and each country would have 2-3 opportunities for training (i.e., training activities would be repeated in-country or provided in neighboring countries). Training activities related to incorporating environmental issues into economic policy would be scheduled once, with a possibility of one repetition. This would be designed to accommodate representatives from all five Caspian states, as it is important to share experiences and alternative methods among senior level representatives. A twinning arrangement^* at the senior level (for incorporating environmental issues into economic policy) would be explored after consultations with non-Caspian state countries.

• Types of training. Activities would only be undertaken if the possibility of replication among all Caspian states is high. To this end, activities designed to “train the trainers” would be viewed favorably as the information would be disseminated to the broadest audience possible.

• Leveraging resources. Activities that leverage other funding sources would also be viewed favorably, and every effort should be made to identify potential co-financiers for such activities. The World Bank will seek to identify additional funding sources and partners to contribute to the training activities.

• Logistics and procurement. The Bank will award contracts or grants to vendors to provide training (e.g, materials, instructors, logistical support, travel and subsistence for participants), based on World Bank procurement guidelines.

Subcomponent 3.

Matched Small-Grants Program

for transboundary issues

1. Introduction. The objective of this Subcomponent is to establish a matched grant program to support the implementation of small demonstration or pilot projects that address transboundary issues. The small demonstration or pilot projects are in direct support of development of small-scale investment projects. As a result of the demonstration or pilot projects, it is expected that a number (order of 5 to 10) of the projects will develop either into larger scale investment opportunities, or projects that can be replicated in other locations around the Caspian Sea. The projects will be developed in compliance with the following specific criteria:

1. the GEF grant would be generally be at least US$10,000 and be limited to a maximum of US$ 100,000;

2. applications for grants are open to government, private-sector, and non-governmental organizations from all five Caspian littoral countries and would be awarded based on compliance with program criteria;

3. 100% matching by the applicant is required for each project (up to 50% of the matched amount may be “in kind” goods and services); additional matching may include funds from third party sources;

4. the proposed investment meets pre-defined evaluation criteria, which are in line with the overall objectives of this project and fully support the GEF criteria;

5. joint project proposals may be prepared by applicants from two or more Caspian states;

6. the small-grants project must be implemented co-terminously with the larger GEF project (i.e., within three years from onset); and

7. the demonstration or pilot project should be replicable in other locations or expandable to a full-scale investment project.

The purpose of this Subcomponent is to advance small-scale priority projects as quickly as possible in order to take curative or preventative actions, as well as to develop the capacity for development and management future investments. Projects funded under this Subcomponent will be highly leveraged and, because they are in line with GEF criteria by definition, they will address transboundary or biodiversity issues. It is envisioned that small-scale or pilot projects developed under this Subcomponent may complement projects to be identified or pre-prepared under the first Subcomponent of this project.

2. Subcomponent implementation arrangements

This Subcomponent will be administered by an independent, third-party organization (call the Small Grants Administrator below), under contract to the World Bank on behalf of the Caspian states. The Small Grants Administrator will be selected by a tender process. The rationale for this arrangement is that administrative activities under this Subcomponent will be multiple and very specific, and the best use of limited resources would be realized if the administrating organization had substantial experience in similar programs.

The basic steps that would be followed during the implementation of the matched small grants program are:

• Application process and evaluation criteria. Standard application and evaluation criteria will be developed by the Grants Administrator in consultation with the NPFs, and finalized within three months of the onset of this project. Information about the matched small grants program, the application process, and evaluation criteria will be widely publicized by the Grants Administrator.

• Evaluation committee. An evaluation committee would be created and would be composed of a Bank team representative, a representative of the Grants Administrator, the PCU coordinator (or designate), and the five NPFs (or their designates). The evaluation committee would convene two times a year to evaluate project proposals. Decisions from the committee (which would require a quorum of five members present, and would allow for proxy voting) are to be reached by consensus and would be made available, in writing, to all interested parties, and would be rendered no later than one month after the evaluation meeting. Every attempt would be made to schedule the meetings to coincide with other CEP gatherings, such as a Steering Committee meeting. To reduce travel costs further, some meetings could be held by telephonic or video-conferencing.

• Proposal preparation and submittal. Proposals would be submitted to the PIPP coordinator at the PCU six weeks prior to the evaluation committee’s meeting. Proposals are to be as brief as possible, limited to maximum of five pages, and must be submitted in English, as well as Russian or Farsi, as appropriate, for wider distribution (see Annex E for the structure of proposals). Each project application will contain an implementation plan describing objectives, schedule, budget and anticipated outcomes.

• Funding. Each project approved by the evaluation committee would be funded as long as sufficient funds remain in the matched small grants program. A maximum of 50% of the funds available under Subcomponent 3 will be allocated for disbursement to projects approved during the first evaluation session. The Grants Administator and the World Bank will seek to identify additional funds to support the matched small grants program.

• Procurement. All procurement will be undertaken in accordance with World Bank standards and procedures. Implementation of the small grants projects will be supervised and monitored by the Grants Administrator.

Subcomponent 4.

Project Management

A project of this complexity and the need for coordination among many parties requires a transparent mechanism for managing all the substantive Subcomponents. This Subcomponent is therefore necessary to ensure transparency and the maximum benefit from limited resources. The basic steps which would be followed during the implementation of the project are as follows:

1. Recruit a Baku-based Project Manager at the Caspian Environment Program PCU, who would be responsible for coordination among the PCU, NFPs, and CRTCs. The Baku-based Project Manager would also be responsible for ensuring that opportunities for project identification, pre-preparation, and technical assistance are widely broadcast in the public and private sectors in each of the five Caspian countries. The ToR for this position is found at Annex IV.

2. Establish contracts with one lead local consultant, on a half-time basis, in each Caspian state to assist the NFP in implementation of the project. The lead local consultant will primarily support Subcomponent 1, Investment Identification and Pre-preparation, may be a firm or individual. Each NFP will present to the World Bank a short list of candidates for the half-time lead local consultants. A contract will be established by the World Bank with one lead local consultant in each Caspian state, in accordance with World Bank procurement guidelines. TORs for these individuals are listed as Annex V.

3. Identify and establish contracts with local and international consultants for investment identification (Subcomponent 1) and training (Subcomponent 2).

4. Provide professional administration of the matched small grants program (Subcomponent 3).

ANNEX III

Investment Description

Subcomponent 1 – GEF/PIPP

Caspian Environment Program

(maximum of 5 pages)

1. Country:

Location:

2. Project Title:

3. Brief Project Description: Not to exceed two paragraphs.

4. Project Sponsor (full details): Explain the ownership of the project (e.g., private company, municipality, local government, national government agency, NGO).

5. Estimated Cost and Financing (specify currency)

a. Cost b. Financing

Foreign currency Borrower/Owner

Local currency Loan

Other (specify equity investment, grant, etc.)

TOTAL TOTAL

All figures are preliminary estimates.

6. Preliminary Project Implementation Details and Schedule: Include separate description of steps for preparation, implementation and operational phases.

7. Need for Technical Assistance and Co-financing: Describe the types, amounts and potential sources of technical assistance and co-financing insofar as possible. Explain why the Sponsor other financial sources are unable to provide this support.

8. Short Description of Environmental and Social Issues: Include a discussion of the positive and negative environmental and social impacts of the project.

9. Project Objectives and Justification: Include a description of how the proposed investment meets the each of the program criteria (i.e., national priority, transboundary benefits, etc.), as well as any other relevant information such as impact on economic growth, employment generation, capacity building, and international cooperation.

10. Sponsor’s Commitment: Provide evidence of financial and/or other substantial participation by the owner of the project.

11. Other Project Relevant Issues and Information:

12. Contact Details: Name, title, phone & fax, email address.

ANNEX IV

Terms of Reference for the

PCU-Based Project Manager

for the Priority Investment Portfolio Project

A Project of this complexity requires continuous support, coordination and technical backstopping at the CEP PCU. The PCU-Based Project Manager will be recruited regionally as an NPPP to fulfill this task. Duties include:

• Coordinate and assist with the initiation and implementation of all PIPP activities, consultancies, procurement actions and Project Subcomponents.

• Assist the five National Focal Points with their work planning and implementation.

• Assist the World Bank in procurement and finance-related functions, in accordance with GEF implementing agency requirements for procurement standards and financial management and monitoring.

• Liaise with World Bank, UNDP, UNEP, EU-Tacis, the PCU and CRTCs to ensure efficient coordination.

• Assist in donor coordination activities, including active pursuit of bilateral and multilateral donor funding for feasibility studies, training support, and third-party supplemental funding for the small matched grants program.

• Support all GEF requirements for reporting and monitoring.

Reporting

The PCU-Based Project Manager will report to the World Bank Task Leader.

Qualifications Required

• Advanced degree from an internationally recognized university in environmental engineering, natural or environmental sciences, economics, policy or finance.

• At least 5 years of experience in environmental project development, research and conservation, or program design and implementation with emphasis on the following areas:

• investment project preparation

• local environmental issues, having worked within the Caspian/NIS region

• full proficiency in English and one major language of the region

• experience working with an international company, institution (e.g., World Bank, UNDP) or international NGO

• computer literacy

ANNEX V

Terms of Reference for the

Lead Local Consultant in Each of the Five Caspian States

as part of the Priority Investment Portfolio Project

While the PCU-Based Project Manager located within the PCU will be charged with overall coordination for the PIPP, it is essential that a local, knowledgeable consultant be in place in each Caspian country to assist in the identification of project opportunities. This consultant, to be employed on a half-time basis, will work closely with and support the National Focal Points in his or her respective country. The consultant may be an individual or a firm. Duties will include:

• Coordinate with and assist the NFP with the initiation and implementation of all PIPP activities in country, with particular attention to implementation of Subcomponent 1, Investment Identification and Pre-Preparation.

• Take primary responsibility for broadcasting the availability of resources of the PIPP to identify the widest possible selection of potential projects in country.

• Identify potential stakeholders benefiting from or affected by a proposed project.

• Assist in preparing descriptive investment documents (according to the specifications in Annex A of this PIP).

• Assist in identifying training and technical assistance needs in country related to investment project preparation.

Reporting

The lead local consultant will report to the World Bank Task Leader and will work closely with the National Focal Points and the Baku-based Project Manager at the PCU.

Qualifications Required

• A degree from an internationally recognized university in environmental engineering, natural or environmental sciences, environmental policy, economics, law, or finance.

• At least 2 years of experience in environmental project development, related scientific research, or program design and implementation, with emphasis on the following areas:

• project preparation,

• work experience with international organizations or firms,

• national environmental issues related to the Caspian region,

• computer literacy, and

• some proficiency in English.

• Access to modern computer equipment with email or fax capability (already made available at the Intersectoral Coordination Function –ISCF-- established by the GEF within each country)

ANNEX VI

Draft Proposal Evaluation Criteria for the

Matching Small-Grants Program

Each proposal for a project to be funded under this Subcomponent must:

• demonstrate the positive transboundary effects of the action;

• explain why the problem to be addressed by the project is identified as a high priority by the appropriate government organization;

• explain how the action will have a demonstration or pilot effect or will be undertaken with the intention of further replication or expansion;

• explain how the project will be financed, under the following conditions:

• the GEF grant Subcomponent for each project would be no less than US$ 10,000 and no more than US$100,000;

• a minimum of 100% matching by the applicant for each project (of which a maximum 50% can be for “in kind” goods or services); further matching from third party sources is encouraged;

• the financing of associated maintenance and operational expenses will be sustainable beyond the grant period;

• demonstrate that the positive environmental effect of the project will last beyond the implementation of the initial action;

• demonstrate that the action will be completed by the end of the overall project (i.e., by June 2002); and

• explain briefly how the action will conform to relevant national laws and standards; and

• describe the social impact in the affected community(ies).

ANNEX VII

Draft Application for the Matching Small-Grants Program

(maximum of 5 pages)

1. Country:

Location:

2. Project Title:

3. Project Ownership:

Explain the legal entity proposing, co-funding, sponsoring and implementing the project.

4. Project Cost and Financing

Include a table of costs for each of the project Subcomponents. Identify foreign and local costs; GEF-grant allocation; allocation of the 100% match provided by the project sponsor; provision for maintenance and operation expenses during and after the initial implementation of the project. (See sample table below)

* specify exchange rate

** list basis for valuation

***provide list of each good, services, and work procured, with local/foreign currency breakout

5. Need for Technical Assistance and/or Co-financing

Provide a detailed explanation of why the parties identified in point 3 above need outside sources of finance to implement the project.

6. Project Implementation Schedule

Provide a detailed description of activities and tasks to be undertaken, and goals/outcomes to be realized, with specific dates. Dates may go beyond the initial implementation of the project. (See sample table below)

7. Description of Project Objective and Environmental and Transboundary

Issues—Outcomes expected

Must address each criterion listed in Annex D above.

8. Other Project Relevant Issues and Information

9. Social and Environmental Impacts

10. Contact Details

ACRONYMS/ABBREVIATIONS

CAS Country Assistance Strategy

CIS Commonwealth of Independent States (of the former Soviet Union)

CITES Convention on International Trade in Endangered Species

CEP Caspian Environment Program

CRTC Caspian Regional Thematic Center

CTA Chief Technical Advisor

EIA Environmental Impact Assessment

EMS Environmental Management System

EU European Union

GEF Global Environment Facility

GIS geographic information system

GNP gross national product

ICZM Integrated Coastal Zone Management

IFC International Finance Corporation

IMO International Maritime Organization

METAP Mediterranean Environmental Technical Assistance Program

MSL mean sea level

NCAP National Caspian Action Plan

NEAP National Environmental Action Plan

NFP National Focal Point

NGOs non-governmental organizations

OECD Organization for Economic Cooperation and Development

PAD Project Appraisal Document

PC Programme Coordinator (UNOPS hire: same as CTA above)

PCU Program Coordination Unit

PHRD Policy and Human Resources Development Grant (Government of Japan)

PIP Project Implementation Plan

PIPP Priority Investment Portfolio Project

PPU Project Preparation Unit (of PCU)

PSR pressure-state-response

SAP Strategic Action Programme

Tacis EU Programme for Technical Assistance for the Commonwealth of Independent States

TDA Transboundary Diagnostic Analysis

UEIP Urgent Environmental Investment Project (Azerbaijan)

UNDP United Nations Development Programme

UNEP United Nations Environment Programme

USAID United States Agency for International Development

WMO World Meteorological Organization