Medium-sized Project Brief

Project Summary

Project Description (maximum of 5 pages)

Project Rationale and Objectives

At the November 2001 Intergovernmental Review (IGR) of the Global Programme of Action for the Protection of the Marine Environment from Land-based Activities (GPA), governments called on international financial institutions and regional banks and other international agencies to facilitate and expeditiously finance activities to implement the GPA. Governments also committed themselves to strengthen the capacity of local and national authorities with relevant financial and other resources to,”…identify and assess needs and alternative solutions to specific land-based sources of pollution, and to formulate, negotiate and implement contracts and other arrangements in partnership with the private sector.”

A key output of the IGR was the Montreal Declaration on the Protection of the Marine Environment from Land-based Activities. The declaration confirmed that the implementation of the GPA was primarily the task of governments, with regional seas programmes and other stakeholders playing an active role. Further, the countries called upon the United Nations agencies and programmes and international financial institutions, to incorporate, where appropriate, the objectives of the GPA into their respective work programmes, giving priority in the period 2002-2006 to addressing the impacts of sewage, physical alteration and destruction of habitats and nutrients on the marine environment, biodiversity and affected industries.

The proposed MSP is aimed at the very substance of the recent GPA review and Montreal Declaration, namely pollution prevention and sustainable use of marine and coastal resources through innovative partnership arrangements between the public and private sectors. At present, the status of GPA implementation in the East Asian region is quite limited. Although most countries have promulgated appropriate regulations and policies, progress in the provision of on-the-ground environmental facilities and services has been quite limited. For example, ADB lending on water projects, relative to its total lending, declined from an average of 30% in the 1980s to 16% in the 1990s. It is evident that countries of the region have not been giving priority to capital investments in environmental protection and restoration during this period, probably due to the ‘development’ focus in the early ‘90s and then the financial crisis from 1997 onwards.

But the trend appears to be changing. From 1996 or so, a variety of national policies and programmes were being developed and implemented to balance the impacts of economic growth with social development and environmental management. Furthermore, the private sector was being seen by governments in a different light, as a number of development policies referred to tripartite arrangements involving the government, civil society and the private sector. Unfortunately, the formula for engaging the private sector in developmental projects remains somewhat experimental, with too few successful stories regarding public-private partnerships, especially within the environmental sector.

There are several recognized barriers to private sector investment in environmental facilities and services in the region, including:

• Political risk and the lack of commitment and transparency of government;

• Regulatory risk due to the lack of a level playing field among existing and potential competitors (i.e., environmental protection, technical and operational standards, compliance monitoring, effective use of funds), including publicly and privately owned facilities;

• Commercial risk, due to fluctuations in currency markets and lack of loan guarantees/underwriting of private sector participation in projects by governments;

• Lack of sound projects in which to invest;

• Lack of proven tariff systems, particularly in dealing with the poor/disadvantaged groups within urban areas; and

• Bias to water supply projects in large urban areas, as opposed to projects in small and medium-sized urban areas, in rural areas and wastewater treatment/pollution control projects in general.

The principal objective of this MSP is to develop, test and prove a working model for overcoming the identified barriers. The idea is to build confidence and capacity in the use of the PPP process among public and private sectors at the local, national and international levels. The development of working models at pilot sites in the region, the formulation and dissemination of guidelines, technical materials and case studies, and the hands-on experience provided as a consequence of project implementation are designed to promote replication within countries, the region and beyond the region. Pertinent national government agencies and international organizations will be participating in the project, thereby ensuring that linkages are established with existing programs and mechanisms for extending the successful models.

The project will be incorporated into ongoing GEF-supported I-W activities that are designed to enhance national and local governance of marine and coastal resources, as well as to strengthen awareness and capacities in environmental management and partnership development. The challenges of the MSP are to integrate the public-private partnership development process as a practical, value-added component of coastal and marine resource governance, to build confidence in the process and to create products and a core of expertise that will ensure its replicability.

Current Situation

A process for identifying, promoting and developing capital investments in environmental facilities and services, through partnerships between the public and private sectors (i.e., PPP), has been developed and tested in Batangas, Philippines. However, the process, which is described in the draft guide in Annex A, is untested in other countries of the region, or under circumstances that differ from Batangas in terms of political, economic, social and environmental circumstances.

The proposed MSP will be implemented at selected pilot sites in five countries. The pilot sites will be selected from existing demonstration sites for ICM and environmental management of subregional areas/pollution hotspots. Proposed pilot sites include: 1) Bohai Sea, China; 2) Bali, Indonesia; 3) Klang, Malaysia; 4) Manila Bay, Philippines; and 5) Danang, Vietnam. Brief profiles of the sites and potential investment opportunities that will be pursued as part of the MSP project are included in Annex B. The PPP model will be tested under a variety of political, socio-economic, sectoral and environmental situations, in order to verify that its applicability under different scenarios.  The coverage of potential investments at the pilot sites in Annex B is only an early indication of some of the opportunities. In fact, other opportunities/sectors will be explored during the implementation of the PPP project at each site, with a view to pursuing those opportunities that show promise for private sector participation within the limited timeframe of the project.  The current situation at each of the sites is as follows:

The Bohai Sea Environmental Protection Declaration was signed in July 2000, bringing together the State Oceanic Administration (SOA), the Provinces of Liaoning, Shandong and Hebei, and the Municipality of Tianjin into a joint undertaking to protect and preserve the resources and environment of the Bohai Sea. Actions planned under the Declaration include the setting up of a transregional coordination organ for the integrated management of the Bohai Sea, the formulation and implementation of the Bohai Sea Management Law, and the establishment of a special fund to be used to increase public awareness and to build capacity in marine environmental protection. An MOA has been signed between SOA and IMO regarding the development and implementation of the Bohai Sea Environmental Management Project. The project is now fully operational, including a Project Management Office staffed by personnel from the central and local governments.

The Coastal Strategy for the South Eastern Coast of Bali was completed in February 2002, with a vision for a sustainable marine and coastal environment, based on the Balinese philosophy of Tri Hita Karana. The Balinese concept symbolizes three balancing elements, namely: Pariangan, a place for people connected with God; Pawongan, a place for people to get in touch with people; and Palemahan, a place for people to interrelate with their environment. Among the desired outcomes identified in the Coastal Strategy are the establishment of effective environmental pollution control systems and well-managed marine and coastal ecosystems. The strategies and action programmes identified in the Coastal Strategy are being operationalized as part of the Bali National ICM Demonstration Project, coordinated by the Provincial Government’s environmental agency, BAPEDALDA.

The Klang National ICM Demonstration Site was initiated in 2001 with the signing of an MOA between the Selangor State Government and IMO. A Project Management Office has been set up in the Selangor Waters Management Authority of the State Government, staffed by government personnel. The Klang Coastal Strategy, which is currently undergoing a series of consultations with the various mainland and island communities within the project boundary, as well as central government agencies, the private sector and NGO groups, is focused on overcoming conflicting uses of marine and coastal resources of the area, as well as the clean-up of two major rivers discharging into the Klang coastal environment.

The Manila Bay Declaration was signed in October 2001 by more than 100 officials representing the National Congress, national government agencies, provincial governments, cities, municipalities, the private sector, NGOs, UN and other international agencies, financial institutions, media and academe. The Declaration commits the signatories to individually and collectively implement the Manila Bay Coastal Strategy (September 2001), to address the complex administrative, social, economic and environmental issues concerning sustainable development and management of the bay and its resources. The strategies and action programmes identified in the Coastal Strategy are being developed and implemented as part of the Manila Bay Environmental Management Project, which is coordinated by the Philippine Department of Environment and Natural Resources.

The Coastal Strategy of Danang City emphasizes the balance between economic benefits from sustainable use of the coastal resources and maintenance of ecological values. To achieve this balance, the Coastal Strategy includes action programmes focused on conservation and restoration of biodiversity, protection of ecosystems, environment, human health and society from risks caused by natural disasters and human activities, and development of opportunities that contribute to economic prosperity while protecting the environment and preserving the ecological values of Danang. The Coastal Strategy was adopted by the People’s Committee of Danang Municipality in December 2001, and is currently being implemented as part of the Danang National ICM Demonstration Project, coordinated by the Danang Department of Science, Technology and Environment.

Expected Project Outcomes and Assumptions

The project will address barriers to public-private sector partnerships for developing and implementing environmental facilities and services in pollution prevention and sustainable use of marine and coastal resources. By conducting on-the-ground trials at selected pilot sites, working at local government and at intergovernmental levels, the project will demonstrate how constraints, manifested under a variety of operating scenarios, can be overcome by responsible parties through application of the PPP procedure. The ultimate goal of the MSP is the build confidence among concerned sectors for PPP as a viable means of financing and sustaining environmental facilities and services, while verifying a practical, transparent methodology for putting partnerships together. The principal outcomes of the project will be:

1. a tested set of guidelines, training materials and case studies on public-private sector partnerships, which will be employed by national and local government planners and decision-makers in implementing sustainable environmental management programs;

2. good practices in national policies and instruments that are conducive to sustainable financing, operation and management of environmental facilities and services, including financing strategies, revenue collection, revenue sharing and cost recovery, the development of borrowing capacities of municipalities and partnerships with the private sector;

3. acceptance of the PPP process as an alternative delivery system by IFIs, national development agencies and financial institutions, commercial banks and investors, thereby enabling PPP ventures to access loans, loan guarantees and other forms of financing, internationally, regionally and nationally; and

4. transfer and replication of the PPP methodology to other sites in the region, and to other regions.

The principal assumptions behind the project and the evidence to support them are as follows:

1. there is interest and support for the development and transfer of innovative arrangements for engaging the private sector in solving environmental problems, and specifically land-based sources of pollution and sustainable use of marine and coastal resources. Governments at the November 2001 Intergovernmental Review of the Global Programme of Action confirmed their interest in private sector partnerships, and committed themselves to strengthen their capacities in this area.

2. governments of the region are willing to make changes to create a policy and investment climate that is conducive to private sector ventures in the environmental sector. Since the late 1990’s, national governments of the region have developed and implemented a number of policies, laws and economic instruments that signal a balanced approach to economic development and environmental management. What appear to be lacking are the practical experience and a proven working model for attracting the private sector to environmental investments, particularly for small and medium-sized investment projects.

3. local government units, local private sector, community groups and NGOs have the capacity and commitment to work together to identify investment projects that will benefit the environment, as well as create social and economic opportunities for the community, including women and the poor. Coastal strategies have been developed/are under development at the selected pilot sites. The process for coastal strategy development includes awareness building, consultation and mobilization of all sectors of society, culminating in the development of a shared vision for the coastal area. Action programmes within the coastal strategies identify the roles and responsibilities of government, the private sector and civil society in moving toward the shared goals. The result at each pilot site is a core of committed stakeholders, willing to work individually and collectively to benefit their community and their environment.

4. international investors, operating companies and the global business community are interested in enhancing private sector investment in the environmental sector and will buy-into the PPP process. The GEF WFEO/FIDIC CEO Dialogue on International Waters, June 2001, confirmed the desire of the business sector to overcome the barriers to investments and urged the development of projects designed to demonstrate public-private partnership arrangements. Similarly, the UNEP/World Bank Workshop on Promoting Sustainable Financing for the Protection of the Marine Environment from Land-based Activities, July 2001, concluded that there is considerable potential in mobilizing private sector skills to assist in the development of innovative solutions to environmental problems, and that countries and local authorities and communities need to develop skills and expertise to create and maintain partnerships with the private sector. These two events confirmed that the private sector recognizes its corporate responsibility and role in environmental management programmes, at the local, national and global levels. A key challenge of the PPP process is to identify, package and promote investment opportunities that are attractive to the private sector. Private sector ‘buy-in’ to the PPP process entails the commitment to fund the detailed feasibility study of the investment opportunity. PEMSEA’s experience in Batangas has supported this approach (Annex C), but it is recognized that, because of the developmental nature of the PPP process, there is a risk.

5. the project will produce a tested working model for PPP development with wider applicability than the pilot sites themselves. The pilot sites vary in terms of geographic, political, social, economic, cultural and environmental characteristics. The working model will be thoroughly tested, refined and verified at the completion of the project.

6. the approach will be transferred/adopted to other sites and countries in the region, and elsewhere. Appropriate training materials and resource documents will be prepared and disseminated. In addition, a core of expertise will be developed locally, nationally and internationally, through hands-on experience in the project implementation. This core of expertise will serve as trainers and implementers of the PPP methodology among the participating countries of the region and outside the region.

Without the project, the development of environmental management programmes in the region will continue to be very much dependent on the financial, technical and management capabilities of national and local governments, and the assistance provided by international agencies and donor organizations. It is evident that this approach cannot keep pace with the social, economic and environmental changes that are occurring in the region, nor do they necessarily lead to self-reliance and self-sustainability. Consequently, a new paradigm is called for, one that moves the private sector from conventional roles as consultants, construction contractors and equipment suppliers, to a full partner in a long-term, self-sustaining environmental management operation.

Activities and Financial Inputs needed to enable changes

The MSP project will involve selected pilot sites in the region (Annex B). Other sites will be considered for inclusion in the MSP as part of a capacity building component (see component 4, below), including sites from other GEF I-W projects in the region.

The major components of the MSP will be:

1. A Project Steering Committee (PSC) will be established, comprised of representatives from the participating countries, UNDP, IFIs, UNEP/GPA Secretariat and the international business sector, such as the World Federation of Engineering Organizations (WFEO) or the International Federation of Consulting Engineers (FIDIC). The PSC will be responsible for the overall guidance of the project, while PEMSEA and the Project Management Offices at each pilot site will be responsible for the day-to-day operation of the project. Three PSC meetings will be held during the course of the project. The first will be held at the start of the project, to discuss the manner in which the project will be implemented, the links with ongoing activities within countries and the region, and the roles of PEMSEA, the Project Management Offices and other partners contributing to the project, including the private sector partners. The second meeting will be held in conjunction with an Investors Round Table, tentatively scheduled for July 2003. The meeting will review the progress of the project, with members participating/observing the activities and outputs from the Round Table, and evaluating the methodologies being used. The final meeting will be at project completion, and will include an evaluation of the final outputs, dissemination of materials and replication of the PPP methodology elsewhere (Budget allocation GEF $60,000).

At the pilot site level, a local multi-sectoral committee will be established to oversee the development, implementation and coordination of project activities among stakeholders. In addition, a coordinator and two technical staff will be assigned by the local governments to implement related project activities at the local level. The local coordinator and staff will interact directly with the PPP Technical Officer (Budget allocation 5 pilot sites @ $15,000; GEF $7,500; total cost $82,500).

The PPP Technical Officer will be based in the RPO of PEMSEA in the Philippines, and will be supported by one secretary and one part-time Administration/Financial Officer (Budget allocation GEF $203,500; Government of the Philippines $4,000; total cost $207,500).

Monitoring and evaluation of the project will be completed in accordance with reporting requirements identified in this document, including one evaluation mission by an external evaluator (Budget allocation GEF $15,000).

2. Apply the PPP working model at the selected pilot sites in the region. There are three stages to the PPP development process:

Stage 1 is the identification of investment opportunities and building awareness among local stakeholders. This stage includes:

• identifying priority environmental concerns of the area (Budget allocation 5 pilot sites @ $2,000; total cost $10,000);

• assessing/strengthening the policy and institutional environment, at the local and national levels (Budget allocation 5 pilot sites @ $2,000; total cost $10,000);

• determining potential investment opportunities, relative to priority environmental problems and the people’s perspective on benefits to be derived from such investments (Budget allocation 5 pilot sites x 3 = 15 local consultative workshops @ $1,500; total cost $22,500)

• conducting pre-feasibility studies, as an early cut to assess the technical, financial and economic soundness of potential investments (Budget allocation GEF 5 studies @ $25,000; total cost $125,000);

• completing contingent valuation surveys, to get an indication of the benefit/cost relationship of the proposed investment(s), as appreciated by the public (Budget allocation GEF 5 studies @ $10,000; total cost $50,000);

• implementing a public awareness and mobilization campaign, designed to engage local government units, the private sector and civil society in the PPP process (Budget allocation 5 pilot sites @ $17,000; total cost $85,000); and

• forging agreements among local government units, local industry, the private sector, and representative groups of civil society, which spell out the respective roles and responsibilities of local stakeholders in achieving a sustainable environmental management system for the area, including capital investments in facilities and services using public-private partnership arrangements (Budget allocation 5 pilot sites @ $2,000; total cost $10,000).

Stage 2 is development, packaging and promotion of investment opportunities. This stage includes:

• packaging information from Stage 1 into consolidated briefs (i.e., Opportunity Briefs), which describe the sites, the identified investment opportunities, the policy and institutional environment, the results of the pre-feasibility studies, the perceived risks, local stakeholders’ willingness-to-pay for changes in social, economic and environmental conditions, local partnership arrangements, and concrete commitments by local governments, industry, the private sector and civil society to the PPP process (Budget allocation 5 pilot sites @ $2,000; total cost $10,000);

• disseminating the Opportunity Briefs to national and international networks of operating companies, contractors, investment groups, financial institutions and donors through an Internet web-page, which allows interested investors to browse and ask questions about identified projects;

• organizing a Round Table for interested investors, during which local governments/stakeholders will present and discuss their investment projects, the technical, management and/or financial inputs being sought from a private sector partner, the process for selecting a partner, the partnership development procedure and the political, economic and environmental policies that are in place to reduce political, regulatory and commercial risk for potential investors (Budget allocation GEF $50,000; total cost $50,000);

• inviting interested operating companies, investors and contractors to submit expressions of interest for the identified projects, including pre-qualifying information on the company/investment group; and

• promoting a PPP project pipeline to national and international financial institutions, thereby linking domestic, private, IFI and donor financing mechanisms and arrangements, in support of local PPP projects.

Stage 3 involves the development of the partnership arrangement. In Stage 3, the assumption is made that only three of the original five investment opportunities will proceed to selection of private sector partners and contractual arrangements. This stage includes:

• selecting a private partner from among interested operating companies, investors and/or contractors (Budget allocation 3 pilot sites @ 4,000; total cost $12,000);

• negotiating a Memorandum of Agreement between the public and private sectors regarding roles, responsibilities, obligations and commitments to the PPP development process (Budget allocation GEF 3 MOAs @ 15,000; total cost $45,000);

• completing a detailed feasibility study of the investment project (Budget allocation Private sector 3 sites @ 100,000; total cost $300,000);

• conducting social, economic and environmental assessments of the investment project, with the participation of civil society, including communities in the immediate vicinity of the project (Budget allocation Private sector 3 sites @ $35,000; total cost $105,000);

• formulating a financial and business plan (Budget allocation Private sector 3 sites @ $25,000; total cost $75,000);

• negotiating the contractual agreement/PPP arrangement between the public and private sector (Budget allocation GEF 3 sites @ $5,000; Private sector 3 sites @ $20,000;total cost $75,000); and

• setting up the corporation/mixed ownership operating company to implement the project (Budget allocation Private sector 3 sites @ 10,000; total cost $30,000).

Further details on the PPP process may be found in Annex A.

3) Establish a global network of operating companies, investment groups, contractors and foundations with interests/capacities in the development of environmental facilities and services in the East Asian Seas region (Budget allocation GEF $150,000). The work will entail:

• identifying operating companies, contractors and investor groups within the region and globally, with the skills, capacity and track record to be part of a global PPP initiative;

• defining the objectives, strategy, procedures, format, content, linkages, obligations and benefits of a global network;

• promoting the PPP process to the global group, and soliciting interest to participate in a global network;

• establishing a prospectus on the global network, including geographic regions, sectors and projects of interest to the network, basic information requirements, willingness to participate in Round Tables, and key decision points for PPP ‘buy-in’;

• developing guidelines and/or standards for PPP development and implementation in consultation with IFIs, national financial institutions, international organizations and the business sector for use by the global network in PPP projects;

• formulating standard contractual agreements for use by governments and the private sector in PPP projects;

• putting in place a fee system designed to sustain the operation of the global network and to support local governments to develop PPP pipeline projects.

This component will proceed in parallel to Activity 2. The global investors network will require assistance and input from the business community, UNDP, UNEP and World Bank.  The idea is tap into the existing networks with 'teasers' on investment opportunities that are available at the five pilot sites.  Interested parties will be invited to the first Investors Round Table, for further discussion/details on the investment opportunities, explanations of the PPP process, and a proposal to establish a PPP network as a link between PPP project developers (i.e., national and local governments) and private sector investors/operating companies.

The proposed fee system could take many forms, such as a subscription fee to the network, a user fee for accessing 'opportunity briefs' on investment opportunities, a finder's fee for successfully being selected as a private sector partner, and/or various combinations  thereof.  

4. Develop and implement a capacity building program that will strengthen the capabilities of local governments and the private sector to develop PPP pipeline projects, to implement public-private partnership arrangements and to leverage investments by governments and the private sector in environmental facilities and services. The capacity building program will involve:

• developing and conducting (5 local workshops) a PPP training programme and producing disseminating relevant resource materials (i.e., guidelines; case studies/good practices; financing strategies) aimed at national stakeholders in the public and private sectors (Budget allocation GEF $60,000);

• providing hands-on experience to PPP trainees, by developing a series of PPP pipeline projects that will be implemented as part of ongoing I-W projects in the region (one regional workshop), and/or submitted as proposals to GEF and the donor community for financial assistance (Budget allocation GEF $50,000);

• implementing the UNEP/FIDIC/ICLEI Urban Environmental Management training program, to strengthen confidence in the environmental management systems (EMS) of local governments, relative to internationally recognized EMS standards (Budget allocation GEF $70,000); and

• formulating regional certification standards for the ICM framework and process that are consistent with internationally recognized standards and developing a system of accredited auditors/auditing programs for local government ICM certification (Budget allocation GEF $25,000).

Capacity building activities are planned at the local, national and regional levels to build awareness, understanding and confidence in the PPP process. Local level consultations and workshops will focus on awareness building in environmental issues, socioeconomic implications and the PPP process as an alternative delivery mechanism. National and regional workshops will concentrate on transferring the information and lessons from the pilot sites, creating a policy environment conducive to local government and private sector investment in environmental facilities and services, and the establishment of a PPP pipeline to financing programs.  The national and regional trainings will also be linked to PEMSEA’s Regional Network of Local Governments.  This network consists of local governments in the region that have adopted and are practicing an ICM/environmental management system for managing marine and coastal resources within their respective areas of jurisdiction.  Annual meetings are sponsored by network members, and the possibility of a regional training session being implemented back-to-back with an RNLG meeting, or other regional event, will be explored.

The regional training workshops will involve representatives from various regional GEF projects, national programmes, etc.  The training workshop will be aimed at participants wishing to develop PPP projects in their respective areas, and the training modules will provide the skills to initiate PPP activities.  Outputs from the workshop may include, for example, preliminary analyses of potential investment opportunities (i.e., PPP pipeline projects), an action plan for pursuing the PPP process, and a scheduled future Investors Round Table (6 to 9 months following the training workshop).  The Investor's Round Table will need to be sponsored and coordinated by a recognized entity, such as a UNDP Office, a GEF project, or other regional mechanism/programme.  The project will pursue an appropriate sponsor for such an event.

The EMS training programme/certification standard is designed to build confidence among local governments and among potential partners and investors that the local environmental governance system meets regionally or internationally recognized standards.  Such recognition will send a message to local stakeholders that they are on a path to sustainable development, while potential partners and investors will see evidence of political commitment to reducing/eliminating risks to environmental investments.

It is envisaged that representatives of the international private sector and business community will play a strong role throughout the development and verification of the PPP methodology. In addition to participating on the PSC for the project (Activity 1), other activities requiring private sector participation and contribution include:

• identification of national consulting engineers in participating countries for PPP development activities, including prefeasibility studies, opportunity briefs, socio-economic evaluations, etc. (Activity 2);

• formulation of standards for contractual agreements between the public and private sectors, for use at various stages of the PPP process, and for different PPP arrangements (e.g., concessionaire; joint venture; BOT/ROT; BOO) (Activity 2);

• development of national/global networks of operating companies and investors, interested in the PPP approach and willing to operate within a ‘PPP code of ethics’ (Activity 3);

• training of public and private sector representatives, at the local and national levels, on the PPP process, the development of PPP pipeline projects, and the certification of local governments in environmental management systems (Activity 4); and

• confirmation of the PPP process as an acceptable alternative to tendering and bidding procedures, to ensure that PPP projects will be eligible for loans and/or loan guarantees from financial institutions (Activity 4).

Sustainability Analysis and Risk Assessment

The project is aimed at building confidence and capacity in PPP as a viable means of financing and sustaining environmental facilities and services for pollution prevention and sustainable use of marine and coastal resources. To achieve sustainability, the project focuses on three main concerns, namely:

1. strengthening the capacities of local stakeholders (i.e., governments, civil society and the local private sector) to identify, build consensus on, and develop investment opportunities that will be attractive to the private sector, and to create a policy and investment climate that is conducive to such investments;

2. establishing networks of investors, operating companies and business organizations at the national and international levels that are interested in developments in the environmental sector, and are willing to participate in the PPP process;

3. confirming the PPP methodology as an acceptable alternative delivery mechanism for private sector participation in environmental projects, thereby assuring access to financing from investors, IFIs, national financial institutions and international agencies.

Upon completion of the project, there will be a number of products and services that will ensure the sustainability of the PPP process, namely:

• at least three pilot sites in the region that will serve as working models/case studies for other interested parties to learn from;

• a core of experience and expertise, at the local, national and international levels to serve as trainers and/or implementers of the PPP process at other sites within and outside of the region;

• guidelines and training materials for use in building capacity in PPP; and

• a network of international and national financial institutions and development agencies, with interests in the development of a PPP pipeline to technical assistance and financing programmes.

Project risks include:

1. Lack of commitment of governments to engage the private sector in partnership arrangements. Each of the selected pilot sites has already indicated a desire to develop innovative partnership arrangements with the private sector, as part of their respective coastal strategies and/or stakeholder declarations. The proposed MSP will provide the methodology and technical assistance that are necessary in order to build national and local capabilities in forging public-private partnerships that are economically, socially and environmentally beneficial to local stakeholders.

2. The timeframe for the project is limited, given the challenges that need to be addressed. The two-year timeframe is based on past experience in developing the investment project in Batangas (Annex C). It is therefore believed that the three stages of the PPP process can be achieved within the designated period. In addition, early analysis of project opportunities at each of the pilot sites indicates the potential for formulation of attractive investments. Should unforeseen difficulties arise, resulting in delays in implementation, the project allows for slippage for implementation of the Stage 1 and Stage 3 activities in the PPP process.

3. The barriers to private sector investment cannot be overcome due to lack of capacity or willingness. This risk is directly related to the two previously identified risks. However, by being selective in the pilot sites where the project will be implemented, the risk is reduced substantially. It is recognized that the national and local governments involved in the project have already taken measures and/or have expressed a willingness to develop policies and incentive programmes to attract investors. Furthermore, the ICM and environmental management programmes that are currently underway at the selected pilot sites are tackling institutional arrangements and mechanisms that support the participation of civil society and the private sector in environmental decision-making and management activities. Therefore, barriers to private sector investment that are within the ambit of governments and local stakeholders, are being addressed as part of ongoing environmental management programmes at the selected pilot sites. Other barriers, outside the control of local stakeholders, will be addressed as part of the MSP in conjunction with the private sector and/or potential investors.

4. The governments do not have sufficient financing to provide the required counterpart support for the MSP. At all pilot sites, the participating governments, either national, local or both, have pledged financial and in-kind support to the development of environmental investments in their area. Furthermore, as part of the PPP methodology, governments will be further engaged to identify concrete forms of commitment to the proposed project, as part of a Letter of Intent (Stage1). The concrete commitments may be in the form of a financial obligation to developing the investment, in-kind contribution, equity commitment in the form of land, equipment or services, access rights, etc., depending on the nature of the project. This approach ensures that the public sector is transparent about its ‘buy-in’ to the investment and is serious in its effort to attract an interested private sector partner.

e) The private sector is unwilling to finance the feasibility study:   A key challenge of the PPP process to identify, package and promote investment opportunities that are attractive to the private sector. Private sector ‘buy-in’ to the PPP process entails the commitment to fund the detailed feasibility study of the investment opportunity. Experience in Batangas has supported this approach (Annex C), but it is recognized that, because of the developmental nature of the PPP process, there is a recognized risk.

Stakeholder Involvement and Social Assessment

The ICM and environmental management programmes being implemented at the selected pilot sites entail extensive consultations among all pertinent stakeholders on a ‘shared vision’ for the area. For example, the Manila Bay Coastal Strategy was formulated as a consequence of more than 25 consultative workshops around the entire bay, including community groups, fisherfolks, religious organizations, women’s associations, NGOs, private sector and local and national governments. Similar consultative processes were implemented in Bali, Danang, Klang and Bohai Sea areas.

The result is a strategic document outlining the long-term goals for the site, as agreed by multi-sectoral stakeholders in the area. The goals are based on the social, cultural, ecological and economic values that the surrounding communities recognize, and wish to sustain or recover. The multi-sectoral groups also identify threats that are perceived to be the greatest risks to sustainable use of the area’s resources, including conflicting uses among stakeholders, and the resulting impacts on society, including the poor, as a consequence of degradation and loss of natural assets.

The development components of the coastal strategies respectively identify areas or issues where development will not only address environmental concerns, but also serve to benefit the community, and marginalized groups within communities, by creating employment, alternative livelihoods, food security, property rights, and so on. For example, the Danang Coastal Strategy promotes ecotourism, increasing people’s access to coastal resources and putting in place amenities that protect social, cultural, environmental and historical values that bring benefit to the community.

In addition to the coastal strategy, each pilot site has also undergone an environmental risk assessment, in which scientific and technical data on the site are systematically analyzed by the local scientific/technical community, with support from the Regional Programme Office, to identify priority areas of concern from ecological, human health and economic perspectives. Risk assessment provides a comparative analysis of existing and potential hazards in the area, the environmental pathways to target organisms/populations, the changes that have occurred over time and the impact that these changes have, or will have, on society.

By combining the results of the coastal strategy and the environmental risk assessment, each site is able to ascertain management interventions that have public support and will result in substantial benefit to the community, directly and indirectly. It is through this process that investment opportunities are identified at the pilot sites, for inclusion in the PPP undertaking.

Incremental cost assessment

It is estimated that the total required annual investment needs for environmental services in developing countries is somewhere between $80 and $180 billion dollars over the next 25 years, 70% of which is needed for wastewater treatment, pollution prevention, nutrient reduction and water reuse/recycling. To put this figure into perspective, from 1968 through 1999, ADB implemented a total of 437 water-related projects, financing a total of $15.7 billion. As of March 2001, ADB had loaned $4.4 billion for water supply and sanitation projects to member countries, with China (19%), Philippines (17.4%), Thailand (12.1%), RO Korea (11%), Indonesia (7.3%), Vietnam (5.4%), Malaysia (4.9%) and Cambodia (0.5%) accounting for 78.5% of the total loans. Yet, 850 million people in Asia still lack access to safe drinking water. Recent reports¹ suggest that there is a huge market for water and sanitation projects in the region. But privatization and investment by the private sector in water and sanitation projects seriously lags behind regional investments in the power and telecommunications industries. Barriers to private sector investment are not being successfully bridged at the global level either, with less than 10% of the total investment in environmental facilities and services coming from the private sector.

At each of the pilot sites a number of environmental investments have been proposed. In the case of Bohai Sea, the central government has programmed financial support in the order of $1 billion over the next five years for environmental management and improvement projects. The Government of Danang has identified a $41 million sewage treatment project, $31 million of which will be supported by a loan from World Bank. In Bali, funds have been earmarked funds for a $20 million solid waste management facility and another $15 million for sewage treatment. In Manila, more than $200 million in water supply and sanitation investments, septage treatment and a shore reception facility are in the pipeline. The Klang River Clean-up Project, with a total investment of $101.8 million, is a priority project of the Malaysian Government, including a $26.3 million loan agreement with ADB. These figures indicate the total cost of existing baseline activities at the pilot sites is in excess of $1.3 billion.

The proposed MSP complements the above-mentioned baseline costs. The incremental financing provided by GEF will serve as leverage to promote local proponents’ involvement in the development and application of an alternative project delivery mechanism. This is not to suggest that national and local sources of financing for the aforementioned baseline activities will in any way be reduced or eliminated. On the contrary, the PPP process is designed to ensure that access to national and local financing is maximized, thereby reducing commercial risks associated with foreign exchange. What the MSP will do, however, is encourage early involvement of a selected private sector partner/investor, who will work with local proponents in developing, designing, financing, constructing and operating facilities and services, that meet the needs of the community, are self-sustaining and are affordable.

Governments at the selected pilot sites have identified a willingness to provide counterpart support (in cash and in kind) for the development and testing of the PPP working model in their areas. The proposed GEF input for this project is US$1,000,000, of a total cost of $1,808,500. The balance will be provided by the national and local governments at the selected pilot sites ($238,500), through in-kind and in-cash contributions to the development and implementation of the project, and by the private sector partners who are selected by local stakeholders to participate in the environmental investment projects ($570,000).

Budget

Implementation plan

The project will be coordinated by the Regional Programme Office of PEMSEA. Two PPP Technical Officers will be contracted to provide technical support to the pilot sites in the development and implementation of the PPP process, as well as organizing related training programmes, documentation of case studies and good practices, and monitoring and evaluation activities. The Senior Programme Officer of PEMSEA will be responsible for integrating the ongoing activities of the Regional Programme with those of the MSP to avoid duplication of effort and ensure efficient use of available human and financial resources at the local, national and regional levels. The Regional Programme Director of PEMSEA will oversee the project implementation, and promote the outputs from the MSP initiative to national governments and to regional and international organizations and agencies as part of a financing strategy for sustainable environmental management.

Each pilot site will have a Project Management Office (PMO) and will assign one part-time coordinator and two part-time support staff to develop and implement the PPP project with local stakeholders. The RPO will be responsible for training and development of local staff. One national training workshop and three local consultative workshops will be held at each pilot site, to build support and understanding for the PPP projects.

One regional PPP training workshop will be conducted during the course of the project. The workshops will be scheduled in parallel to planned activities/events in the region in order to reduce costs. In addition, one regional training programme will be conducted on the implementation of an Environmental Management System and certification programme at the local government level, organized and implemented in collaboration with PEMSEA’s Regional Network of Local Governments, UNEP, ICLEI and FIDIC.

Workplan

Duration of Project in Months: 24 Estimated Start-Up Date: March 2003	Project Months
Activities	0-6 months 6 -12 months 12-18 months 18-24 months
Completion of Activities: Project Steering Committee meetings PPP process applied at selected pilot sites Stage 1: Public awareness/consensus building at pilot sites, including consultative workshops, prefeasibility studies, contingent valuation surveys and Letters of Intent. Stage 2: Packaging and promotion of investment opportunities, including organization and implementation of an Investors Round Table. Stage 3: Development/negotiation of partnership arrangements, including completion of MOAs, detailed feasibility studies, financial/business plans, and contractual agreements Global network of operating companies, investment groups, contractors and foundations developed and operationalized Network of companies, associations and investor groups identified and solicited for interest in PPP Network members participates in first Investor’s Round Table Guidelines/codes of conduct developed/agreed among network members Self-sustaining global network established/operationalized Capacity building programme developed and implemented Local/national PPP training workshops (5) conducted at each pilot site Regional PPP training workshop conducted in conjunction with regional event programme Regional training workshop on EMS development and certification conducted Regional certification standard and process developed and adopted by PEMSEA’s RNLG Monitoring and Evaluation	-------] 3 months --------------------] 6 months [--------- --------------------- --------------------- --------] 3 months [------ ---------------------	------------------ -------] 6 months [--------- ---------------------- -------] 9 months [----------- ---------------------- ----------------------	---]15 months----- ---------------------- ---------------------] 18 months ---------------------] 9 months [-------] 3 months [-------] 3 months --------] 12 months ----------------------	----------------] 23 months ------] 12 months [-------------------] 6 months -------------------

Monitoring and evaluation plan

The project will be monitored by the Programme Steering Committee (PSC). The project will measure its achievements through the key performance indicators identified in the project brief. In addition, monitoring reports will be compiled on a quarterly basis and submitted to UNDP and the members of the PSC. An annual progress report and Project Implementation Review (APR/PIR) will also be prepared and submitted to GEF, UNDP and the members of the PSC. The quarterly report (QOR) will review what has been achieved (according to agreed priorities) over the past quarter and look ahead to the upcoming quarter in accordance with the planned programme of work.

A project terminal report will be prepared for consideration at the final PSC meeting. It shall be prepared in draft sufficiently in advance to allow review by PSC members, UNDP and IMO prior to the PSC review.

In accordance with UNDP and GEF requirements the project will be subject to annual audits and also annual Tripartite Review (TPR), which would involve a policy-level meeting of the parties directly involved in the project. It will assess the progress of the project and take decisions on recommendations to improve the design and implementation of the project in order to achieve the expected results.

An amount of US$15,000 has been identified for the project evaluation, which will occur mid-way through the project.

Public involvement plan

Stakeholder identification

The key stakeholders are the participating national governments of the East Asian Seas region, the local government units, private sector and civil society groups at each selected pilot site, an international network of investors and operating companies, GEF, UNDP, UNEP and the IMO. Among civil society groups, the project will include NGOs and community groups working at the local level, whose programmes address environmental and/or socio-economic issues, such as alternative livelihoods, gender mainstreaming, education, health, indigenous communities and poverty.

Information Dissemination and Consultation

National training workshops will be conducted at each pilot site to identify and promote national and local involvement and understanding of the PPP process and the roles of each level of government. The workshops will include key government agencies and departments with responsibilities in environment, resource management, economic development, finance, health, tourism, industry, transportation and foreign affairs, as appropriate. One major regional training PPP workshop is proposed, at which participating countries of the region, GEF I-W Project Managers, local government units and interested intergovernmental regional bodies, international organizations and private sector groups will be invited. In addition, a regional training workshop on EMS development and certification of local government units will be conducted. Both regional workshops will be organized in collaboration with PEMSEA’s Regional Network of Local Governments and other regional/international groups.

At the local level, three multisectoral consultative workshops will be conducted at each pilot site to build awareness and consensus on environmental investments and the PPP process. The workshops will build upon the network of community groups, NGOs, private sector and local government units that have been established at the ICM and subregional seas/hotspots sites. The principal outcome of these workshops will be formal agreements among the stakeholder groups on the process for implementing the investment projects (i.e. PPP), the respective roles of each stakeholder group in the projects, and concrete commitments by the stakeholders in support of the projects.

Stakeholder participation

Each of the project sites has established a multi-sectoral body responsible for overseeing the development and implementation of their respective ICM/environmental management programmes. Membership in the bodies includes: Governor, Vice Governor or Municipal Mayors (serving as the Chair), provincial planning, development and environmental departments, municipal planning and operating departments, representatives from local communities, community-based or people’s organizations, local universities, technical/research institutions, industrial associations, tourism associations and the media.

Other stakeholders will be involved in the consultative workshops planned at each site, as well as at the national and regional levels, including national government departments, regional bodies and international organizations and institutions.

Social and Participation Issues

Each of the pilot project sites has completed, or is in the process of completing, a coastal strategy for their particular coastal and sea area. The coastal strategy is developed and adopted through stakeholder consultation/participation process. Socio-economic concerns and considerations are brought into the consultations by local community members. Each strategy considers marginalized groups within the community, including women, children, indigenous communities and the poor, and how development projects can be planned and implemented with lasting benefits to these people. The coastal strategies serve as a guide to environmental investment opportunities, and the basis for civil society participation and evaluation of progress in achieving the objectives of the community.