ࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with the private sector. Work will be coordinated with parties preparing the IPPC permit, likely to be started during the project life.SIf demolitions by government occur around the Lake, and there is a perception by the local population of a link to the project, this could create a negative environment for project implementation.The project does not support investments at sites where legal status is uncertain or subject to the ongoing procedures. Lake management plan is limited to the lake itself. Project activities remain separate from any government decisions for demolition that may stem from the law 9482 process. In case this risk occurs, the outreach and communications program of the SLC will help clarify the limits and scope of the project actions. Project implementation manual clarifying roles and responsibilities (including limits of park rangers) will be publically available. Close coordination across Bank portfolio and with country management., and implementation of a proactive communications strategy.  SOverall Risk RatingSRisk Ratings: H= High ; S= Substantial; M= Modest; N=Negligible Grant conditions and covenants 44. Condition for Grant Effectiveness: Cross-effectiveness of the grant agreements for Albania and Montenegro, respectively. (BOTH AGREEMENTS) The Project Implementation Manual, satisfactory to the World Bank, has been adopted by the Recipient. (BOTH AGREEMENTS) The execution and delivery of the grant agreements on behalf of the Recipient has been duly authorized or ratified by all necessary government action. (BOTH AGREEMENTS) Disbursement Covenants: Prior to the commencement of any works under Parts B and C3 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (ALBANIA) Prior to the commencement of any works under Part B or Part C1 of the Project, the Recipient shall prepare for each site a site-specific EMP in a manner satisfactory to the World Bank. (MONTENEGRO) For payments made prior to the date of the Agreement, except that withdrawals up to an aggregate amount not to exceed $100,000 equivalent may be made for payments made prior to the date of the Agreement but on or after November 1, 2007 for Eligible Expenditures under Category 1 (BOTH AGREEMENTS) Under Category 3 unless the KSC has been established and convened with staff and resources satisfactory to the World Bank (MONTENEGRO) Implementation Covenants The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, and the MEFWA PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (ALBANIA) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat and the MEFWA PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (ALBANIA) Not later than January 1, 2009, the Recipient shall establish and staff the SLMNR Management Unit in a manner and with a composition and terms of reference satisfactory to the World Bank. (ALBANIA) The Recipient shall maintain the SLC, the SLC Working Groups, the SLC Secretariat, the TSU, the KSC, and the MTEP PMU at all times during Project implementation, with terms of reference and resources satisfactory to the World Bank, and with competent staff in adequate numbers. (MONTENEGRO) The Recipient, through the SLC, the SLC Working Groups, the SLC Secretariat, the KSC, the TSU, and the MTEP PMU shall: (i) duly perform all obligations under the Project Implementation Manual, the Framework EIA, the EMPs and the Process Framework in a timely manner and in accordance with their respective terms, and apply and implement, as the case may be, the actions, criteria, policies, procedures and arrangements therein set forth; and (ii) not amend or waive, or permit to be amended or waived the Project Implementation Manual, the Framework EIA, the EMPs or the Process Framework or any provisions of any one thereof, except with the prior written approval of the World Bank. (MONTENEGRO) The Recipient shall exchange views with the World Bank on the results of the waste classification, options analysis and feasibility study at the KAP solid waste dump site under Part C.2 of the Project, and shall take these results into account in finalizing the cost, technical solution and timetable for remediation, recycling and proper containment of waste at the KAP solid waste dump site. (MONTENEGRO) 47. Financial Management and Reporting Covenants: The Recipient shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (BOTH AGREEMENTS) The Recipient shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank not later than forty five (45) days after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (BOTH AGREEMENTS) The Recipient shall have its Financial Statements for the Project audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. (BOTH AGREEMENTS) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of indicators agreed with the World Bank. Each Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the World Bank not later than one (1) month after the end of the period covered by such report. (BOTH AGREEMENTS) The Recipient shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six (6) months after the Closing Date. (BOTH AGREEMENTS) APPRAISAL SUMMARY Economic and financial analyses 48. An Incremental Cost Assessment was developed to demonstrate the leveraging impact and additionality of the GEF Grant compared to financing from other sources; this appears in Annex 15. Most investments under this project are institutional and capacity building and do not lend themselves to economic and financial analyses. Qualitative assessments were prepared on the key benefits of the KAP site and investments in small-scale wastewater control; these appear in Annex 9. Financial or economic analyses will be part of the investment feasibility studies. The KAP feasibility study will use cost-benefit analysis to evaluate alternatives. The feasibility study for a rural village wastewater investment will assess cost-effectiveness based on investment costs per capita, and promote lowest-cost design solutions proven effective in other rural areas. Most financing comprises a capital grant, so no payback calculations are required. An assessment of affordability and willingness-to-pay for operations and maintenance costs of the small-scale wastewater investment will be conducted using surveys. Some fisheries and lake management studies financed under the project will quantify economic costs and benefits to strengthen the public policy debate. Technical 49. A key influence on project technical design was the substantial difference between the two countries prevailing conditions (e.g., Albania has a much higher and rapidly growing lakeside population), and institutional and human resources capacity (e.g., Montenegro has more established institutional structures for lake management and ecological monitoring). The project design addresses these disparate needs and differences in absorptive capacity while identifying common objectives and priorities and balancing distribution of project benefits. 50. KAP hazardous waste containment. Project support will classify waste, conduct a scoping and feasibility study, determine the extent of soil pollution, design options to contain or dispose of the legacy hazardous waste, and promote waste recycling. The KAP site activities will supported by the services of a specialized international adviser to assist capacity-building and sustainability in the MTEP and ensure that studies and recommendations build upon international good practice of hazardous waste management and aluminum waste remediation. Project support will build a small-scale wastewater system using constructed wetlands for final filtration. Terms of reference for the feasibility study have been prepared and call for international expertise for this first-ever such system in Montenegro. Fiduciary Financial Management - Montenegro 52. Financial management arrangements for the project are assessed to be acceptable. Acceptable software for project accounting and reporting has bee acquired and installed. The overall financial management risk for the project is moderate before mitigation measures, and with adequate mitigations measures agreed, the financial management residual risk is rated low. MTEP will have overall responsibility for project implementation; a Technical Services Unit (TSU) within the Government of Montenegro will be contracted to execute financial management and procurement fiduciary aspects. The TSU is established, functioning, and in charge of fiduciary aspects for three ongoing projects in Montenegro. The unit staff are qualified and experienced in all functions, including financial management. The TSU performance during implementation of those three projects was overall satisfactory. Soon, the TSU will likely be in charge of implementing six or seven projects, this will require close monitoring and evaluation of any potential gaps in work quantity and unit capacity, and prompt remedial action to match scope and capacity. 53. Annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year at project closing. The audits will be carried out by a private audit firm acceptable to the World Bank. The TSU will submit a full set of Interim un-audited Financial Reports (IFRs) for each calendar quarter throughout the life of the project. The IFRs will include complete consolidated financial information on total project funds, details on sources and uses of project funds, and movements in the projects Designated Account, among other details. The TSU has recently acquired recently acceptable accounting software to be used for project accounting for ongoing projects. The software is acceptable to the Bank and the same accounting system will be used for this project. 54. Adequate internal controls systems have been instituted within the TSU for projects under implementation. Defined controls and procedures are applied in practice and have been verified by Bank financial management supervision, and private firms annual audits. Instituted controls and procedures are rated adequate for project implementation. The auditors have issued clean audit opinions on ongoing project financial statements. 55. Significant efforts have been invested to accomplish positive developments in Montenegro in the area of corruption, financial crimes, and misuse of public funds by public officials. Since then, the government has established a Directorate for Anti-corruption Initiative and developed laws and regulations to strengthen Montenegros financial architecture and legal framework. Nevertheless, the 2006 PEIR noted that Montenegro-specific data on governance and corruption are scant, and the 2007 Fiduciary Review identified a substantial unfinished agenda and remaining challenges. The 2006 GRECO report for Montenegro described some of these, including the Anti-Corruption Action Plan finalized in August 2006. Recommendations include: conduct studies to clarify the scale of corruption in the country; revise Public Procurement Law; strengthen capacity at the Directorate for Anti-Corruption Initiative. Project-level measures to mitigate corruption risks include a separate financial management system for the project, including internal control systems and separate accounting software. In practice, controls and procedures applications will be verified during Bank FM supervision. Further measures include: use a private audit firm for project auditing; use Bank Financial Management Specialist for oversight; use a Designated Account in EUR for administering project funds will be opened in a commercial bank acceptable to the World Bank. Financial Management - Albania 56. Financial management arrangements of the project iࡱ> ('`  bjbj{P{P  ::pm5bvvvtHHHD   !)$&6,9 B4CCCQ`9eD75959595959595$9h<]5QH/Q"Q//]5CC}50eee/<CHC75e/75ee~3|HC 9 [ KXKI5H&6O<S<,<H+ }gD0e?&++}g}g}g]5]5Te}g}g}g&6////   Document of The World Bank Report No.: 37630-ECA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$2.56 MILLION TO REPUBLIC OF MONTENEGRO and IN THE AMOUNT OF $1.99 MILLION to REPUBLIC OF Albania FOR LAKE SKADAR-SHKODER INTEGRATED ECOSYSTEM MANAGEMENT PROJECT April 30, 2008 West Balkans Country Management Unit Sustainable Development Sector Management Unit Europe and Central Asia Region (ECA) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.CURRENCY EQUIVALENTS (Exchange Rate Effective April 29, 2008) US$ 1.56 =1 EuroEuro 0.64=US$1FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADAAustralia AideADCAustralian Development CooperationBOABank of AlbaniaCASCountry Assistance StrategyCoECouncil of EuropeCETICenter for Ecotoxicological Research (Montenegro)CFACountry Fiduciary AssessmentCFAACountry Financial Accountability AssessmentCPARCountry Procurement Assessment ReportCQConsultant QualificationDADesignated AccountdgMarketDevelopment Gateway MarketDNPPDepartment of Nature Protection PoliciesEMPEnvironmental Monitoring and Mitigation PlanEAREuropean Agency for ReconstructionEAEnvironment AssessmentEIAEnvironmental Impact AssessmentEPAEnvironmental Protection Agency (Montenegro)EUEuropean UnionEUREuroFAOFood and Agriculture Organization (United Nations)FMFinancial ManagementFMOFishery Management OrganizationsFMSFinancial Management SpecialistGEFGlobal Environment FacilityGISGeographic Information SystemGOGlobal ObjectiveGoAGovernment of Republic of AlbaniaGoMGovernment of Republic of MontenegroGPNGeneral Procurement NoticeGRECOGroup of States Against Corruption (Council of Europe)GTZGesellschaft fur Technische Zusammenarbeit (Germany)IBRDInternational Bank for Reconstruction and DevelopmentICBInternational Competitive BiddingICRImplementation Completion ReportICZMIntegrated Coastal Zone ManagementIDAInternational Development AssociationIFACInternational Federation of AccountantsIFRInterim un-audited Financial ReportsILECInternational Lake Environment CommitteeIPPCIntegrated Pollution Prevention and ControlISAInternational Standards on AuditingISDSIntegrated Safeguard Data SheetIUCNWorld Conservation UnionKAPKombinat Aluminijuma PodgoricaKfWKredit fur Wiederaufbau (Germany)KSCKAP Site Steering CommitteeLCSLeast Cost SelectionLSNPLake Skadar National ParkMEFWAMinistry of Environment, Forests and Water Administration (Albania)MESTAPMontenegro Environmentally Sensitive Tourism Areas Project (World Bank)MOFMinistry of FinanceMTCYSMinistry for Tourism, Culture, Youth and Sports (Albania)MTEPMinistry of Tourism and Environmental Protection (Montenegro)MoUMemorandum of UnderstandingNCBNational Competitive BiddingNIVANorwegian Institute for Water ResearchNGONon-governmental OrganizationOP/BPOperational Policy (World Bank)PAProtected AreaPADProject Appraisal DocumentPAHPolynuclear Aromatic HydrocarbonsPCBPolychlorinated BiphenylsPCNProject Concept NotePDF-BPreparation Development Facility B grant (GEF)PDOProject Development ObjectivePEFAPublic Expenditure and Financial Accountability ReportPEIRPublic Expenditure and Institutional ReviewPENPPublic Enterprise for National Parks (Montenegro)PFSProject Financial StatementPICPublic Information CenterPIDProject Information DocumentPIMProject Implementation ManualPMUProject Management UnitREoIsRequest for Expression of InterestsQCBSQuality and Cost Based SelectionRECRegional Environment CenterSAPStrategic Action PlanSBDStandard Bidding DocumentSLCSkadar-Shkodra Lake CommissionSLMNRShkoder Lake Managed Nature ReserveSLNPSkadar Lake National ParkSNV Netherlands Development OrganizationSOEStatement of ExpendituresSPNSupervisionSSSingle SourceSTASingle Treasury AccountSTAPScientific and Technical Advisory CommitteeTATechnical AssistanceTDATransboundary Diagnostic AnalysisTORTerms of ReferenceTSUTechnical Services UnitUNDBUnited Nations Development BusinessUNDPUnited Nations Development ProgramUNEPUnited Nations Environment ProgrammeUNESCOUnited Nations Educational, Scientific and Cultural OrganizationUSAIDUnited States Agency for International DevelopmentVATValue added TaxWBWorld BankWWTWastewater Treatment Vice President:Shigeo KatsuCountry Director:Jane ArmitageSector Manager: John KellenbergTask Team Leader:Karin Shepardson albania and montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project Contents Page  TOC \h \z \t "PDS Heading 2,2,PDS Heading 1,1,PDS Annex Heading,1"  HYPERLINK \l "_Toc191204212" I. STRATEGIC CONTEXT AND RATIONALE  PAGEREF _Toc191204212 \h 1  HYPERLINK \l "_Toc191204213" A. Country and sector issues  PAGEREF _Toc191204213 \h 1  HYPERLINK \l "_Toc191204214" B. Rationale for Bank involvement  PAGEREF _Toc191204214 \h 4  HYPERLINK \l "_Toc191204215" C. Higher level objectives to which the project contributes  PAGEREF _Toc191204215 \h 4  HYPERLINK \l "_Toc191204216" II. PROJECT DESCRIPTION  PAGEREF _Toc191204216 \h 5  HYPERLINK \l "_Toc191204217" A. Lending instrument  PAGEREF _Toc191204217 \h 5  HYPERLINK \l "_Toc191204218" B. Project development objective and key indicators  PAGEREF _Toc191204218 \h 5  HYPERLINK \l "_Toc191204219" C. Project components  PAGEREF _Toc191204219 \h 6  HYPERLINK \l "_Toc191204220" D. Lessons learned and reflected in the project design  PAGEREF _Toc191204220 \h 7  HYPERLINK \l "_Toc191204221" E. Alternatives considered and reasons for rejection  PAGEREF _Toc191204221 \h 8  HYPERLINK \l "_Toc191204228" III. IMPLEMENTATION   HYPERLINK \l "_Toc191204222" A. Partnership arrangements  PAGEREF _Toc191204222 \h 9  HYPERLINK \l "_Toc191204223" B. Institutional and implementation arrangements  PAGEREF _Toc191204223 \h 9  HYPERLINK \l "_Toc191204224" C. Monitoring and evaluation of outcomes/results  PAGEREF _Toc191204224 \h 11  HYPERLINK \l "_Toc191204225" D. Sustainability  PAGEREF _Toc191204225 \h 11  HYPERLINK \l "_Toc191204226" E. Critical risks and possible controversial aspects  PAGEREF _Toc191204226 \h 12  HYPERLINK \l "_Toc191204227" F. Loan/credit conditions and covenants  PAGEREF _Toc191204227 \h 13  HYPERLINK \l "_Toc191204228" IV. APPRAISAL SUMMARY  PAGEREF _Toc191204228 \h 14  HYPERLINK \l "_Toc191204229" A. Economic and financial analyses  PAGEREF _Toc191204229 \h 14  HYPERLINK \l "_Toc191204230" B. Technical  PAGEREF _Toc191204230 \h 14  HYPERLINK \l "_Toc191204231" C. Fiduciary  PAGEREF _Toc191204231 \h 15  HYPERLINK \l "_Toc191204232" D. Social  PAGEREF _Toc191204232 \h 17  HYPERLINK \l "_Toc191204233" E. Environment  PAGEREF _Toc191204233 \h 18  HYPERLINK \l "_Toc191204234" F. Policy Exceptions and Readiness  PAGEREF _Toc191204234 \h 20  HYPERLINK \l "_Toc191204235" Annex 1: Country and Sector or Program Background  PAGEREF _Toc191204235 \h 21  HYPERLINK \l "_Toc191204236" Annex 2: Major Related Projects Financed by the Bank and/or other Agencies  PAGEREF _Toc191204236 \h 31  HYPERLINK \l "_Toc191204237" Annex 3: Results Framework and Monitoring  PAGEREF _Toc191204237 \h 35  HYPERLINK \l "_Toc191204238" Annex 4: Detailed Project Description  PAGEREF _Toc191204238 \h 43  HYPERLINK \l "_Toc191204239" Annex 5: Project Costs  PAGEREF _Toc191204239 \h 49  HYPERLINK \l "_Toc191204240" Annex 6: Implementation Arrangements  PAGEREF _Toc191204240 \h 50  HYPERLINK \l "_Toc191204241" Annex 7: Financial Management and Disbursement Arrangements  PAGEREF _Toc191204241 \h 55  HYPERLINK \l "_Toc191204242" Annex 8: Procurement Arrangements  PAGEREF _Toc191204242 \h 66  HYPERLINK \l "_Toc191204243" Annex 9: Economic and Financial Analysis  PAGEREF _Toc191204243 \h 75  HYPERLINK \l "_Toc191204244" Annex 10: Safeguard Policy Issues  PAGEREF _Toc191204244 \h 77  HYPERLINK \l "_Toc191204245" Annex 11: Project Preparation and Supervision  PAGEREF _Toc191204245 \h 80  HYPERLINK \l "_Toc191204246" Annex 12: Documents in the Project File  PAGEREF _Toc191204246 \h 81  HYPERLINK \l "_Toc191204247" Annex 13: Statement of Loans and Credit-  PAGEREF _Toc191204247 \h 82  HYPERLINK \l "_Toc191204248" Annex 14: Country at a Glance  PAGEREF _Toc191204248 \h 84  HYPERLINK \l "_Toc191204249" Annex 15: Incremental Cost Analysis  PAGEREF _Toc191204249 \h 89  HYPERLINK \l "_Toc191204250" Annex 16: STAP Roster Review  PAGEREF _Toc191204250 \h 95  HYPERLINK \l "_Toc191204251" Annex 17: Map  PAGEREF _Toc191204251 \h 102  STRATEGIC CONTEXT AND RATIONALE Country and sector issues 1. Lake Skadar-Shkoder, the largest lake on the Balkan Peninsula in terms of water surface, is on the border between Montenegro and Albania in the Southern part of the Dinaric Alps. Its drainage area is about 5,500 km2 (4,470 km2 in Montenegro and 1,030 km2 in Albania), and it drains to the southeast through the Buna-Bojana River to the Adriatic. The proposed project area consists of the lake and adjacent areas directly served by the lake. In Albania about 170,000 people live in the project area in seven municipalities and rural communes, within three Regions of the Shkodra District. In Montenegro about 12,500 people live in the project area, distributed among 40 small settlements within three municipalities (the larger Montenegro lake watershed has a population of about 250,000). Both countries have declared protected areas around parts of the Lake to strengthen overall lake protection, however, capacity is relatively well established in Montenegro, and in Albania, a management authority is being established only in 2008. 2. Lake Skadar-Shkoder has features unique among the worlds major lakesa unique ecology and natural beauty with enormous tourist potential. The lakes complex freshwater ecosystem, associated wetlands, floodplains, and karstic features provide valuable environmental benefits to surrounding communities (e.g. fisheries, drinking water, recreation), and contribute to national and regional economic and cultural assets. However, these same characteristics also contribute to lake ecosystem fragility. Karstic origin - Lake Shkodra is Europes largest karstic lake, formed relatively recently in a shallow subsiding tectonic depression within limestone from the Dinaric chain. The lake can be considered at least in part the outcrop of a large transboundary karstic groundwater aquifer which connects Lake Shkodra, through the Drin River Basin, to Lake Ohrid, and Lake Prespa, two other karstic Balkan lakes. Short water residence time/ shallow, fluctuating depth - The lake has high levels of water circulation and mixingaverage water residence is about 120 days. The lake is shallow, fluctuating from 5 to 10 meters and groundwater from the lakes deeper parts (western side) mix with surface water inflows preventing stratification. Periodic flooding occurs on the flatter, eastern and northern shores, expanding the surface area in wet weather. Complex conditions at the outlet - The lake outlet, the River Buna-Bojana, has weak transport and erosive capacity to remove sediments from the river bed, due to the low gradient of its channel bed. Sediment accumulates, impeding the lakes out-flowing waters, naturally regulating the water level, and flooding the surrounding lands. High discharge in the Drin River and low water levels in the lake create reverse/backflows. Recently landfills from new construction have narrowed the outlet. High water temperature - Due to its low elevation, southern location, and shallow water Lake Shkoder has high water temperatures, causing high rates of organic decomposition, and because the lake never freezes, it is a prime winter location for birds. 3. During the 1990s, Albania and Montenegro experienced severe economic decline accompanied by the collapse of many industries and large agricultural enterprises within the watershed. This was bad for peoples livelihoods but good for the lake because it reduced sources of industrial pollution. Now, both governments want to revive the local economic base and attract private investment but they face several potentially conflicting development options and strategies for the water and natural resourcestourism as a major economic driver, hydropower production in both countries, and a Buna-Bojana waterway proposal that would be formed by dredging the river bed and lake outlet. Furthermore, Albania is experiencing rapid population growth, which has been accompanied by illegal construction in lakeside areas. 4. However, many factors support commitment for environmental protection. National and local governments and local residents in both countries see tourism as the main engine for economic development of the Lake Skadar-Shkoder area, and national spatial and sectoral strategies identify it as a priority special interest area to develop nature, culture, and recreation-based tourism, which depends heavily on environmental quality. Therefore tourism that is planned and regulated is preferable to many alternative economic activities. However, tourism is now growing rapidlyunplanned and unregulatedin the Lake Skadar-Shkoder, threatening the lakes potential as an economic asset through inappropriate construction, untreated wastewater, poor solid waste management, over fishing and so forth. 5. These current trends provide a window of opportunity for strategic, coordinated action to set Lake Skadar-Shkoder on a path of ecological and economic sustainability. Both governments seek to harmonize their policies, legislation, and practices with European Union (EU) Directives, including the EU Water Framework Directive, which sets standards for water quality and calls for integrated watershed management and transboundary cooperation. In 2003, the two Ministries of Environment signed a Memorandum of Understanding (MoU). It calls for joint monitoring of air, water and soil quality, and pollution; cooperation in environmental impact assessment; common strategies to develop clean industries and energy; cooperation to protect the natural environment; creation of joint regulation to control international commerce of endangered flora and fauna, industrial and toxic wastes, and other dangerous substances; joint educational and training activities; and creation of working groups and an Action Plan for implementation of the MoU. In February 2008, a detailed Bilateral Agreement was signed as the legal instrument for joint cooperation for protection and management of the lake, including establishing a Skadar-Shkodra Lake Commission (SLC). 6. A Transboundary Diagnostic Analysis (TDA) carried out during project preparation identified major trends and factors affecting the the status of the lakes natural and economic resources including the following: Proposals in both countries for economic development alternatives for the lake basin need to be carefully evaluated and any potential threats to its ecosystem reported to decisionmakers. Projects could affect the lake level, hydrology, and characteristic rapid flushing, undermining the lakes ecological integrity and water quality. Water quality is generally good but unless economic revitalization and growth in the lake basin is managed in an environmentally sustainable way, quality could deteriorate to pre-1990s conditions or worse. Remaining pollution hotspots have transboundary implications, including industrial facilities, untreated wastewater from lakeside and tributary cities and villages, and runoff of agrochemicals and nutrients (aggravated by lost natural vegetation buffers). Fish populations, including commercially valuable migratory species, are declining, perhaps due in part to increasing numbers of active fishermen since 1990, particularly on the Albanian side (many using illegal methods such as electrical shock and fish traps), and in part due to localized pollution and habitat destruction. 7. Fish are the lakes most significant natural resource in terms of contribution to local economies and employment and their mobility makes transboundary cooperation essential for sustainable management. Some of the lakes most valuable fish species are threatened by over-exploitation and habitat degradation. Both governments have institutions and personnel in place to regulate fishing but lack information, mechanisms, and capacity to manage the fisheries on a lake-wide basis. Excessive tree cutting, over-grazing, and destructive construction practices have eliminated or degraded the vegetative buffer that helps to protect Lake Skadar-Shkoder from non-point-source pollution and siltation from adjacent and upstream agricultural areas. 8. Improperly stored waste at the Kombinat Aluminijuma Podgorica (KAP) aluminum plant (along the Moraca River) has been identified as the highest priority industrial threat to the lake, specifically as a source of heavy metals, PCBs, and other toxic pollutants, which have been detected in the lake water, adjacent springs, wells, and some fish. A prime source of these pollutants is from a large, unlined, uncovered dump site containing a mixture of non-hazardous and hazardous wastes that have been accumulating since start of production in 1971. 9. The TDA concluded that preventive action is needed to counter existing and iminent threats, maintain lake hydrology, and protect it from a likely increase in pollution and other environmental degradation in the context of expected economic renewal and physical development. Based on the TDA, a joint (bilateral) Strategic Action Plan (SAP) was prepared through a participatory process with a wide range of stakeholders in both countries. The SAP establishes a long-term vision for lake management and sustainable development, including: (i) Strengthen legal and institutional framework for environmental protection, sustainable natural resource management, and transboundary cooperation and exchange; (ii) Reduce and prevent lake water pollution; and (iii) Establish effective systems for sustainable management of natural and cultural resources, including fisheries; and promote joint sustainable tourism development. Rationale for Bank involvement 10. The project builds on and complements existing World Bank programs in both countries to support environmental protection and economic development described in detail in Annex 2. The Bank has experience implementing transboundary waters, sustainable tourism development, and natural resource management projects across the region and internationally. The project contributes to Country Assistance Strategy (CAS) objectives in both countries by strengthening public institutions that protect and manage Lake Skadar-Shkoder, and provides an enabling environment for private sector development in the tourism sector. The Montenegro CAS also calls for strengthening regional cooperation and supporting their constitutional commitments to be an ecological state. The Albania CAS focuses on governance and identifies the need to build institutional capacity for law enforcement, among other elements. The project will strengthen regulation of water, land, and natural resource use that affect lake water quality and economic value and contribute to improved environmental services. The project is part of a broader Bank effort to assist Montenegro and Albania to harmonize their environmental and natural resource management regulations and practices with the EU environmental acquis. Among GEF implementing agencies, World Bank comparative advantage is well recognized in downstream implementation phases of actions plans. At a regional level, the project supports implementation of the World Bank/German Government supported St. Petersburg Process, which facilitates debate on transboundary water management problems and integrated approaches to resolving them. It directly supports Phase II of this process, which focuses on South Eastern Europe. Higher level objectives to which the project contributes 12. National and local strategies and plans in both Montenegro and Albania identified the Lake Skadar-Shkoder area as a priority for environmental protection, sustainable natural resource management, and nature/culture-based tourism development. Both sides of the lake are designated as wetlands of international importance under the Ramsar Convention. Both countries recognized the need for transboundary coordination to achieve these objectives, as reflected in the 2003 Memorandum of Understanding, and the 2008 Bilateral Agreement. The project directly supports the realization of these national strategies and plans and fulfillment of international obligations. Project-generated information is essential to improve understanding of threats to the lakes waters and ecosystems. The project will establish and strengthen a transboundary Lake Management Committee as a mechanism to ensure a coordinated, lake-wide approach to policies and trends. Fit to GEF Focal Area Strategies: 13. The project is consistent with the IW Strategy for GEF 4, in particular with Strategic Objective 2 (SO-2: To play a catalytic role in addressing transboundary water concerns by assisting countries to utilize the full range of technical assistance, economic, financial, regulatory and institutional reforms that are needed), and the Strategic Program 3 (Balancing over-use and conflicting uses of water resources in transboundary surface and groundwater basins). The project promotes an ecosystem-based approach and integrated water resources management to help reconcile development needs (e.g., increased tourism, hydropower, fishing) with ecosystem sustainability. Large freshwater lakes such as Lake Skadar-Shkoder deliver many environmental services that depend upon both sufficient water quality and quantity. Excessive lowering of water levels and pollution of surface and groundwater sources can undermine the potential for delivering these environmental services. Lake Skadar-Shkoders shallowness and karstic basin geology makes it particularly vulnerable to the impacts of conflicting uses of the surrounding land (many recharge areas of karstic aquifers feed the lake), and of the waters flowing into the lake. Countries Eligibility for GEF: 14. Albania and Montenegro are members of the GEF and the World Bank. Both countries are signatories to the Barcelona Convention for the Protection of the Mediterranean Sea and its protocols and have developed programs within the framework of the Mediterranean Action Plan (Lake Skadar-Shkoder drains directly into the Adriatic Sea through the Buna-Bojana River). Both are also signatories to the Espoo Convention on Environmental Impact Assessment in a Transboundary Context and the Helsinki Convention on the Protection and Use of Transboundary Watercourses and International Lakes. A 2003 MOU and a 2008 Bilateral Agreement provide a specific framework for cooperation for protection and sustainable development of Lake Skadar-Shkoder. A Transboundary Diagnostic Analysis (TDA) completed during project preparation identified objectives and high priority issues on a lake-wide basis, and a joint Strategic Action Plan (SAP) based on the TDA was approved by both governments. PROJECT DESCRIPTION Lending instrument 15. The project is financed through two Global Environment Facility Specific Investment Grants, government budgets, contributions from local government, and the private sector. The GEF grants totaling $4.55 million ($2.56 million Montenegro and $1.99 million Albania) will be denominated in US dollars. Project development objective and key indicators Global Development Objective 16. The global project development objective is to maintain and enhance the long-term value and environmental services of Lake Skadar-Shkoder and its natural resources. Project Development Objective: 17. The Project Development Objective is to help establish and strengthen institutional mechanisms for transboundary cooperation through joint efforts to improve sustainable management of Lake Skadar-Shkoder. Key Indicators: 18. The following key outcome indicators are proposed. Specific plans for monitoring these and subcomponent indicators are described in Annex 3. One year prior to project close, governments budgets will support operational costs of maintaining and participating in the Bilateral Lake Management Commission. (Process) Greater than 50% reduction in fishermen using illegal fishing practices. (Stress Reduction) Agreement between Government of Montenegro/KAP owners (Rusal) on solution and joint action plan to manage the legacy dumpsite wastes at KAP site. (Process) Established demonstration sewage collection and wastewater treatment system at Vranjina village. (Stress) Project components 19. The project will achieve its objectives through three main components: (i) Capacity Building for Improved Understanding and Joint Management of the Lake; (ii) Promoting Sustainable Use of the Lake; and (iii) Catalyzing Pollution Reduction Investments. Some project-financed activities will be carried out in both countries and some in each country but all activities will have lake-wide benefits. Details of project activities and financing are in Annex 4 and 5. Component 1: Capacity Building for Improved Understanding and Joint Management of the Lake (Total: US$3.43 million; GEF: US$1.80 million) 20. This component builds capacity to establish and strengthen institutional cooperation to operationalize the Skadar-Shkodra Lake Management Commission (SLC) and its Secretariat. An initial four technical working groups of the Commission will be established through this component to support priority SAP activities including: Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism; and Water Management. The project will support specific tasks which correspond to the tasks of the four working groups such as: (a) create a predictive hydrological model of the lake basin; (b) research and monitor to better understand impacts of changes in inflowing water quantity and quality; and (c) harmonize monitoring on both sides of the lake through a publicly accessible joint database. Under this component the project will promote donor coordination and learning exchange including engagement with GEF International Waters Learning Exchange and Resource Network IW:LEARN through project promotional materials, participation in international workshops, data exchange, and hosting annual donor coordination meetings. A key output of this component will be improved information and coordination for transboundary decision-making. This component also supports incremental project management costs in each country. Component 2: Promoting Sustainable Use of the Lake (Total: US$4.79 million; GEF US$1.06 million). 21. This component will promote adoption of sustainable approaches to economic development of the lake (and its natural resources) by focusing on tourism and fisheries where there is high potential for economically significant sustainable use. It will support environmentally and socially sustainable tourism by improving nature- and culture-based facilities and attractions; raising public awareness; and providing technical assistance to local residents considering tourism-based businesses. It will support sustainable fisheries management by helping to develop lake-wide stock assessment and fisheries management plans and by integrating plan results and recommendations into national plans, regulations, and programs. In response to this assessment, the project will provide incentives for fishermen to cease illegal fishing methods and help strengthen regulatory and enforcement capacity for fisheries management. Component 3: Catalyze Pollution Reduction Investments (Total: US$11.51 million; GEF: US$1.69 million). 22. This component will support selected investments to stimulate pollution reduction activities: educate and encourage people to replicate demonstration projects of village-level wastewater treatment and buffer vegetation restoration; and provide TA to catalyze remediation of the lakes largest-scale industrial pollution hotspot. A demonstration pilot project for wastewater treatment, based on constructed wetlands, is proposed for the village of Vranjina in Montenegro, in locations visible along the lake and the main road to facilitate education and promote replication. Technical assistance will be provided to the Government of Montenegro to prepare for a large-scale remediation investment. The government has budgeted an initial 5.0 million to invest at the site, however the full cost can be determined only upon completing an inventory, feasibility study, and site remediation design. Project TA funds will support an inventory and characterization of on-site waste and feasibility study/preliminary design of options study for remediation, recycling, and/or disposal. The TA would include an international adviser to assist regulatory authorities work on the KAP site, and some financial support for an EIA on recommended actions from the feasibility study. Restoration of lakeshore buffer vegetation to protect against siltation and chemical run-off will be demonstrated in Albania. This includes: (a) Restore prioritized lakeside groves (willows and other native trees) in erosion-prone areas; (b) Implement stream bank erosion control at one site through combined re-vegetation, gabions, and other small infrastructure; and (c) Support community-driven vegetation and restoration sites (prioritizing buffer vegetation for fish nursery areas). Lessons learned and reflected in the project design 25. Project preparation benefited from several past Bank-financed projects and programs for coordination of transboundary water bodies and other natural areas. Specific lessons from the completed Macedonia/Albania Lake Ohrid project include: Identify critical data needs early to tailor ecological monitoring; partner with local scientific community. The Project Implementation Completion Report (ICR) stated that closer attention to these aspects could have established more practical and sustainable monitoring programs and avoided financing nonessential equipment and infrastructure. Invest early in intensive public awareness and education to achieve stronger stakeholder involvement and active participation in project activities. Develop and maintain open dialogue to create goodwill and trust among key stakeholderscollaboration, compromise, and consensus-building are essential for joint decision making and this takes time to achieve. The project can support joint activities, exchange visits, and so forth. Grant-financed projects can help leverage other spin-off projects (e.g., financing of major infrastructure investments), which enhance project impact. Visibility efforts and concrete action plans can attract other donors. 26. The proposed project responds to these lessons by including a substantial budget for bilateral meetings, visibility events, study tours, and jointly designed and implemented public communications and outreach. The Strategic Action Plan and the Lake Commission will help coordinate donors; monitoring lake-wide water quality and ecosystem parameters is designed to complement routine ecological monitoring in both countries using local laboratory expertise. 27. Other GEF and WB projects (e.g., Baltic Sea; Caspian Sea, Serbia Danube Enterprise Reduction) provide lessons such as the importance of combining bottom-up planning and implementation (and local economic benefits) with top-down (e.g., policy level) support; and the value of high-visibility transboundary agreements, institutions, and programs that enable national authorities to carry out their regulatory responsibilities. The Albania Integrated Coastal Zone Management and Clean-up Project, Fisheries Development Project, and Natural Resources Development Project provide Albanian experience directly relevant to the importance of involving local communities in planning and sustainable natural resource management and mechanisms for doing so. A study tour to the transboundary Lake Neusiedl-Ferto (shared by Austria and Hungary) generated ideas and potential project design models; for example, effective cooperation is possible despite substantial differences in the countries institutional structures. The study tour also highlighted the importance of creating a supportive environment for local economic development, suggested innovative mechanisms to involve people from nearby communities in day-to-day lake management, and illustrated the value of restoring terrestrial habitats to maintain aquatic ecosystems. The project design was inspired by other institutional structures and models for cooperative management of transboundary lakes such as the International Commission for the Protection of Lake Geneva; the Lake Constance Environmental Council; and the Estonian-Russian Transboundary Water Commission. Alternatives considered and reasons for rejection 28. A project covering much or all of the watershed of Lake Skadar-Shkoder (and extending along the Buna-Bojana River to the Adriatic Sea) was considered because Montenegro and Albania have initiated policies that will eventually implement a wider river basin approach under the EU Water Framework Directive. However, establishing a wider focus was considered premature given the need to first strengthen basic capacity to manage most immediate lake issues. In addition, the large geographic area and limited resources would spread investments on the ground too thinly. Project-supported actions are designed as a foundation for the future when institutions are better prepared to expand to a wider watershed focus. The TDA and SAP coordinated through the Bilateral Lake Commission and made operational by the project in any case, cover the larger watershed area, providing a basic framework to attract and coordinate other donors and programs on a wider scale. 29. Initial project design focused more resources on direct investments to clean the lake and eliminate pollution sources. However, the TDA indicated that the priority should be to establish institutional structures and systems to preserve water quality and ecosystem health in the face of anticipated imminent economic revitalization and development. The project will include TA to catalyze improvements at high-priority localized pollution sources and hotspots. Initially, GEF resources were considered to finance remediation of a legacy waste dump at the KAP site, the up-front work required was still substantial, and therefore limited project resources were focused on advancing preparation for remediation work. Support to promote pollution reduction from small scale restaurants around the lake in Albania was considered however dropped due to uncertainties as to whether the restaurants will remain and the projected timetable to resolve their legal status after completion of an ongoing urban planning process supported by GTZ and the government. Support for capacity strengthening of the Protected Areas around the Lake was limited to reflect changes in the GEF Operational Program (IW) and Strategic Priorities, focusing primarily on strengthening the park ranger role in improved enforcement of fishery management, and integration of parks in sustainable tourism promotion. 30. Preparation teams in both countries expressed strong interest in direct financial support (small grants or micro-credit) for local communities to establish or expand small enterprises engaging in sustainable use of lake resources, including tourism. However, other project experiences indicate that successful small grant programs need a minimum number of enterprises to justify the up-front resources required to carry out participatory processes and set up management structures. Therefore, the project will focus on specific and pre-identified actions such as raising awareness, TA, skills training for local people to adopt sustainable practices, and support for fishermen to obtain licenses and participate in local user associations. III. IMPLEMENTATION Partnership arrangements 31. In addition to the World Bank, other donors and NGOs have programs to support environmental protection, sustainable natural resource management and tourism in the Lake Skadar-Shkoder area (Annex 2 and 15). The Skadar-Shkodra Lake Commission is the coordinating body for the joint Strategic Action Plana framework to enhance coordination, collaboration, and partnership among these initiatives and parties. The project will support annual donor coordination, international exchange, and collaboration. The project includes resources to engage with GEFs IWLEARN program, which promotes international exchange and collaboration on transboundary water management globally. Institutional and implementation arrangements 32. Project implementation arrangements will be streamlined within the existing structures of the two governments to ensure strong government ownership and to minimize strains on capacity. The Albanian Ministry of Environment, Forests and Water Administration (MEFWA) and the Montenegro Ministry of Tourism and Environmental Protection (MTEP) will have overall responsibility for project implementation, in coordination with partners in sectoral Ministries, local governments, and universities. MTEP and MEFWA, through subordinated units, are directly responsible for on-the-ground management of the lake and immediately surrounding areas because the area on both sides of the border falls within formally established Protected Areas (PAs). In Albania, MEFWA is also the Ministry responsible for protected areas, water management, and fisheries. In Montenegro, general water management falls under the Ministry of Agriculture, Forestry and Water Management, but Lake Skadar-Shkoder is a special casedue to its PA status, responsibility is delegated to MTEP. MTEP and MEFWA have each appointed a Project Director (Ministry staff), and Project Coordinators (project-financed staff) and will nominate representatives for the Skadar-Shkodra Lake Commission and Working Groups, according to agreed Terms of Reference. 33. In Albania, a Project Coordinator based in Shkodra will be responsible for day-to-day implementation, overseen by a Project Director (MEFWA Department Head) in Tirana. All procurement and financial management actions will be centralized and rely on contracted part-time experts with World Bank project experience. Some Albanian grant activities will have technical leadership by the SLC Secretariat, the Management Unit for the Shkoder Lake Managed Nature Reserve (SLMNR), and the SLMNR together with Shkodra Municipality. 34. In Montenegro, a Project Coordinator housed within MTEP in Podgorica will be responsible for day-to day project implementation, overseen by a Project Director (Assistant Minister in MTEP). All procurement and financial management will be centralized through contracting to the Technical Services Unit (TSU) that supports many World Bank projects in Montenegro. Some Montenegro grant activities will provide support to the SLC Secretariat, the Public Enterprise for National Parks (located on the Lake), the municipality of Podgorica, and a MTEP Steering Committee for KAP site grant supported activities. Government departments, agencies, or organizations that are beneficiaries or involved in implementing project activities, will do so under sub-project agreements signed with MTEP (Montenegro) or MEFWA (Albania). 35. A 2008 Bilateral Agreement legally establishes the Skadar-Shkodra Lake Commission (SLC), as the main steering mechanism to implement the SAP and provide a forum to reach concrete agreements on lake management issues. The SLC will convene four Working Groups of technical specialists and local stakeholders with project support to identify priorities and facilitate coordination/action on Planning and Legal; Monitoring and Research; Communications/Outreach and Sustainable Tourism Development; and Water Management. The SLC and Working Groups will be served by a small Secretariat to facilitate communications, meetings and outreach, and administrative reporting to the two Project Directors in MEFWA and MTEP. The Secretariat head and an assistant will be paid through the project for the first three years. Procurement and financial management of SLC activities will remain centralized under coordination of the two country-specific Project Coordinators. MEFWA and MTEP, through the Joint Bilateral Lake Management Commission, will establish coordination with any non-implementing institutions that are important actors and stakeholders. For example, the DrinBun River Basin Administration (chaired by the Prefect of Shkodra) covers the entire Lake Shkoder watershed in Albania, and the Water Administration Agency in Montenegro has a lead role in implementing integrated water management in line with the EU Water Framework Directive. 36. A PIM, prepared for negotiations, specifies project implementation, reporting, and monitoring processes and responsibilities. All activities will emphasize regular and substantial stakeholder involvement, particularly that of local communities and NGOs. Monitoring and evaluation of outcomes/results 37. The Project Coordinators in MTEP and MEFWA are responsible for monitoring project implementation, in coordination with the Secretariat for the Bilateral Lake Management Commission. A project Monitoring and Evaluation Plan with specific responsibilities, timeframes and reporting formats is in the PIM. Annex 3 details the Project Results Framework, which will guide M&E activities. Project supervision will monitor implementation of mitigation measures in the Environmental Assessment/Environmental Mitigation Plan. 38. Standard water quality parameters will be tracked lake-wide to harmonize bi-national data, build commitment for pollution prevention, and catalyze action. However, these data are not adequate to measure direct impacts of project interventions within the project timeframe. Site-specific monitoring would be implemented close to investments to help measure direct impacts. Most data will be collected through contracted arrangements with scientific institutions in each country such as the Center for Eco-toxicological Research, the Republican Hydro-Meteorological Institute, Institute for Protection of Cultural Monuments, Nature Protection Institute, University of Montenegro (Montenegro), the Hydro-meteorological Institute, Natural Sciences Museum, Fishery Research Institute, and University of Shkodra (Albania). 39. The Skadar-Shkodra Lake Commission effectiveness will be measured by its proactivity in establishing Working Groups, approving submitted reports and proposals, and by the two governments approval of its outputs and their integration into national policies and programs. For example, the lake-wide management plan should be prepared in consultation with all significant stakeholders and eventually incorporated into spatial plans and Protected Area management plans to the extent they extend into the lake. Effectiveness of the Committee and its Working Groups will also be measured by the extent to which the governments make use of these bodies to assess and resolve transboundary issues or conflicts that may arise, however, it is difficult to set advance targets for this. Committee sustainability will be measured by the willingness of the governments to cover a portion of its basic costs (meetings and communications) over the life of the project, and whether the governments achieve full budget support one year prior to project close. 40. Annual work plans/procurement plans agreed between the governments and the Bank will set targets for physical elements such as completion of small-scale tourism infrastructure and total areas re-vegetated in ecological restoration pilots. Progress in non-physical elements such as public outreach and communications, reduction in illegal fishing and building, and socio-economic impacts will be measured through social surveysresults will be compared with baseline studies carried out during project preparation and the first year of implementation. Data collection will be carried out by the staff of the respective PA management units and by contracted third parties. Impacts of the small-scale wastewater treatment demonstration will be measured by improvement of water quality at the site. Ecological restoration of buffer vegetation should also help protect long-term water quality but impacts are not expected to be measurable in the project timeframe so monitoring will focus on physical progress of restoration work. Sustainability 41. The project supports government priorities and international commitments directly aligned to the project objectives. Both countries are working to harmonize their legal and institutional frameworks with the EU environmental acquis and Directives, including adopting a coordinated, integrated watershed approach to managing transboundary water bodies. Finally, both countries are committing substantial own-budget resources and donor assistance for activities that support project activities and objectives. 42. Existing organizations are responsible for implementation: (Government Ministries, agencies; national research institutes), or bodies that the governments are committed to maintain over the long term (the SLC). The bilateral Working Groups formed under the project may continue, or be reconstituted at project close to focus on other priorities. The SLC costs will be supported only for the first three years of the project to promote sustainability. The project supports inclusion of parameters that are significant in a transboundary contextannual monitoring costs will continue, approximately at current levels rather than being artificially increased during the project life. The project promotes sustainable tourism and natural resource use, in contrast to current less sustainable practices. It will help the Government of Montengro address the problem of the KAP dumpsite legacy wastes, demonstrate an environmentally sustainable small-scale wastewater treatment facility, and help restore degraded buffer habitats. For all these reasons, the likelihood is high that project outputs and outcomes will continue beyond the project life . Critical risks and possible controversial aspects RISKMITIGATIONRating with MitigationGovernment commitment to preserve the lake ecosystem weakens against pressures for non-compatible economic development in watershed.High visibility of Lake Skadar-Shkoder as a nationally, and internationally important natural area (enhanced by the project) will strengthen international support to counter large threats. Public awareness and community involvement in sustainable use will help build local support.  MTourism growth at national and/or local levels less than expected or growth is rapid but does not follow a sustainable path. Both governments have identified Lake Skadar-Shkoder as a priority for tourism potential. Strengthened planning and regulation, monitoring to identify potential problems at an early stage, raising public awareness, and working with private sector partners are key elements of a strategy to manage and steer tourism in sustainable and productive directions. MWeak institutional implementation capacity in both countries; and inter-dependency of Governments for joint activities could slow project activities. The project supports existing actors to improve, expand, or reorient existing activities, and provides assistance for Project Coordinators focused on joint cooperation across the respective Ministries. Capacity to work with the KAP site will be strengthened by an international adviser. In Albania, the new SLMNR Management unit will be formed from staff currently under the forestry department. Project procurement and financial management is centralized in both countries to avoid fragmentation of efforts. Project combines both joint and single country activities. SSupport to the KAP site may be influenced by the political process; and project lacks any leverage on overall environmental performance of the plant.TORs for the studies will focus on demonstration of economic benefits of alternative solutions to both government and the private owner. A component specific Steering Committee will be established prior to initial tendering of the KAP assignments. Its role is to help promote information sharing at an early stage. International Advisory support will strengthen capacity to negotiate solutions with