PROPOSAL FOR COSTA RICA

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1 Adaptation Fund Board Project and Programme Review Committee Fifteenth Meeting Bonn, Germany, 7-8 October 2014 AFB/PPRC.15/10 17 September 2014 Agenda Item 6 f) PROPOSAL FOR COSTA RICA

2 AFB/PPRC.15/10 Background 1. The Operational Policies and Guidelines (OPG) for Parties to Access Resources from the Adaptation Fund (the Fund), adopted by the Adaptation Fund Board (the Board), state in paragraph 45 that regular adaptation project and programme proposals, i.e. those that request funding exceeding US$ 1 million, would undergo either a one-step, or a two-step approval process. In case of the one-step process, the proponent would directly submit a fully-developed project proposal. In the two-step process, the proponent would first submit a brief project concept, which would be reviewed by the Project and Programme Review Committee (PPRC) and would have to receive the endorsement of the Board. In the second step, the fullydeveloped project/programme document would be reviewed by the PPRC, and would ultimately require the Board s approval. 2. The Templates approved by the Board (OPG, Annex 4) do not include a separate template for project and programme concepts but provide that these are to be submitted using the project and programme proposal template. The section on Adaptation Fund Project Review Criteria states: For regular projects using the two-step approval process, only the first four criteria will be applied when reviewing the 1st step for regular project concept. In addition, the information provided in the 1st step approval process with respect to the review criteria for the regular project concept could be less detailed than the information in the request for approval template submitted at the 2nd step approval process. Furthermore, a final project document is required for regular projects for the 2nd step approval, in addition to the approval template. 3. The first four criteria mentioned above are: 1. Country Eligibility, 2. Project Eligibility, 3. Resource Availability, and 4. Eligibility of NIE/MIE. 4. The fifth criterion, applied when reviewing a fully-developed project document, is: 5. Implementation Arrangements. 5. It is worth noting that since the twenty-second Board meeting, the Environmental and Social (E&S) Policy of the Fund was approved and consequently compliance with the Policy has been included in the review criteria both for concept documents and fully-developed project documents. The proposals template was revised as well, to include sections requesting demonstration of compliance of the project/programme with the E&S Policy. 6. In its seventeenth meeting, the Board decided (Decision B.17/7) to approve Instructions for preparing a request for project or programme funding from the Adaptation Fund, contained in the Annex to document AFB/PPRC.8/4, which further outlines applicable review criteria for both concepts and fully-developed proposals. The latest version of this document was launched in conjunction with the revision of the Operational Policies and Guidelines in November Based on the Board Decision B.9/2, the first call for project and programme proposals was issued and an invitation letter to eligible Parties to submit project and programme proposals to the Fund was sent out on April 8,

3 AFB/PPRC.15/10 8. According to the Board Decision B.12/10, a project or programme proposal needs to be received by the secretariat no less than nine weeks before a Board meeting, in order to be considered by the Board in that meeting. 9. The following fully-developed project document titled Reducing the vulnerability by focusing on critical sectors (agriculture, water resources, and coastlines) in order to reduce the negative impacts of climate change and improve the resilience of these sectors was submitted by Fundecooperación para el Desarrollo Sostenible (Fundecooperación), which is the National Implementing Entity of the Adaptation Fund for Costa Rica. This is the third submission of the project. It was first submitted as a programme concept, using the two-step approval process, for the twenty-first Board meeting and was not endorsed. It was subsequently resubmitted at the twenty-second meeting as a concept, along with a request for Project Formulation Grant (PFG) and the Board decided to: (a) Endorse the programme concept, as supplemented by the clarification response provided by Fundecooperación para el Desarrollo Sostenible (Fundecooperación) to the request made by the technical review; (b) Request the secretariat to transmit to Fundecooperación the observations in the review sheet annexed to the notification of the Board s decision, as well as the following issues: (i) The fully-developed programme document should clearly articulate how the proposed technical options enhance climate resilience in the agricultural sector and access to clean and safe water. Specific reference should be made to how the proposed activities are designed to be commensurate in overcoming the climate impacts in the areas of intervention in the context of climate change in Costa Rica; (ii) The fully-developed programme document should detail how the proposed insurance schemes are designed to alleviate climate impacts rather than being based on the occurrence of previously established climate events; (iii) The fully-developed programme document should make specific reference to the goal of the reimbursable funds for the implementation of sustainable management practices for water, and investment in new infrastructure, addressing how these funds would work, who would manage them, what source of funds would be used to finance them, and how the financing of the fund would be sustained in the long term. (c) Approve the Programme Formulation Grant of US$ 30,000; (d) Request Fundecooperación to transmit the observations referred to in subparagraph (b) to the Government of Costa Rica; and (e) Encourage the Government of Costa Rica to submit through Fundecooperación a fully-developed programme proposal that would address the observations under subparagraph (b). 2 (Decision B.22/5)

4 AFB/PPRC.15/ The present submission of the fully-developed project document was received by the secretariat in time to be considered in the twenty-fourth Board meeting. The secretariat carried out a technical review of the project proposal, assigned it the diary number CRI/NIE/Multi/2013/1, and completed a review sheet. 11. In accordance with a request to the secretariat made by the Board in its 10th meeting, the secretariat shared this review sheet with Fundecooperación, and offered it the opportunity of providing responses before the review sheet was sent to the PPRC. 12. The secretariat is submitting to the PPRC the summary and, pursuant to decision B.17/15, the final technical review of the project, both prepared by the secretariat, along with the final submission of the proposal in the following section. 3

5 AFB/PPRC.15/10 Project Summary Costa Rica Reducing the vulnerability by focusing on critical sectors (agriculture, water resources, and coastlines) in order to reduce the negative impacts of climate change and improve the resilience of these sectors Implementing Entity: Fundecooperación Project/Programme Execution Cost: USD 860,000 Total Project/Programme Cost: USD 9,220,000 Implementing Fee: USD 750,000 Financing Requested: USD 9,970,000 Project/Programme Background and Context: Costa Rica is experiencing the effects of increasing temperatures and intensity of extreme rainfall. These effects, due to climate change, are increasing the vulnerability of the water resources of the country, threatening the sustainable production of agricultural resources that promote food security and livelihoods, as well as negatively affecting mangroves and coral reefs, which serve as protective barriers to coastal communities. The objective of the proposed programme is to reduce climate vulnerability by focusing on critical sectors (agriculture, water resources, and coastal zones) in order to reduce the negative impacts of climate change, and improve the resilience of those populations. This program will seek to increase climate resilience by working directly with local stakeholders and anticipated beneficiaries through the implementation of adaptation projects in each of the geographical areas selected. Projects submitted by local organizations have been screened and the preselected proposals went through an in-depth assessment of their potential for the enhancement of climate resilience, which involves an analysis of the actions appropriateness, based on the local biophysical and socioeconomic context. The support will consist of investment in interventions, technical assistance, and training related to this plan. The programme comprises the following three components: Component 1: Increasing the adaptation capacity to climate change in the agricultural sector (including agriculture and livestock). (US$3,000,000) This component aims to improve the sustainability of agricultural production systems that promote food security and sustainable livelihoods. It aims to do this through developing strategies that promote water and soil conservation, organic agriculture, low cost technologies, improved livestock forage quality, and the establishment and support of seed banks. Funding is proposed to be directed to agricultural producers to implement sustainable land management practices and climate change adaptation strategies through a system of payment for ecological services. This component includes a subcomponent relating to the participation of research institutions in order to garner lessons learned and disseminate these throughout the region. Component 2: Improving water resources management in order to increase resilience in coastal communities that are more vulnerable to climate change. (US$ 3,449,010) This component contains activities relating to the development and implementation of water safety plans for water users at local level and watershed management plans in vulnerable infrastructure. It will also implement measures to protect aquifer recharge areas, including reforestation and water treatment. Other activities will include promotion of refundable funds 4

6 AFB/PPRC.15/10 (credit) to local water management associations, reinforcement and adaptation of basic water infrastructure, and the promotion of integrated coastal management of the coastal zone. Component 3: Improving the capacity of communities, producers, institutions, and other relevant stakeholders regarding adaptation to climate change. (US$ 1,900,000) This component aims to create early warning systems and recovery strategies for agriculture, water resources and coastlines with respect to the risks posed by climate change. The activities involved to achieve this aim relate mainly to training on efficient management of water resources, climate smart agriculture, and the adaptation of coastal areas to climate change. It also promotes capacity building in line with the National Development Plan. The component will also support awareness-raising and information activities for communities, farmers, institutions and stakeholders, about risks related to climate change and training related to the corresponding adaptation measures. 5

7 AFB/PPRC.15/10 ADAPTATION FUND BOARD SECRETARIAT TECHNICAL REVIEW OF PROJECT/PROGRAMME PROPOSAL PROJECT/PROGRAMME CATEGORY: Regular-sized Project Country/Region: Costa Rica Project Title: Reducing the vulnerability by focusing on critical sectors (agriculture, water resources, and coastlines) in order to reduce the negative impacts of climate change and improve the resilience of these sectors AF Project ID: CRI/NIE/Multi/2013/1 IE Project ID: Reviewer and contact person: Daniel Gallagher IE Contact Person: Marianella Feoli Requested Financing from Adaptation Fund (US Dollars): 9.97 million Co-reviewer(s): Daouda Ndiaye Review Criteria Questions Comments 24 Aug 2014 Comments 12 Sep Is the country party to the Kyoto Yes Protocol? 2. Is the country a developing country Yes, Costa Rica is experiencing the Country Eligibility particularly vulnerable to the adverse effects of increasing temperatures effects of climate change? and intensity of extreme rainfall, causing an increase in the vulnerability of the population and Project Eligibility 1. Has the designated government authority for the Adaptation Fund endorsed the project/programme? economy. Yes. Letter dated 4 August

8 AFB/PPRC.15/10 2. Does the project / programme support concrete adaptation actions to assist the country in addressing adaptive capacity to the adverse effects of climate change and build in climate resilience? Yes, the programme proposes concrete measures in the agricultural sector, and in water resource management in coastal areas vulnerable to climate change, in a way that is integrated within national priorities and plans. The programmatic approach allows for the development of locally appropriate projects in pre-identified priority areas. Specific measures include implementing agro-ecological zoning scenarios (accounting for climate risk), with an accompanying range of tailored technical adaptation measures established with communities. Provision is made to increase access to finance to implementing activities through revolving funds based on tailor-made financing, which the implementing entity has wide experience in operating in the local context. The proposal states that adaptation practices are typically not sufficient to eliminate all climate risk, hence agricultural climate insurance is a complementary tool that producers can use to adapt to the residual risks. 7

9 AFB/PPRC.15/10 The index would include the integration of seasonal climate forecasts. CR1: Please clarify what institution would operate the proposed agricultural climate insurance scheme, where any similar such scheme has been tested previously, and the success of the scheme in reducing climate risk for farmers. Further activities cover plans to mitigate risk of water shortage or excess, irrigation management plans, identification of climate risks to infrastructure, groundwater recharge protection, and improvements to basic infrastructure to protect against climate risks. In the coastal area, sand dunes will be re-established, mangroves replanted and seagrass beds restored alongside other coastal protection measures. Though the details of the extent of these schemes are not provided, the rationale for how they enhance climate resilience is sound. CR1: Addressed. Additional information is provided on the collaboration with the National Insurance Institute (p.53-55). The scheme will take into account (1) relevant hazards and historic events (2) expected economic loss today, and any further incremental increase due to climate change and (3) adaptation measures undertaken by the farmers, rather than being simply based on the occurrence of previously established climate events. 8

10 AFB/PPRC.15/10 CR2: Please provide further details on the scale and extent of the coastal protection measures in activities 2.3.1, 2.3.2, and how commensurate the outcomes of these activities are in relation to the scale of adaptation needs in the target area. CR2: Addressed. Results framework includes the relevant information. 3. Does the project / programme provide economic, social and environmental benefits, particularly to vulnerable communities, including gender considerations, while avoiding or mitigating negative impacts, in compliance with the Environmental and Social Policy of the Fund? Throughout, concrete activities are accompanied by capacity building activities that seek to improve the readiness of stakeholders to respond to climate change and take more informed decisions, as well as to scale up the adaptation benefits obtained through the programme. Yes, the programme is oriented towards delivering adaptation benefits for the most vulnerable, and a clear prioritization of target beneficiaries has been made towards rural communities, local farmers and women. There are expected to be 25,000 beneficiaries over 50 communities, which is expected to increase over time with the expansion of revolving funds. Quantitative estimates of expected benefits have been provided where possible (p.88-89). 9

11 AFB/PPRC.15/10 4. Is the project / programme cost effective? Broadly yes, the programme is designed in such a way as to maximise the investment of AF resources by using revolving funds for certain components, and basing outcomes on cost-effective measures. However, from the programme budget the amount allocated to these revolving funds (11%) appears low in the overall context of the programme. CR3: Please clarify the amount of finance that is proposed to be directed to the revolving funds and how much will be delivered through a more traditional centralised delivery approach, and how this balance fits the overall design of a programme aiming to deliver locally appropriate projects. Additionally, counterparts will provide contributions and funding equivalent to an estimated US$ 4.5 million (p.94). CR4: Please clarify whether or not the success of programme activities is contingent on the estimated counterpart funding. i.e. if the counterpart funding does not materialise, how would this affect the delivery of the proposed outcomes? CR3: Addressed. A total of US$ 1,000,000 is directed to revolving funds in activities and to promote and support microfinance institutions in making relevant credit products available to small farmers for adaptation activities. CR4: Addressed. The risk of not achieving results relating to additional finance being raised is low. 10

12 AFB/PPRC.15/10 5. Is the project / programme consistent with national or sub-national sustainable development strategies, national or sub-national development plans, poverty reduction strategies, national communications and adaptation programs of action and other relevant instruments? 6. Does the project / programme meet the relevant national technical standards, where applicable, in compliance with the Environmental and Social Policy of the Fund? 7. Is there duplication of project / programme with other funding sources? 8. Does the project / programme have a learning and knowledge management component to capture and feedback lessons? Yes, programme is well aligned with national priorities. Yes. National technical standards relevant to the programme are described in detail and all activities financed through the programme will have to demonstrate compliance with these (p.113). No. The programme seeks to move Costa Rica s adaptation agenda building on its strong research and planning towards efforts in concrete action. No bilateral and multilateral funds overlap with the proposed outcomes. Yes, knowledge management is an important component of the programme that will contribute to the sustainability and scalability of the intervention. A suite of knowledge products is expected to be generated (p.120) and shared through reports and mass media. 11

13 AFB/PPRC.15/10 9. Has a consultative process taken place, and has it involved all key stakeholders, and vulnerable groups, including gender considerations? Yes, consultation has been undertaken throughout recent years in relation to the programme (see graphic p.188). CR5: A list of stakeholders consulted throughout the process is provided in Annex 3. Please specify which local associations and community representatives were consulted during programme preparation. CR6: Please provide a brief description of the priorities that were incorporated into programme design that arose from consultations with the entities in Table 16 (page 123) and listed in Table 23 (p.193). Please demonstrate with examples what the community perspectives were throughout the bottom-up part of the consultation process. CR5: Addressed. CR6: Addressed. 10. Is the requested financing justified on the basis of full cost of adaptation reasoning? 11. Is the project / program aligned with AF s results framework? 12. Has the sustainability of the project/programme outcomes been taken into account when designing the It is noted that continued stakeholder consultation and mapping, including knowledge exchange, is included as part of the programme, which is welcomed and encouraged. Yes Yes Yes. In addition to the important physical and natural asset enhancement, the programme 12

14 AFB/PPRC.15/10 Resource Availability Eligibility of IE project? 13. Does the project / programme provide an overview of environmental and social impacts / risks identified? 1. Is the requested project / programme funding within the cap of the country? 2. Is the Implementing Entity Management Fee at or below 8.5 per cent of the total project/programme budget before the fee? 3. Are the Project/Programme Execution Costs at or below 9.5 per cent of the total project/programme budget (including the fee)? 4. Is the project/programme submitted through an eligible Implementing Entity that has been accredited by the Board? includes for capacity building at the local community and institutional levels, in order to enhance up- scaling and replication by other communities. In terms of financial sustainability, the innovative use of revolving funds and the creation of an agricultural insurance is expected to impact adaptation at the national level beyond the lifespan of the programme. Yes, a detailed overview is provided. Yes Yes, fee is at 8.1 per cent Yes, fee is at 9.3 per cent Yes 13

15 AFB/PPRC.15/10 Implementation Arrangements 1. Is there adequate arrangement for project / programme management? 2. Are there measures for financial and project/programme risk management? Yes, the programme management roles and responsibilities for each actor are described in detail. Owing to the programmatic nature of the proposal, the executing entities are pre-identified and arrangements put in place to receive, screen, and approve project proposals from these entities based on established criteria. Yes, risks are identified and mitigation measures are appropriate. 14

16 AFB/PPRC.15/10 3. Are there measures in place for the management of for environmental and social risks, in line with the Environmental and Social Policy of the Fund? Yes, the proponent concludes that no risks of significant adverse environmental and social impacts are identified. Moderate environmental and social adverse impacts are identified meaning the proposal can be considered as Category B. Contractual clauses will be adopted to monitor the periodic and programmed verification to evaluate compliance and possible deviations from the screening. However, a management plan needs to be prepared, which should include a detailed description of the projectlevel review mechanism that will be put in place to review the applications and ensure that the applications meet the ESP requirements, either because they have no risks or impacts, or by imposing conditions to manage/mitigate any risks. Therefore it is very important that the grant application review process is duly documented, that the NIE can substantiate the conclusions that will be reached regarding ESP risks, and, the case being, how the environmental and social management plan for the activity is adequate. The proposal contains many elements of such a project-level assessment and review mechanism, however it would be 15

17 AFB/PPRC.15/10 good to have that information all gathered under a single heading with clear indication of roles and responsibilities and capacities and commitments. That will allow the secretariat at this approval stage to assess if the mechanism will be sufficiently performing and credible. CR7: Please include an Environmental and Social Management Plan (ESMP), which should describe in detail the projectlevel review mechanism that will be put in place to review the applications and ensure that the applications meet the ESP requirements, either because they have no risks or impacts, or by imposing conditions to manage/mitigate any risks. CR7: Addressed. Although a detailed ESMP was not provided, a programme- and project-level review mechanism is described, to be put in place to screen and monitor the identified projects and ensure that they meet the ESP requirements, either because they have no risks or impacts, or by managing or mitigating any risks identified. 4. Is a budget on the Implementing Entity Management Fee use included? 5. Is an explanation and a breakdown of the execution costs included? A regular ESP screening for the whole programme may also identify a number of additional attention points, which can be used as eligibility criteria for the projects. Yes Yes 16

18 AFB/PPRC.15/10 6. Is a detailed budget including budget notes included? Generally a much more detailed budget should be provided in order to evaluate the appropriateness of the budget. Additionally, it seems that personnel salary fees have been included in the main programme budget. If personnel costs are for programme management those should only be requested through the programme management fee. CAR1: Please provide a more detailed budget that is broken down to the activity level as far as possible, and include more precise budget line notations that identify each activity being funded. Budget line numbers must match those provided in the budget, which is not currently the case. CAR2: Please ensure that all management related fees are included in the implementation/ execution fees as appropriate and not in the main programme cost. The proposal should clarify what the personnel services under the execution costs and under the components entail. It is not clear if the overhead costs (or execution costs ) of the executing entities who have submitted projects to be funded through the programme will be considered under the programme execution costs or if they represent CAR1: Addressed. More detailed budget has been provided. CAR2: Addressed. The total overhead costs relating to executing entities in the revised budget amount to 5% of total programme budget. 17

19 AFB/PPRC.15/10 7. Are arrangements for monitoring and evaluation clearly defined, including budgeted M&E plans and sexdisaggregated data, targets and indicators? 8. Does the M&E Framework include a break-down of how implementing entity IE fees will be utilized in the supervision of the M&E function? 9. Does the project/programme s results framework align with the AF s results framework? Does it include at least one core outcome indicator from the Fund s results framework? 10. Is a disbursement schedule with timebound milestones included? the personnel services proposed in the budget table under the different components. In any case, the personnel costs under the components budget seem very high, totalling around 15% of the total amount requested, before the fees. If we add the execution costs, this takes us to almost 25%. CAR3: Please provide, where possible, sex-disaggregated targets and indicators in the results framework. Yes CAR4: Yes. However, please correct the typo under output 2.3.1: 8 m of coastline and beaches in protected areas, redesigned and reforested. Yes, a disbursement schedule is provided but includes discrepancies due to rounding errors. It is important for payment purposes that columns and rows match the column and row total precisely to the dollar amount. CAR5: Please ensure that the disbursement schedule includes no rounding errors or discrepancies. CAR3: Addressed. CAR4: Addressed. CAR5: Addressed. 18

20 AFB/PPRC.15/10 Technical Summary The programme proposes concrete measures in the agricultural sector, and in water resource management in coastal areas vulnerable to climate change, in a way that is integrated within national priorities and plans. The programmatic approach allows for the development of locally appropriate projects in pre-identified priority areas. Specific measures include implementing agro-ecological zoning scenarios (accounting for climate risk), with an accompanying range of tailored technical adaptation measures established with communities. Provision is made to increase access to finance to implementing activities through revolving funds based on tailor-made financing, which the implementing entity has wide experience in operating in the local context. The initial technical review found that the proposed programme, which intends to finance concrete measures in the agricultural sector, and in water resource management in coastal areas vulnerable to climate change, was comprehensive and well designed. The programmatic approach allowed for the development of locally appropriate projects in pre-identified priority areas. Whilst the level of detail in the document was sound, concerns arose in the programme budget, which did not have a similar level of detail. It was also unclear what the balance was between traditional programme delivery and the revolving funds that would allow decentralised, local delivery of adaptation outcomes, given the apparent low amount allocated to these outcomes in the programme budget. Lastly, compliance with the ESP needed to be demonstrated further. The following seven clarification requests were made: CR1: Please clarify what institution would operate the proposed agricultural climate insurance scheme, where any similar such scheme has been tested previously, and the success of the scheme in reducing climate risk for farmers. CR2: Please provide further details on the scale and extent of the coastal protection measures in activities 2.3.1, 2.3.2, and how commensurate the outcomes of these activities are in relation to the scale of adaptation needs in the target area. CR3: Please clarify the amount of finance that is proposed to be directed to the revolving funds and how much will be delivered through a more traditional centralised delivery approach, and how this balance fits the overall design of a programme aiming to deliver locally appropriate projects. CR4: Please clarify whether or not the success of programme activities is contingent on the estimated counterpart funding. i.e. if the counterpart funding does not materialise, how would this affect the delivery of the proposed outcomes? CR5: A list of stakeholders consulted throughout the process is provided in Annex 3. Please specify which local 19

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