FI

ASIAN DEVELOPMENT BANK RRP: INO 32176

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

REPUBLIC OF INDONESIA

FOR THE

CORAL REEF REHABILITATION AND MANAGEMENT PROJECT

PHASE II

November 2002

CURRENCY EQUIVALENTS (as of 31 October 2002)

Currency Unit - rupiah (Rp)

Rp1.00 = $0.000108 $1.00 = Rp9,240

ABBREVIATIONS

ADB – Asian Development Bank AusAID – Australian Agency for International Development BAKORKAMLA – National Coordination Board for Sea Security BANGDA – Ministry of Home Affairs BAPPEDA – Badan Perencanaan Pembangunan Derah

(Regional Development Planning Agency) BAPPENAS – Badan Perencanaan Pembangunan Nasional

(National Development Planning Agency) BPD – badan perwakilan desa (village representative forum) BME – benefit monitoring and evaluation CBM – community-based management CBO – community-based organization CRITC – coral reef information and training center CRMP – coastal resource management plan/coral reef management

plan DGAF – Directorate General of Aquaculture Fisheries DGCF – Directorate General of Capture Fisheries DGCSI – Directorate General of Coasts and Small Islands DGMRFC – Directorate General of Marine Resources and Fisheries

Controlling EA – executing agency EIRR – economic internal rate of return FIRR – financial internal rate of return ha – hectare HRD – human resources development IA – implementing agency km2 – square kilometer IDT – Inpres Desa Tertinggal LCB – local competitive bidding LIPI – Indonesian Institute of Sciences MCSIS – monitoring, control, and surveillance information system MMAF – Ministry of Marine Affairs and Fisheries MOF – Ministry of Finance NGO – nongovernment organization NSC – national steering committee NTC – national technical committee PIU – project implementation unit PMO – project management office PROPENAS – Program Pembangunan Nasional 2001–2005

(Medium-term Development Program) RAC – regional advisory committee

RPIU – regional project implementation unit SOE – statement of expenditure

GLOSSARY OF TERMS

bupati – mayor desa – village dinas Kelautan Dan Perikanan

– provincial/district Marine Affairs and Fisheries Service

kabupaten – district kepala desa – village head pokmas – village group perda – village regulation punen – religious/spiritual laws unit desa – village banking structure

NOTE

In this report, "$" refers to US dollars.

This Report was prepared by a team consisting of W. Zhou, Senior Agriculture and Natural Resources Management Specialist and Mission Leader; S. Sahajananthan, Environment Specialist; P. Spantigati, Project Economist; B. Alimov, Economist; A. Goswami, Senior Counsel; Y. Kobayashi, Senior Project Implementation Officer, IRM; and F. Ahmed, Financial Management Specialist, IRM.

CONTENTS

Page

LOAN AND PROJECT SUMMARY i MAP vii I. THE PROPOSAL 1 II. BACKGROUND 1

A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 1

III. THE PROPOSED PROJECT 3 A. Objectives 4 B. Components and Outputs 4 C. Special Features 9 D. Cost Estimates 9 E. Financing Plan 10 F. Implementation Arrangements 11

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 15 A. Financial and Economic Analysis 15 B. Social Measures and Impact on Poverty 16 C. Environment 17 D. Risks 17

V. ASSURANCES 18 VI. RECOMMENDATION 20 APPENDIXES 1. Project Framework 21 2. Sector Analysis 26 3. ADB-Financed Loan and Technical Assistance Projects in the Sector 29 4. Project Area 30 5. Cost Estimates and Financing Plan 32 6. Project Organization 33 7. Project Implementation Schedule 34 8. Indicative Contract Packages 36 9. Outline Terms of Reference for Consulting Services 37 10. Flow of Funds 39 11. Financial and Economic Analysis 40 12. Summary Poverty Reduction and Social Strategy 44 13. Summary Initial Environmental Examination 46 SUPPLEMENTARY APPENDIXES (available on request) A. Project Area B. Coastal Resource Management Plan Formulation Process C. Community Development and Inputs Assistance Program D. Detailed Cost Estimates and Financing Plan E. Detailed Terms of Reference of Consultants F. Economic Analysis

G. Summary Poverty and Social Strategy H. Indigenous People’s Development Framework I. Gender and Development Action Plan J. Summary Initial Environment Examination

LOAN AND PROJECT SUMMARY Borrower Republic of Indonesia Classification Core poverty intervention

Thematic: Environmental protection; human development Environment Assessment

Category B: An initial environmental examination was carried out during project preparation. The summary is a core appendix.

Project Description The Project is the second of a three-phase comprehensive, 15-

year program funded by several financing institutions for the rehabilitation and management of coral reefs in Indonesia. Incorporating lessons learned from Phase I, Loan 1613-INO: Coral Reef Rehabilitation and Management Project, the Project will adopt a holistic approach to the management of coastal resources, particularly coral reefs and associated ecosystems. The Project will focus on a few key provinces where the costs of delaying, and the benefits from expediting, such a project are greatest. The Project will follow a participatory process by which coastal communities will organize themselves, with the assistance of local governments and project facilitators; identify their specific needs; and plan and implement their community-specific resource management and livelihood programs based on their perceived needs.

Rationale Indonesia’s coral reefs form the key ecosystem on which the

majority of the coastal inhabitants rely for food, income generation, construction materials, and coastal protection. The Indonesian coastal and marine sector is beset with a number of problems. Foremost among these are the two critical and interrelated issues of resource degradation and the pervasive poverty among coastal communities. A rapid social assessment of coastal villages in the targeted project districts found that 65–83% of the population in the proposed project sites live below the national poverty line and are deprived of basic social amenities and services like potable water supply, sewerage and sanitation, and health and education. In these areas, the extensive coral reefs and associated ecosystems are subject to continuing threats from natural processes and from human activities, including destructive and illegal fishing, sand mining, and coral mining. In addition, the coastal and marine sector continues to suffer from policy, legal, and institutional constraints. Phase I has successfully developed and established a comprehensive framework and program of national policy, monitoring, control and surveillance, public awareness, information and monitoring, and research in support of coral reef management and monitoring. The proposed Project will build on these and promote sustainable management of coral reef resources, and thereby reduce poverty.

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Objectives The Project will (i) enhance the national and local capacity to

manage the country’s coral reef resources and (ii) rehabilitate and effectively manage priority coral reef ecosystems, thereby helping raise income levels and improving living standards among poor coastal communities. The Project will be implemented in six districts in three provinces, namely (i) Kota Batam, Kepulauan Riau, and Natuna in Riau Province; (ii) Nias and Tapanuli Tengah in North Sumatra Province; and (iii) Mentawai in West Sumatra Province. It will comprise two major components: (i) institutional strengthening and project management and (ii) community-based resource management and development. The first component will comprise (i) strengthening of national and regional institutions in policy, strategy, and guideline formulation and resource planning and management; (ii) establishment and strengthening of a network of coral reef information and training centers (CRITCs); (iii) human resources development (HRD) and extension; and (iv) project management. The second component will involve (i) community empowerment, (ii) community resource management, (iii) community social services and infrastructure development, and (iv) community livelihood and income generation.

Cost Estimates The total project cost, including service charge and contingencies,

is estimated at $41.25 million equivalent, comprising a foreign exchange component of $8.27 million (20% of total cost) and a local currency cost of $32.98 million equivalent (80% of total cost). The estimates include a provision for $0.92 million equivalent in taxes and duties.

Financing Plan The Asian Development Bank (ADB) loan of $33 million

equivalent (80% of the total project cost) will finance the entire foreign exchange cost of $8.27 million and a portion of the local currency cost amounting to $24.73 million (75% of total local costs). The remaining local currency cost of $8.75 million will be financed by the Government and project beneficiaries. The government contribution will come from the central Government and the governments of the three provinces and six districts. Beneficiaries’ contribution will be in the form of labor for community-based law enforcement, construction and improvement of various small-scale infrastructure facilities and access roads, and livelihood development activities.

Loan Amount and Terms A loan of $33 million will be provided from ADB’s Special Funds

resources (SDR 25,004,000). The loan will have a 32-year term, including a grace period of 8 years, an interest charge of 1% per annum on principal amount disbursed during the grace period and 1.5% per annum thereafter, and such other terms and conditions set forth in the draft Loan Agreement.

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Estimated Project Completion Date

30 June 2009

Implementation Arrangements

The Project will be implemented by four directorates general under the Ministry of Marine Affairs and Fisheries (MMAF): (i) Coasts and Small Islands (DGCSI), (ii) Capture Fisheries, (iii) Aquaculture, and (iv) Marine Resource and Fisheries Controlling. A project management office (PMO) will be set up within DGCSI, with a qualified full-time project director, to oversee the day-to-day implementation of the Project. The Indonesian Institute of Sciences (LIPI) will be the national implementing agency for research, information, monitoring, and training on coral reef management. The PMO established in LIPI during Phase I Project will be converted into a national project implementation unit. Six regional project implementation units will be set up, one in each project district, to oversee and coordinate field-level implementation. An interagency national steering committee (NSC) will be established to guide the overall direction of the Project and ensure overall coordination of activities between the Project and other government programs and projects. The NSC will be supported by a national technical committee, whose chairperson will serve as NSC secretary. A regional advisory committee (RAC) will be established in each project province to oversee project coordination between various implementing agencies (IAs) at the local level and liaise with the NSC as required.

Executing Agency Ministry of Marine Affairs and Fisheries (MMAF) Procurement All services, supplies, and equipment to be financed by ADB will

be procured in accordance with the ADB Guidelines for Procurement. All goods to be purchased through local competitive bidding will be procured in accordance with Government procedures acceptable to ADB. Equipment and materials for packages valued at $500,000 or more will be procured through international competitive bidding procedures. Some supply contracts estimated to cost less than $500,000 and certain specialized items will be procured using international shopping procedures. Minor items of equipment and materials costing less than $100,000 will be procured through direct purchase. The civil works packages are estimated to cost less than $1 million each and will therefore be awarded on the basis of local competitive bidding procedures among prequalified contractors, in accordance with the Government’s standard procurement procedures acceptable to ADB.

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Consulting Services International and domestic consultants will be engaged through an international consulting firm in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements acceptable to ADB for the engagement of domestic consultants. A total of 534 person-months of consulting services, consisting of 54 international and 480 domestic person-months, will be required for effective project implementation. The consultants will support the PMO and the project implementation units in two broad areas: (i) project management and (ii) technical advice in specific areas like coral reef management, community monitoring, control and surveillance, community development, policy planning, training and extension, database management, and public communications.

Project Benefits and Beneficiaries

The Project will benefit coastal communities in six districts through increased employment at the community and district levels and improved living conditions and standards of coastal residents. It will target, as its primary beneficiaries, those households composed mainly of small fishers, fish farmers, fish processors, and workers in the fishing industry and allied fields. Training of community-based organizations in better resource management will improve the productive capacity of the coastal communities, and transform the fishers among them into responsible resource users and managers. Local fishers will be provided with alternative income through specific fishery-related skills training, which will help prevent them from using destructive and illegal means of fishing. Increased income and greater access to basic social infrastructure facilities and services will improve health and nutrition and raise the living standards of the communities. As women will be involved in these various activities, the improvements will have a direct impact on their families’ socioeconomic status, health, and general well-being. The Project will result in substantial environmental benefits in the form of (i) an increase in live coral cover in areas previously bombed or mined and a resulting increase in the abundance of commercially important reef resources such as reef fish, turtles, bêches-de-mer, giant clams, trochus shells, pearls, and other mollusks such as cone shells and cowries; and (ii) a reduction in the extent of coral reef degradation. In addition, the Project is expected to produce nonquantifiable benefits arising from planning and policy development, institutional strengthening, and community resource management and development.

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Risks and Assumptions The project risks that could adversely affect project implementation and the attainment of project objectives include: (i) the slow growth of corals that could delay the realization of project targets; (ii) institutional inadequacies in the Executing Agency and IAs, as well as community-based organizations and the communities themselves, for their roles in coastal resource management; (iii) uncertainties emanating from the evolving decentralization process and institutional arrangements at the provincial and district levels; (iv) persistence of nonadaptive, control-based attitudes on the part of national government agencies; and (v) government limitations in providing adequate financial and human resources for continued implementation of project activities and facilities beyond the term of the Project. Mitigating measures and specific assurances to address these risks have been included in the project design.

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the Republic of Indonesia for the Coral Reef Rehabilitation and Management Project Phase II (the Project).1

II. BACKGROUND

A. Performance Indicators and Analysis

2. Indonesia is the world’s largest archipelagic nation, with more than 17,000 islands and 81,000 kilometers (km) of coastline. Its coastal and marine waters cover an area of 5.8 million square kilometers (km2), comprising 3.1 million km2 of territorial and archipelagic seas and 2.7 million km2 of exclusive economic zones. The coastal zone is a highly productive ecosystem that serves as an important base for the country’s economic growth. Coastal habitats play an important role in the daily lives of the people in terms of livelihood, economic output, and food production. Over 55% of the national fishery harvest comes from capture fisheries in coastal areas. Some of the richest areas of biodiversity are found in the coastal zone of the country, and include coral reefs, mangrove swamps, seagrass beds, lagoons, and estuaries. Indonesia’s coastal zone is home to 2,500 species of mollusks, 2,000 species of crustaceans, six species of sea turtles, 30 species of marine mammals, and over 2,000 species of fish. With its 70 genera and 450 species of corals covering 42,000 km2 (or 16.5% of the global area of coral reefs), Indonesia is the coral biodiversity center of the world. 3. Indonesia’s coral reefs form the key ecosystem on which the majority of the coastal inhabitants of the country rely for food, income generation, construction materials, and coastal protection. They are also of critical significance for science, education, pharmaceuticals, and global conservation and heritage. Healthy reefs can produce marine products worth $15,000 per km2 per year, and are an important source of food and economic opportunities for about 67,500 coastal villages. Coastal and marine economic activities have been estimated to account for some 25–30% of Indonesia’s gross domestic product and provide employment to about 20 million people. The reefs also play an important role in marine-based tourism and in providing white sand for beaches. The tourism value of coral reefs has been estimated at $3,000 per km2 per year in low potential areas to $500,000 per km2 per year in high potential sites. Fringing coral reefs also play key roles in dissipating wave energy, thereby protecting coastal lands from storms and wave erosion. The net benefits of coastal protection are estimated at $15,000–120,000 per km2 of reef, depending on the value of the infrastructure. B. Analysis of Key Problems and Opportunities

4. The Indonesian coastal and marine resources sector suffers from policy, legal, and institutional constraints affecting resource management in the coastal areas. The National Coral Reef Policy drafted under Phase I Project is yet to be operationalized at the regional level. The Spatial Planning Act 24/1992, which provides the framework and legal basis for natural resources planning and resource allocation, needs to be amended for consistency with the provisions of recent laws on decentralization. Law 22/1999 on Regional Governance and Law 25/1999 on Financial Balance between the Central and Regional Governments have added new

1 The Asian Development Bank (ADB) provided funds to the Coral Reef Rehabilitation and Management Project

Phase I (Loan 1613-INO) as well as an attached technical assistance grant (TA 3001-INO) to design the proposed investment project. The project framework for the proposed Project is in Appendix 1.

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dimensions to governance and natural resources planning and management.2 The lack of institutional capacity and preparedness of many local governments for the required tasks could exacerbate the problems of resource degradation. 5. There is, thus, an urgent need to strengthen the institutional capacity of provincial and district governments in participatory resource planning and management to enable them to exercise their newly mandated authority and responsibility in resource management. The BAPPEDAs (regional development planning agencies), at the provincial and district levels, and other provincial and district agencies, need strengthening to equip them for their significantly greater planning functions and role. It is also necessary to continue support for national initiatives in sector planning, information management, networking, and intersector coordination. As the jurisdiction for marine waters beyond the 12-nautical mile boundary remains with the central Government, continuing technical and financial support needs to be extended to concerned sector agencies to enable them to carry out national-level sector planning and policy formulation for appropriate resource management. 6. As resource degradation is exacerbated by the extreme poverty of artisan (small-scale) fishers, who engage in fishing as a livelihood of last resort, it is necessary to improve their income-earning potential and retrain them to undertake alternative livelihood activities so that they avoid destructive fishing practice. Viable livelihood activities in coastal areas and small islands have to be developed/introduced specifically for small-scale fishers. Local resource rights also have to be strengthened to ensure that investment benefits flow to the communities. 7. To address the foregoing identified needs and constraints, the proposed Project will be implemented in three provinces3 where areas have been identified as having high poverty incidence and high-priority coral reefs. The Project supports the Government’s priority on poverty reduction in coastal communities and the shift in focus from resource utilization to resource protection, conservation, and sustainable management. Although the sector issues today are basically the same as they were when Phase I Project was designed, the environment for resource management and project implementation has improved significantly as a result of a number of recent developments, including (i) enactment of Laws 22 and 25; (ii) formulation of a National Coral Reef Policy and a supporting National Coral Reef Strategy under Phase I of the Project; (iii) creation of Ministry of Marine Affairs and Fisheries (MMAF); (iv) heightened public awareness of the importance and benefits of coral reef resource conservation; and (v) stronger political will on the part of public officials to address institutional, regulatory, and enforcement issues that plagued coral reef management in the past. 8. The Project will be the second of three phases of a multiyear initiative funded by multiple agencies4 to strengthen the management and conservation of Indonesia’s coral reefs and

2 Law 22/1999 on Regional Governance calls for the devolution of jurisdiction over living and nonliving coastal

resources out to the territorial limits of 12 nautical miles from the low tide line to provincial and district governments.

3 Five other provinces have been provisionally identified for possible funding under a World Bank/Global Environment Facility loan, namely, Southeast Sulawesi, South Sulawesi, North Sulawesi, Maluku, and Papua.

4 Phase I is cofinanced by the World Bank, Global Environment Facility, and ADB. Parallel financing is provided by the Australian Agency for International Development (AusAID), which joined the Project after the approval of the Project by the World Bank and ADB. The combined investment of these agencies in Phase I (1998–2002) is approximately $23 million; the Government invested about $8 million. Phase I will be completed by October 2003.

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associated ecosystems.5 An independent evaluation of Phase I6 showed that the Project had successfully developed and established a comprehensive framework and programs of national policy; monitoring, control, and surveillance; public awareness; information and monitoring; and research in support of coral reef management. Specifically, the assessment indicated (i) a very high level of community involvement in coral reef resource management in the project areas, resulting in a significant reduction in illegal and destructive fishing and coral mining in most of the project sites by more than 50% in some cases; (ii) greater public awareness of the importance of coral reef resource management; and (iii) stronger political will for coastal resource management and poverty reduction at all levels of government. 9. However, the limited geographic coverage of Phase I has resulted in limited impacts on altering coral reef use patterns or on improving institutional effectiveness to coordinate coral reef management. This is because of (i) limited resources available for community-based management (CBM) and alternative income-generating activities; (ii) the lack of a supportive legal framework and weak enforcement of regulations; (iii) fragmented field implementation due to lack of cohesiveness between project components; (iv) the lack of a strategic approach and capacity in local government agencies to meet their enhanced role under the Law 22/1999 for coastal resource management; and (v) inadequate provision of basic social services and few tangible returns to poor coastal communities. 10. Other lessons from Phase I include the following: (i) coral reef protection cannot be successful unless there is a strong legal and enforcement regime; (ii) a balance must be achieved between activities aimed purely at reef conservation and those targeting improvements in the quality of life of the communities; (iii) a broader ecosystem-based approach to address coral reef and biodiversity conservation is more effective than narrowly focused interventions; (iv) community improvement should emphasize sustainable socioeconomic activities that promote alternative livelihood, and social infrastructure projects should conserve resources, improve public health, or reduce pollution; and (v) considerable flexibility should be allowed in tailoring programs to the very diverse cultural, socioeconomic, and biophysical conditions in different localities in Indonesia. 11. Incorporating lessons from Phase I and other similar funding agency-assisted projects in the sector,7 the Project will be cohesive in its design. The Project will adopt a holistic approach to coastal resource management and provide poor coastal communities with basic social services, social infrastructure, and income-generating opportunities to balance environmental and resource management with socioeconomic development. It will place heavy emphasis on the active participation of project beneficiaries, local government institutions, and nongovernment organizations (NGOs) in the planning and implementation of resource management programs. 12. The Project is in line with the Government’s current Medium-term Development Program 2001–2005 (PROPENAS) and the Guidelines of State Policy (1999–2004). It will assist the Government’s poverty reduction thrust, which gives priority to developing income-generating activities in the coastal zone and small islands, particularly for small-scale fishers. The Project

5 The Project was planned for implementation in three phases over 15 years. Phase I, the Initiation Phase,

consisted of intensive resource rehabilitation and management activities in four pilot sites (Riau, South Sulawesi, Irian Jaya, and Nusa Tenggara Timur) as well as national-level activities aimed at establishing a viable policy and legal framework and strategy for coral reef management. Phases II and III, each to be implemented over a 6-year period, are intended to be the Acceleration Phase and Expansion Phase, respectively.

6 The International Union for the Conservation of Nature (IUCN) conducted the evaluation of Phase I in June 2002. 7 See Appendix 3 for more information on recent external assistance to the sector.

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likewise supports the overarching poverty reduction goal of the Asian Development Bank (ADB) and its country and sector strategies8 and is complementary to ongoing projects funded by ADB and other external agencies aimed at benefiting coral reefs, either at the local or regional level.9 It is also supportive of government-funded poverty reduction programs, including the Inpres Desa Tertinggal (IDT)10 implemented in a number of coastal villages in the country.

III. THE PROPOSED PROJECT

A. Objectives

13. The proposed Project is the second phase of a national coral reef rehabilitation and management program whose overall goals are healthy coral reef ecosystems and prosperous coastal communities. The objectives of the Project are to (i) enhance the national and local capacity to manage the country’s coral reef resources and (ii) rehabilitate and effectively manage priority coral reef ecosystems, thereby raising income levels and improving living standards among poor coastal communities. The Project will be implemented in six districts in three provinces. These districts are: (i) Kota Batam, Kepulauan Riau, and Natuna in Riau; (ii) Nias and Tapanuli Tengah in North Sumatra; and (iii) Mentawai in West Sumatra. These priority districts contain more than 300,000 hectares (ha) of inshore coral reefs, representing some 98% of the total reefs in the three provinces. They also have at least 450 coastal villages, of which about 87% have adjacent reefs and depend predominantly on fisheries for their livelihood. In each district, core sites for CBM will be selected, based on agreed selection criteria (Appendix 4). B. Components and Outputs

14. The Project will comprise two major components: (i) institutional strengthening and project management and (ii) community-based resource management and development. The first component will comprise (i) strengthening of national and regional institutions in policy, strategy, and guideline formulation and resource planning and management; (ii) establishment and strengthening of a network of coral reef information and training centers (CRITCs); (iii) human resources development (HRD) and extension; and (iv) project management support. The second component will include (i) community empowerment, (ii) community resource management, (iii) community social services and infrastructure development, and (iv) community livelihood and income generation.

1. Institutional Strengthening and Project Management

15. The Project will aim at (i) strengthening national and regional public sector institutions responsible for coral reef management in the areas of coral reef policy and strategy formulation and planning; (ii) supporting the establishment of a network of CRITCs that will enable 8 ADB’s Country Strategy and Program (2003-2005) for Indonesia includes environmental management and human

and social development. Within this framework, ADB’s assistance to the marine and coastal sector of Indonesia focuses on (i) resource evaluation, planning, and sustainable management; (ii) environmental protection and social development; (iii) human resources development; and (iv) support for decentralized resource management.

9 These include the (i) Coastal Community Development and Fisheries Resource Management Project (Loans: 1570/1571 [SF]-INO); (ii) Marine and Coastal Resources Management Project (Loan 1770 [SF]-INO); (iii) USAID-funded Natural Resources Management Project; (iv) Strategy Study for Marine and Coastal Resources Use and Coastal Environmental Management funded by the Canadian International Development Agency; and (v) the Nature Conservancy-supported pilot project at the marine park within the Komodo National Park.

10 The IDT program for poverty reduction covers around 28,000 IDT villages and has funds amounting to about Rp520 billion per year.

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networking, information sharing/exchange, and technical direction and coordination across project sites, between the national center and the regional centers, and between the national center and other government agencies implementing similar projects; and (iii) equipping the project executing and implementing agencies, NGOs, and project beneficiaries with the skills required for effective project implementation.

a. Strengthening of National and Regional Government Institutions

16. National, regional, and local government agencies will be assisted in the development of policies, strategies, guidelines, and regulations for sustainable coral reef utilization and management, particularly in light of the devolution of coastal resource management functions to the regional governments. At the national level, the Project will strengthen the policy-making, planning, and regulatory functions of MMAF and its concerned directorates. Training and technical support will be provided to other concerned ministries, such as Environment, Forestry, Home Affairs, Tourism and Culture, Education, and the Navy. It will also support policy development work in other sector agencies, including BAPPENAS (National Development Planning Agency), which has jurisdiction over marine parks. 17. The Project will support each target province and district government in the review and development of an appropriate regional policy and legal framework for sustainable coral reef use and protection. The regional CRITCs and regional project implementation units (RPIUs), will assist regional governments in (i) reviewing existing laws, regulations, and traditional rights and practices on coral reef management, (ii) determining the need to amend existing laws or relevant regulations to promote more effective enforcement or to enact new laws consistent with national guidelines on coral reef management and/or to recognize traditional rights, and (iii) drafting required legal amendments or enacting new laws for sustainable coral reef management. To improve law enforcement, the Project will assist regional governments in (i) developing appropriate mechanisms for interagency coordination, (ii) institutionalizing procedures and practices for transparency and participation in decision-making processes for resource allocation and management, and (iii) implementing regulatory and other related functions that have been devolved to them by virtue of Law 22. 18. Each participating district will formulate a marine action strategy and a corresponding coral reef management plan (CRMP) that will include a district spatial plan to guide the allocation of marine resources.11 The marine action strategy and CRMP will be prepared through a participatory process that will involve the local communities and will be facilitated by NGOs, fishery extension workers, and other extension services. The planning process will be based on the findings of a prior rapid resource and ecological assessment conducted by the Indonesian Institute of Sciences (LIPI) or academic and research institutions. CRMPs will include pilot activities intended to address identified priority issues and opportunities, including community-based monitoring, control, and surveillance to address issues of destructive and illegal fishing. 19. The regional governments will be assisted by MMAF and project management office (PMO) consultants in the establishment of marine management areas and the conduct of community-based enforcement and compliance at selected sites in target districts. Marine management areas will be co-management areas aimed at a more effective management of issues common to neighboring villages as well as external issues such as sand mining, trawling, and biodiversity conservation. Marine management areas will encompass the local marine 11 See Supplementary Appendix B for the CRM planning process and plan framework.

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areas of several villages and could extend to up to 25,000 ha. Marine management areas will be identified, delineated, and pilot-tested in each target district. Under the overall supervision of MMAF and the regional governments, with support from the sector agencies, regional governments will organize and manage the various activities involved in marine management area establishment and local enforcement and compliance. The MMAF and regional CRITCs will assist in the conduct of field assessment activities and liaison between the community, local government, and the communities. They will also assist in the conduct of marine management area training activities and provision of technical advice, and will organize co-management of local enforcement and compliance activities, including joint local patrols and reef watchers.

b. Network of Coral Reef Information and Training Centers

20. The network of CRITCs established in Phase I will organize and link technical programs in support of coral reef protection and management and ensure appropriate technical direction, support, and integration of approaches and actions. The CRITCs will support each others’ programs by sharing resources and results, and by exchanging information and lessons as well as successful tools, strategies, and methodologies. 21. Research. The Project will provide funds for national and local research in support of coral reef management and livelihood development using research expertise available in the country. The national research program will be carried out by LIPI, MMAF, or other academic and research institutions, or consortia of public and private organizations under the overall direction and supervision of the national CRITC. At the regional level, research activities will be conducted under the supervision of the regional CRITCs with support from the national CRITC/LIPI, as required. Research studies to be commissioned by the national CRITC, through the project implementation unit at LIPI (PIU-LIPI), will include strategic studies of national significance such as those associated with policy development, biotechnology, climate change, fish stocks, trade in corals, trawling, biodiversity, and pollution. Research will focus on studies with practical application in CBM, including coral reef ecology, ecological surveys of project sites, and socioeconomic surveys of target communities. 22. Benefit Monitoring and Evaluation (BME). LIPI will oversee the extension of the BME system and the Coral Reef Spatial Information System developed under Phase I to the Phase II districts and target sites to facilitate the evaluation of project impacts/benefits. BME will focus on quarterly creel surveys, semiannual reef health surveys, and socioeconomic surveys conducted every 3 years, each providing feedback to communities and partner organizations on the progress of project implementation. The national CRITC will play a key role in aggregating selected data to provide a “report card” on the state of coral reef ecosystems and resource use activities every 3 years. The regional CRITCs will coordinate and maintain local information management systems required for BME with the participation of village groups/associations and in conjunction with local government agencies, research/academic institutes, and NGOs. They will also establish and develop BME for the Project’s field operations and the associated Coral Reef Spatial Information System, and provide technical advice and training to local agencies in the use of these systems. 23. Information Management. The national CRITC will be set up as the national reference point or clearinghouse for up-to-date information on coral reef management in the country. It will provide technical support and guidance to the regional CRITCs in database development, maintenance, and reporting, and collaborate with them in the development of an integrated information strategy and system design that will facilitate the flow and exchange of information between project locations and programs and with partner organizations. At each regional

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CRITC, an information unit will be set up to house a library and documentation center. The regional CRITCs will coordinate and maintain local information management systems with an emphasis on collation, packaging, and dissemination of technical information to the managers involved in national and district-wide planning, pilot initiatives, and CBM.

c. Human Resources Development and Extension

24. HRD and Training. The Project will develop an HRD program for MMAF, LIPI, and regional agencies (such as dinas Kelautan Dan Perikanan [provincial/district Marine Affairs and Fisheries Service] and BAPPEDA). The HRD program will be developed by senior management of MMAF/Directorate General of Coasts and Small Islands (DGCSI) and PMO with inputs from LIPI, the regional governments, and the RPIUs, and with the assistance of an international institutional development specialist. Districts with high degrees of ethnicity and remoteness will be given priority by the Project’s HRD and capacity-building programs. The Project will support a wide range of national- and local-level training and village development. A master training plan will be drawn up by MMAF/PMO and LIPI/PIU to be implemented by concerned government agencies or contracted out to suitable local and international academic institutes, private consulting firms, or NGOs. Training contractors will be engaged by MMAF/PMO for sector-related training or by LIPI/PIU for CRITC-related training.12 25. The local training programs will consist of short courses, training workshops/seminars, exchange visits or study tours, and overseas and in-country fellowships. Training will cover a broad range of subjects, including (i) management skills and systems, including participatory techniques, policy development, project planning and management, monitoring, recording and reporting, and database and information management; (ii) marine resource management, including legal and regulatory aspects, spatial planning, strategy development, CBM, environmental impact assessment, resource conservation and sustainable use, and species protection; and (iii) community and social development, including microenterprise development, financial management, and community empowerment. 26. Extension. The PMO will develop a comprehensive extension program to (i) equip local resource users and managers in coral reef management, (ii) strengthen coastal communities to master technical skills for livelihood development and income generation, (iii) disseminate the results of CBM activities undertaken by the Project in target districts, and (iv) promote and facilitate additional investment by the private sector in successful microenterprises pilot-tested at the core sites. The extension program, which will systematically target priority groups in each district, will be implemented in cooperation or collaboration with regional sector agencies or existing government extension programs in the project sites. The RPIUs will be responsible for coordinating the delivery of extension services by extension personnel from the dinas Kelautan Dan Perikanan and other regional government agencies, with the assistance of NGOs involved in community empowerment activities.

d. Project Management Support

27. Management support will be provided to ensure timely and effective implementation of project activities, as well as the cost-efficient utilization of funds and other project resources. Project management support will comprise (i) operations of a PMO in MMAF, an NPIU in LIPI, 12 The training plan will include (i) areas for training, diploma, and degree programs to be selected; proposed

institutions; and duration of training; (ii) the justification for selecting international institutions for short-term study visits and the proposed competitive selection criteria for local training institutes and international academic institutions; and (iii) trainee selection criteria and proposed trainees.

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and RPIUs in the six project districts; (ii) provision of specialist support through international consulting firms and associated domestic consultants; (iii) engagement of NGOs, local academic and research institutes, and other contractors to carry out various project activities; (iv) provision of equipment, vehicles, and supplies and materials; and (v) setting up of accounting, monitoring, and reporting systems.

2. Community-Based Resource Management and Development

28. Community Empowerment. The RPIUs will contract the services of NGOs and/or academic institutions to assist in organizing, training, and empowering the local communities at the project sites for coral reef management, and social and livelihood development.13 The NGOs will carry out social preparation and community organizing activities and facilitate participatory planning and decision making at the village level within the framework of an overall marine action strategy to ensure the consistency of interventions with project goals. They will also assist the village government in establishing a village representative forum (badan perwakilan desa or BPD) or similar equivalent institutions, where none exists, and organize pokmas to serve as their counterparts in project implementation. Finally, the NGOs, jointly with government extension personnel, will provide training and technical/administrative support to the pokmas and other community groups to develop their capacity to organize, manage, and administer CBM and livelihood activities. 29. Community Resource Management. The Project will support local communities in the management and use of their natural resources through a series of activities in the implementation of CRMPs (para. 18). The CRMPs will be developed by the communities, with the assistance of NGOs and RPIUs, and will contain recommended site-specific resource management strategies and corresponding CBM programs. The CRMPs, once approved by the local government, will be implemented by the pokmas and other local stakeholders under the overall supervision of the BPD and with assistance from the concerned RPIUs. 30. Community Social Services and Infrastructure Development. The Project will provide selected villages with assistance for village and community development projects to improve community welfare, health and sanitation, and education. Potential village development projects include (i) basic services such as potable water supply, solid waste management and sanitation facilities, primary health facilities, and support to primary schools; (ii) basic infrastructure development like pathways, boat moorings, jetties, site and boundary markers, and village meeting places; and (iii) community environmental protection, rehabilitation, and enhancement projects such as soil erosion control, village tree planting, and mangrove restoration. The specific social services and infrastructure facilities to be provided to the target villages will depend on the identified needs of the local communities, as gauged through socioeconomic and needs assessment surveys conducted by NGO contractors.14 31. Community Livelihood and Income Generation. NGOs and government extension staff will work closely with BPD and pokmas to assist the communities in upgrading their socioeconomic status. More specifically, NGOs and extension workers will (i) assist the

13 NGOs will be selected based on criteria including (i) geographic experience, (ii) work experience, (iii) technical and

financial capacity, (iv) longevity, (v) recognition, (vi) gender orientation and experience in applying participatory approaches, and (vii) ethical practices. Out of two facilitators per village, one will be a woman.

14 As the envisaged social infrastructure facilities are of a small scale and will be established on public land, no resettlement problems are anticipated. Nevertheless, PMO will develop detailed selection criteria for the location and type of facilities or interventions proposed for establishment to prevent resettlement-related problems during project implementation.

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organized groups or interested private individuals in identifying, developing, pilot-testing, and implementing microenterprises and other livelihood opportunities in the area;15 (ii) provide the organized community groups with extensive technical support services, including skills training and extension, in particular, to transform them into microentrepreneurs; (iii) promote group savings mobilization; (iv) link potential borrowers to existing microfinancing schemes that could be tapped for identified income-generating projects; and (v) provide marketing assistance and linkages with input suppliers and output buyers. 32. NGOs or other training contractors will provide training to the organized community groups and interested individuals in credit management, entrepreneurial skills, and business management and operation. The NGOs will also disseminate information on existing microcredit schemes in the project provinces and districts to the BPD, pokmas, other groups and individuals, and assist them in preparing project proposals for funding through suitable microcredit facilities.16 The Project will also assist small producers, processors, and other microentrepreneurs through an inputs assistance program to be operated using a part of the ADB loan proceeds.17 C. Special Features

33. The Project will adopt a holistic approach to the management of coastal resources, particularly coral reefs and associated ecosystems. It will focus on few key provinces where the costs of delaying, and the benefits from expediting, such a project are greatest. The Project will be nationally coordinated but implemented under a decentralized management, with the bulk of its capacity-building efforts to take place at the district (kabupaten) level and, to a lesser degree, at the province level. Close coordination and effective linkages will be established between national, regional, and local governments within the context of their defined roles and responsibilities in project implementation. Finally, the Project will adopt a participatory process approach by which coastal communities will have the opportunity to organize themselves with the assistance of project facilitators, identify their specific needs, and plan and implement their community-specific resource management and livelihood programs based on their own needs. D. Cost Estimates

34. The total project cost, including physical and price contingencies and interest during construction, is estimated at $41.25 million equivalent, comprising a foreign exchange component of $8.27 million (20% of total cost) and a local cost of $32.98 million equivalent (80% of total cost). The estimates include the provision for $0.92 million equivalent in taxes and duties. The cost estimates are summarized in Table 1, and details are in Appendix 5.

15 Some 35 different types of microenterprises have been identified during the project preparatory technical

assistance as having potential for development under the Project. These include, among others, brick making, backyard farming, poultry and livestock operation, goat fattening, fish processing (e.g., pindang, fish crackers), mariculture, seaweed farming, and ecotourism.

16 ADB-financed Rural Income Generation Project (Loan No. 1583-INO). 17 Essential items of equipment will be allocated to qualified and approved candidates on condition that they return

one set of the equipment (or products of equivalent value) for transfer to other beneficiaries. The items involved in this program will vary from one site to the other, but may include insulated fish boxes for fish transport, solar driers, pindang boilers, hand casts, pearl or seaweed rafts, and fish cages (Supplementary Appendix C).

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Table 1: Cost Estimates ($ million equivalent)

Item Foreign

Exchange Local

Currency Total Cost

A. Base Costs 1. Institutional Strengthening and Project Management

1.1 National and Regional Government Institutions 0.35 1.65 2.00 1.2 Coral Reef Information and Training Centers 1.73 5.77 7.50 1.3 Human Resources Development and Extension 0.58 2.45 3.03 1.4 Project Management Support 1.42 3.58 5.00 Subtotal (A.1) 4.08 13.45 17.53

2. Community-Based Resource Management and Development

2.1 Community Empowerment 0.61 2.79 3.40 2.2 Community Resource Management 0.74 3.76 4.50 2.3 Social Services and Infrastructure Development 0.74 4.76 5.50 2.4 Livelihood and Income Generation 0.56 4.44 5.00 Subtotal (A.2) 2.65 15.75 18.40 Subtotal (A) 6.73 29.20 35.93

B. Contingencies 1. Physicala 0.40 1.78 2.18 2. Priceb 0.46 2.00 2.46

Subtotal (B) 0.86 3.78 4.64 C. Interest Charge 0.68 0.0 0.68 Total 8.27 32.98 41.25

a 6% of the base cost. b 7% of the base cost. Note: Totals may not add due to rounding. Source: Mission estimates. E. Financing Plan

35. In view of Indonesia’s economic difficulties and fiscal constraints in the short to medium term, the Government requested that ADB’s share in project financing be increased from 60% to 80%. Although Indonesia’s economic recovery continues, the economic situation remains difficult and the fiscal situation is expected to remain unfavorable over the medium term. In view of this and the core poverty intervention nature of the Project, ADB’s cost-sharing of 80% of project financing is reasonable. 36. It is proposed that ADB provide a loan to Indonesia in the amount of $33 million equivalent (80% of the total project cost) from its Special Funds resources to finance the entire foreign exchange cost of $8.27 million equivalent and a portion of the local currency cost amounting to $24.73 million equivalent (75% of total local costs). The loan will have an amortization period of 32 years, including a grace period of 8 years, with an interest charge of 1% per year on principal amount disbursed during the grace period, and 1.5% per year during the remaining amortization period. The remaining local currency cost of $8.25 million equivalent will be financed by the Government and project beneficiaries. The government contribution will come from the central Government and the governments of the three provinces and six districts. Beneficiaries’ contribution will be in the form of labor for community-based law enforcement, construction and improvement of various small-scale infrastructure facilities and access roads, and livelihood development activities. The financing plan is summarized in Table 2; details are in Appendix 5.

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Table 2: Financing Plan ($ million equivalent)

Source Foreign

Exchange Local

Currency Total % A. ADB 8.27 24.73 33.00 80.00 B. Government 1. MMAF 0.00 2.79 2.79 6.76 2. LIPI 0.00 2.06 2.06 4.99 3. Provinces (3) 0.00 0.50 0.50 1.21 4. Districts (6) 0.00 1.25 1.25 3.03 C. Beneficiaries (in-kind contribution) 0.00 1.65 1.65 4.00 Total 8.27 32.98 41.25 100.00

MMAF = Ministry of Marine Affairs and Fisheries, LIPI = Indonesian Institute of Sciences. Note: Totals may not add due to rounding. Source: Mission estimates. F. Implementation Arrangements

1. Project Management and Coordination

37. Executing and Implementing Agencies. MMAF will be the Executing Agency (EA) for the Project, and will have overall responsibility for the coordination, supervision, and implementation of all project activities. MMAF has the mandate for marine and coastal resource management in the country, and is the EA for the ongoing Coastal Community Development and Fisheries Resource Management Project (Loans 1570/1571 [SF]-INO) and the Marine and Coastal Resources Management Project (Loan 1770 [SF]-INO). Although the Ministry was created only in 1999, MMAF has a strong group of senior fisheries and resource management specialists who have accumulated extensive experience in implementing and monitoring ADB-funded projects under the Directorate General of Fisheries. The following four directorates general will be working closely with each other to implement the Project: (i) Coasts and Small Islands, (ii) Capture Fisheries, (iii) Aquaculture, and (iv) Marine Resource and Fisheries Controlling. LIPI will be the national Implementing Agency (IA) responsible for the overall coordination of CRITC operation, including information, monitoring, research, and training. Other IAs include the provincial and district government agencies in the project areas, particularly BAPPEDA and dinas Kelautan Dan Perikanan. The national CRITC that has been set up at LIPI will be the lead IA for research, training, and information management. 38. PMO and PIUs. To oversee the day-to-day implementation of the Project, a PMO will be set up within DGCSI. The PMO will be headed by a full-time project director who will report to the director general, DGCSI. It will have adequate qualified technical and administrative staff and will be provided with the necessary office and communications equipment and vehicles. It will have the following responsibilities: (i) planning and scheduling of project activities; (ii) administration of contracting activities for national activities; (iii) bookkeeping and maintenance of Project accounts and preparation and consolidation of liquidation reports; (iv) supervision and monitoring of the work program of the entire Project and preparation of consolidated monitoring reports; (v) serving as secretariat to the National Steering Committee (NSC) and National Technical Committee (NTC); (vi) coordination of field activities; and (vii) liaison with ADB. 39. One national and six regional PIUs will be set up to oversee and coordinate the implementation of project activities in the field. The PIU-LIPI will be set up in LIPI and the RPIUs

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will be established at the district governments in the six project districts. The RPIUs will work very closely with the bupati and district staff from the sector line agencies as well as with village government heads at the core sites. The PIU-LIPI and RPIUs will be responsible for (i) planning the work program, administering contracting services, maintaining project accounts for monitoring project expenses, and preparing liquidation reports; (ii) supervising and monitoring the work program for specific components and activities and preparing local progress and monitoring reports; (iii) providing technical advice and assistance to local government agencies on the technical aspects of the Project; and (iv) coordinating the specific national and local activities of the different project implementers. 40. National Steering Committee (NSC). This will be established to guide the overall direction of the Project and ensure overall coordination of activities. The NSC will be chaired by BAPPENAS and include the director general, DGCSI, as secretariat. Other NSC members will include representatives of the Ministry of Finance (MOF), LIPI, State Ministry of Environment, Ministry of Forestry, Ministry of Home Affairs, Ministry of Cooperatives and Small Enterprise Development, Ministry of Health, and the Navy. The NSC will provide policy guidance as needed to follow up on policy and legal work, resolve any interagency problems, and formulate solutions to impediments to project implementation. It will meet at least quarterly in the first 2 years of implementation and semi-annually thereafter. The NSC will be assisted by NTC comprising the technical staff of NSC members, whose chairperson will act as secretary to the NSC. The proposed project organization structure is shown in Appendix 6. 41. Regional Advisory Committee (RAC). This will be established in project provinces, headed by the chairperson of provincial BAPPEDA and composed of representatives of concerned sector agencies, local government agencies, NGOs, and community-based organizations (CBOs). The RAC will oversee local project coordination between participating agencies at the local level and liaise with the NSC as required. The RAC will meet at least quarterly each year.

2. Implementation Schedule

42. The Project will be implemented over a 6-year period (2003–2008). The project implementation schedule is shown in Appendix 7.

3. Procurement

43. The PMO, NPIU, and the PIUs will be responsible for the procurement of all goods and related services and civil works under their respective areas of supervision (Appendix 8). All services, supplies, and equipment to be financed by ADB will be procured in accordance with the ADB Guidelines for Procurement. All goods to be purchased through local competitive bidding will be procured in accordance with Government procedures acceptable to ADB. Equipment and materials for packages valued at $500,000 or more will be procured through international competitive bidding procedures. Some supply contracts and certain specialized items estimated to cost at $500,000 or less will be procured using international shopping procedures. Minor items of equipment and materials costing at $100,000 or less will be procured through direct purchase. The civil works packages, which are estimated to cost less than $1 million each, will be awarded using local competitive bidding procedures among prequalified contractors in accordance with the Government’s standard procurement procedures acceptable to ADB. The EA and IAs were advised of the need to maintain transparency and accountability, as required under ADB’s Anticorruption Policy, in procuring goods and services.

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4. Consulting Services

44. Two groups of consultants will be engaged to assist PMO and LIPI in project management and CRITC operation, respectively. The total consultant input for both groups is estimated at 534 person-months, consisting of 54 international and 480 domestic person-months. The outline terms of reference of the consultants are in Appendix 9. The consultants will be selected following the quality and cost-based selection method in accordance with ADB’s Guidelines on the Use of Consultants. The Project will also engage NGOs and academic institutions to organize and assist local communities in undertaking resource management and social development activities in the project districts and in accessing existing microfinance schemes operating in those areas for income generation projects to be promoted under the Project. The NGOs and academic institutions will be selected on a competitive basis in accordance with procedures acceptable to ADB. The Project will also contract qualified domestic academic/research institutions and consulting firms to carry out various research, special studies, surveys, and training programs in accordance with competitive selection criteria and procedures acceptable to ADB.

5. Disbursement Arrangements and Funds Flow

45. The loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook. The commitment, direct payment, imprest fund, and reimbursement procedures will be required by the Project. The Government will, immediately after the loan becomes effective, establish a special account with Bank Indonesia (BI) to expedite disbursement of loan proceeds, particularly for expenditures under small contracts. The special account will be established, managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook. The initial deposit will be based on the estimated expenditures for a 6-month period, but will not exceed the equivalent of $1.5 million. The statement of expenditure (SOE) procedure will be used to replenish and liquidate the special account and to reimburse eligible expenditures up to a maximum amount of $100,000 per expenditure. ADB reserves the right to conduct spot or random checks of expenditures covered by SOE through disbursement or review missions. Notwithstanding the Government’s own disbursement procedures, sufficient supporting documentation, as defined in ADB’s Loan Disbursement Handbook, must be kept at each level of project management to substantiate all expenditures incurred from the loan proceeds. The flow of funds is illustrated in Appendix 10.

6. Accounting, Auditing, and Reporting

46. The PMO, PIUs, and other agencies involved in project implementation will prepare and maintain separate accounts exclusively for the Project and will register in such accounts all receipts and payments for the Project in accordance with sound accounting principles and procedures. The accounts and financial statements for each fiscal year, including the special account and the SOE records, will be audited by the sovereign audit agency of the Government or other auditors acceptable to ADB, in accordance with appropriate auditing principles. The PMO will review and consolidate the accounts from the various agencies and, after audit, submit them to MOF and ADB. The audit report will include a statement verifying that funds disbursed by ADB against the SOEs were used for the purposes for which they were provided. Project accounts, including financial statements, SOEs, and special account records, together with disbursement documents, will be audited annually by independent auditors acceptable to ADB, and will be submitted to ADB not later than 9 months after the end of each fiscal year. The auditor’s report will also include the auditor’s opinion on the use of the special account and the SOE procedure. Both the financial statements and the auditor’s report will be in English. The

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Government and MMAF were informed of ADB policy on submission of audited accounts, which covers failure to submit audited accounts and financial statements within the due time. A formal warning will be issued for accounts more than 6 months overdue, and disbursements will be suspended for accounts that are 12 months overdue. 47. Reporting systems will be set up at the national, regional, and local levels to enable DGCSI, through the PMO, to effectively supervise the implementation of all project activities and provide timely advice and support to the PIUs. The PMO will be responsible for (i) collecting and consolidating all project progress reports, site reports, technical and financial reports, and their submission to ADB; and (ii) preparing quarterly progress reports, the midterm project evaluation report, and the overall project completion report. The PIUs will be responsible for (i) preparing project progress, technical, and financial reports covering site-specific activities; and (ii) collecting and consolidating field data and feedback from local participating agencies and contractors that, in turn, will be relayed to the PMO. 48. The PMO will furnish quarterly progress reports to ADB on project implementation, to be submitted within 1 month of the end of the quarter to which they relate, and such other reports and information relating to the Project as ADB may reasonably request. Within 3 months of the physical completion of the Project, the PMO will submit a project completion report to the NSC and ADB.

7. Project Performance Monitoring and Evaluation

49. MMAF and LIPI will establish an appropriate project performance monitoring system in PMO within 1 year of loan effectiveness. The system will encompass monitoring (i) physical and financial progress as well as the economy and efficiency of key activities such as recruitment of consultants, procurement of equipment and materials, training arrangements, conduct of surveys and special studies, policy development, drafting of implementation guidelines; (ii) the level and adequacy of participation of various stakeholders, including local communities, in project activities, particularly those related to natural resources planning and management and social development; (iii) the Project’s social, environmental, and economic impact, including the establishment of benchmark information and data; and (iv) assessing the effectiveness and utilization of CRITC networking; and (v) developing a mechanism for incorporating lessons learned from similar projects in the sector in project planning. 50. With the supervision of PMO and PIU-LIPI staff, contracted consultants will design and undertake a baseline survey. This survey will be repeated at midterm and at project completion, to provide information necessary to evaluate the financial, economic, social and environmental impacts of the Project. At the community level, participatory monitoring and evaluation will be introduced as part of the Project’s comprehensive participatory development approach. Special studies may be conducted to investigate issues relating to project implementation and its impacts. For periodic monitoring, key indicators will be developed and incorporated in the regular reporting system. PMO and PIU-LIPI staff will make regular visits to the field sites to monitor progress. Project monitoring and evaluation reports will be submitted by the PMO to ADB on a quarterly basis. On project completion, the impacts of the Project will be evaluated according to a schedule and the terms of reference to be agreed upon by the Government and ADB.

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8. Project Review

51. At the start of the fourth year of implementation, a comprehensive midterm review of the Project will be carried out to identify any problems and constraints encountered and assess the need for mid-course modification of the project scope and implementation arrangements. Technical and budgetary changes to the project document, requested or arising from project performance monitoring system findings, will also be considered, as will be the inclusion of additional activities at any of the field sites or the consideration of possible expansion of activities/sites over the remaining project life.

IV. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Financial and Economic Analysis

1. Financial and Economic Analysis of Indicative Microenterprises

52. The Project will promote the establishment and development of microenterprises and income-generating activities by providing technical skills development and financial management support program for its 90 target coastal communities.18 To determine the viability of potential microenterprises, four representative microenterprises were subjected to financial analysis at the farm level.19 The financial internal rate of return (FIRR) and the economic internal rate of return (EIRR) of these microenterprises were greater than the estimated weighted average cost of capital of 16% and the social cost of capital of 12%. Details are in Appendix 11; further details are in Supplementary Appendix F.

2. Economic Analysis

53. The Project’s major quantifiable economic benefits are envisaged from (i) rehabilitation of coral reefs in areas previously degraded through the establishment of erosion control structures, artificial reefs, marine protected areas, fish restocking, and mangrove reforestation to restore the abundance of commercially important reef and fish resources; (ii) reduction in destructive fishing and overfishing through effective information and education campaigns and monitoring, control, and surveillance activities; (iii) establishment of basic social services and infrastructure development to promote the socioeconomic well-being of the coastal communities to complement the conservation efforts of the Project; and (iv) establishment of microenterprises to improve the income-earning capacity of fisherfolk, thereby contributing to poverty reduction in communities that rely on reef resources for food and income. 54. The Project is expected to realize an EIRR of 19%. At a discount rate of 12%, the resulting net present value showed that the Project is expected to generate approximately $32.4 million for the economy. Sensitivity analysis indicated that it would take a 56% increase in project cost and a decrease in project benefits, global benefits, and microenterprise benefits of 36%, 35%, and 35%, respectively, for the EIRR to decline to the cutoff level of 12% (Appendix 11).

18 The Project will not directly finance the operation of microenterprises and income-generating activities, but will

provide rigorous social preparation and technical demonstration activities to be carried out within the Village Development Plan framework. Prior to being widely promoted in the project target communities, the financial viability of each type of enterprise will be assessed through feasibility and market analyses.

19 These microenterprises include (i) mud crab fattening, (ii) estuarine grouper cage culture, (iii) seaweed culture, and (iv) fish cracker making.

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B. Social Measures and Impact on Poverty20

55. Population Size and Social Stratification. The total population in the six target districts in the project area is 1.8 million in 360,000 households with an average household size of five members. Poverty is widespread in the coastal villages of the project area. The incidence of poverty ranges from a high of 83% in Nias to a low of 41% in Kepulauan Riau. Of the total coastal households, about 53% fall below the poverty threshold, 13% are very poor, 40% poor, and about 16% are low income earners. The remaining coastal households, accounting for 31% of the total, are made up of moderate (11%) and high (20%) income earners, with earnings greater than Rp4.86 million (or $486) per year. Those that fall below the poverty threshold are composed mostly of small fishers, fish processors, and workers in the fishing industry and allied fields, while the high income earners are businesspeople, landowners, big boat and plant owners, and successful entrepreneurs. The high household incidence of poverty is evident in the existence of the Government’s Inpres Desa Tertinggal (IDT) program for alleviating poverty in most of the villages in the project area. Most of the households in the target communities do not have the capacity to increase their household income from fishing, as most of their fishing grounds are overfished and have damaged coral reefs. In addition, as most do not have access to improved fishing gears and boats, they are limited from exploring new fishing grounds or opportunities to increase their fish catch and income. 56. Lack of Access to Basic Services. Human development is weak in the proposed project sites, with the coastal residents having limited education and limited access to basic social services such as potable water supply, sewerage and sanitation, electricity, and transportation. In many villages, only elementary schools are available, and some do not have any schools at all. The Project will support the establishment of basic services such as potable water supply, sewerage and sanitation facilities, primary school facilities, and village meeting places in villages where such basic amenities are lacking or inadequate. 57. Gender. Gender bias is strong in some places. The educational levels of males and females are generally unequal, with men having a somewhat higher educational attainment than women. Credit is also generally given to men, especially by the formal financial institutions, since they are considered the breadwinners. A gender action plan will delineate how the Project will encourage women’s participation in setting up, operating, and managing small-scale income-generating projects. The PMO and the PIUs will ensure that the formation and strengthening of CBOs will give equitable opportunities for membership and representation of women and for women to assume leadership functions in the organizations. They will also ensure that training courses are scheduled with special consideration given to women’s needs. Gender-disaggregated data will be collected through the baseline project performance monitoring system survey and in subsequent surveys; gender indicators will be included in the project performance monitoring system. 58. Indigenous Peoples. An Indigenous Peoples’ Development Framework has been prepared for the Suku Mentawai people, and the summary is available in Supplementary Appendix H. The Framework ensures participation of indigenous peoples to fully benefit from the Project and guarantees that procedures for grievance redress are in place and functioning in accordance with ADB’s Policy on Indigenous Peoples. 59. Impact on Poverty and Social Development. The Project will address poverty concerns through its core development activities of (i) community empowerment and 20 More detailed information is provided in Appendix 12 and Supplementary Appendixes G–I.

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institutional development and (ii) sustainable livelihood and income generation to enhance welfare, thereby reducing exploitation pressure on coral reefs. Communities will be empowered and trained to manage, control, and utilize reef resources in a sustainable manner, and will be provided with (i) basic services; (ii) basic infrastructure development; and (iii) community environmental protection, rehabilitation, and enhancement projects. However, participation in the Project by beneficiary communities will be purely on voluntary basis. The Project will not impose any specific income-generating activities. Individuals will be given training and help in obtaining funding but will not be given outright grants. Prior to the implementation of activities at project sites, the communities will engage in a comprehensive planning process that identifies constraints, risks, and opportunities. It will also ensure that indigenous peoples are consulted on activity development and are able to participate fully in and obtain benefits from the planning and implementation of community empowerment activities, particularly from the establishment of required basic services. C. Environment

60. An initial environmental examination conducted during project preparation concluded that a few adverse impacts could result from some income-generating projects, such as mariculture, and the construction of small-scale social infrastructure facilities (Appendix 13 and Supplementary Appendix J). However, these potential negative impacts are small, localized, and can be avoided or mitigated by appropriate measures. None of the proposed interventions is environmentally critical or anticipated to create significant adverse impacts on the environment. Instead, the Project is likely to bring about significant environmental and co-dependent social benefits associated with coastal resource management policy development and implementation, institutional development of government agencies and community organizations, and community empowerment for resource management and socioeconomic development. 61. A detailed environmental management and monitoring plan will be formulated in the first year of project implementation with the assistance of an environment specialist. The plan will outline the general guidelines and procedures for environmental screening, scoping, and review of proposed project activities in line with ADB and government guidelines. The regional CRITCs will be specifically responsible for environmental monitoring and will be provided with necessary equipment and personnel for the task. Environmental considerations will be included in the selection criteria for specific sites for the establishment of mariculture and other projects to ensure that none of these is set up in environmentally critical or sensitive areas, such as marine parks or protected areas. Private contractors engaged for the construction of social infrastructure facilities will be properly oriented on the need for environmental safeguards and will actively participate in environmental monitoring. This will ensure that any potential adverse environmental impact is minimized and that project activities fully conform to the environmental guidelines of the Government and ADB. D. Risks

62. The Project faces certain risks that could adversely affect project implementation and the attainment of project objectives. These are: (i) the slow growth of corals that could delay the realization of project targets; (ii) institutional inadequacies in the EA and IAs, as well as CBOs and the communities themselves, for their roles in coastal resource management; (iii) uncertainties emanating from the evolving decentralization process and institutional arrangements at the provincial and district levels; (iv) persistence of nonadaptive, control-based attitudes on the part of national government agencies; and (v) government limitations in

18

providing adequate financial and human resources for continued implementation of project activities and facilities beyond the term of the Project. 63. To minimize these risks, the following countermeasures have been incorporated in project design: (i) the adoption of a reasonable target of 2% coral growth per year in the project framework; (ii) inclusion of a substantial institutional development and project management component in the Project; (iii) adoption of a “learning approach” to project implementation, whereby resource management initiatives will first be pilot-tested in core sites prior to expansion to other sites; (iv) formation of an NSC, RACs, and a network of CRITCs; (v) establishment of interagency linkages and close working relationships among NGOs/CBOs, local extension staff, local government agencies, and participating coastal communities; (vi) the use of a participatory approach and extensive networking and interaction among the different project implementers and stakeholders; (vii) provision of long-term project management consultants to assist and support PMO and the PIUs in project implementation; and (viii) design and implementation of an effective monitoring and reporting system to obtain prompt feedback and enable timely remedies. ADB will also strengthen its supervision of the Project, including semi-annual reviews in the initial years, to identify problems and recommend modifications in project design and implementation arrangements, as required. Most importantly, a strong commitment was obtained from MMAF management to support the Project, oversee project implementation, and provide counterpart funding for project activities. Overall, the participatory approaches and social preparation activities, together with the technical soundness of the proposed resource management interventions, will result in the expected benefits and impacts exceeding the costs.

V. ASSURANCES

64. The Government has given the following specific assurances, in addition to the standard assurances, which have been incorporated in the legal documents:

(i) Prior to loan effectiveness, the Government will establish (i) a national-level interagency NSC to guide the overall direction and coordination of the Project; and (ii) an RAC in each of the three project provinces.

(ii) The Government will ensure that during each year of project implementation,

adequate budgetary allocation of all necessary counterpart funds will be provided in a timely manner and, to such end, the Government will make timely submissions of annual budgetary appropriation requests, including funding for annual operation and maintenance expenditures required after project completion. The Government will further take all necessary or appropriate measures for prompt disbursement of appropriated funds on a timely and regular basis to the PMO, PIU-LIPI, and RPIUs during each year of project implementation.

(iii) The Government will ensure that the proceeds of the loan and the corresponding

amounts of necessary counterpart funds will be disbursed to the PMO, PIU-LIPI, and the RPIUs for the respective project districts, by budgetary transfer of funds earmarked for such purpose.

(iv) The Government will ensure that the provision of funds from the proceeds of the

loan, and the corresponding counterpart contributions necessary for financing project activities, will continue throughout the period of project implementation notwithstanding (i) any reallocation of authority or responsibility for channeling of

19

external assistance and for the provision of corresponding counterpart contributions between the Government, PMO, PIU-LIPI, project provinces, and project districts; or (ii) any requirement for the provision of matching counterpart contributions for funding project activities from project provinces or project districts arising out of the implementation of Laws 22 and 25, unless otherwise agreed by ADB.

(v) The Government will ensure, or will cause the project provinces and project

districts to ensure, that the gender action plan developed for the Project is complied with, so that there will be (i) equal opportunity for men and women in all project activities; (ii) formation and strengthening of CBOs under the Project with equal opportunity for men and women to be members and assume leadership functions; (iii) prioritized appointment of women as managerial staff to the PMO, PIU-LIPI, and RPIUs; (iv) prioritized fielding of women as community organizers by NGOs under the Project; (v) inclusion of women in national and regional public sector institutions in training programs under the Project; and (vi) preference for women project beneficiaries in microenterprise training, with inclusion of access to women as a criterion for all training courses under the Project.

(vi) The Government will ensure, or will cause the project provinces and project

districts to ensure, that no persons will be adversely affected according to the terms of ADB’s Involuntary Resettlement Policy. By the end of the first year of project implementation, the Government will ensure that the PMO will have developed detailed site selection criteria for community infrastructure facilities to be financed under the loan to screen out the possibility of any losses occurring that would require an application of ADB’s Involuntary Resettlement Policy.

(vii) The Government will ensure, or will cause the project provinces and project

districts to ensure, that an environmental management and monitoring plan will be prepared by the PMO, with assistance of an environmental specialist, within the first year of project implementation, and will include an outline of the guidelines and procedures for environmental screening, scooping and review of project activities, in accordance with ADB and government environmental guidelines.

(viii) The Government will ensure, or cause the project provinces and project districts

to ensure, that under the Project there will be continued operation and maintenance by villages of social infrastructure constructed under the Project through (i) counterpart support in cash or in kind and (ii) a memorandum of understanding between each village organization and the respective RPIU detailing the obligations of the village for routine maintenance activities. The Government will further ensure that the first such memorandum of understanding will be subject to prior review and approval by ADB.

(ix) The Government will ensure, or will cause the project provinces and project

districts to ensure, that all necessary measures will be taken under the Project with regard to indigenous peoples in accordance with the Indigenous Peoples’ Development Framework and ADB’s Policy on Indigenous Peoples.

20

(x) The Government will ensure, or will cause the project provinces and project districts to ensure, that the PMO and concerned RPIUs will develop and monitor mechanisms for consultation with and participation of indigenous peoples who are beneficiaries in project activities, including community empowerment and development, resource management, and microenterprise training.

(xi) The Government will undertake all necessary measures to ensure the

establishment of national, regional, and local accounting and reporting systems to enable the PMO to supervise the implementation of all project activities and provide timely advice and support to the PIU-LIPI and RPIUs.

(xii) Within 3 years of loan effectiveness, the MMAF will have reviewed the policy

framework prepared in accordance with the Project (Phase I) and will have identified areas for incorporation into the legal framework for the coastal and marine sector.

(xiii) By 30 June 2006 the MMAF will have, in consultation with all concerned

government agencies (i) agreed on a legal framework for management of coral reefs and associated ecosystems taking into account Laws 22 and 25 and (ii) recommended and submitted a Coastal Resource Management Law to Parliament for enactment, incorporating provisions in accordance with the legal framework under subsection (i).

VI. RECOMMENDATION

65. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB and recommend that the Board approve the loan in various currencies equivalent to Special Drawing Rights 25,004,000 to the Republic of Indonesia for the Coral Reef Rehabilitation and Management Project Phase II from ADB’s Special Funds resources with an interest charge at the rate of 1% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board. TADAO CHINO President 12 November 2002

Appendix 1 21

PROJECT FRAMEWORK

Design Summary Performance Indicators/Targets

Monitoring Mechanisms

Assumptions and Risks

Development Goals: (i) Coral reefs and associated

ecosystems rehabilitated, protected, and well managed.

(ii) Lower incidence of poverty in coastal communities.

• Live coral cover increased

by 2% per year. • Average per capita income

in target coastal communities increased by 2% per year in real terms.

• National reef benefit

monitoring and evaluation (BME) system; creel survey reports

• Triennial socioeconomic surveys

• Coral reefs and

associated ecosystems are not damaged by severe climate change or natural processes.

• Population immigration to project areas and community basic costs do not increase substantially.

Project Purposes: (i) Enhanced national and local

capacity to manage coral reef resources and effectively managed priority reef areas.

(ii) Increased income and improved living standards of poor coastal communities.

• Main coral reef

management issues in six districts in three provinces effectively addressed.

• Income of 10,000 households increased by 20% in real terms over the term of the Project and living standards of 10,000 households improved.

• Evaluation reports • Project management

office (PMO) progress and annual reports

• Project completion report (PCR)

• Coral reef assessment reports

• Monitoring and evaluation reports

• Socioeconomic assessment reports

• Management measures

will be widely applicable and replicable.

• Income generation activities are available and coastal population is stable.

Component 1: Institutional Strengthening and Project Management Output 1: National and regional governments strengthened in the development of policies, strategies, and guidelines for sustainable coral reef management. Activities: • Formulate national and

regional policies, strategies, and plans related to coral reef rehabilitation and management.

• Develop legal framework, strategic issues papers, and best practices guidelines for coral reef management.

• Formulate and implement appropriate mechanisms for interagency coordination for effective regulation, law enforcement, and resource allocation in target districts.

• Prepare coral reef management plans (CRMPs) to guide resource allocation in the target districts.

• Conduct monitoring, control, and surveillance

• National policy and strategy

for coral reef management implemented by the Ministry of Marine Affairs and Fisheries (MMAF) based on draft National Policy and Strategy produced during Phase I. Six district strategies for coral reef management drafted and implemented by district governments.

• National policy and strategy for coral reef management issued in presidential decree. Regional policy and strategy issued in local decrees.

• Detailed CRMPs prepared by six target district governments.

• Marine management areas (MMAs) established and implemented in three to six target districts.

• Locally initiated monitoring, control, and surveillance program for coral reef

• Project

implementation plan • PMO progress and

annual reports • Midterm review

report (MTRR) • PCR • Publications and

technical reports • Policy studies

• Various stakeholders

participate actively and the Government provides full support to the Project.

• Legislation is modified in line with national and regional policy and strategy for coral reef management.

• Population immigration to project areas and community basic costs do not increase substantially

22 Appendix 1

Design Summary Performance Indicators/Targets

Monitoring Mechanisms

Assumptions and Risks

interventions, including local patrols and reef watchers, and establish MMAs for coral reef conservation in target districts.

Output 2: Network of coral reef information and training centers (CRITCs) established. Activities: • Strengthen and expand the

network of CRITCs established in Phase I in new project districts.

• Conduct national and local-level research in support of coral reef management and livelihood development in coastal areas. Develop a nationally coordinated coral reef information system through the CRITC network.

• Extend the BME developed in Phase I to the Phase II districts to facilitate benefit/impact evaluation.

Output 3: HRD and extension programs developed and implemented. Activities: • Develop and implement an

HRD program for MMAF, LIPI, and regional agencies in six districts in three provinces.

• Formulate and carry out a comprehensive training program for national and regional government staff, private sector, and nongovernment organizations (NGOs) in coral reef management and social development.

• Develop and conduct a comprehensive extension program to equip local resource users in each project district in coral reef management.

• Conduct an information, education, and communication program to raise pubic awareness for coral reef conservation at national and local levels.

management established and implemented in three to six target districts.

• A network with a centrally

and regionally operated CRITCs established, developed, and coordinated by LIPI.

• A specific national Coral Reef Spatial Information System and an expanded BME system for coral reef management in place to provide information and feedback to concerned national agencies and regional governments.

• A national coral reef research program prepared and various studies and researches conducted at the national and regional levels.

• Institutional assessment

completed and comprehensive training plan prepared and conducted for 200–300 national and regional staff of MMAF, LIPI, and other agencies and 300–400 personnel of private sector and NGOs.

• Comprehensive information, education, and communication program prepared and conducted for increased awareness of 70% of government personnel and coastal communities in project areas.

• Comprehensive extension program developed and implemented based on resource and socioeconomic surveys to assist 40–45 coastal communities in sustainable use of coral reef resources and livelihood activities.

• Institutional

assessment reports • Monitoring and

evaluation reports • Annual research

plans and reviews • PMO progress and

annual reports • MTRR • PCR • Training and skills

assessment reports • Public awareness

assessment reports • Reviews of

information, education, and communication materials

• Socioeconomic surveys at project start, midterm, and completion

• PMO progress and annual reports

• MTRRs • PCR

• Various stakeholders

participate actively and the Government provides full support to the Project.

• Adequate technical assistance is provided and staff have strong commitment to project objectives.

• Research is directed for the proper implementation of policies and strategies for coral reef management.

• Training programs target

appropriate stakeholders. • Various stakeholders

participate actively and the Government provides full support to the Project.

• There is no major change in project costs, various stakeholders participate actively and the Government provides full support to the Project.

• Staff and organizations are strongly committed to resource management and social development.

Appendix 1 23

Design Summary Performance Indicators/Targets

Monitoring Mechanisms

Assumptions and Risks

Output 4: Project activities implemented on time. Activities: • Establish PMO and project

implementation units (PIUs) and hire competent project staff.

• Hire consultants. • Award contracts for

community organizing, training, surveys, civil works, and other services required by the Project.

• Conduct training, workshops, seminars, study tours, etc.

• Purchase vehicles and equipment required by the Project.

• Oversee overall project implementation.

• Ensure adequate funding and resources for project activities according to planned allocations.

Component 2: Community-Based Resource Management and Development Output 1: Coastal communities organized and empowered for coral reef management Activities: • Conduct participatory

planning for coral reef management, village development, environmental improvement, and livelihood development with assistance of NGOs and fisheries extension workers.

• Organize, train, and empower local communities for coral reef management and livelihood development.

Output 2: CRMPs formulated and implemented by organized communities. Activities: • Conduct detailed coral reef

resource surveys and prepare CRMPs.

• Implement planned coral reef management programs.

• PMO established in MMAF,

national PIU in LIPI, and six regional PIUs in project districts to effectively coordinate project activities.

• Provincial role as coordinator needs to be established. Competent project director, seven PIU managers, and a group of professional and supporting staff further developed and trained in program coordination and project management.

• Funds budgeted for each component are disbursed and utilized.

• Actual annual project implementation achievement consistent with predetermined or planned targets for each year.

• Participatory planning for

coral reef management, village development, and income generation conducted in each target district.

• 40–45 coastal community groups formed and 10,000 people trained on coral reef management and livelihood development.

• Ten site-specific coral reef

resource surveys and CRMPs conducted and prepared.

• 60,000 ha of coral reefs and related ecosystems protected by organized coastal communities and district governments.

• Project performance

reports • PMO progress and

annual reports • MTRR • PCR • Financial and

disbursement reports • Participatory

planning assessment reports

• Socioeconomic surveys at project start, midterm, and completion

• PMO progress and annual reports

• MTRR • PCR • Participatory planning

assessment reports • Coastal resource and

ecological assessment reports

• Socioeconomic survey reports at project start, midterm, and completion

• Adequate technical

assistance is provided and staff have strong commitment to project objectives.

• There is no major change in project costs and the Government provides full support to the Project.

• Legislation is modified in

line with national and regional policy and strategy for coral reef management.

• Various stakeholders participate fully and the Government fully supports the Project.

• Legislation is modified in

line with national and regional policy and strategy for coral reef management.

• Various stakeholders participate fully and the Government fully supports the Project.

24 Appendix 1

Design Summary Performance Indicators/Targets

Monitoring Mechanisms

Assumptions and Risks

• Conduct community-based monitoring, control, and surveillance; rehabilitate damaged coral reef areas; and reduce destructive and illegal fishing effort.

Output 3: Community social infrastructure facilities and services provided to coastal communities at project sites. Activities: • Conduct detailed

socioeconomic surveys and prepare village development plans for target villages at project sites.

• Provide the required basic social services and infrastructure facilities to coastal communities in selected villages at project sites.

Output 4: Livelihood and income-generating activities established and operated by coastal communities in target areas. Activities: • Identify and screen

microenterprise and livelihood opportunities and conduct feasibility studies of selected enterprises.

• Provide technical, marketing, and financial assistance to organized community groups to operate feasible livelihood activities.

• Establish, operate, and sustain livelihood and income generation activities.

• Community-based compliance and enforcement conducted by community groups in 10 sites in six districts; 60,000 ha of coral reefs rehabilitated; and illegal fishing reduced by 40–50% in the project areas.

• 40-45 socioeconomic

surveys conducted and 40–45 village development plans prepared.

• Infrastructure and other identified amenities as needed by communities provided in 40-45 coastal villages.

• Livelihood opportunities

identified and subjected to feasibility study in 40-45 villages.

• Technical and financial assistance provided to 10,000 people.

• Livelihood activities established and income of these households increased by 20% in real terms by the end of the Project.

• Environmental monitoring reports

• PMO progress and annual reports

• MTRR • PCR • Socioeconomic

survey reports at project start, midterm, and completion

• PMO progress and annual reports

• MTRR • PCR • Socioeconomic

surveys at project start, midterm, and completion

• PMO progress reports • MTRR • PCR

• Population immigration to

project areas and community basic costs do not increase substantially

• Various stakeholders participate fully and the Government fully supports the Project.

• Finance is provided by another government institution resulting in excess of budgeting.

• Income generation

activities are available and coastal population is stable.

• Population immigration to project areas and community basic costs do not increase substantially.

Inputs: • National and Regional

Government Institutions • Coral Reef Information and

Training Centers • Human Resources

Development and Extension • Project Management • Community Empowerment

($ million)

2.0

7.5

3.0 5.0 3.4

Appendix 1 25

Design Summary Performance Indicators/Targets

Monitoring Mechanisms

Assumptions and Risks

• Community Resource Management

• Social Services and Infrastructure Development

• Livelihood and Income Generation

Subtotal • Physical Contingencies • Price Contingencies Subtotal • Service Charge Total

4.5

5.50

5.00 35.93

2.18 2.46

40.57 0.68

41.25

26 Appendix 2

SECTOR ANALYSIS

A. Coastal Resources of Indonesia: An Overview

1. Indonesia is the world’s largest archipelagic nation, with a marine area of 5.8 million square kilometers (km2), comprising 3.1 million km2 of territorial and archipelagic seas and 2.7 million km2 of exclusive economic zone. With an 81,000-km coastline and 17,508 islands, much of it fringed by coral reef, Indonesia is truly a maritime continent rich in reef resources. The coral reefs cover 42,000 km2 or 16.5% of the global areas of coral reefs. In contrast, its land mass occupies only 1.9 million km2. Indonesia is the coral biodiversity center of the world with 70 genera and 450 species of corals.1 These resources support many coastal communities, artisan fisheries as well as industrial fisheries. In 1997, the total product of coastal and marine economic activities was estimated at some 25–30% of Indonesia’s gross domestic product, providing employment for about 20 million people. 2. Indonesia’s seas have about 20,000 species of mollusks, 2,000 species of crustaceans, six species of sea turtles, 30 species of marine mammals, and over 8,500 species of fish. No comprehensive survey has been carried out in recent years to assess the current state of these living aquatic resources, but it is believed that continued stress threatens the existence of many species. To protect marine biodiversity, the Government has planned to identify and designate 30 million hectares (ha) for marine conservation by the year 2000, but only a fraction of this area has so far been identified and is being conserved. 3. Despite the importance of coral reef ecosystems to global biodiversity and to Indonesia’s economy and environment, this resource has not been managed sustainably. Resource use and exploitation have led to extensive coastal zone degradation, i.e., the destruction of coral reefs and important associated seagrass and mangrove ecosystems, depletion of fish stocks, water pollution, and biodiversity loss. Coral reefs are deteriorating rapidly, mainly because of intensive human activities such as coral mining, blast and cyanide fishing, sedimentation, tourist activities, coastal development, and pollution. Using a measure of live coral cover, a national survey in 1994 found that only 30% remained in good to excellent condition. Global warming and associated coral bleaching, plus increased reliance on coastal fishing, have further damaged the nation’s reefs. Since coral reefs are habitats of about 90% of the fish caught by the coastal fishers in the country, their degradation results in rapid decrease of fisheries production in coastal areas. 4. The coastal environment has also been affected by land-based activities. Watershed deforestation and erosion have led to increased sedimentation on fringing coral reefs, adversely affecting fisheries resources. Industrial and urban wastes and runoff containing chemicals and pesticides from agricultural land have polluted coastal waters and impaired the ecological functions of coral reefs as nursery and breeding grounds for marine aquatic resources. An Asian Development Bank (ADB)-assisted study2 confirmed serious depletion of fisheries resources in the coastal regions of Sumatra, North Java, and the straits of Malacca and Makassar. The degradation of coastal and marine resources, including coral reefs, poses a serious threat to Indonesia’s rich and unique marine biodiversity. 5. Coral reef degradation and environmental problems in the coastal zone have affected the livelihoods of coastal people, particularly artisan fishers. Artisan fishing is the occupation of last resort for many poor people in the country due to population growth, decreased availability

1 Veron. C. 1995. Corals of the Indo-Pacific. 2 TA 2053-INO: Coastal Environmental Management Planning, for $1.2 million, approved on 3 January 1994.

Appendix 2 27

of farmland and uncontrolled access to fish resources. Consequently, the number of coastal fishers increased by more than 50% over the past decade. Because of a deteriorating fisheries resource base, fish catch per unit of effort has been steadily declining, adversely affecting incomes. The average income of coastal fishers is below the average national level. Various studies show that the coastal fishing communities are among the poorest segments of society in the country. They lack access to basic social infrastructure such as clean water, sanitation, health care, roads, and transportation, and fail to benefit from formal credit facilities because they lack credit history and collateral. B. Planning and Management Framework

6. Legal and Policy Framework. The Indonesian Constitution requires that natural resources be managed to achieve the greatest possible benefit for the people. A number of laws relevant to coral reef ecosystems have been passed by the legislature. The three primary laws are (i) Fisheries Act No. 9 of 1985, (ii) Conservation of Living Resources and their Ecosystems Act No. 5 of 1990, and (iii) Forestry Act of 1967. Other laws include (i) Environment Act No. 4 of 1982, (ii) Spatial Planning Act No. 24 of 1992,3 and (iii) Environmental Management Act No. 23 of 1997. Indonesia is also a signatory to a number of international declarations on natural resources and environmental management, and has issued laws ratifying some of these declarations. These include (i) the Convention on International Trade in Endangered Species, (ii) UN Convention of the Law of the Sea (UNCLOS) (1982), (iii) International Maritime Organization laws on marine pollution (1969, 1971, 1989), (iv) the Global Program of Action for the Protection of the Marine Environment from Land-Based Activities, and (iv) the Global Convention on Biological Diversity (1992). These agreements have been supplemented by regulations setting out basic sector policies on mining, fisheries, forestry, and environment. There are, in addition, customary local laws governing the allocation and use of natural resources, but these laws are now seldom applied or observed. The enforcement of laws and regulations has, however, been weak and many resource allocation and resource use decisions were taken at high levels of Government without proper consultation with local governments and affected communities. 7. Law 22/1999 on Regional Governance and Law 25/1999 on Financial Balance between Central and Regional Governments seek to address these weaknesses and have added a new dimension to governance and natural resources planning and management. Law 22 aims to decentralize most government services and to devolve planning and management functions and responsibilities for marine and coastal resources within Indonesia’s territorial waters to the provincial and district governments. It also provides incentives to local governments for sustainable management of natural resources within their respective jurisdictions and requires a revision of some existing laws and regulations to bring them into harmony with it. 8. A National Strategy and Action Plan for Coral Reef Ecosystem Conservation and Management was issued by the Ministry of Environment in 1992. The document lists the priority objectives on coral reef management as: (i) improving community awareness and participation, (ii) increasing the coverage of marine conservation areas and improving the monitoring and management of existing areas, (iii) establishing spatial planning and zoning to prevent overexploitation, (iv) improving coordination among relevant agencies, and (v) establishing a coordinated research program on coral reefs and associated ecosystems. A National Coral Reef Policy was also drafted under Phase I of the Project, but is yet to be operationalized at the regional level.

3 The Act, which provides the framework and legal basis for natural resources planning and resource allocation,

needs to be amended for consistency with provisions of recent laws on decentralization.

28 Appendix 2

9. Institutional Framework. The Ministry of Marine Affairs and Fisheries (MMAF) was established in 1999, with a pronounced vision of the sea as the nation’s future. The Government has targeted to establish and manage 10 million ha of marine conservation areas in accordance with the Biodiversity Action Plan of 1993. Within MMAF, a Directorate General of Marine Resources and Fisheries Controlling (DGMRFC) was established exclusively for protecting marine reserves and enforcing laws and regulations in harvesting marine resources, including the coral reefs. In addition to MMAF, however, there are other agencies involved in regulating and promoting the use, protection, and management of coral reef ecosystems, and they are not properly coordinated. Institutional weaknesses and lack of political will have failed to sufficiently institutionalize the spatial planning concept in managing marine and terrestrial resources, as embodied in the Spatial Planning Act 24/1992. Nongovernment organizations (NGOs) are also playing an increasingly significant role in promoting and facilitating the establishment of conservation and sustainable development programs. 10. Planning Framework. In the past, national development policy formulation was undertaken in the context of macroeconomic development that was, in turn, translated into a regional economic approach. This led to a planning system that often overlooked resource sustainability. However, over the past decade, there has been a shift in emphasis, with measures introduced for resource values to be taken into account in preparing development plans. Projects have been implemented to enhance the capabilities of government agencies for data acquisition and exchange, and resource assessment.4 An important contribution of these programs and projects is the heightened awareness created among government planners of the need for sustainable use of resources, including coral reefs. However, most projects affect only a small part of Indonesia’s land and marine areas, and a considerable program of sustained effort will be required to make a significant difference to the ways in which the country’s natural resources, including coral reefs, are managed. 11. Sector planning at the national level is the responsibility of individual ministries but, as a result of Law 22, national sector plans, strategies, policies and guidelines developed at the central level are now implemented by provincial and district agencies. Provincial and district planning is the responsibility of the respective BAPPEDA (regional development planning agency). Provincial and district BAPPEDAs are responsible to the governor or bupati for overall planning within the jurisdiction and for coordinating sector plans prepared by regional services of sector agencies. While ADB- and other externally assisted projects in natural resources evaluation and planning have assisted many regional BAPPEDAs in developing human resources and strengthening capacities for effective planning, further capacity building efforts are required to prepare BAPPEDAs for significantly greater planning functions and responsibilities devolved to them under Law 22.

4 These include the (i) ADB-assisted Land Resource Evaluation and Planning Project (LREP) (Loan 730-INO),

(ii) Second Land Resources Evaluation Project (LREP II) (Loan 1099-INO), (iii) Marine Resources Evaluation and Planning Project (MREP) (Loan 1203-INO), (iv) Coastal Community Development and Fisheries Resources Management Project (Loans 1570/1571[SF]-INO), (v) Coral Reef Rehabilitation and Management Project – Phase I, (vi) Marine and Coastal Resources Management Project (MCRMP) (Loan 1770 [SF]-INO), and (vii) the USAID-assisted Natural Resources Management Project.

Appendix 3 29

ADB-FINANCED LOAN AND TECHNICAL ASSISTANCE PROJECTS IN THE SECTOR

Loan/TA Number

Title Amount ($'000)

Date Approved

Loans 94(SF) Riau Fisheries Development 2,500 6 Apr 1972154(SF)/155 Irian Jaya Fisheries Development 7,900 4 Dec 1973216 Java Fisheries Development 13,200 21 Jan 1975474 Sumatra Fisheries Development 14,000 23 Oct 1980566 Second Irian Jaya Fisheries Development 34,000 25 Mar 1982598 Brackishwater Aquaculture Development 23,000 11 Dec 1982693 Fisheries Infrastructure (Sector) 50,000 25 Sept 1984742 Fisheries Industries Credit 65,000 17 Oct 1985894/895(SF) Marine Science Education 73,350 14 Jul 1988959 Second Brackishwater Aquaculture Development 38,000 30 May 19891095 Second Fisheries Industries Credit 100,000 22 Aug 19911203 Marine Resources Evaluation and Planning 33,000 8 Dec 19921251 Mangrove Rehabilitation and Management in

Sulawesi 8,080 9 Sep 1993

1475/1476(SF) Segara Anakan Conservation and Development 45,600 17 Oct 19961570/1571(SF) Coastal Community Development and Fisheries

Resources Management 41,000 1 Nov 1997

1613 Coral Reef Rehabilitation Management 7,000 1 Mar 19981770 (SF) Marine and Coastal Resources Management 50,000 24 Oct 2001Subtotal 605,630 TAs 236 Sumatra Fisheries Development 98 8 Jun 1978368 Sumatra Fisheries Development 200 23 Oct 1980395 Second Irian Jaya Fisheries Development 150 15 Jan 1981415 Brackishwater Aquaculture Development 100 25 Sep 1981422 Java Fisheries Development 180 20 Oct 1981464 Fisheries Sector Study 50 24 Jun 1982529 Fisheries Infrastructure 237 28 Jul 1983661 Second Brackishwater Aquaculture Development 260 28 Dec 1984818 Second Irian Jaya Fisheries Development 75 12 Nov 1986847 Fisheries Sector Study 455 20 Jan 19871424 Marine Resource Evaluation and Planning 480 23 Nov 19901551 Study of Fisheries Development Potential in

Eastern Indonesia 512 22 Aug 1991

1550 Strengthening of Fisheries Term-Lending Capability of Participating Banks

380 22 Aug 1991

1791 Fisheries Sector Study 600 20 Oct 19921828 A Study on Shrimp Health Management and

Disease Control 400 29 Dec 1992

2053 Coastal Environment Management Planning 1,200 3 Jan 19942529 Coastal Community Development and Fisheries

Resource Management 480 5 Feb 1996

2535 Coral Reef Rehabilitation and Management 600 15 Feb 19962958 Marine Resources Evaluation and Management

Planning 600 19 Dec 1997

Subtotal 7,057 Total 612,687

30 Appendix 4

PROJECT AREA

A. Background

1. The Project will adopt a dual approach to the management and conservation of local coral reefs, by working both (i) extensively across priority districts and (ii) intensively via community-based management (CBM) initiatives at core sites within the districts. By using this strategy, the Project will be providing support to the management and conservation of 98% of the total coral reef area of the three provinces of Riau, North Sumatra, and West Sumatra. The identification of provinces, districts, areas of interest and CBM core sites was based on a reconnaissance mapping of reefs and other coastal habitats using Landsat TM-7 and the analysis of socioeconomic data, for 2000, contained in the national PODES database of the Central Bureau of Statistics (CBS). This comprehensive database has enabled geographic information system analysis and mapping down to the village level. B. Selection of Provinces

2. Riau and North Sumatra and West Sumatra provinces were selected based on previous feasibility studies under Phase I and were reconfirmed during the project preparatory technical assistance (PPTA) for Phase II. The selection of these provinces was based on (i) their importance for reef protection and management and (ii) the economic significance of these reefs to the fishing communities in a total of 26 maritime districts. The three provinces have a total of approximately 320,000 hectares (ha) of inshore coral reefs: (i) 217,000 ha (68%) in Riau, (ii) 36,000 ha (11%) in West Sumatra, and (iii) 65,000 ha (20%) in North Sumatra. C. Selection of Districts

3. The priority districts were selected on the basis of the potential ecological and economic significance of coral reefs within the district’s coastal waters. The selection process was designed to determine, by remote sensing methods, the districts that have extensive coral reefs combined with high numbers of villages dependent on marine fish resources for livelihood, employment, and income. This resulted in the selection of six priority districts, namely: (i) Kota Batam, Kepulauan Riau, and Natuna in Riau, where 35–64% of the coastal villagers are dependent on fisheries; (ii) Nias and Tapanuli Tengah in North Sumatra, where around 98% of all coral reefs in the province are located and where about 31–36% of the villagers depend on fisheries for their livelihood; and (iii) Mentawai in West Sumatra, where around 90% of all reefs in the province are found, and where 32% of the villagers are dependent on fishing for a living. The six priority districts have more than 300,000 ha of inshore coral reefs, representing some 98% of the total reefs in the three provinces. These districts have at least 450 coastal villages, of which about 87% have adjacent reefs. D. Selection of Areas of Interest

4. The next phase in the selection was the identification of areas of interest based on the following criteria: (i) they encompass all major contiguous coral reef areas within the priority districts; (ii) they consist of at least 500 ha of reefs; and (iii) adjacent coastal villages are reliant on fishing. The selection resulted in 20 areas in the three provinces, as shown in Table A4.1. The 20 areas encompass about 300,000 ha of inshore reefs or 93% of the total available reefs in the six priority districts, and include about 159 (over 40%) of the coastal villages with fishing as the primary occupation.

Appendix 4 31

Table A4.1: Areas of Interest and Priority Districts

Province Provisional Priority Districts Areas of Interest Riau 1. Kota Batam 1. Galang Baru 2. Bulan (parts of) 2. Kepulauan Riau 3. Bintan Island, Timur and Utara 4. Senayang 5. Lingga 6. Singkep 7. Tambelan Islands 3. Natuna 8. Bunguran Island 9. Jemaja Islands 10. Siantan Islands 11. Midai Islands 12. Serasan Islands North Sumatra 4. Nias 13. Nias Island, north end 14. Nias Island, south end 15. Sirombo Islands, west Nias 5. Tapanuli Tengah 16. Barus-Manduamas area 17. Unte Mungkur III, Kolang 18. Sitardas, Lumut 19. Batu Islands West Sumatra 5. Mentawai 20. Mentawai Islands group

E. Provisional Identification of Community-Based Management Core Sites

5. Nine CBM core sites were provisionally selected as intensive work sites for the Project (Table A4.2). Five are in Riau, two in North Sumatra, and two in West Sumatra, including Siberut Island, which is considered to be of national conservation significance. These provisional sites encompass approximately 80,000 ha of coral reef, close to one quarter of the total in the three provinces. They contain over 15,277 households in a total of 49 coastal villages.

Table A4.2: Provisional Identification of Community-Based Management Core Sites

Province Provisional District Provisional Site Reef (ha) Coastal Villages HH FDV

Riau Kota Batam Galang Baru 8,935 7 2,160 6 Kepulauan Riau North Lingga 3,135 3 786 3 Senayang 21,744 5 3,280 5 Natuna Bunguran Barat 21,003 4 2,370 3 Siantan 4,866 4 1,377 4 North Sumatra Nias Lahewa or Kepulauan

Sirombo 3,023 8 1,955 2

Pulau Pulau Batu 7,670 10 1,093 8 Tapanuli Tengah Kolang–Sibolga Lumut 2,963 7 16,681 6 West Sumatra Mentawai Siberut Selatan 3,850 5 1,645 0 Sipora 5,950 3 611 0 HH = household, FDV = fishing dependent village.

32 Appendix 5

Appendix 6 33

PROJECT ORGANIZATION

ADB = Asian Development Bank, BAPPEDA = Regional Development Planning Agency, BAPPENAS = National Development Planning Agency, DGAF = Directorate General of Aquaculture Fisheries, DGCF = Directorate General of Capture Fisheries, DGMRFC = Directorate General of Marine Resource and Fisheries Controlling, DGSSP = Directorate General of Surveillance and Sea Protection, LIPI = Indonesian Institute of Science, MMAF = Ministry of Marine Affairs and Fisheries, NGO = nongovernment organization, NPIU = national project implementation unit, PIU = project implementation unit.

National Level

PIU-LIPI

Provincial Level

District Level

Coordination/advisory support/assistanceCommand responsibility

Coastal Communities

Regional Advisory Committee, BAPPEDA,

NGOs, and Other Sector Agencies

National Steering Committee, National

Technical Committee, BAPPENAS, MMAF, LIPI,

and Other Sector Agencies

Government of IndonesiaADB

DGCF, DGMRFC, DGAF

Regional Consultants/NGOs/ Academic Institutes/ Extension Workers

Academic Institutes and Consultants

Ministry of Marine Affairs and Fisheries

Directorate General of Coasts and Small Islands

Project Management Office

Regional Coordinating Unit

Project Implementation Unit

34 Appendix 7

PROJECT IMPLEMENTATION SCHEDULE

YEAR 1 YEAR 2 YEAR 3 YEAR 6

1. Institutional Strengthening

1.1 National and Regional Policy and Strategy Development

1.11 Recruitment of policy and legal consultants

1.12 Review of national policy framework

1.13 Development of legal framework

1.14 Development of national and regional strategy

1.15 Development of implementation time frame

1.16 Development of detailed implementation guidelines

1.17 Development of national pilot MPA and MCS

1.18 Implementation of national pilot MPA and MCS

1.2 National and Regional Network of CRITCs

1.21 Recruitment of CRITC consultants

1.22 Review of CRITC framework

1.23 Strengthening of CRITC network

1.24 Strengthening of BME system

1.25 Operation of CRITCs and BME system

1.26 Development of coral reef research program

1.27 Implementation of coral reef research program

1.3 Human Resource Development (HRD) and Extension

1.31 Recruitment of HRD consultants1.32 Institutional and training needs assessment

1.33 Development of national training programs

1.34 Development of national IEC program

1.35 Development of national extension program

1.36 Implementation of training, extension, and IEC programs

1.4 Program Coordination and Management

1.41 Establishment of PMO/PIUs

1.42 Recruitment of Project Management Consultants

1.43 Development of detailed implementation plan

1.44 Strengthening of Project management system

1.45 Project management and implementation

1.46 Project progress and midterm reviews

1.47 Project BME and Completion Report

COMPONENTS/ACTIVITIESYEAR 4 YEAR 5

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 3 412 3 4 2

Appendix 7 35

(cont’d.)

BME = benefit monitoring and evaluation; CRITC = coral reef information and training center; IEC = information, education, and communication; MCS = monitoring, control, and surveillance; MPA = marine protected area; NGO = nongovernment organization; PIU = project implementation unit; PMO = project management office; REA = resource and ecological assessment; SEA = socioeconomic assessment.

2. Community Resource Management and Development

2.1 Community Empowerment

2.11 Recruitment of NGOs and field facilitators

2.12 Social preparation and community organization

2.13Training and education program

2.2 Community Resource Management

2.21 Contracting of REA teams

2.22 Conduct of REAs

2.23 Coral reef resource management planning

2.24 Implementation of coral reef management

2.25 Conduct of law enforcement activities

2.3 Community Social Infrastructure Development

2.31 Contracting of SEA teams

2.32 Conduct of SEAs

2.33 Community development planning

2.34 Provision of social services and infrastructure

2.4 Community Livelihood and Income Generation

2.41 Contracting of livelihood feasibility study teams

2.42 Development of livelihood program

2.43 Provision of extension and financial services

2.44 Implementation of livelihood program

36 Appendix 8

INDICATIVE CONTRACT PACKAGES

Item Number of Packages

Total Base Cost

($’000)

Mode of Procurement

Responsible Partya

1. Civil Worksb 30 5,330 LCB+DP+FAd RPIUs

2. Materialsc 60 2,850 DP PMO/NPIU/RPIUs

3. Studies

(i) Site Surveys 9 1,300 LCB+DP NPIU/RPIUs

(ii) Research 30 2,540 LCB+DP NPIU/RPIUs

(iii) Special Studies 25 210 LCB+DP PMO/NPIU/RPIUs

4. Vehicles and Equipment

(i) Vehicles 8 480 IS+DP PMO/NPIU/RPIUs

(ii) Office Equipment 8 1,200 IS+DP PMO/NPIU/RPIUs

(iii) Field Equipment 18 1,500 IS+DP RPIUs

(iv) Patrol Boats (MCS) 5 600 IS+DP PMO/RPIUs

(v) Patrol Boats (CBM) 10 490 IS+DP RPIUs

5. Consulting Services

(i) PMO Consultants 1 2,500 ICB PMO

(ii) CRITC Consultants 1 900 ICB NPIU

6. NGO Contracts 25 1,280 LCB+DP RPIUs

7. Training

(i) Overseas Training 8 320 IS+DP PMO/NPIU/RPIUs

(ii) In-country Training 100 4,550 IS+DP PMO/NPIU/RPIUs

8. Extension Services 18 2,520e PMO/RPIUs

9. Project Office Operation 12 0 PMO/NPIU/RPIUs

10. Recurrent Procurement 12 0 PMO/NPIU/RPIUs

Total 28,570f ADB = Asian Development Bank, CBM = community-based management, CRITC = coral reef information and training center, DP = direct purchase, FA = force account, ICB = international competitive bidding, IS = international shopping, LCB = local competitive bidding, MCS = monitoring, control, and surveillance, NPIU = national project implementation unit (LIPI), PMO = project management office, RPIU = regional project implementation unit. a All procurement by responsible agencies have to be submitted to ADB, through PMO, for approval. b ICB for civil works above $1 million; LCB for civil works below $1 million; and DP for civil works below $100,000. c ICB for purchases above $500,000; IS for purchases below $500,000; and DP for purchases below $100,000. d For services and operations to be performed directly by staff of executing and implementing agencies. e Incremental administrative expenditure. f Total base cost of ADB financing.

Appendix 9 37

OUTLINE TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Introduction 1. Two groups of consultants will be engaged under the Project. One group, the project management consultants, will be recruited by the Ministry of Marine Affairs and Fisheries (MMAF), through the Directorate General of Coasts and Small Islands (DGCSI), to provide technical advice and support to the project management office (PMO) and the regional project implementation units (RPIUs) for project implementation. The other group will be contracted by the Indonesian Institute of Sciences (LIPI) to work with the national and regional coral reef information and training centers (CRITCs) in coral reef research, information, monitoring, and training. The consulting firms will be selected following the quality and cost-based selection method in accordance with ADB Guidelines on the Use of Consultants. The consulting firm to be engaged by MMAF will have a total input of 396 person-months, consisting of 36 international and 360 domestic person-months. The consulting firm to be recruited by LIPI will provide a total of 138 person-months, broken down into 18 international and 120 domestic person-months (Table A9.1).

Table A9.1: Breakdown of Consulting Services

Number of Person-Months Position International Domestic

Project Management Specialist 12 36 Regional Advisors 0 108 Coral Reef Management Specialist 12 54 Community Development Specialist 0 90 Microenterprise Specialist 0 36 Institutional Development Specialist 6 12 Training and Extension Specialist 6 36 Community MCS Specialist 0 18 Policy and Planning Specialist 6 18 Legal Specialist 6 18 Database Management Specialist 6 36 Environment Specialist 0 18 Total 54 480

MCS = monitoring, control, and surveillance. Notes: 1. All consultants will be engaged by MMAF except for the coral reef management specialists, database

management specialist, environment specialist, and one domestic training specialist who will be recruited by LIPI. The international project management specialist will serve as the project management consultant team leader and the domestic project management specialist will be deputy team leader. The LIPI consultants will report to the project management consultant team leader, or to the deputy team leader during periods when the team leader is not in country, to ensure effective coordination of the activities of the two groups of consultants.

2. Three domestic regional advisors will be on the consultant team, each to serve for 3 years. There will also be three domestic community development specialists, each to serve for 30 months.

3. Each of three domestic coral reef management specialists will serve for 18 months. 4. Two domestic training and extension specialists will be hired by the Project, one to work with MMAF and the

other to work with LIPI. The former will put in 24 person-months of work; the latter, 12 person-months. B. Outline Terms of Reference

2. The project management consultants will support the PMO and the RPIUs in:

(i) preparing detailed project work and financial plans;

38 Appendix 9

(ii) developing implementation approaches, procedures, and guidelines for key project activities and for coordinating implementation by the concerned agencies at the national and regional level;

(iii) developing selection criteria for nongovernment organizations (NGOs) and other service contractors to be hired by the PMO and the RPIUs and for the final community-based management (CBM) core sites with inputs from the technical specialists;

(iv) designing and developing the project management information system, including the project performance monitoring system;

(v) procuring goods and services, including preparation of bid documents, evaluation criteria, evaluation of bids, selection of winning bidders and award of contracts to winning bidders;

(vi) monitoring project progress and the performance of various service contractors; (vii) preparing regular progress reports for submission to MMAF and ADB; and (viii) assisting ADB missions.

3. The project management consultant team will also have some technical support specialists. They will provide technical guidance and advice to the PMO and RPIUs, as well as other agencies involved in project implementation, in specific aspects or areas of work, including:

(i) developing regional coral reef policies, strategies, and implementation guidelines within the framework of the National Coral Reef Policy prepared under the Coral Reef Rehabilitation and Management Project – Phase I;

(ii) drafting necessary amendments to regional laws, statutes, and regulations pertinent to coral reef management and law enforcement;

(iii) working closely with LIPI and the regional CRITCs in developing the Project’s research framework, identifying possible research partners, assisting the PIUs in contracting out of research studies/surveys to suitable institutions, monitoring the conduct of research, and evaluating research results;

(iv) developing and operating the Project’s benefit monitoring and evaluation system; (v) assisting the other specialists in formulating implementation approaches,

procedures, and guidelines for coral reef management at the project sites; (vi) preparing plans for the development and deployment of a computerized

management information system for the Project, particularly for benefit monitoring and evaluation;

(vii) conducting an institutional assessment of the MMAF and DGCSI, in particular, to identify areas of weakness to be targeted by a comprehensive human resources development (HRD) and training program;

(viii) developing the Project’s overall training framework and training curricula, modules, and materials, and evaluating the effectiveness of training courses;

(ix) designing the information management and dissemination system to ensure that outputs of pilot initiatives and applied research filter down to the field level;

(x) finalizing the environmental management and monitoring plan for the Project; (xi) working with NGO contractors in community empowerment, resource

management, village development, and income generation; (xii) assisting community groups and interested individuals in gaining access to credit

facilities for identified microenterprises; and (xiii) advising the PMO and RPIUs on the development and application of a screening

process prior to the approval of each village infrastructure development plan and the award of civil works contracts to prevent the possibility of resettlement-related losses.

Appendix 10 39

FLOW OF FUNDS

ADB = Asian Development Bank; IRM = Indonesia Resident Mission; KPKN = Provincial Treasury; LIPI = Indonesian Institute of Sciences; MMAF = Ministry of Marine Affairs and Fisheries; MOF = Ministry of Finance; NGO = nongovernment organization; PIU = project implementation unit; PMO = project management office.

NATIONAL LEVEL

ADB/IRM MOF MMAF PMO

KPKN LIPI PIU

Consultants

REGIONAL LEVEL

KPKN PIU

NGOs

Funds FlowFunds Request Contractors

Local Government

Head

40 Appendix 11

FINANCIAL AND ECONOMIC ANALYSIS A. Introduction

1. Financial and economic analysis was undertaken to determine the viability of the indicative income-generating microenterprises to be promoted by the Project. Economic analysis was carried out for the Project as a whole, covering noncost recovery components as well as microenterprise investment and operation. As the benefit impacts of different components of the Project are interdependent, project economic analysis was not conducted for individual components. Economic costs and benefits are expressed in terms of the domestic price numeraire. Detailed tables are presented in Supplementary Appendix F. B. Financial and Economic Analysis of Indicative Microenterprises

2. Four indicative enterprise models were identified as possible income-generating projects for the target 10,000 households in the project areas, namely (i) mud crab fattening, (ii) estuarine grouper cage culture, (iii) seaweed culture, and (iv) fish cracker making. The results of the financial and economic analysis indicate that each representative microenterprise is financially sustainable and economically viable, with the financial internal rate of return (FIRR) and economic internal rate of return (EIRR) above the weighted financial cost and social cost of capital estimated at about 16% and 12%, respectively (Supplementary Appendix F). The relatively high FIRR and EIRR values may be attributed to relatively attractive domestic prices for these commodities and the local abundance and low prices of primary production inputs. Aside from being economically viable, the representative livelihood projects are appropriate to the project areas as they utilize locally available resources. About 10,000 households are assumed to benefit from the microenterprises to be promoted by the Project through the inputs assistance program, delivery of extension services, and marketing assistance. C. Major Economic Benefits

3. Benefits not Quantified. The Project is expected to produce benefits difficult to quantify given the nature of, and the limited time and resources arising from, its two major components: (i) institutional strengthening and project management; and (ii) community-based resource management and development. The preliminary results from Phase I show success of initial implementation and development of these two components. The policy and strategy development work to be carried out under the Project will ensure appropriate controls and guidance for local development activities, thereby reducing adverse environmental impacts on coral reef ecosystems originating from various sources including unsustainable fisheries practices, mining, tourism, marine transport, land reclamation, and urban and industrial development. The implementation of an institutional development component will build national and local capacity in, and empower coastal communities for, community-based management (CBM) and project implementation. It will also enhance interagency linkages and public-private sector partnerships in income generation and resource management. Information, education, and communication programs as well as extension programs will result in behavioral changes in coastal inhabitants and bring about improvements in reef health. The delineation of marine management areas and implementation of CBM initiatives will lessen the destruction of coral reefs and improve rehabilitation efforts in the project area and, by transferring lessons learned at these sites to other coral reef systems, improve the general coastal and marine biodiversity in Indonesia.

Appendix 11 41

4. The enhanced recreational and tourism benefits arising from the improved biodiversity and aesthetic appeal of the generated coral reefs and fish population were excluded from the calculation of benefits. This is due to the difficulty in estimating consumer surplus for domestic tourists and economic profits from foreign tourists, due mainly to lack of reliable data. Health benefits were also excluded from the analysis as these are not linked to improvements in coral reef quality and are associated entirely with the Project’s social sector interventions. There are also methodological difficulties and lack of reliable data for analysis. 5. Quantifiable Benefits. The major quantifiable economic benefits of the Project are envisaged to arise from (i) rehabilitation of coral reefs in previously degraded areas and subsequent restoration of abundance of commercially important reef resources1 through the establishment of erosion control structures, artificial reefs and marine protected areas, fish restocking, coral transplantation, and mangrove reforestation; (ii) reduction in destructive fishing and overfishing through effective information, education, and communication activities, and monitoring, control, and surveillance activities; (iii) establishment of basic social services and infrastructure development to promote the socioeconomic well-being of coastal communities and complement the conservation efforts of the Project; and (iv) establishment of microenterprises to improve the income-earning capacity of fisherfolk, thereby contributing to poverty reduction in communities relying on reef resources for food and income. D. Economic Valuation

6. For this Project, all benefits were estimated through the specification of a single “incremental scenario” that is relative to some presumed reference case.2 The reference case refers to the estimate of benefits elsewhere, but adopted to a current study with appropriate adjustments to capture, as much as possible, the unique characteristics of the areas under study. This approach, referred to as the benefit transfer method, was adopted because (i) it permits a standardized methodology across multiple districts where information quality and availability vary widely; (ii) it provides a relatively simple methodology that is adequate for demonstrating the potential level of benefits associated with the Project;3 (iii) it permits linking of some of the project performance criteria in the project framework analysis (e.g., coral reef quality, incomes to target communities) to the dose-response assumptions in the benefit calculation; and (iv) it can be easily replicated at other Phase II sites that may be supported by other financing in other parts of Indonesia where similar data constraints may be expected. The studies or reference cases4 adopted to approximately capture the economic benefits likely to be generated by this Project are presented in Supplementary Appendix F. To make the resource values site specific, the reference values were adjusted for the target six districts of the Project using available economic, biophysical, and demographic information. 7. Economic Benefits. Global biodiversity values are typically quite high but are difficult, if not impossible, for countries to capture. The adjusted incremental benefit values for global biodiversity attributable to intact mangroves and coral reefs are $43/ha/yr and $2,808/ha/yr,

1 Such as reef fish, turtles, bêches-de-mer, giant clams, trochus shells, pearls, and other mollusks such as cone

shells and cowries. 2 Normally, project benefit-cost analysis (BCA) requires specification of differential benefits between a “with project”

and a “without project” scenario, and explicit definition of the two scenarios for areas under study. 3 As these benefits are not direct financial flows related to project sustainability, a higher level of uncertainty in the

benefit estimates is acceptable. 4 An exhaustive literature search was conducted to obtain reference cases that would closely approximate the

uniqueness and characteristics of Indonesia’s fishery resources. The only relevant and meaningful references to this Project are presented herein.

42 Appendix 11

respectively. Estimates of the global biodiversity incremental benefits are based on the 6,000 ha of coral reefs and 1,625 ha of mangroves directly targeted by the Project. These benefits are assumed to peak only after the 12th year of project implementation. The summary of reference and adjusted transfer benefits of coral reefs and mangroves attributable to global biodiversity, erosion control function, fishery, and local uses is presented in Table A11.1.

Table A11.1: Summary of Adjusted Transfer Benefits and Project Benefits

Item Area Transfera Transfer Estimated Project Benefits (ha) Benefits Benefits Financial Economic ($/ha/yr) ($/ha/yr) ($/yr) (Rp million/yr) (Rp million/yr)1. Fisheries Mangrove 1,625 941 273 443,625 4,436 4,924 Coral Reef 6,000 325 94 564,000 5,640 6,260

Subtotal 7,625 119 907,375 9,074 10,072 2. Local Uses Mangrove 1,625 340 20 32,500 325 361 Coral Reef 6,000 40 12 72,000 720 799

Subtotal 7,625 21 160,125 1,601 1,777 3. Erosion Control Mangrove 1,625 2,513 146 237,250 2,373 2,633 4. Global Biodiversity Mangrove 1,625 717 42 68,250 683 758 Coral Reef 6,000 8,529 2,473 14,838,000 148,380 164,702

Subtotal 7,625 1,918 14,624,750 146,248 162,335 a Based on the reference cases in Supplementary Appendix F. 8. EIRR Base Case. The results of the EIRR calculation for the whole Project are presented in Supplementary Appendix F. The EIRR of the base case was estimated at 19%, which is comparatively higher than the opportunity cost of capital of 12%. At a discount rate of 12%, the resulting net present value showed that the Project is expected to generate approximately $32.4 million for the economy. 9. Sensitivity Analysis. A sensitivity analysis was conducted to examine the effects of a 10% increase in project cost, and a decrease of 10%, 30%, and 50% in project benefits, global benefits, and microenterprise benefits,5 respectively, on the economic viability of the Project. The analysis indicates that it would take a 56% increase in project cost and a 36%, 35%, and 35% decrease in project benefits, global benefits, and microenterprise benefits, respectively, for the EIRR to decline to the cutoff level of 12% (Table A11.2).

5 The global biodiversity benefits as stated in para. 7 are typically quite high but are difficult, if not impossible, for

countries to capture; while the success of microenterprises is quite unpredictable due to dependence on a considerable number of factors, though only projects with high economic viability will be promoted and supported. For these reasons, a sensitivity analysis for these key variables was conducted at a relatively high level.

Appendix 11 43

Table A11.2: Summary Economic Analysis

Item NPVa EIRR Sensitivity Switching (Rp million) (%) Indicator Value (%) Base Case 323,835 19.0 10% Increase in Project Cost 265,740 17.3 1.8 56 10% Decrease in Benefits 233,358 17.2 2.8 36 30% Decrease in Global Benefits 121,209 14.8 2.8 35 50% Decrease in Microenterprise Benefits 238,048 17.2 2.8 35 EIRR = economic internal rate of return, NPV = net present value. a Net present value discount rate is 12%.

44 Appendix 12

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Poverty and Social Dimensions in the Project Area1

1. Population in the Project Area. The total population of the coastal and noncoastal villages in the six project districts is 1.8 million in 360,000 households with an average household size of five members. Poverty is widespread in the coastal villages of the project area, with the poverty incidence ranging from 83% in Nias to 41% in Kepulauan Riau. Of the total coastal households, about 53% fall below the poverty threshold, 13% are considered very poor, 40% are poor, and about 16% are low income earners. The remaining coastal households, accounting for 31% of the total, are made up of moderate (11%) and high (20%) income earners, with earnings greater than Rp4.86 million (or $486) per year. Those that fall below the poverty threshold are composed mostly of small fishers, fish processors, and workers in the fishing industry and allied fields, while the high income earners are businesspeople, landowners, big boat and plant owners, and successful entrepreneurs. 2. Most of the villagers in the project area are highly dependent on fishing for livelihood, with many claiming that their income from fishing is insufficient to meet even their basic subsistence needs. They have limited capacity to explore new fishing grounds or other opportunities for increasing fish catch and income, have limited facilities to store fishery products, lack marketing channels, and have limited transportation services. Human development is weak; coastal residents have limited education and limited access to health and other basic social services such as potable water supply, sewerage and sanitation, electricity, and transportation. In most proposed project sites, the absence of clear legal “ownership” rights to resource use has created conflicts in utilizing coastal and marine resources. Conflict is due mainly to outside fishers who usually own fishing vessels and use specific fishing techniques that enable them to catch more fish in less time than those using the more traditional methods of the local fishers. 3. Gender Issues. A clear division of labor exists in many villages in the project districts, with women and men undertaking their traditional reproductive and productive roles, respectively. Women’s tasks mainly revolve around household-related activities while men have primary responsibility for making a living, mostly in fishing. The educational level of males and females is generally unequal, with men having a somewhat higher educational attainment than women. Credit is also generally given to men, especially by the formal financial institutions, since they are considered the breadwinners. Women not only have limited access to economic services but also have limited roles in the family decision-making process, particularly for important decisions. 4. Institutional Support Systems. In most project sites, there are either formal or informal institutions that have experience in implementing community-based management (CBM) program activities. Women’s groups and fishers’ organizations can be used as a base for community mobilization. Similarly, the relatively new democratic bodies, such as the village representative forum and the village development management board, can be strengthened and empowered to assist the community to actively participate and be directly involved in local resource management. 5. Indigenous Peoples. The Suku Mentawai people make up 80% of the total population of Mentawai, which currently number about 60,987. Immigrant populations make up the 1 Additional details are presented in Supplementary Appendixes G–I.

Appendix 12 45

remaining 20%, which include the ethnic groups of Minang, Batak, Nias, and Ambon. Although some Suku Mentawai people are located also in the coastal areas, they reside primarily in the inland areas of Siberut. Suku Mentawai people are migratory, moving within the island of Siberut, with livelihood activities centered upon hunting, raising wild pigs, and growing tubers and cloves. The native language of Suku Mentawai is Bahasa Mentawai, an oral language heritage. Approximately 40% of the total Suku Mentawai people have received primary school education. Religious/spiritual laws, called the punen, govern relationships between people regarding agreements made, but none delineates resource use. Although the use of health centers is increasing, a large number of Suku Mentawai women still rely on the sikere, or the village spiritual healer, to assist them in childbirth. They have high representation in local governments, and an increasing number now hold formal employment. B. The Project’s Poverty and Social Strategy

6. Targeted Interventions. As its primary beneficiaries, the Project will target households in the coastal communities with annual incomes up to Rp6.48 million ($648), consisting mainly of small fishers, fish farmers, fish processors, and workers in the fishing industry and allied fields. Those households with annual income over Rp6.48 million will not be included among the Project’s target beneficiaries although their cooperation in project activities will be advantageous to the Project. Some project activities will benefit all persons or households in the community, while others will have a more specific impact on specific groups. The target communities will be provided with income-generating and employment opportunities and better access to basic amenities. They will be trained in better resource management to improve their productive capacity and transform the fishers among them into responsible resource users and managers. 7. Conflict Management. Resource management decisions taken by the local community will be legitimized through the establishment of new measures or the formalization of existing ones. For instance, if there is a community consensus in managing a marine resource or area by prohibiting trawl operations within 12 miles of an island, this could be legalized to ensure that others recognize this decision. The people will be involved not only in choosing the reef management area but also in the preparation and implementation of local rules over use and protection. In the absence of resource management plans, the Project will assist in drafting regulations as required. Planning for coral reef management, village plan development, and the formulation of income-generating activities will be conducted in a participatory manner and will be inclusive of the needs of indigenous coastal communities, where they exist at project sites. 8. Poverty Mitigation and Social Development. The Project will address poverty concerns through its core development activities of (i) community empowerment and institutional development and (ii) sustainable livelihood and income generation to enhance welfare, thereby reducing pressure on coral reefs. Communities will be empowered and trained to manage, control, and utilize reef resources in a sustainable manner, and will be provided with (i) basic services; (ii) basic infrastructure; and (iii) community environmental protection, rehabilitation, and enhancement projects. However, the Project will only enter those communities into which it is expressly invited, and will not impose any specific income-generating activities. Individuals will be given training and help in obtaining funding but will not be given outright grants. Prior to the implementation of activities at project sites, the communities will engage in a comprehensive planning process that identifies constraints, risks, and opportunities. A gender action plan will delineate how the Project will encourage women’s participation and provide opportunities for them to play active roles in setting up, operating, and managing small-scale income-generating projects (Supplementary Appendix I).

46 Appendix 13

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION

A. Introduction

1. An initial environmental examination of the proposed Project was carried out to ascertain its impacts on the environment and to identify and recommend measures to prevent or mitigate any adverse environmental impacts which could arise from project implementation. B. Description of the Project

2. The proposed Project is the acceleration phase of a national coral reef rehabilitation and management program whose overall goals are healthy coral reef ecosystems and prosperous coastal communities. The Project will contribute to this overall program goal by (i) enhancing the national and local capacity to manage the country’s coral reef resources and (ii) rehabilitating and effectively managing priority coral reef ecosystems, thereby helping raise income levels and improving living standards among poor coastal communities. The Asian Development Bank (ADB) will finance project activities in six districts in the three provinces of (i) Riau, (ii) North Sumatra, and (iii) West Sumatra.1 These districts are: (i) Kota Batam, Kepulauan Riau, and Natuna in Riau; (ii) Nias and Tapanuli Tengah in North Sumatra; and (iii) Mentawai in West Sumatra.2 These priority districts contain more than 300,000 hectares (ha) of inshore coral reefs, representing some 98% of the total reefs in the three provinces. They also have at least 450 coastal villages, of which about 87% have adjacent reefs. In these districts, some 20 core sites have been provisionally selected during project preparation, but will be confirmed during the implementation, subject to the Project being invited in by the local communities. Where the communities do not fully support the community-based management (CBM) program, alternative core sites will be selected. 3. The Project will have two major components: (i) institutional strengthening and project management, which will comprise (a) strengthening of national and regional institutions in policy, strategy, and guideline formulation and resource planning and management; (b) establishment and strengthening of a network of coral reef information and training centers (CRITCs); (c) human resources development (HRD) and extension; and (d) project management; and (ii) community-based resource management and development, which will involve (a) community empowerment, (b) community resource management, (c) community social services and infrastructure development, and (d) community livelihood and income generation. The detailed description of the activities to be carried out under each of these components and subcomponents is given in paras. 15–31 of the main report. C. Description of the Environment

4. Mapping of the target districts by Landsat 7 ETM+ satellite imagery showed that the three districts in Riau (namely, Batam, Kepulauan Riau, and Natuna) have the most extensive pooled coral reef cover of about 260,000 ha. This area represents over 67% of the 380,000 ha of coral reefs in the three provinces (Riau, North Sumatra, and West Sumatra) combined. Natuna has the most extensive coral reefs, with about 125,000 ha, equivalent to about 33% of the pooled coral reef areas for the selected districts in the three provinces. Mangroves, which 1 The World Bank is expected to fund project activities in five other provinces. These have only been provisionally

identified and include Southeast Sulawesi, South Sulawesi, North Sulawesi, Maluku, and Irian Jaya. 2 Information on the proposed project districts, as well as selection criteria used for identifying them, are given in

Appendix 4 and Supplementary Appendix A.

Appendix 13 47

act as biological filters and buffers against coastal erosion, as repositories of high biodiversity and critical areas, and as nurseries for commercially important fish species, are common in the selected districts in all three provinces. However, the vast majority of mangroves are located in Riau, with some 43,000 ha (68%) mapped there out of a total 63,500 ha in the three provinces. 5. Various socioeconomic variables were collected as part of the social assessment conducted during project preparation. As these are described in Appendix 12, they will not be repeated here. However, in view of the causal linkages between environmental degradation and the principal occupation of the coastal communities, it is worth mentioning that fishing is the primary occupation recorded in over half (58%) of the 67 villages proposed for Phase II, and most of them (25 out of 39) are located in Riau. The estimated population of the proposed Phase II districts is about 103,360 individuals living in 22,251 households, equivalent to 4.6 members per household, higher than the national average household size of 4.3 members. D. Screening of Potential Environmental Impacts and Mitigation Measures

6. The project activities were screened and the results tabulated according to the operational stages of the Project: (i) environmental problems due to project location; (ii) environmental problems related to design; (iii) environmental problems associated with construction; and (iv) environmental problems resulting from project operations. Based on the environmental screening of Project components and interventions using ADB’s Environmental Assessment Requirements (1998), the project components were classified, as shown in Table A13.1.

Table A13.1: Screening of Project Activities Activity 1 2 3 4 Component I: Institutional Strengthening and Project Management Strengthening of National and Regional Institutions No No No No Strengthening the Coral Reef Information and Training Centers No No No No Human Resources Development and Extension No No No No Project Management No No No No Component II: Community-Based Resource Management and Development Community Empowerment No No No No Community Resource Management No No No No Community Social Services and Infrastructure Development No No Yes No Community Livelihood and Income Generation No No No Yes

1 = Environmental problems due to project location; 2 = Environmental problems related to design; 3 = Environmental problems associated with construction; 4 = Environmental problems resulting from project operations; No = no adverse environmental impacts; Yes = with potential adverse environmental impacts. 7. For the subcomponents classified as Category B, some prototype interventions were tested for their potential adverse impacts vis-à-vis the actions affecting environmental resources and values as listed in ADB’s checklist of environmental parameters for fisheries and aquaculture projects to segregate those parameters with “no significant impacts” from those “with significant adverse impacts” (small, moderate, or major). Small-scale village development activities mainly involving the provision of basic social infrastructure facilities such as those for potable water supply, sanitation, public health, and physical access (e.g., small jetties for boats and access roads leading to the communities) may produce minor impacts during the construction stage. However, given that the development is of a small scale, the magnitude of the impacts (e.g., dust and noise, road traffic) is also expected to be small and of a temporary nature. For example, the dust and noise produced by the construction of the facilities are not

48 Appendix 13

expected to cause a major disturbance to the population living to the sites of these facilities. Besides, these effects can be mitigated through proper site selection and construction planning. 8. Among 35 possible microenterprises tested for their environmental impacts, mariculture and land-based aquaculture activities were identified as having potential adverse impacts on the environment (Supplementary Appendix C). Small impacts could arise from: (i) site selection, particularly as a result of conflicts with other site uses (waterways); (ii) construction; and (ii) operation, specifically water pollution hazards. The selection of sites for establishment of mariculture enterprises should therefore be made carefully and with full consideration of other uses of the sites to prevent conflicts, such as with the use of the waterway for navigation. Private contractors engaged by the project implementation units (PIUs) for the construction of social infrastructure facilities will be properly oriented on the need for environmental safeguards. The culture method to be used should be extensive or semi-intensive, at the most, to prevent water pollution caused by excess fish feeds and fish wastes. Monitoring of water quality at the culture sites and downstream will help in the early detection of water pollution and the implementation of mitigation or corrective measures to prevent further damage to the environment. E. Environmental Impact Monitoring

9. In general, environmental impact monitoring involves the measurement of indicators before, during, and after the establishment of project interventions to determine the effectiveness of management measures adopted, assess the Project’s benefits on the environment, allow early detection of environmental damage, and ensure that environmental safety criteria are complied with. For this Project, the interventions listed as having potential negative environmental impacts should be monitored, particularly those whose effects are predicted due to site selection. Those impacts that are temporary and that are likely to result from construction or renovation of physical facilities obviously need not be monitored after completion. A detailed environmental management and monitoring plan will be prepared, with the assistance of an environment specialist, in the first year of project implementation. Environmental monitoring will be the responsibility of the regional CRITCs, specifically their technical staff, but will be supported by the national CRITC and by the project management office (PMO) and the PIUs, as necessary. The results of environmental monitoring carried out at the field level will be compiled at the PIUs and transmitted to the CRITCs for storage and easy retrieval. F. Conclusions and Recommendations

10. Using the ADB checklist of environmental parameters for fisheries and aquaculture projects, the potential environmental impacts of the interventions classified under Category B were identified. Examination of these interventions showed that none of them would need an environmental impact assessment, i.e., not one of the interventions is environmentally critical or projected to create significant adverse or negative impacts on the environment. Only a few minor environmental impacts are likely as a result of factors related to site selection and construction, but these are small and avoidable/mitigatable and, in the case of construction-related impacts, localized and temporary in nature and could be minimized through careful planning and the adoption of proper construction practices. Some socioeconomic impacts may result from project implementation, but these could be mitigated by participatory mechanisms and the application of conflict resolution techniques. Overall, the Project is not expected to result in significant adverse environmental impacts and instead, is likely to bring about numerous economic and environmental benefits. The preparation of an environmental impact assessment

Appendix 13 49

is, therefore, not required, and this initial environmental examination can suffice for the purpose. Nevertheless, environmental conditions at the project sites should be monitored regularly to determine changes in the levels of essential environmental parameters, which indicate the need for remedial or preventive measures.