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Proposed grant from the global environment facility trust fund

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    1. Loan/credit conditions and covenants

Section 4.01“Standard” wording for project audits. The annual audited financial statements will be furnished to the Bank not later than six months after the end of each year.
Section 4.02“Standard” wording for FMRs. The semiannual FMRs will be submitted to the Bank not later than 45 days after the end of each calendar semester.

(Lawyer to advise prior to appraisal)


    1. Economic and financial analysis

The proposed project is a partially blended GEF operation with a total cost of $14.22 million. The GEF is being requested to provide grant co-financing of $7.00 million. The remaining co-financing is provided through the IBRD loan ($2.74 million), counterpart financing ($1.75 million) and beneficiaries ($3.00 million). The cost-effectiveness analysis demonstrates that the project would apply the least-cost approach to reach the goal of biodiversity conservation in Argentina, which has global environmental impact. The government would benefit from the project support through capacity strengthening, which would be cost-saving for the policy-making and technology transfer process. Cost-effectiveness analysis also indicated that use existing research facilities and technical expertise to carry out field trials on biodiversity is a least-cost alternative in stead of supporting a brand-new institute.
Financial analysis was performed to evaluate various treatments for biodiversity conservation. The analysis showed that plantation of native species would reduce income comparing with exotic species. A compensation is recommended (the project would provide incremental cost investment it in some targeted cases as well as reform of government policies and programs to reflect these differential situations between natives and exotics) to overcome this situation effectively in benefit of biodiversity. In one case analyzed, less-dense plantations turned out to have a higher income comparing with traditional model generating improved conditions for biodiversity as well. Other treatments of set asides, wildlife cuts, and restoration or creation of natural vegetation would also have an effect of reducing income. Adequate compensation measures will be analyzed particularly in component 2 through economic analysis both sector specific and plantation specific that would provide sufficient incentives for the producers to adopt the treatments proposed and trigger policy and draft legal reforms addressed in component 1 to complement.
For a complete Incremental Cost Analysis, please see Annex 15.

    1. Technical

Increasing world demand for wood and fiber, economic stability and Argentina’s strong comparative advantage in plantation forestry are likely to combine to favor strong growth in the sector over the next ten years. While this growth will be advantageous to the economy it also poses potential risks to some of Argentina’s most important biodiversity. This is because adequate safeguards do not exist to ensure that critical ecosystems are not damaged, or threatened or endangered species harmed, as a result of expansion. Because 95% of Argentina’s land lies outside protected areas, and because many vulnerable ecosystems are located in the path of plantation expansion, it is critical that the shortcomings which place biodiversity at risk are addressed. This project has been designed to address these by promoting the mainstreaming of biodiversity in plantation forestry. Sustainability will be addressed by developing a dialogue and partnerships with the private sector and by involving provincial players. It will also capitalize on complimentary initiatives being fostered by a partially-blended IBRD loan operation in the plantation sector.

    1. Fiduciary

A Financial Management (FM) assessment is underway. The proposed project will be implemented by the Secretariat of Agriculture, Livestock, Fishing and Food (Secretaría de Agricultura, Ganadería, Pesca y Alimentos, or SAGPyA) which has already participated in the implementation of a previous Bank financed project: AR Forestry Development (Loan 3948-AR P006040) Effectiveness: 07/17/1996 – Closing: 01/31/06; Loan amount: $16.00 million dollars
At this time, it can be considered that the proposed financial management arrangements meet minimum Bank requirements and the Secretariat through the administrative unit has sufficient capacity and resources to implement them. The unit has also qualified staff to undertake the financial management functions for the project. The Financial Management risk rating and mitigation measures for this operation will be provided once the assessment is completed
Pending steps identified so far to be included in the action plan are:

i) Adjustment of the existing Operational Manual comprising the internal control system and procedures to be implemented and submit for the Bank FM Specialist review, comprising: a) Chart of Accounts for the project; b) format and content of the annual financial statements and FMRs format for monitoring and evaluation purposes; c) terms of reference for the external auditing, d) funds flow and arrangements for activities of Component 3 of the project and advances to government agencies and NGOs under partnership agreements

ii) Request a specific budget line in the Secretariat budget to keep track of project execution separated from other budget programs execution in the Secretariat’s budget

iii) Define specific arrangements and funds flow for the Grant program under Component 3 and other project activities involving advances to other Government institutions or civil society organizations (NGO). These procedures will be prepared by the administrative unit U, reviewed and agreed with the Bank FMS and will e included in the Operational Manual as well.

The action plan is part of the financial management assessment included in this document.

    1. Social

The project will not only work on relevant policy and institutional issues, bit it will also co-finance subprojects with beneficiaries to integrate biodiversity-conservation management practices into small-holder plantation forests. Primary beneficiaries of the project are plantation owners with a strong emphasis toward small- and medium-size landowners. National level stakeholders include public institutions involved in the development of policy and implementation of programs in the forestry sector and biodiversity including SAGPyA and INTA, as well as NGOs, research institutions, and universities. Local stakeholders include landowners, provincial governments and their extension agencies, landowner or producer associations, universities, forestry companies and plantation managers among others. All stakeholders have been consulted throughout the preparation process, and their views incorporated into the project design.

    1. Environment

Additional information can be found in Annex 10: Safeguard Policy Issues. The Recipient is preparing an environmental assessment (EA), but the impact of the project on the environment is expected to be overwhelmingly positive. Some risks do exist, and provision for these has been made, nevertheless, as an added safeguard an environmental management plan is being prepared to define mitigating measures, should the project fall out of compliance. The EM plan is complete with budget and institutional responsibilities for implementation and monitoring.

    1. Safeguard policies

Safeguard Policies Triggered by the Project



Environmental Assessment (OP/BP/GP 4.01)


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Natural Habitats (OP/BP 4.04)


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Pest Management (OP 4.09)


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Cultural Property (OPN 11.03, being revised as OP 4.11)



Involuntary Resettlement (OP/BP 4.12)

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Indigenous Peoples (OD 4.20, being revised as OP 4.10)

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Forests (OP/BP 4.36)


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Safety of Dams (OP/BP 4.37)

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Projects in Disputed Areas (OP/BP/GP 7.60)*

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Projects on International Waterways (OP/BP/GP 7.50)

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The safeguard screening category of the project is “S2”. The project is classified as Category “B”, requiring an Environmental Analysis (EA) but not a full-scale Environmental Assessment study. In accordance with OP 4.01, an Environmental Analysis is being carried out. While not required, an environmental management plan is being developed for the project and will be included in the operational manual. Important findings and useful recommendations from the EA are integrated into project design (see Annex 10).

    1. Policy Exceptions and Readiness

The project meets the regional criteria for readiness for implementation. The fiduciary arrangements are in place. Key project staff and consultants can be quickly mobilized upon project start up. Adequate monitoring and evaluation capacity is available. The Environmental Analysis will be disclosed in the country and is available at the Bank's Infoshop and on relevant web sites prior to appraisal.
Annex 1: Country and Sector or Program Background

Argentina: Argentina GEF Sustainable Forestry Development

Located in the southeastern quadrant of South America, Argentina is a land of both great natural wealth and human capital. Following a period of rapid economic growth in the 1990s, the economic crisis at the turn of the 21st century brought into the light numerous structural weaknesses in the Argentine engine. The economic crisis was followed by several years of economic contraction, falling real incomes, political rotation and social fracturing. Nevertheless since 2003, Argentina appears to be on the path of more stable economic growth, albeit within a different framework prior to the crisis, especially with respect to forestry. This has provided an opportunity to work with Argentine institutions at a moment of economic expansion and increased political stability.

Historically, Argentina’s economy has been based mainly on the production and export of livestock and grain products. This over-dependence on a small number of primary products has left the country vulnerable to price and supply fluctuations, and has contributed to an erratic pattern of economic growth. Recognizing the dangers of a narrowly based economy, the government and the private sector have been seeking to diversify. One area which offers considerable potential is forestry. Biophysical conditions in certain parts of Argentina are very favorable to forest plantations, particularly in the northeast and in the Patagonia Andes. Plantation development in these areas has strong comparative advantage and considerable potential to generate both economic growth and social benefits through taxation, exports, import substitution and employment.

Stretching from the mountainous forests of the northern Chaco region through the famous Pampas savannahs, remanants of Atlantic and Valdivian Forests, and down to the southernmost subarctic plains of the Tierra del Fuego, Argentina is rich in number and types of ecosystems. Of the 18 ecorregions identified in the country, eight have been classified as among the highest priorities for conservation in the Neotropics.4 The high levels of biodiversity and urgent threats to the Atlantic Forest and the Valdivian Forests have led Conservation International to include these ecoregions among the 5 “hotspots” of South America, placing them among the highest global conservation priorities.

Apart from the forest ecosystems, Argentina also harbors extensive grassland ecosystems important for the protection of resident and migratory species of global concern. Grasslands make up almost 60% of the country, significantly higher than the 33% average for South America. The wet grasslands of Entre Rios and Corrientes are considered part of an Endemic Bird Area by Birdlife International, harboring globally threatened or range-restricted species of birds. The threatened grassland birds make up 41% of endangered species of the country. Argentina is only second to Brazil in total number of threatened Neotropical grassland species.5
Argentina has one of the oldest protected areas systems in the Americas with around 5% of its territory under legal protection at a National or Provincial level. However, like most countries, the greatest percentage of its biodiversity remains outside of the protected areas system. Private landowners make up about 95% of the national territory. A portion of these areas are protecting biodiversity through a small private reserves system managed by a national NGO, which covers some 50,000 hectares of the country while private investors have purchased over 200,000 hectares in the Corrientes wetlands and the Delta region of Argentina. It is clear that a large portion of Argentina's globally and regionally important biodiversity is found outside of the public and private protected areas system.
Not coincidentally, the most threatened ecosystems in Argentina are associated with the greatest levels of population and agricultural development in the country. An estimated 70% of bird species are threatened mainly by habitat loss. There is significant overlap of productive areas under management for livestock, agriculture and forestry with ecosystems that harbor important biodiversity. For example the Humid Pampas which lacks any national protected area, is home to various endemic animals threatened by habitat destruction and degradation stemming primarily from agriculture and grazing within the ecosystem. While less than one half of one percent of the original native pampas remains in pristine condition, it still provides habitat to over 450 species of birds, as well as endangered species of global importance, including the Pampas Deer (Ozotocerus bezoarcticus celer), two types of the Loica Pampeana (Sturnella defilippi and Laterallus spilopterus), the Hudsonian Godwit (Limosa haemastica), the Ruddy-headed goose (Chloephaga rubidiceps), and the Speckled Crake (Coturnicops notata).6 Measures are badly needed to mainstream conservation practices into productive activities if biodiversity is to be protected.

The globally important ecosystems of Argentina that overlap with the tree plantations include both forests and grasslands. The forest ecosystems include the Alto Parana Atlantic Forest and Valdivian Forests while the grassland/wetland ecosystems include the Mesopotamian Grasslands, Paraná Flooded Savanna, and Patagonian Steppe.
Plantation forestry is primarily expanding on grassland and wetland ecosystems at present, given that current legislation does not permit transformation of forest ecosystems for subsidized planting. Other important portions of these forest ecosystems are dedicated to conservation of biodiversity through national and provincial protected areas. The financial returns of plantation forestry in addition, do not provide an economic incentive to deforest, contrary to the case of mechanized agriculture which continues to impact fragile forest ecosystems and grasslands especially in the Chaco, Monte and Espinal ecosystems.
Alto Parana Atlantic Forest. This ecosystem is almost entirely found within the province of Misiones. It consists of tall sub-tropical semi-deciduous forests reaching up to 40 m in height. Within the ecoregion there are several types of forest ranging from the Araucaria (an evergreen tree) forests in the more montane areas in Southern Misiones to the Rosewood and Palm forests (Aspidosperma polyneuron and Euterpe edulis) along the larger rivers bordering the province. The ecoregion represents little over 1 percent of Argentinas total land mass, however it harbors almost 30 percent of its vascular plants and 50 percent of its vertebrates. Among the emblematic bird species of this ecoregion are the Bare-throated Bell Bird (Procnias nudicolis), the critically endangered Brazilian merganser (Mergus octosetaceus also found in the Cerrado), Black-Fronted Piping Guan, and Vinaceous Amazon among the birds, and Giant Otter, Tapir, and Jaguar among the mammals.
Argentina has the largest remaining continuous tracts of the three countries that share this ecoregion (Brazil and Paraguay). The ecoregion has been used since colonial days for timber extraction. Over the past 40 years, plantation forestry has had the greatest expansion within this ecoregion where formerly deforestation was permitted to establish plantations with exotic pine and native Araucaria species.
Mesopotamian Grasslands. These grasslands cover the western quarter of Misiones Province and large part of Corrientes and Entre Rios Provinces. They consist of a complex of wetlands and grasslands that are considered to be part of an Endemic Bird Area by BirdLife International, harboring endemic species of avifauna that are also globally threatened. Several species of Sporophila seedeaters are present including the Marsh Seedeater (a regional migratory species) as well as the Saffron-cowled Blackbird (Xanthopsar flavus) and Strange-tailed Tyrant (Alectrurus risora). Although important parts of the wetlands are conserved (Ibera) in this ecoregion, much of the grasslands of importance still need protection, including the Aguapey River watershed where much of the plantation forestry in Corrientes province has occurred.
Parana Flooded Savanna. This ecoregion is located south of the Mesopotamian grasslands in Argentina along the middle and lower stretches of the Parana River/Rio de la Plata. Areas have been drained and channeled for plantations of poplar and willow, used primarily for production of wood for fruit packaging.
This aquatic and semi-aquatic ecoregion provides habitat for diverse species of flora and fauna. Willow and ceibo trees (Salix humboldtiana and Erythrina crista-galli) are among the dominant species along the riverbanks while floating plants include the large water-lilies (Victoria cruziana) and water hyacinth (Eichornia crassipes). Fish are abundant given the nature of the habitat with some 300 species known for the region. Endangered mammals adapted to aquatic environments such as the Marsh Deer (Blastocerus dicotomus), and the Neotropical River Otter (Lontra longicaudis) are present along with endangered birds such as the Sickle-winged Nightjar (Eleothreptus anomalus) and Grey-and-Chestnut Seedeater (Sporophila hypochroma).
Valdivian Ecoregion. The Valdivian Ecoregion (known as the Region Andino-Patagonico in Argentina) shared by Chile and Argentina, consists of several different forest types. Their evolution influenced by topography, defined in large part by the Andes mountain range, rainfall patterns, climate, and soils. High levels of endemism make this ecoregion an key area for protecting globally important biodiversity. Included among the principal types of tree species that define specific forest types are, the Alerce (Fitzroya cupressoides), Araucaria (Araucaria araucana), Cyprus (Austrocedrus chilensis), and several types of Nothofagus forests. Levels of endemism among fauna species are high. Almost 80% of amphibian species, 50% of fish and up to 30% of birds.
Although there is little conversion of native forest to plantations in Patagonia in general, there is the danger to native ecosystems from invasive exotic species, increased fire hazard, and alterations in connectivity from nearby or adjacent plantations.
Patagonian Steppe. The Patagonian Steppe is an extensive ecoregion of grasslands and shrubs that crosses from the Atlantic Ocean to the foothills of the Andes in Southern Argentina and Chile. Although it is a windy region characterized by low rainfall (under 200 mm per annum), there is a narrow strip of steppe that has levels of rainfall around 300 mm per annum that comes into contact (ecotone) with the Valdivian forest ecosystems. It is this narrow strip of a few tens of kilometers wide where rainfall permits plantation forestry with exotic Ponderosa and Oregon pine among other species. The ecotone is also rich in terms of biological diversity. Among threatened species of mammals are the Ctenomys sociabilis, an endemic rodent, and Lagidium wolffsonhi, a chinchilla; while birds include the critically endangered Antarctic Rail (Rallus antarcticus). Flora is also highly endemic and adapted to the harsh dry conditions with up to 60% endemism in the Leguminosae including two endemic Prosopis species and up to 30% endemism in the Compositae.

While the greatest impact of human activity on natural ecosystems in Argentina over the past few centuries has been through agriculture and livestock grazing, the rapid expansion of plantation forestry in the northeast is adding new impacts to native and agricultural ecosystems. Argentina has approximately 34 million hectares of mainly native forest. Plantations extend to 1.2 million hectares, mostly composed of exotic tree species of pines and eucalypts. The progression of plantation forestry was initially slow in Argentina, but has been gathering momentum over the past decade. Of the 1.2 million ha of plantations, over 500 thousand ha have been created in the past 12 years. Prior to the financial crisis in 1998, 102,900 ha were planted. While this dropped to about 20,000 ha per year in 2002 and 2003, it increased to 32,700 ha per year in 2004 and indications are that 2005 plantings will be even higher. Given that lands suitable for forestry purposes are estimated at around 10 million ha, there is considerable area for the expansion of plantation forests in Argentina, the most productive of which is located in the grasslands of Corrientes and Entre Rios.

Historical Framework: The Argentine forest sector has experienced varied success throughout its history. During the mid-20th century growth was dynamic, due largely to favorable public Import Substitution Industrialization policies combined with strong internal demand. In the mid-1970s macroeconomic instability and a reduction in demand for paper and pulp lead to a slowdown in growth. However, the Papel Misionero and Papel Prensa integrated cellulose plants were completed in late 1970s. The Alto Paraná, Celulosa Puerto Piraí, Papel de Tucumán plants were also approved during this period for a total of $987 million, or 93% of investments approved under the industrial promotion framework. The establishment of plantations during this period also fostered the growth of several sawmills and other wood-processing facilities.
In the 1990s, deregulation eliminated tariff protection for the forestry sector. Profits fell, as did national production. However, foreign direct investment in the sector grew by nearly $900 million from 1990-2000, with the strongest growth in wood industries. The 1992 Regimen de Promocion de las Plantaciones Forestales (RPPF) 1992 allowed large producers to receive subsidies for up to 700 ha.of plantations, and large foreign and national firms benefited from about one third of the $140 million the government invested in new plantations. (Starting in 2000, the ceiling was lowered to benefit more small and medium producers.) Despite this program, up to 1995 plantations were being established on an ad hoc basis with very little support or direction from the state. The policy framework was ill defined, research was under funded, inventory data was non existent, there was no forestry-extension service, certified seed was unavailable, the special needs of small producers were ignored, information on markets was incomplete, and scant attention was paid to environmental concerns. To help address these shortcomings, the Bank-financed the Forestry Development Project between 1995 and 2005, making substantial progress in each of these areas. Despite very difficult country conditions in 2001/2, the project performed well throughout and achieved its development objectives. In parallel, the Bank also financed the Native Forest and Protected Areas project from 1996 to 2005, which had more of a conservation focus.
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