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					Opportunities to improve sustainable PA financing mechanisms
    and encourage sustainable livelihoods in the Lower Volga

               Report on a consultancy carried out for the UNDP/GEF
     Project “Conservation of Wetland Biodiversity in the Lower Volga”
                                                          Lucy Emerton
                                                          October 2008
CONTENTS OF THE REPORT
1.     Background and aims ............................................................................................................. 1
2.     Content and layout of the report .............................................................................................. 2
3.     Review of project outputs and activities on sustainable financing and sustainable livelihoods . 3
       Sustainable PA financing .......................................................................................................................... 3
       Sustainable livelihoods .............................................................................................................................. 3
       Summary: using sustainable financing and livelihood mechanisms to meet project aims ....................... 3
4.     Creating an enabling financial and economic framework for biodiversity conservation in the
       Lower Volga ............................................................................................................................ 5
       Summary of the review of the financial status of PAs in the project area ................................................. 5
       Sustainable PA finance ............................................................................................................................. 7
       Sustainable livelihoods .............................................................................................................................. 9
       Building on national experiences of sustainable financing and livelihood mechanisms ......................... 11
       Summary: using sustainable financing and livelihood mechanisms to address financial and economic
       threats to biodiversity conservation ......................................................................................................... 13
5.     Opportunities for the development of sustainable PA financing mechanisms in the project
       area ...................................................................................................................................... 14
       Review of project recommendations on sustainable PA financing ......................................................... 14
       Available mechanisms for sustainable PA financing based on international experience ....................... 14
       Outline of potential mechanisms to generate and manage PA financial resources in the Lower Volga 16
       Summary: sustainable PA financing options for the project .................................................................... 20
6.     Opportunities for the development of sustainable livelihoods mechanisms in the project area21
       Review of project recommendations on sustainable livelihoods ............................................................. 21
       Available mechanisms for sustainable livelihoods based on international experience ........................... 22
       Outline of potential mechanisms to improve the sustainability of businesses, land and resource uses
       the Lower Volga ...................................................................................................................................... 24
       Summary: sustainable livelihood options for the project ......................................................................... 27
7.     Next steps in the development of sustainable financing livelihoods mechanisms under the
       project ................................................................................................................................... 28
       Needs for additional information on legal and regulatory frameworks .................................................... 28
       Sustainable PA financing mechanisms ................................................................................................... 29
       Sustainable livelihood mechanisms ........................................................................................................ 29
       Impact monitoring .................................................................................................................................... 30
       Additional uses of economic and financial approaches to biodiversity conservation:............................. 30
Annex 1: Terms of reference and schedule ................................................................................... 31
       Terms of reference .................................................................................................................................. 31
       Schedule.................................................................................................................................................. 31
Annex 2: Case studies of international experience in sustainable financing mechanisms.............. 33
       Downstream compensation payments from hydropower schemes ........................................................ 33
       Biodiversity offsets in the oil, gas and mining sectors ............................................................................. 34
       Payments for wetland ecosystem services to the fisheries sector .......................................................... 35
       Protected Area business plans................................................................................................................ 36
Annex 3: Suggestions for monitoring the impact of sustainable financing and livelihood
    mechanisms............................................................................................................................ 1
       Indicators and means of verification to track project progress .................................................................. 1
       Monitoring the links between sustainable livelihoods, finance, and biodiversity conservation ................. 2
       Project indicators, baselines, targets and means of verification as specified in the project Logical
       Framework Matrix ...................................................................................................................................... 1
1. BACKGROUND AND AIMS
The UNDP/GEF project ―Conservation of wetland biodiversity in the Lower Volga‖ commenced in 2006,
and is being implemented in Astrakhan and Volgograd Administrative Regions and the Republic of
Kalmykia of the Russian Federation. It aims to conserve unique wetland complexes by demonstrating
effective mechanisms for the sustainable use of natural resources within Protected Areas (PAs) and their
direct surroundings.

The project includes a number of outputs and activities which deal with identifying and initiating sustainable
financing mechanisms for PA management, and promoting sustainable livelihood activities which can
address the threats to wetland biodiversity from surrounding areas.

This consultancy provided support to the development of these aspects of the project. By reviewing
international experience and lessons learned in the light of conditions and needs in the Lower Volga and in
relation to the project‘s aims, it intended to assist in identifying opportunities and ways forward for the
project to design, plan and implement mechanisms for improving sustainable PA financing and sustainable
livelihoods in the Lower Volga.

The consultancy was carried out over a period of 15 days in August and September 2008, including a 10
day visit to the project area.




                                                                                                            1
2. CONTENT AND LAYOUT OF THE REPORT
This report aims to assist in identifying opportunities and ways forward for the project to design, plan and
implement mechanisms for improving sustainable PA financing and sustainable livelihoods, based on
lessons learned from international experience as well as in the light of specific conditions, needs and
opportunities in the Lower Volga:

 Section 3 reviews project objectives, outputs and activities relating to sustainable PA financing and
  sustainable livelihoods mechanisms.

 Section 4 provides an overarching framework for conceptualising and linking together sustainable
  financing and sustainable livelihoods, summarises existing financial and economic constraints to
  biodiversity conservation in the Lower Volga, and reviews experiences of the use of economic and
  financial mechanisms for biodiversity conservation in the Russian Federation.

 Section 5 provides an overview of international experience in the use of sustainable financing
  mechanisms for PA funding, and recommends mechanisms which could be suitable for development by
  the project. References to key documents and websites which provide further guidance on PA financing
  mechanisms are also provided as footnotes to the main text.

 Section 6 provides an overview of international experience in the use of sustainable livelihood
  mechanisms for biodiversity conservation, and recommends mechanisms which could be suitable for
  development by the project. References to key documents and websites which provide further guidance
  on sustainable livelihood mechanisms are also provided as footnotes to the main text.

 Section 7 summarises additional steps and information needs for the development of sustainable PA
  financing and sustainable livelihoods mechanisms by the project.

 Annex 1 presents the terms of reference and schedule for the consultancy.

 Annex 2 summarises case studies, drawn from around the world, relating to the PA financing
  mechanisms identified for the project.

 Annex 3 provides suggestions for monitoring the impacts of sustainable financing and livelihood
  mechanisms.




2
3. REVIEW OF PROJECT OUTPUTS AND ACTIVITIES ON
   SUSTAINABLE FINANCING AND SUSTAINABLE LIVELIHOODS
The immediate objective of the project is ―to secure conservation of biodiversity in four Core Wetland Areas
(CWAs) through the overall strengthening of the Lower Volga protected area system, the introduction of
supporting regulatory/policy environment and local participation, as well as demonstrating and introducing
alternative income generating activities‖. Five outcomes are being pursued in order to achieve this
objective, dealing with: improved information (#1), strengthened institutional and regulatory capacity (#2),
strengthened system of PAs (#3), sustainable livelihoods (#4), and increased awareness and support for
biodiversity conservation and sustainable development (#5).

Sustainable PA financing
Output 3.4 of the project is ―financial sustainability of protected areas strengthened‖, to be implemented
through Activity 3.4 (strengthening financial sustainability of protected areas). As laid out in the project
document, the project intends to support the definition and implementation of options for achieving
increased financial self-sufficiency of CWAs.

The initial target is that, by year 5, 40% of total operational costs of PAs in the project area will be covered
by self-generated revenues, with the remainder covered by federal and other budgetary support. Over the
longer-term it is anticipated that progressively greater revenues will be generated through more efficiency
and increased entrepreneurial opportunities.

Sustainable livelihoods
Output 4 of the project is ―increased opportunities for the development of sustainable alternative livelihoods
within CWAs and their vicinities‖, to be implemented through Activity 4.1 (identification and, in consultation
with local communities, final selection of alternative livelihood options suitable to local conditions) and
Activity 4.2 (identification of and, in consultation with local stakeholders, addressing technical and financial
needs for the adoption of alternative livelihoods).

As laid out in the project document, the project intends to pro-actively support the implementation of
alternative livelihood activities as defined in baseline socio-economic development plans of the regional
authorities, as part of its overall work and engagement with local inhabitants. The project document notes
that this outcome is not intended as a general compensation to stakeholders for lost revenue from
poaching and other biodiversity damaging activities. Rather, it aims to provide positive incentives and
rewards for more sustainable business, land and resource management in the project area, as well as
fostering a positive attitude to conservation activities among local stakeholders.

Summary: using sustainable financing and livelihood mechanisms to meet project aims
This brief review of the intended objective, outputs and activities as described in the project document
highlights a number of guides and filters which should influence the design of sustainable financing and
livelihoods mechanisms:
 Sustainable financing and livelihood mechanisms are being designed and implemented within the
  context of a 5 year project. The mechanisms identified must therefore be implementable in this time-
  frame, cost-effective and achievable in relation to the project budget and other resources, and
  sustainable after the project‘s end.
 The overall objective of the project is concerned with securing the conservation of biodiversity of global
  significance. Any financing and livelihood mechanisms identified and developed during the course of
  the project should thus lead to improved biodiversity conservation as their ultimate impact. For
  sustainable PA finance, this means that the identified mechanisms should be closely tied to providing
  funding for actions which have been identified by PA authorities as being necessary for biodiversity
  conservation, and to overcoming any financial constraints to PA management which also act as barriers
  to biodiversity conservation. In the case of sustainable livelihoods, it is critical that mechanisms are
  designed to overcome existing disincentives, or lack of positive incentives, for local populations to
  conserve biodiversity. The achievement of broader socio-economic development goals, although



                                                                                                              3
    important for regional development, is not the primary concern of the project except in so far as they
    may lead to improved biodiversity conservation.
 The output on sustainable financing is located in the project outcome that deals with strengthening the
  PA system in the Lower Volga, alongside the establishment of CWAs and development of management
  plans for them. Financing mechanisms identified for development in the project should therefore be
  linked directly to these core wetland areas, and to the activities and goals that are laid out in the
  management plans developed for them.
 Sustainable livelihoods are presented as mechanisms to provide a ―carrot‖ which will balance the ―stick‖
  of improved legislation and regulations to improve biodiversity conservation and enforcement (to be
  tackled through Output 2.3). Their design should thus be tied closely to, and attempt to reinforce, the
  specific regulations and restrictions that are being set in place to govern biodiversity conservation in the
  project area.
 The development of sustainable financing and livelihood mechanisms in turn influences other outcomes
  of the project, and lends support to them. Outcome 1 of the project deals with improved information on
  the Lower Volga and its biodiversity as well as improved information management and use in decision-
  making, while Outcome 5 aims to increase awareness of and support for biodiversity conservation and
  sustainable development. Financing and livelihood activities require, and relate directly to, the
  involvement and active support of stakeholders from the private sector and local communities, as well
  as to government authorities concerned with financial and economic planning. Alongside the
  introduction of sustainable financing and livelihood mechanisms, it will be important to ensure that
  information is generated and shared on economic and financial values associated with the biodiversity
  and ecosystems of the Lower Volga (Outcome 1), and that a clear economic, business and
  development case for investing in biodiversity conservation is made to these stakeholder groups
  (Outcome 5).




4
4. CREATING AN ENABLING FINANCIAL AND ECONOMIC
   FRAMEWORK FOR BIODIVERSITY CONSERVATION IN THE LOWER
   VOLGA
The use of sustainable financing and livelihood mechanisms for biodiversity responds to the fact that
conservation incurs a wide range of financial and economic costs, both direct and indirect, to many
stakeholder groups. As long as these costs remain unmet, they will act as obstacles to biodiversity
conservation. It is therefore necessary to find ways of covering all of these costs, for all the groups who
bear them.

The main costs of biodiversity conservation (and efforts to meet them) have, conventionally, been
considered to be direct management costs. These can be defined as expenditures on the operational costs
of managing PAs and conserving biodiversity, including physical expenditures on equipment, buildings,
vehicles, staff, running costs and maintenance. Biodiversity conservation however also incurs indirect
costs or opportunity costs, which in many cases far exceed direct management costs. These can be
defined as the benefits or economic opportunities that are diminished or lost by choosing to conserve
biodiversity. They include the value of foregone output from prohibited or restricted land and resource uses
and from the potential conversion of land to an alternative use, as well as possible congestion effects on
other sites and stocks that remain available for extractive uses and alternative developments.

As long as these costs remain uncompensated, or are not balanced by a commensurate level of economic
and financial benefits, the authorities and people who are ultimately responsible for managing lands and
resources will tend to remain unwilling – and in many cases economically unable – to conserve biodiversity
in the course of their economic activities.

In the Lower Volga, it appears that neither the direct costs nor the opportunity costs of biodiversity
conservation are adequately covered. We can see a number of ways in which financial and economic
factors act as a barrier or threat to biodiversity conservation. These are described in the next sections of
the report – financial constraints are covered in the section on Financial constraints to government PA
management in the Lower Volga, economic constraints are covered in the section on Weak economic
incentives for sustainable land, resource and business management in the Lower Volga.

Establishing sustainable finance and livelihood mechanisms attempts to ensure that all the costs of
conservation are covered, and that sufficient funds and other financial and economic incentives are made
available to offset them. Most basically, they aim to create an enabling financial and economic framework
for biodiversity.

Summary of the review of the financial status of PAs in the project area
The project has carried out an assessment of the revenues, expenditures and financial status of PAs in the
Lower Volga. In terms of funding, the review points to Article 11 of the Law on Specially Protected Nature
Areas, which designates State Nature Reserves as non-commercial organisations which should be
financed from the federal budget. It however also allows for out-of-budget income to be generated from
promotional and publishing activities, penalties and fines, donations and charitable funds, souvenirs, and
income earned for the use of the PA logo on appropriate products and services.

Article 17 of the Regional Law on Specially Protected Nature Areas of the Volgograd Oblast contains
similar provisions. The Statute on Rendering Payable Nature Protection Services for the Nature Park
Volga-Akhtuba Floodplain elaborates income-generating activities in some detail, including ―economic
services‖ such as production and sale of ―green‖ agricultural products, sale of firewood, production of
souvenirs and handicrafts, and accommodation of tourists and visitors in private houses and hotels.

Data are available for the 2007 budgets of all of the PAs in the project area, and are shown in the table
below. It is notable that the vast majority of funding comes from the State, with only a relatively small
proportion coming from out-of-budget sources or self-generated income. The Republic of Kalmykia Nature
Park is the exception to this rule, as 77% of its revenue is self-generated – but in fact much of this income
comes from the GEF-UNDP project.




                                                                                                           5
                                                             State funding                   Self-generated                        Total
                                                           Amount              %            Amount          % of            funding 2007
                                                         (Roubles)       of total         (Roubles)         total              (Roubles)
Volga-Akhtuba Floodplain Nature Park                     5,504,400          81%           1,316,710         19%                6,821,110
Republic of Kalmykia Nature Park                           818,000          23%           2,677,450         77%                3,495,450
Ilmenno-Bugrovoi State Nature Reserve                      731,710        100%                    0           0%                 731,710
Astrakhan State Nature Reserve                          12,376,000          71%           5,076,000         29%               17,452,000

A financial problem noted in the review of PA finance is that there is a serious lack of funding for capital
investments and for the development of important nature conservation activities (such as environmental
education, tourism and research). PA income and expenditure figures bear out this observation. A review
of data shows that, for example, in 2007 more than 70% of the budget granted to the Republic of Kalmykia
Nature Park was allocated to recurrent expenditures and maintenance. For Astrakhan State Nature
Reserve, capital investments comprised less than 2% of the federal budget in 2006 and just 8% in 2004; in
2003 and 2005 the entire federal budget was allocated for operational expenditures. As the table below
illustrates, expenditures on salaries and wages consume a large proportion of PA budgets – leaving little
money available for other essential operational and investment costs. Wages, payroll and other staff costs
account for more than half of annual state budgets in all of the PAs, except for Astrakhan State Nature
Reserve where they account for a still substantial 37%. An additional issue noted in the review is that the
average wages of PA employees are far lower than those for other jobs in surrounding areas, meaning that
it is hard for the PA authorities to attract and retain good staff.

                                                             Annual wage bill          Total State funding                         Wages as
                                                                   (Roubles)                     (Roubles)                         % of total
Volga-Akhtuba Floodplain Nature Park                               3,864,300                     5,504,400                              70%
Republic of Kalmykia Nature Park                                     622,400                       818,000                              76%
Ilmenno-Bugrovoi State Nature Reserve                                389,260                       731,710                              53%
Astrakhan State Nature Reserve                                     4,520,400                    12,376,000                              37%

More detailed information is available about annual income and expenditures in Volga-Akhtuba Floodplain
Nature Park and Astrakhan State Nature Reserve. A review of the composition of annual expenditures
over the last 3 years in Volga-Akhtuba Floodplain Nature Park shows that the ratio of capital to recurrent
expenditures is improving somewhat. Over the last 3 years capital expenditures have increased
substantially both in absolute terms (from 185 to 680 thousand Roubles), as well as in the share of total
expenditures (from 7% to 12%). At the same time, the share of staff costs in total PA expenditures has
decreased (although is still substantial): from around 85% to 70%.

                 100%
                                                                                         Volga-Akhtuba Floodplain Nature
                 80%                                                                    Park: composition of expenditures
                                                                                             made from State budget
    % of total




                 60%

                 40%                                                                                     Capital investments

                 20%                                                                                     Other operational costs

                  0%                                                                                     Staff costs
                        2005                   2006                  2007


                                                                                                               1
Although budgets for both PAs have risen in absolute terms over recent years , there has been an
increasing reliance on state budgets. As shown in the tables below, the share of Volga-Akhtuba Floodplain
Nature Park‘s budget contributed from Federal government sources has risen from 74% to 81% over the
last 3 years, while Federal, Oblast and Municipal sources have increased from 59% of Astrakhan State
Nature Reserve‘s total income to 71% over the last 5 years.




1
    Information is not available on the inflation rate, so it is not known whether budgets have increased in real terms over this period.

6
                      8,000
                                                                            Volga-Akhtuba Floodplain Nature
                      6,000                                                   Park: sources of PA income
       Roubles '000


                      4,000                                                        Other self-generated income


                      2,000                                                        International donors
                                 74%           91%            81%
                                                                                   Federal budget
                         0
                                 2005          2006           2007



                      18,000

                      15,000                                                Astrakhan State Nature Reserve:
                                                                                 sources of PA income
                      12,000
      Roubles '000




                       9,000                                                      Other self-generated income
                       6,000
                                                                                  International donors
                       3,000   59%      74%     77%    74%           71%
                                                                                  State budget
                          0
                               2003     2004    2005   2006          2007



Sustainable PA finance
Meeting the direct costs of biodiversity conservation: lessons learned from international
experience
In the context of the project, sustainable financing mechanisms are being used primarily as a tool to ensure
that the relevant government authorities have sufficient financial resources to manage protected areas
effectively, so as to meet biodiversity conservation goals. They aim to meet the direct management costs
of biodiversity conservation.

The need for sustainable financing mechanisms responds to a recognition that there exist many financial
constraints to PA management authorities which in turn act as obstacles to effective biodiversity
conservation. It is important to understand that although a lack of funds is clearly an important
consideration, there are many other additional financial constraints to PA biodiversity conservation which
relate to the use and management, as well as the quantity, of financial resources available to government
management authorities (these are listed in the bullet points below). Securing adequate funds is a
necessary but not sufficient condition for PAs to be managed effectively and financed sustainably. PA
financial sustainability can be defined as the ability to secure sufficient, stable and long-term financial
resources, and to allocate them in a timely manner and in an appropriate form, to cover the full costs of
PAs and to ensure that PAs are managed effectively and efficiently with respect to conservation and other
objectives.

A review of experiences of developing sustainable PA finance mechanisms in other parts of the world
suggests that some of the most important financial constraints to effective biodiversity conservation tend to
be:
 Insufficient amount of funds to meet the investment and recurrent expenditures required to manage
  PAs. If there are not enough funds available to cover a PA‘s financial and budget plan, then biodiversity
  conservation is unlikely to be effective.
 Inefficient or cumbersome financial planning and administration systems. When there are long delays in
  preparing budgets, receiving funds or administering financial resources, biodiversity conservation is
  almost inevitably undermined. Budgets will tend to be poorly prepared, and obstacles in releasing and
  using funds will often translate into ineffective spending patterns.



                                                                                                                 7
 Lack of concern with cost effectiveness and cost minimisation. Unless simultaneous efforts are made to
  ensure that spending is cost-effective, improved financial flows are unlikely to result in better
  biodiversity conservation.
 Narrow funding base and over-reliance on a single, or small number of, revenue or budget streams.
  This leaves the PA in a risky position – should one source of funding decline or fail, there will remain no
  sources with which to substitute it, undermining the PA‘s financial security.
 Lack of opportunities for PAs to diversify or increase their revenue base. Under these conditions, it will
  remain extremely difficult for PA authorities to improve their financial situation.
 Lack of opportunities for PAs to retain the revenues they raise. This means that there are few incentives
  for PA authorities to improve their financial base, and even if they do manage to raise more funds then
  this will not necessarily translate into improved financing for biodiversity conservation.
 Lack of linkages between PA financial plans and operational management plans. Unless funding and
  financial plans are tied directly to PA management plans, there will be a disconnect between raising and
  administering funds and achieving biodiversity conservation goals. In many cases, funds may not be
  allocated to the activities or budget lines which are most important for effective PA management or on
  the investments and recurrent costs that are essential to undertaking key biodiversity conservation
  activities.

In line with the need to overcome these financial constraints to PA biodiversity conservation, sustainable
financing mechanisms usually have several aims, which include setting in place mechanisms to administer
and use financial resources effectively, as well as generating more funds for biodiversity.

Financial constraints to government PA management in the Lower Volga
The government authorities responsible for managing the four PAs of the Lower Volga (Volga-Akhtuba
Floodplain Nature Park, Republic of Kalmykia Nature Park, Ilmenno-Bugrovoi State Nature Reserve and
Astrakhan State Nature Reserve) face a number of financial constraints which in turn hinder biodiversity
conservation, and can be addressed by the project:
 Government authorities in the Lower Volga region state that they receive inadequate budgets to enable
  them to manage PAs and conserve biodiversity effectively. As mentioned below, in the final bullet point,
  there is also a problem that budgets do not always fit well with the financial needs for biodiversity
  conservation, and are not necessarily tied to PA operational management plans. In many cases, PAs
  simply do not have a clear idea of what financial resources they actually need for effective biodiversity
  conservation.
 PAs also face problems in diversifying their revenue bases. Although according to current legislation
  PAs, as state institutions, are funded from the federal budget it is in reality difficult for them to meet all
  their funding needs from this source. For this reason a range of self-generated income sources are also
  used. However, as discussed above, current legislation places many limits on the types of self-
  generated revenues that PAs are allowed to raise. In practice, most PAs rely on a very narrow funding
  base which is comprised mainly of government budget allocations. Prevailing tax rates also act as a
  disincentive to PAs increasing their self-generated revenues: if income exceeds 2 million Roubles per
  month, it is subject to value-added tax of 18%.
 There exist some problems relating to the ability of PAs to retain revenues raised. Individual PAs can
  retain most of their self-generated revenues to be ploughed back into park management, with the
  exception of fines and rent – which are remitted to Federal and Regional budgets. In principle if a PA
  generates a surplus of self-generated income over that predicted for the year, and that which is required
  to cover planned expenditures, it is able to carry this sum over to the next financial year. However, as
  such carry-overs are subject to a 24% profit tax (the same tax rate as applies to commercial
  enterprises), there remains little incentive to generate and retain income which can be used for future
  cost recovery, or to enhance longer-term financial security.
 Financial planning and budgeting arrangements for PAs involve the formulation of annual budgets,
  which specify projected expenditures and revenues, and the amount of budget requested from the State
  for the coming year. In practice, financial planning is not necessarily tied to PA operational management
  plans. This relatively short time frame, and disconnect from biodiversity conservation planning, means
  that it is rare for PAs to have developed a consolidated or coherent financial strategy which is based on
  long-term biodiversity conservation goals.
 The definition of costs, and funding needs, in financial plans and budgets is narrow and excludes an
  important element – the indirect and opportunity costs of biodiversity conservation. As described above,

8
    opportunity costs can be defined as the benefits or economic opportunities that are diminished or lost
    by choosing to conserve biodiversity. PA and conservation budgets for the Lower Volga region focus
    primarily on covering the direct costs of the government agencies mandated to manage biodiversity,
    and there has been little effort to offset indirect and opportunity costs incurred to the people living in the
    region, or to provide positive financial and economic incentives for them to choose to act in a
    biodiversity-friendly manner. This topic is addressed in detail in the next section of this report.

Sustainable livelihoods
Meeting the opportunity costs of biodiversity conservation: lessons learned from international
experience
In the context of the project, sustainable livelihood mechanisms are being used primarily as a tool to
ensure that the people who live outside PAs (and, in the case of Nature Parks, even those who live inside
them) – in the broader Lower Volga conservation landscape – have sufficient financial and economic
incentives to conserve biodiversity in the course of their day-to-day activities. They aim to meet the
opportunity costs of biodiversity conservation on private lands, state lands which are used privately, and
non-PA state lands which are managed by the government.

The design of sustainable livelihood mechanisms is based on the fact that although there is an elaborate
framework of laws and regulations which govern land and resource uses and business activities in
ecologically sensitive areas, these are not always easy to enforce through penalties, fines and
punishments alone. It is frequently easier, and more profitable, for people to degrade biodiversity rather
than to conserve it in the course of producing, consuming and carrying out their economic activities. In
some cases, people remain in a position when they actually cannot afford to conserve biodiversity – their
livelihoods are too weak for them to bear the opportunity costs of conservation, and alternative or more
sustainable sources of income, employment and subsistence are unavailable or unaffordable to them. The
                                                                        2
bottom line is that when there are insufficient economic and financial reasons for people to conserve
biodiversity (in other words, when conservation is no more financially profitable or broadly desirable in
economic terms to them than environmentally-degrading activities, and may even be more costly), they are
unlikely to do so – despite the existence of laws and regulations that require them to act in an
environmentally sustainable manner.

Sustainable livelihood mechanisms aim to set in place the conditions under which biodiversity conservation
(or activities that are compatible with it) are perceived as being more desirable and profitable than those
which degrade biodiversity (or are incompatible with biodiversity conservation). They address a complex
set of issues and conditions which results in a situation where a lack of adequate and appropriate
economic and financial incentives acts as a constraint to biodiversity conservation.

A review of experiences of developing sustainable livelihood mechanisms in other parts of the world
suggests that it is necessary to incorporate a number of considerations into the design of sustainable
livelihood mechanisms which aim to replace, substitute or modify environmentally-degrading activities,
including:
 The need to balance the economic and financial returns from environmentally-degrading activities. The
  benefits generated through sustainable livelihood mechanisms must be high enough to make people
  change their behaviour. If people still feel they are losing out from conservation, they are unlikely to take
  up the sustainable livelihood options being offered to them.
 The need to meet people’s aspirations and demands. The quality or type, as well as the quantity, of
  benefits generated through sustainable livelihood mechanisms are also important. Where there are
  specific types of costs from conservation (for example a loss of food, or income, or employment), the
  type of benefits generated by a project should directly compensate these. A sustainable livelihood
  option is also likely to be more attractive to people when it generates the type of benefits which help
  people to achieve their personal aspirations and goals.
 The need to recognise and respond to change. Sustainable livelihoods are often designed only on the
  basis of the current situation. They do not consider ongoing changes in the livelihood, market and policy
  context, or changes in people‘s aspirations and demands. In such cases, sustainable livelihood
  mechanisms soon become redundant.


2
  ―Financial‖ relates primarily to money and profits, whereas ―economic‖ also includes a whole host of broader production,
consumption and livelihood factors that influence people‘s wellbeing.

                                                                                                                        9
 The need to stimulate net improvements in people’s livelihoods. Even though broad socio-economic
  development is not the ultimate goal of using sustainable livelihoods for biodiversity conservation,
  mechanisms should never make people worse off. Wherever possible they should be designed to
  improve people‘s wellbeing and livelihoods. Low return, low value activities are unlikely to prove
  attractive to people, or to persuade them to replace or modify their biodiversity-degrading livelihood
  activities.
 The need to be viable and sustainable in business terms. If the mechanisms introduced cannot stand
  alone as viable businesses without external support, then they are unlikely to be maintained after the
  project‘s end. Any sustainable livelihood activity which relies on a subsidy to be acceptable or feasible
  is unlikely to translate into long-term biodiversity conservation gains.
 The need to incorporate environmental sustainability. If the ultimate aim of developing sustainable
  livelihoods is to meet biodiversity conservation goals, then it is of paramount importance to ensure that
  any mechanisms introduced do not worsen the state of the environment. Livelihood changes should
  always translate into biodiversity conservation gains.

Weak economic incentives for sustainable land, resource and business management in the
Lower Volga
Land, resource and water uses carried out both on-site and upstream are impacting on the biodiversity of
the Lower Volga. In most cases the returns to these unsustainable or biodiversity-degrading activities are
high; this, combined with a lack of financial and economic incentives for sustainable use and management
(or disincentives against ecosystem degradation), suggest that there is a need for the project to take some
form of action to replace, substitute, modify or mitigate such economic activities:
 The upstream Volga-Kama system of dams and reservoirs has had devastating impacts on the
  hydrology, ecology and biodiversity of the Lower Volga. Artificial flow regulation and discharge regimes
  now mean that the duration of flooding in both wet and (especially) dry years has decreased
  substantially, and is characterised by a much faster rise and fall in water levels. At the same time
  suspended sediment loads travelling downstream have decreased, leading to increased erosion of
  streambeds and deepening of channels. Dam construction has disrupted traditional fish migration
  routes to upstream spawning areas, large areas of natural spawning grounds have been lost, and sharp
  fluctuations in water levels have caused mass destruction of sturgeon eggs. As well as affecting fish
  stocks and productivity, the reduced duration and height of flooding and consequent contraction of
  lakes and wetlands has resulted in changed vegetation and worsened habitat conditions for water and
  near-water bird species, amphibians, reptiles, molluscs, insects, and higher and lower flora. A clear
  need, and niche, exists to work with the Volga Hydroelectric Station (as the last of the Volga-Kama
  cascade of dams) and its managing authority OAO RusGidro Volzhskaya GES to identify mechanisms
  for ensuring that the economic costs of downstream wetland biodiversity degradation are offset,
  mitigated or compensated.
 Agricultural land uses in the floodplain and delta, too, have affected wetland biodiversity, ecology and
  hydrology. The construction of dikes for irrigation purposes has reduced naturally flooded areas and
  wetlands, impacting on breeding and feeding grounds for wild fish and bird populations. A large
  proportion of the area currently under irrigation is considered degraded due to increased salinity and
  sodicity. Grazing, mowing, grass cutting and reed collection have caused meadow and grassland
  degradation, leading to changes in species composition – for example the increasing domination of
  vegetation communities by grazing-resistant species. There are needs to find ways of modifying
  agricultural land uses to make them more environmentally-friendly, and to identify mechanisms which
  can provide clear benefits and profits to farmers if they engage in sustainable production activities.
 Fishing activities, sometimes carried out illegally, are leading to wetland degradation. Infringement of
  fishing quotas and regulations is widespread and growing, and there are signs of declining fish stocks.
  Although both commercial fisheries (particularly the illegal commercial fishing of sturgeons and black
  market production of caviar) and local-level activities contribute towards these problems, the project
  document notes that their primary cause is the current regulatory system which erodes incentives for
  proper enforcement rather than subsistence-level fishing by local communities per se. Although the
  project is not dealing with organised illegal sturgeon fishing, there is an opportunity to find mechanisms
  which can reinforce compliance with environmental regulations by other fishermen, and offer them
  economic opportunities which will reduce unsustainable use and pressures on biodiversity.
 Tourism activities are widespread, and continue to expand, in the Lower Volga region and particularly in
  the Volga Delta and the northern Volga-Akhtuba floodplain. A large number of guest houses, camping
  sites and picnic grounds are used for general recreation, fishing and hunting. Tourism is having a major


10
   impact on biodiversity and ecological integrity, through noise disturbance, trampling, littering, unplanned
   construction of tourist facilities (sometimes in ecologically sensitive areas), and disposal of wastes.
   Particular threats are posed by self-organised, unregulated visitors who stay in temporary camps, and
   even many fixed tourist camps still lack all or part of the necessary licenses for providing tourist
   services as well as permissions for the use of natural resources. There is much potential for the project
   to work to develop sustainable tourism and eco-tourism, and minimise the impact of current and future
   activities on biodiversity.
 The Lower Volga and Caspian region is becoming increasingly important for oil and gas production.
  Reserves in Astrakhan Oblast are estimated at about 10% and 6% respectively of the total for the
  Russian Federation. Extensive development of these resources is planned, including scaling up oil and
  gas production at existing fields and those under development, both onshore and offshore. Prospecting
  activities are already being carried out around PAs in the Volga Delta, and are expected to continue in
  the future. Oil and gas prospecting and exploration bring obvious risks to the environment, and to
  biodiversity, including via the physical impacts of these activities themselves as well as through the
  infrastructure and increased human entry into the area which accompanies them. Work with the oil and
  gas sector is an urgent priority for the project, both as a potential source of funding for conservation as
  well as to minimise and mitigate the biodiversity impacts of exploration.
 The urban, infrastructure and industrial development which has accompanied expanded agriculture and
  human settlement has affected floodplain hydrology and biodiversity. The Volga River is severely
  polluted with industrial, agricultural and household wastes. Agricultural land uses in the floodplain and
  delta have led to eutrophication and are causing disturbance, fragmentation and loss of important
  habitats. At the same time, poor solid waste management practices around settlements in the floodplain
  and Delta area, combined with the lack of enforcement of planning controls on new construction, mean
  that localised environmental degradation is taking place throughout the Lower Volga region. These
  factors require that the project take a landscape approach which deals with the broader environmental
  impacts of settlement and industry, and finds ways of providing incentives for urban, industrial and
  infrastructure development to manage their impacts on biodiversity.


Building on national experiences of sustainable financing and livelihood mechanisms
Although somewhat limited, there is some experience of the use of sustainable financing mechanisms and
economic incentives for environmental conservation in the Russian Federation. It is also important to note
that the existing regulatory and legislative framework to some extent enables, and demands, the use of
such instruments. Some key elements and experiences include:
 Article 14 of the Federal Law on Environmental Protection No 7-FZ of 2002 provides for tax
  concessions and other privileges for introducing and using technologies, energy, waste recycling and
  other environmental measures as well as endorsing the use of other economic regulation measures for
  promoting environmental protection. It also mentions support to entrepreneurial, innovative and other
  activities aimed at protecting the environment. Article 17 explicitly states that entrepreneurial activities
  pursued for the purpose of environmental protection shall be supported by the state, via granting tax
  and other privileges under the law. In practice, it however appears that businesses and private
  companies which engage in environmental protection-related activities currently remain subject to the
  same tax rates as any other companies in the Russian Federation.
 Although commonly-used economic instruments for environmental protection such as product taxes and
  deposit-refund systems are not used in the Russian Federation, pollution charges have been widely
  applied. The principle of ―polluter pays‖, via environmental compensation and damage charges as well
  as pollution and waste disposal fees, was first introduced via the Council of Ministers Resolution No 13
  of January 9 1991. Ministerial Decree No. 597 of 17 May 1996 establishes the modalities of payment,
  collection, exoneration and use of environmental fees. These payments were accumulated in a system
  of out-of-budget environmental funds, although these were later dissolved, and by 1998 the Budget
  Code omitted mention of environmental funds in its list of out-of-budget State funds. The Federal
  Environmental Fund of Russia was liquidated in 2001. In 2002, the system of pollution charges was
  declared invalid by the country‘s Supreme Court as it was not in accordance with the tax code; a new
  system has been proposed although not yet introduced. The subsequent Federal Law on Environmental
  Protection No 7-FZ of 2002 is based upon, among others, the principle of nature management requiring
  payment and compensation of environmental damage. Article 14 specifies that any harm to the
  environment should be reimbursed. Article 16 reinforces that negative environmental impacts require
  payments, specifying a range of effects which are covered, including pollution of the atmosphere, water
  and soil as well as industrial waste disposal. Ministerial Decree No. 344 of 12 June 2003 and Ministerial
  Decree No. 410 of 2005 both establish environmental charges for the discharge of pollutants into the air

                                                                                                           11
     and surface and groundwater basins. It appears however that current levels of environmental payments
     and damage compensation are low, and that these provisions are not widely used.
 The use of trust funds for environmental conservation is not yet well-established in the Russian
  Federation, although there are at least two experiences. The National Pollution Abatement Facility was
  established through an agreement between the Russian Federation and the World Bank (Loan No.
  3806 RU, February 6, 1995) to finance the Environmental Management Project. It included a mix of
  activities, which involved the application of the state-of-art international experience to address both
  environmental management and infrastructure issues and to invest in specific industrial and other
  economic projects to ensure environmental improvements. The Novgorod Regional Environmental
  Fund was established pursuant to the Federal Law on Environmental Protection of 1991, and operated
  under the authority of the Novgorod Regional Government. It sought to mobilise resources to implement
  urgent environmental actions and programmes, fund environmental projects, support the development
  of protected areas, promote environmental awareness and education, and contribute to the
  development of environmental agencies.
 A variety of charges, fines and penalties are applied to natural resource use. In addition to charges
  made for mining, mineral prospecting, water discharge and tree-felling, any person or legal entity
  involved in hunting must pay a license fee. Penalties are applied for illegal hunting and fishing, and for
  the illegal harvesting or destruction of vegetation registered in the Red Book of the Russian Federation
  as well as for destruction of their habitat. In many cases the fines and penalties appear to be extremely
  low (one reason could be that they are not updated very often), and are also not always enforced, and
  therefore they may not have much impact on people‘s behaviour.
 Fiscal instruments and other financial incentives are already offered to agricultural producers and other
  key industries to encourage their growth and expansion, including assistance in marketing, preferential
  tax rates and subsidised credit – and are allowed for by a number of decrees. The national project
  ―Development of Agro-Industrial Complex‖ for example aims to support small farms, and includes
  measures such as part financing of credit and interest payments for farmers, support to production and
  marketing cooperatives. So far these inducements have not been applied to environmental protection or
  nature conservation enterprises, although could potentially be offered – and would be in accordance
  with the provisions of the Federal Law on Environmental Protection No 7-FZ of 2002 which deal with tax
  remissions and other incentives.
 Under Article 11 of Law on Specially Protected Nature Areas, PA management authorities can grant the
  right to nearby enterprises to use official PA logos as a form of eco-labelling, in order to signify that their
  product or service is environmentally friendly. The granting of this right is governed by strictly defined
  rules, and users are monitored regularly to ensure continued compliance with the rules.
 The Law on Specially Protected Nature Areas states very clearly (Article 6) that natural resources and
  other property are fully withdrawn from use: they cannot be alienated and transferred between private
  entities or individuals. Although on the one hand land privatisation within Protected Areas is forbidden,
  Ministerial Decree No. 47 of 26 January 2007 establishes that plots of land within the boundaries of
  protected areas can be leased in order to be used for tourism, ecological education and cultural
  purposes, and Nature Parks obviously contain a mixture of State and private land. Federal Law No.
  123-FZ of 1997 further establishes the organisational and legal basis for the transformation of property
  relations through privatisation of state and municipal property for the purpose of increasing efficiency of
  national economy and its social orientation, improving balance of payment of the Russian Federation,
  carrying out protectionism as regards national commodity producers. These provisions could be
  interpreted to allow for increased private sector and community participation in PA conservation and
  service provision – without requiring any transfer of permanent property rights, merely allowing certain
  activities or services to be temporarily sub-contracted to private individuals or entities.
 PAs, in collaboration with regional and local communities, can initiate sustainable livelihoods
  programmes which target local communities. A wide range of national experiences with sustainable
  livelihood development have been reviewed as part of the project. For example the EEA/UNECE TACIS
  project ―strengthening environmental information and observation capacity in the Newly Independent
  States‖ provided support to a credit cooperative for tourism and sustainable livelihood activities in the
  Mariy El Republic.

In addition to the various relevant laws and regulations pertaining to the environment, economy in the
Russian Federation, the 2002 Management Strategy for Russian National Parks mentions the importance
of sustainable financing and livelihood mechanisms (and has been referred to several times above).
Although the Strategy refers primarily to National Parks (which have different – although similar – aims and
regulations to the Nature Reserves or Nature Parks which form a part of the project area), there are a


12
number of similarities in the issues it addresses, and so some of its contents and recommendations are
also broadly applicable for PAs in the Lower Volga.


Summary: using sustainable financing and livelihood mechanisms to address financial
and economic threats to biodiversity conservation
Mechanisms for sustainable PA financing and sustainable livelihoods are closely linked, and should be
seen as being two sides of the same coin: each addresses a different element of conservation costs and
cost-bearers, and together they aim to create an enabling financial and economic framework for
biodiversity:
 Sustainable financing mechanisms are targeted towards enabling government authorities to cover the
  direct costs of biodiversity conservation, and manage PAs effectively. They incorporate the need to
  generate a larger amount of financial resources for conservation, as well as improve they ways in which
  funding is planned, administered, managed and spent.
 Sustainable livelihood mechanisms are targeted towards enabling individuals, households and
  businesses in the broader Lower Volga wetland landscape to cover the opportunity costs of
  conservation, and use biodiversity sustainably as they carry out their day-to-day economic activities.
  They aim to make it more economically desirable and profitable for people to conserve biodiversity, and
  are based around designing attractive, appropriate, adequate and viable business and economic
  opportunities which are based on the conservation and sustainable use of biodiversity.
 In the Lower Volga, the primary financial constraints to PA management, which need to be addressed
  by the project, include an inadequate amount of funding, an undiversified revenue base (which is
  heavily reliant on Federal and Regional subventions), weak incentives to generate or retain surpluses of
  income over expenditures, and financial planning and budgeting systems which do not take a
  comprehensive view of long-term financing needs and strategies.
 In the Lower Volga, the primary needs for economic incentives for conservation, which need to be
  addressed the project, target the upstream hydropower scheme, farmers and fishermen, tourists and
  tourist operators, oil and gas production companies, and residents of the villages, towns and cities
  which are located in the in the Lower Volga region,
 Addressing the broader policy and economic conditions which cause people to use biodiversity and
  ecosystems unsustainably is also important for achieving long-term conservation goals, in addition to
  carrying out specific sustainable financing and livelihoods interventions. Economic and financial
  instruments for the environment have been used in other parts of the Russian Federation – and are
  enabled by Federal and Regional law – but to date have had only limited application to nature
  conservation goals, and in many cases have not been operationalised.




                                                                                                       13
5. OPPORTUNITIES FOR THE DEVELOPMENT OF SUSTAINABLE PA
   FINANCING MECHANISMS IN THE PROJECT AREA
Review of project recommendations on sustainable PA financing
A preliminary prioritisation of sustainable financing tools has already been included in the project
document, which highlights the following mechanisms for development during the project:
 Mechanisms to ensure that damages to biodiversity imposed by the operation of the Volgograd
  hydropower station are compensated through payment transfers.
 Tourism fees.
 Concessions for provision of services such as cafes, parking sites, and shops.
 Charges for use of recreational resources such as beach areas.
 Licenses for fishing, hunting, and pasturing.

All of these suggested mechanisms appear to be potentially viable and applicable in the Lower Volga, and
provide opportunities for raising funding for PA managing authorities. In addition, there are opportunities to
supplement these sources (which are all based on existing revenue streams) with some more innovative
financing mechanisms, based around the economically valuable services – in addition to the goods already
considered – which the Lower Volga PAs generate. Examples of economically valuable ecosystem
services in the project area include support to fish breeding and productivity, habitat for endangered
species or species which are of conservation interest, landscape beauty and habitat for tourism, waterflow
and water quality regulation, flood control and carbon sequestration, etc.). It will also be important to
consider ways of improving the planning, administration and management of additional funds raised for
PAs.

Available mechanisms for sustainable PA financing based on international experience
Over recent decades a range of innovative PA financing mechanisms have been developed which go
                                         3
beyond conventional government funding . These comprise finance that is raised from public and private
sources, and include both external funding inflows and self-generated revenues. The table below provides
a summary of the main categories of extra-budgetary financing mechanisms that are being used around
the world to raise revenues for government PA authorities, and comments on their suitability for the Lower
Volga and the project.

Mechanism       Short description                                  Examples
                                                                   Around 15% of New Zealand‘s budget for National
                Set charges or fees for the use of
                                                                   Parks comes from fees levied on land and resource
                commercially valuable PA resources and
Resource                                                           uses, including concessions for commercial activities
                services at a realistic level: used both to
use and                                                            such as tourism and agriculture, filming charges, and
                generate revenues and to regulate or
tourist fees                                                       charges for the use of park facilities such as camps,
                manage use levels.                                                4
                                                                   huts and trails .
                                                   Already being used in Lower Volga PAs
                Imposes a variety of charges (usually
                                                                   In an agreement dating back to the early 1990s, made
                including research fees, up-front payments,
                                                                   with National Biodiversity Institute of Costa Rica
                and royalties on product discoveries) on
                                                                   (INBio), Merck the international pharmaceutical
                domestic and international companies which
Bioprospecti                                                       company is granted access to natural materials in
                are searching for and using wild products as
ng fees                                                            return for strengthening of INBio‘s technical capacity,
                the basis of industrial development – such as
                                                                   as well as sharing profits from successful drug
                for pharmaceuticals, agriculture, cosmetics,                   5
                                                                   production .
                dietary supplements.
                                           Bioprospecting not a major feature in Lower Volga PAs
Payments        Charges the (usually urban and industrial)         A range of surcharges are levied on water bills in the

3
 For detailed explanations of these, and of PA financial sustainability, see Emerton, L., Bishop, J. and Thomas, L. (2006).
Sustainable Financing of Protected Areas: A global review of challenges and options. IUCN, Gland, Switzerland and Cambridge, UK,
available online at http://data.iucn.org/dbtw-wpd/edocs/PAG-013.pdf
4
 WCPA, 2000, Financing Protected Areas Guidelines for Protected Area Mangers. IUCN: Gland. Available online at
http://data.iucn.org/dbtw-wpd/edocs/PAG-005.pdf
5
 Zebich-Knos, M., 1997, Preserving Biodiversity in Costa Rica: The Case of the Merck-INBio Agreement. Journal of Environment &
Development 6(2):180-186.

14
Mechanism        Short description                                 Examples
for              beneficiaries of ecosystem services such as       city of Cuenca, Ecuador, and payments are also made
environment      water quality and supply, flood control, storm by other industrial water users (such as the
al services      protection, etc., and returns funds to            hydropower facility). The money has been used by
                 agencies and groups who are responsible for government to purchase additional lands for protection
                 conserving these ecosystems. May involve          of the water catchment, administer conservation
                 cash payments, in-kind support or budgetary       activities, finance watershed management projects,
                 transfers – from individuals, companies or        and provide revolving credit and technical advice to
                                                                                                        6
                 sectors.                                          farmers in the mid-watershed area .
                              Lower Volga PAs generate a range of economically valuable ecosystem services
                 Carbon finance markets allow payments to          In the Noel Kempff Mercado National Park, Bolivia a
                 be made and received for environmental            partnership was formed in 1997 between government,
                 conservation via trade in carbon offset           a national NGO, an international NGO, two US energy
                 credits between and within ecosystem              companies and an international petroleum company.
Carbon           managers and carbon emitting industries.          Payments were made to offset 25-36 million tonnes of
offsets          Enabled by the Kyoto Protocol (efforts to         CO2, providing funds for activities to reduce
                 restore or re-establish forests) and potentially deforestation and enhance re-growth, terminate
                 through REDD (reducing emissions from             logging concession areas and incorporate them into
                                                                                                               7
                 deforestation and degradation).                   the park, and promote sustainable logging .
                          Limited opportunities in the Lower Volga under the auspices of Kyoto Protocol or REDD
                 Requires industries (such as agriculture,
                                                                   The activities of Compañía Minera Antamina, which
                 forestry, oil and gas, mining, transport,
                                                                   operates among the world‘s largest copper and zinc
                 construction, etc.) who damage biodiversity
                                                                   mines in the Andean mountains of Peru, have led to
                 or destroy natural habitats to support the
                                                                   the destruction of shrub and forest habitat, and also
Biodiversity     rehabilitation of equivalent sites elsewhere
                                                                   generates effluent. In 2004, the company began a
offsets          so as to ensure no net loss of biodiversity.
                                                                   voluntary biodiversity conservation program to restore
                 Used to compensate for the residual impact
                                                                   endangered Polylepis forests in the area around the
                 to biodiversity that cannot be mitigated                8
                                                                   mine .
                 onsite.
                                Large-scale commercial oil and gas exploration is ongoing in the Lower Volga
                                                                   In the USA a 10-11% excise tax on hunting and
                 Imposes taxes as well as dismantles
                                                                   angling equipment and 3% tax on sport fish supplies is
                 subsidies on potentially harmful products and
                                                                   used to fund the Federal Wildlife Restoration
                 activities, and allows relatively lower taxes or
                                                                   Programme. In California, 5% of tobacco tax revenues
Fiscal           subsidies on biodiversity-friendly products
                                                                   is earmarked for parks and wildlife habitat
instruments      and activities. Also involves reallocating a
                                                                   conservation. Missouri imposes a State-wide tax on
                 portion of tax revenues raised elsewhere to
                                                                   sales of personal property and retail services ,and has
                 biodiversity conservation.
                                                                   earmarked the revenues for wildlife conservation.
                             Enabled and endorsed by laws, and already applied to other sectors in Lower Volga
                                                                   Jamaica has negotiated two debt swaps. In one, the
                                                                   US Government reduced debt owed, rescheduled the
                 External government debt is purchased from        remainder, and allowed the interest payments to go to
                 the creditor at a discount (usually by a donor    conservation as Jamaican dollar payments. In the
Debt-for-        or NGO), and retired. In exchange, the            other an international NGO brokered the retirement of
nature           government commits to allocate local              commercial debt owed by Jamaica, and the
swaps            currency funds to conservation activities.        government committed to spend equivalent sum over
                                                                   20 years to fund projects to conserve and restore
                                                                                                                   9
                                                                   tropical forest resources and other biodiversity .
                                                                                                                       10
                     Past efforts to establish debt-for-nature swaps in Russian Federation have not been successful
Trust funds      Absorb and administer funding for                 The Belize Protected Areas Conservation Trust
                 conservation. Trust Funds either invest the       (PACT) was created in 1996 to fund protected areas. It
                 capital and allocate the interest earned          is financed entirely from domestic sources: a


6
 Espinosa, C., 2005, Payments for Water-based Environmental Services: Ecuador's experiences. Water, Nature and Economics
Technical Paper, IUCN – the World Conservation Union, Gland. Available online at
http://www.atl.org.mx/files/WaterPublications/ParaAguayEconomia/8.pdf
7
 Totten, M. 1999. Getting it Right: Emerging Markets for Storing Carbon in Forests. World Resources Institute, Washington DC;
Bruneau, R. 2000. The Noel Kempff Mercado Climate Action Initiative: A Carbon Credit Market Pilot Project in Bolivia, Servicio
Nacional de Areas Protegidas de Bolivia, La Paz; Noel Kempff Mercado Climate Action Project website (http://www.noelkempff.com).
8
 BNI, 2006, Biodiversity Offset Case Study: Compañía Minera Antamina‘s Polylepis Initiative. Biodiversity Neutral Initiative. Available
online at http://www.biodiversityneutral.org/BiodiversityOffsetCaseStudy-AntaminaFINAL.pdf
9
 Kaiser J. and Lambert. A., 1996, Debt swaps for sustainable development. IUCN Gland. Available online at
http://www.conservationfinance.org/Workshops_Conferences/Vilm3/Debt%20swaps%20for%20sustainable%20development_Kaiser_
Lambert.pdf
10
  Little information is available on these. WWF Russia recommended the use of debt-for-nature swaps in the early 2000s, but the
idea was not implemented. A 2000 paper by the US Department of Energy also recommended that debt-for-nature swaps should be
considered in Russia (see http://www.pnl.gov/main/publications/external/technical_reports/PNNL-13096.pdf).

                                                                                                                                    15
Mechanism       Short description                              Examples
                (endowment funds), draw down funds over a      conservation fee of $3.75 charged to foreign tourists as
                specified time period (sinking funds), or act  they leave the country, 20% of park entry fees, as well
                as a replenishable credit fund (revolving      as concession fees, permit and license fees, and
                                                                                          11
                funds).                                        cruise ship passenger fees .
                      Limited experience in Russian Federation, but may be appropriate for managing large funds

Although most of these financing mechanisms are potentially applicable to the project area, certain ones
have been singled out – and are described in the next section of the report. They have been prioritised
based on their fit with project goals, contribution to overcoming the financial constraints to PA biodiversity
conservation in the Lower Volga, and in the light of existing technical, institutional and legal arrangements
and capacity in the project area. Further details and examples of the sustainable financing options
identified for the project are provided in Annex 2: Case studies of international experience in sustainable
financing mechanisms.


Outline of potential mechanisms to generate and manage PA financial resources in the
Lower Volga
Strengthening existing financial planning, budgeting and administration processes
As described above, existing financial planning, budgeting and administration processes act as constraints
to effective PA management. Particular issues concern the level to which they provide incentives for PAs
to diversify and retain their revenues, allow for a long-term perspective on financial sustainability, and
serve to facilitate effective PA management and the achievement of biodiversity conservation goals.

Piloting the development of medium-term financing strategies or business plans for the four PAs in the
project area would be a first step towards overcoming some of these constraints – and would reflect
                                                                                            12
international best practice that is already being applied in PAs in other parts of the world . This would fit
well both with the development of CWA management plans being carried out under Activity 3.3 of the
project. It would also strengthen the implementation of new PA financial planning requirements from
central government (see above).

For the four PAs in the project area, it is recommended that medium-term rolling financial and business
plans (i.e. plans which cover a 3-5 year time frame, but are updated on an annual basis and translated into
yearly budget requests and financing statements) are developed as supplementary documents to PA
management plans, and based around their biodiversity conservation goals and anticipated activities.
These should involve a careful analysis of what is really needed in terms of the investment and recurrent
expenditures to achieve biodiversity conservation goals and activities, how and from where funding can be
raised (and cost effectiveness can be maximised), strategies for developing long-term financial security
and diversity, as well as financial targets and indicators of performance. Further details, and an example,
of PA financial and business planning are given below in Annex 2: Case studies of international experience
in sustainable financing mechanisms.

As well as raising more funds, PA financial and business plans should deal with improving cost-
effectiveness, cost minimisation, and financial administration. Mechanisms for retaining surplus funding
should be examined – including the possibility of establishing trust funds or some kind of financial retention
instrument which is separate from the annual budget. Opportunities can also be investigated with Federal
and Regional governments to operationalise the tax privileges and other financial incentives for
environmental conservation that are mentioned in the various laws described above (see section on
Building on national experiences of sustainable financing and livelihood mechanisms). Here, particular
attention might be given to investigating the potential for waiving the VAT and profit tax requirements which
are currently imposed on PA earnings and the retention of income surpluses year on year.

Conservation contributions from upstream hydropower schemes
Discussions have already been underway for some time about the Volga Hydroelectric Station making
payments for downstream biodiversity conservation and ecological restoration. This could generate a
valuable source of funding for PA conservation efforts in the Lower Volga – although clearly relies on high-

11
  The Interagency Planning Group: Latin American Working Group, case study on Belize Protected Areas Conservation Trust
(PACT), available online at http://www.conservationfinance.org/Documents/EF_profiles/English%20versions/Belize-NEW.pdf. Also
see http://www.pactbelize.org/.
12
  For further details see Financing Protected Areas Task Force of the World Commission on Protected Areas (WCPA) of IUCN, in
collaboration with the Economics Unit of IUCN (2000). Financing Protected Areas. IUCN, Gland.

16
level political support, and requires specific arrangements and modalities to be negotiated with the
hydropower company.

The project provides an opportunity to take these discussions further, as well as to suggest mechanisms
by which this financial transfer could be effected. Various factors need to be considered, as the nature of
these payments and their motivation are still not entirely clear, including:
 The rationale for making payments. Although current legislation enables compensation payments for
  environmental damage, it is not known whether discussions are taking place in response to the
  requirements of the law or as a more informal agreement. There is likely to be a difference in the way of
  calculating and negotiating payments and also in their end use, depending on whether they are
  provided as direct compensation for damages caused, as offsets for the downstream impacts of the
  hydropower scheme, or as general contributions to conservation in the Lower Volga.
 The basis on which payments are made. Linked to the point above, payments may be either mandatory
  or voluntary on the part of the hydroelectric company. If the former, then payments would be decided
  and enforced according to the provisions of the law or through the courts. If the latter, it would be
  possible to negotiate the terms, amount and modalities of the agreement directly with the hydroelectric
  company. It is worth noting that if payments are made mandatorily, the provisions of the law will also
  govern the transfer of the funding to government – it might go straight to Federal or Regional coffers
  and would not necessarily accrue to PA authorities.
 The amount of funding. As mentioned above, calculation of the amount of payment due would also
  depend on the rationale for making payment (although, realistically, it would be more likely to be subject
  to negotiation between the parties to the agreement, rather than being based solely on estimates of the
  value of damage caused or the costs of undertaking particular restoration or conservation activities).
  There are various options for payment: for example as a one-off sum or as recurrent payments, as a
  lump sum or as a proportion of hydropower revenues or fees. Choices also need to be made as to
  whether payments are provided in cash or in kind (for example through reduced electricity bills for PA
  authorities, provision of equipment or vehicles, etc.), or as a combination of both.
 The recipients and use of payments. Although conservation contributions by the hydropower scheme
  could be a valuable source of funding for government PA authorities, there are likely to be other
  competing demands for these funds (for example to be used to supplement Regional development
  budgets). A clear rationale as to why funding should go to PA conservation may need to be provided,
  and high-level political support engaged. Decisions will also be faced as to what the payments are used
  for – for example whether they will be considered to be routine out-of-budget income used to cover
  annual PA expenditures, used to fund activities in the broader landscape and buffer zones of PAs, or
  form the basis of providing funding to conservation activities being carried out by individuals and
  organisations outside government.

Further details and examples of hydropower conservation payments are provided in Annex 2: Case studies
of international experience in sustainable financing mechanisms.

Biodiversity offsets in the oil and gas sector
Oil and gas prospecting and exploration is already taking place in the Volga Delta, in and around the
Astrakhan State Nature Reserve. Given that it would be naïve to expect that exploitation will not take
place, should the prospecting activities indicate a viable source of hydrocarbons, there is a clear role for
the project to investigate ways of minimising and mitigating environmental impact, including identifying
sources of funding for biodiversity conservation. At least three elements could be considered:
 Compensation for environmental damage caused, under the provisions of the Federal Law on
  Environmental Protection No 7-FZ of 2002. However, as earlier noted, it is not clear to what extent
  these provisions are enforced in practice, nor whether the levels of compensation calculated are in fact
  realistic.
 Making the case for a share of the public revenues from prospecting and exploration, under the
  rationale that oil and gas activities are being carried out in areas which are legally managed by
  government PA authorities. This could take the form of negotiating the return, and use for conservation,
  of a proportion of public revenues streams such as prospecting fees, royalties and other charges. The
  existence of the project provides the opportunity to attempt to negotiate such a transfer payment within
  government, as a pilot scheme.
 Negotiating voluntary biodiversity offsets with the oil and gas company. Biodiversity offsets are
  becoming an increasingly widespread mechanism for dealing with the impacts of large industries on

                                                                                                         17
                                                                                 13
     species and ecosystems, including in the oil and gas sector . These may take the form of cash or in-
     kind support to biodiversity and ecosystem conservation and/or rehabilitation either within out outside
     the PA. As with the case of hydropower conservation payments (see above), thought would need to be
     given as to the rationale, basis and amount of funding involved. It is important to note that the principle
     of offsets is based around achieving no net loss of biodiversity, and preferably a net gain – they do not
     provide a ―licence to damage‖. Offsets should be used to compensate for the residual impact to
     biodiversity that cannot be mitigated onsite, and are pursued only at the end of the mitigation hierarchy,
     after having reduced and alleviated on-site residual environmental harm as much as possible. A variety
     of international industry-wide guidelines on integrating biodiversity conservation already exist for the oil
                     14                                  15
     and gas sector , as well as standards for Russia and documentation on biodiversity and oil and gas
                                            16
     exploration in the Caspian Sea region .

Further details and examples of biodiversity offsets are provided in Annex 2: Case studies of international
experience in sustainable financing mechanisms.

Payments for ecosystem services to fisheries
Payments for ecosystem services, particularly for the hydrological services provided, have become
                                              17
relatively common in other parts of the world . Although they are yet to be widely applied in the Russian
Federation, payments for ecosystem services however provide an innovative mechanism which can
generate substantial out-of-budget funds for government PA management.

The greatest potential for payment for ecosystem services in the Lower Volga would seem to lie in the
ecosystem services provided by wetlands for fish breeding and habitat. These wetland ecosystem services
clearly exist, and are linked to economic activities which have a high commercial value and for which
revenues are already raised and payments made. In addition, should irrigated agriculture, be re-
established on a large scale in the Volga Delta, there may be potential for developing some form of
payment for wetland water supply services. In relation to the potential of payment for ecosystem services
to fisheries, several issues and topics for further investigation arise:
 There is a clear link between wetland conservation, and on-site and off-site fisheries productivity. The
  project document states that the Lower Volga region is an area of natural reproduction of 6 Caspian
  sturgeon species, and the majority of the migratory and semi-migratory fish stocks in the Caspian Sea
  and fluvial freshwater fish species are dependent on the Lower Volga region for spawning and
  reproduction of their food resources. The presence of natural spawning grounds is a necessary
  condition for conservation of genetic diversity of these fish species
 Conservation of wetland areas which are important for fisheries production is already a stated aim of
  the project, and the PAs/CWAs it involves. According to the project document, a primary purpose of
  increasing the area under protection in the Lower Volga is to include all natural spawning grounds of
  migratory and semi-migratory sturgeon species which are currently insufficiently protected.
 Taxes, revenues and income are already generated from fisheries sector activities in the Lower Volga
  and Caspian Sea. A wide range of existing revenues are collected by government from the fisheries
  sector (for example from license fees and other taxes); the fisheries sector itself generates substantial
  profits from its activities. As payment and revenue systems already exist, a range of mechanisms can


13
  For further details see ten Kate, K.., Bishop, J., and Bayon, R. (2004). Biodiversity offsets: Views, experience, and the business
case. IUCN, Gland, Switzerland and Cambridge, UK and Insight Investment, London, UK, available online at
http://cmsdata.iucn.org/downloads/bdoffsets.pdf, and ICMM, 2005, Biodiversity Offsets – A Briefing Paper for the Mining Industry.
International Council on Mining and Metals, London, available online at http://www.icmm.com/document/25
14
  See IPIECA, 2005, A Guide to Developing Biodiversity Action Plans for the Oil and Gas Sector. International Petroleum Industry
Environmental Conservation Association-OGP Biodiversity Working Group, London, available online at
http://www.ipieca.org/activities/biodiversity/downloads/publications/baps.pdf, and EBI, 2003 Integrating Biodiversity Conservation into
Oil and Gas Development. The Energy and Biodiversity Initiative, Washington DC, available online at
http://www.theebi.org/pdfs/ebi_report.pdf
15
  See 2005, Environmental Standards for Operations of Oil and Gas Companies Operating in Russia. Developed by Russian Non-
governmental Nature Conservation Organizations Working Group: World Wide Fund for Nature (WWF) Russia, the International
Socio-Ecological Union, Greenpeace Russia, the Ecojuris Institute of Environmental Law, Crude Accountability, and the BTS
Monitoring Project, Moscow, available online at http://www.wwf.ru/data/publ/serihblokgr-eng.pdf
16
  See IPIECA/OGP, 2007, Biodiversity and the Oil and Gas Industry in the Caspian Region: Workshop Report. International
Petroleum Industry Environmental Conservation Association-OGP Biodiversity Working Group, London, available online at
http://www.ipieca.org/activities/biodiversity/downloads/workshops/may_07/report.pdf
17
  For further details see Wunder, S., 2005, Payments for environmental services: Some nuts and bolts. CIFOR Occasional Paper No
42, Centre for International Forestry Research, Bogor, available online at
http://www.cifor.cgiar.org/publications/pdf_files/OccPapers/OP-42.pdf.

18
     be investigated for returning funding to PA authorities (at least from formal, organised fishing activities),
     including negotiation of a transfer of a portion of public sector revenues raised by the Ministry of
     Agriculture State Committee on Fisheries/Federal and Regional Agencies for Fisheries, as well as
     additional conservation levies to be added to charges made to fishing enterprises.

Further details and examples of payments for wetland ecosystem services are provided in Annex 2: Case
studies of international experience in sustainable financing mechanisms.

Additional extra-budgetary sources of revenue
Opportunities exist to generate other innovative sources of extra-budgetary income for government PA
management, for example:
 Rationalising existing charges and fees. The products and services for which charges can be made by
  PAs are defined by law, and currently include user fees for tourism, recreation, fishing and hunting
  activities; income from land rental; sales of services and products; and penalties and fines for violations.
  Although there may be limited scope for increasing the range of goods and services from which
  revenues can be earned, there could be the opportunity to both rationalise the levels at which these are
  set and to improve collection rates. Many of these charges have not been updated in some time and
  are currently unrealistically low, and in some cases fees are not being paid where they should be.
 Branding and eco-labelling. Under the law, management authorities can grant the right for official PA
  logos to be used to signify that products or services are environmentally friendly. For example Saba
  Marine Park in the Netherlands Antilles currently has a three-pronged revenue-generation strategy
  emphasizing user fees, souvenir sales and voluntary donations; and the PA authorities are currently
  investigating the possibility of corporate sponsorship, allowing businesses to use the park‘s logo and
  name for an annual fee. Application of this principle to tourist lodges, produce and services in the Lower
  Volga area can provide revenues for biodiversity conservation – and can also be linked to the
  development of sustainable livelihood opportunities (discussed below).
 Concessions and leases on commercial PA services. Various commercial services and facilities for
  visitors could be developed within and close to PAs, such as the operation of camp sites, restaurants
  and shops. As well as generating revenues for PA authorities, these mechanisms can be linked both to
  the use of PA logos (see above) and to the development of sustainable livelihood opportunities
  (discussed below). There is a precedent for these kind of arrangements in the Russian Federation. For
  example a tender for the right to lease sites, objects, and tourist routes was tested in the national park
        18
  Ugra . It was the first case in Russia when an open competition was announced in a protected area for
  a long-term lease of objects and sites within park and buffer zone boundaries. Documents for tenders
  were prepared by the Biodiversity Conservation Centre, who also made agreements with land owners
  and users. The tender was approved by the Russian Ministry of Natural Resources, and information
  support was provided by the Kaluga Region Chamber Of Commerce.
 Sponsorship and advertising from the private sector. Some PAs in the Lower Volga already get a
  portion of their funding through support from companies, industries and enterprises, and the 2002
  Management Strategy for Russian National Parks specifically recommends that authorities seek
  financial support from the private sector. Many protected areas in other parts of the world rely on private
  sector sponsorship for their funding. For example, under Cornwall‘s Countryside Sponsorship Scheme,
  private businesses financially contribute and ‗sponsor‘ parts of the Public Rights of Way Network. Fryer
  Tuck‘s Café from the town of St. Merryn has sponsored a 21 km inland network since 2000, and have
  agreed to sponsor the local footpaths until 2007. There are plans to extend this scheme throughout the
  County in a bid to attract further private funding. Possibilities can be investigated for philanthropic
  contributions and donations to biodiversity conservation in the Lower Volga to be sought from nearby
  enterprises, either in cash or material support, which may also be linked to allowing donors to utilise the
  PA logo (see above) in their own advertising.
 Lottery proceeds. Lotteries are used as a mechanism to fund biodiversity conservation in many other
  parts of the world. For example, in the UK the Big Lottery Fund is providing funding for a
  comprehensive biodiversity project in the Doncaster Borough, and the Heritage Lottery Fund has
  awarded more than £238 million to over 1,800 projects to protect important habitats and species and to
  help people get involved in and learn more about natural heritage. Similarly, in the USA the Nebraska
  Environmental Trust Act (allowing for the acquisition of land to preserve wetlands and areas critical to
  rare or endangered species) is funded in part by proceeds from the State lottery, and the Great Outdoor

18
  Grigoryan, A., 2004, National Parks - Benefits for Local Communities. Prirodno-resursnye vedomosti newspaper, # 15-16: 16
(available on http://www.biodiversity.ru/eng/programs/management/grigoryan_eng.html)

                                                                                                                              19
      Colorado programme is financed through earmarked state lottery funds. There is no reason why similar
      arrangements cannot be used to fund biodiversity conservation in the Lower Volga. ―Charity‖ and
      ―Special Cause‖ lotteries are already established and used in the Russian Federation to fund social
      projects. For example the Federal Communications Agency has organised a national state lottery in
      order to raise additional funding for socially important projects in the area of information and
      communications technologies, and the Nevskoye Loto was inaugurated in 2007 as a way of attracting
                                            19
      non-budget funds for social projects . In accordance with national law, not less than 25% of the
      turnover must be allocated for good causes in the case of charity lotteries. For special cause lotteries
      the organiser can decide which part of the turnover should be given to special causes.

Summary: sustainable PA financing options for the project
A variety of additional sustainable financing mechanisms have been identified as having potential for
development under the project, based around capturing and using effectively additional value from the
economically valuable goods and services which the Lower Volga PAs generate. These include:
 Strengthening existing financial planning, budgeting and administration processes, in particular
  improving mechanisms for diversifying and retaining funds at the PA level, and improving PA financial
  and business planning procedures.
 Cash or in-kind contributions from upstream hydropower schemes, either based around direct
  compensation for damages caused, as offsets for the downstream impacts of the hydropower scheme,
  or as general contributions to conservation funding.
 Biodiversity offsets in the oil and gas sector which compensate for the residual impact to biodiversity
  that cannot be mitigated onsite.
 Payments for ecosystem services to fisheries through direct charges or inter-sectoral budget transfers,
  in recognition of the link between wetland conservation, and on-site and off-site fisheries productivity.
 Additional extra-budgetary sources of revenue, including rationalising existing charges and fees,
  branding and eco-labelling, concessions and leases on commercial PA services, sponsorship and
  advertising from the private sector, and lottery proceeds.

Further modalities and needs for planning and implementing these mechanisms as part of the project are
given in the last section of the report.




19
     ―New Lottery Just The Ticket for City Hall‖. The St Petersburg Times Issue #1293 (59), Tuesday, July 31, 2007

20
6. OPPORTUNITIES FOR THE DEVELOPMENT OF SUSTAINABLE
   LIVELIHOODS MECHANISMS IN THE PROJECT AREA
Review of project recommendations on sustainable livelihoods
The project has already investigated options for sustainable livelihood activities, via a review of existing
initiatives in other parts of the country as well as a consultation with communities in the Lower Volga. The
following activities have been proposed for development during the project:
 The project document notes that consultations during PDF-B phase indicated a range of alternative
  livelihood activities including small-scale fisheries (in cages, side canals and lakes), tourism
  development, production of traditional crafts and basic processing of agriculture products as being
  viable. It outlines a range of support to sustainable livelihoods, including the in preparation of business
  plans, training and marketing services. Work carried out after the start of the project recommends
  targeting small and medium-scale businesses, and support the following activities: ecological tourism,
  traditional handicraft production, eco-agriculture, aquaculture, alternative business opportunities, and
  support to innovative technologies which save resources and use energy alternatives. A detailed
  research report has been produced, based on a socio-economic assessment of the Lower Volga region
  and on consultations with communities in CWAs. This recommends a wide range of activities for
  different CWAs, including those based on crop agriculture (vegetable and watermelon gardening,
  horticulture and viticulture), livestock keeping (geese, duck, ostrich and rabbit breeding, milk production,
  meat and fur production), fisheries (pond fishing, crayfish breeding), service sector (trade, catering,
  clothing, hairdressing, massage and biological additives), agro-processing (plant and animal products),
  construction materials (based on reeds), tourism (nature tourism, cultural tourism, restaurant
  development), and handicraft production (souvenirs).
 The project document also states that a small grants fund will be established for inhabitants of the
  CWAs and neighbouring territories aimed at supporting small business start-up. This has subsequently
  been elaborated during the early stages of the project. Four categories of grant are specified, each with
  a progressively longer time frame and funding amount: small (20,000-50,000 Roubles), medium
  (50,000-120,000 Roubles), large (120,000-400,000 Roubles), and integrated (100,000-900,000
  Roubles). It is envisaged that the fund will be run along lines already established for UNDP-GEF Small
  Grants Programmes, with recommendations on grant approval being made of a joint UNDP-project-
  government Advisory Council backed up by an Expert Commission, and final decision being made by
  UNDP-GEF.

Work carried out by the project to date provides a good basis upon which to build, although several
comments can be made:
 An important recommendation is to shift the focus from “alternative” livelihood activities, to “sustainable”
  livelihood activities – sustainability is the key aim, in relation to the project‘s goal of biodiversity
  conservation.
 Using grants as the sole mechanism for sustainable livelihood support may not be the best option.
  Although grant funding is an important component of the project, it may be better suited to making funds
  available for socially-driven and socially-targeted projects or for activities such as the purchase of new
  technologies and pilot demonstration activities, rather than for commercial enterprises. Providing grant
  funding to commercial enterprises runs the risk that the resulting activities may not in fact be feasible in
  business terms (if they rely on a grant subsidy to take place), and also raises questions of stakeholder
  ―ownership‖. Credit funding is a more appropriate form of support to commercial enterprises. It should
  also be investigated as to whether UNDP, the project team and government are the most cost-effective
  and efficient entities for administering grants and credit, or whether there exist options to work with local
  organisations who are specialised in these functions – and may be able to maintain them after the
  project‘s end.
 Careful analysis needs to made of the intended target groups of livelihood interventions. Current
  recommendations are based on a broad scoping throughout the Lower Volga, and propose a series of
  generalised activities. Further work will be required to provide more detailed feasibility assessments of
  the key threats, constraints and needs of different types of businesses, land and resource users in the
  Lower Volga. It should be borne in mind that no ―one size fits all‖, and that different categories of
  people, circumstances and threats may require different types of livelihood approaches and
  mechanisms.



                                                                                                            21
 As yet, the links between livelihood activities and the intended end result of better biodiversity
  conservation have not been very clearly articulated by the project. Some of the activities being
  proposed have little explicit link to improved sustainability and biodiversity conservation and, at the
  worst, run the risk of posing threats and harm to the environment. More detailed scoping and
  preparation of livelihood activities will require consideration of possible environmental impacts, and
  mitigation measures where a risk is posed. It should also not be assumed, unless clear evidence is
  provided, that improving the socio-economic status of CWA communities will, alone, necessarily result
  in improved biodiversity conservation.
 The livelihood support options for further development are based primarily on existing business patterns
  and land and resource uses in the project area. Although this is appropriate, it is also necessary to
  factor changes in market conditions into planning, especially where this may result in new market
  opportunities or changing demand for products and services. Two examples of the ways in which socio-
  economic conditions (and thus livelihood patterns and needs) may change in the project area are the
  construction of the new bridge linking the city of Volgograd to the Volga-Akhtuba Nature Park (meaning
  a sharp increase in the number of visitors coming into the area, as well as radical changes in settlement
  patterns), and the development of new areas of oil and gas exploration in the Volga Delta (meaning the
  potential influx of large numbers of workers, possible increases in investment and spending, as well as
  the development of transport and communications networks).
 There is a need to provide incentives, as part of the sustainable livelihood mechanisms being promoted
  by the project, which will help reinforce existing laws and regulations on conservation, land and
  resource use and the environmental impacts of business, and also clearly address the threats to
  biodiversity that have been identified by the project. The positive incentives provided by grants, loans
  and support to sustainable livelihood activities provide a way of balancing the more punitive and
  restrictive measures set in place by the regulatory framework. In turn, the provision of positive
  conservation benefits should be clearly backed up by the expectation of real environmental
  responsibilities on the part of beneficiaries.

It is therefore proposed that a slightly wider range of livelihoods activities are dealt with by the project than
those listed in the project document and technical reports, in line with the recommended focus on
―sustainable‖ rather than ―alternative‖ livelihoods. It is also recommended that more emphasis is given to
sustainability aspects of livelihood activities, in particular their links to biodiversity and ecosystem
conservation. Both of these points are elaborated and specific mechanisms identified in the section below
on Outline of potential mechanisms to generate and manage PA financial resources in the Lower Volga.
They include supporting mechanisms which involve making existing livelihood activities more sustainable
as well as developing new livelihood activities. The project should also deal with landscape-level (and
community-wide) issues associated with the sustainability of settlements, business, production and
consumption overall in the Lower Volga.

Available mechanisms for sustainable livelihoods based on international experience
Over the last two decades or so, a concern with local communities and their economic well-being has
increasingly been incorporated into PA management, and a wide range of tools have been developed by
which to share biodiversity benefits and ensure that the livelihoods of people in adjacent areas are
            20
sustainable . The table below provides a summary of the main categories of mechanisms that are used
around the world to improve the environmental sustainability of livelihoods for people living around PAs,
and comments on their suitability for the Lower Volga and the project.

Mechanism        Short description             Examples
                 Provide tax breaks,           In Canada, land owners may without tax penalties donate ecologically-
Fiscal           preferential tax rates        sensitive lands to municipalities and registered conservation charities for
                                                          21
instruments      and subsidies to              protection . Various subsidies are made to sustainable agricultural land
                 environmentally-friendly      uses in Switzerland through the use of per hectare direct payments for the




20
  For further details see Emerton, L., 1999, Community-Based Incentives for Nature Conservation. IUCN The World Conservation
Union, Nairobi, available online at
http://www.biodiversityeconomics.org/applications/library_documents/lib_document.rm?document_id=219&section_id=12
21
  Rubec, C., 1998, ‗Canadian case study on a national tax incentive measure for biodiversity‘, presented at workshop on Incentives
for Biodiversity Conservation: Sharing Experiences, World Conservation Congress, Montreal. Available online at
http://biodiversityeconomics.org/applications/library_documents/lib_document.rm?document_id=532

22
Mechanism          Short description             Examples
                   activities, technologies      creation of ecological set-asides, organic production, and the maintenance
                                                                                                         22
                   and products.                 grasslands, hedges, shrubs and flowered fallow land .
                                   Existing law explicitly endorses tax concessions for environmental business
                                                 Tanzania National Parks (TANAPA) allocates a percentage of park
                                                 revenues to assist local community development initiatives, such as schools,
                                                 health dispensaries, water schemes and roads. TANAPA‘s Support for
                   Reallocates a portion of Community Initiated Projects (SCIP) fund was established in 1992, utilising
                   PA revenues to local          7.5% of each park‘s revenues. Generally the Park contributes up to 70% of
Revenue-           development activities,       the project cost and the community contributes the remaining 30%. TANAPA
sharing            or directly distributes       has also introduced an Income Generating Program that concentrates its
                   cash dividends.               support on individual (rather than village) efforts. The program provides
                                                 loans to small-scale entrepreneurs and organised groups for projects such
                                                 as bee-keeping, sustainable agriculture, community conservation banks,
                                                                                        23
                                                 poultry rearing and livestock keeping .
                                      In theory possible, although no precedent for this in Russian Federation
Cost-                                            The South Africa National Parks Board (SANParks) has, over the last
                   Allows certain PA
sharing,                                         decade, progressively outsourced many of its tourism and maintenance
                   services to be run by
concessions                                      services. Concessions have been granted to the private sector to run hotels,
                   the private sector on a
and leases                                       restaurants, shops and picnic sites National Parks, a third of its maintenance
                   commercial basis.                                                                                          24
on PA                                            contracts are outsourced, and the vehicle fleet is run by the private sector .
services                               Enabled under current law, but little experience in Russian Federation
                                                 The Nordic Environmental Development Fund (NEDF) was set up to provide
                                                 concessional financing for small-scale environmental projects in Northwest
                                                 Russia, Ukraine and Belarus. Concessional financing initiatives include
                   Provides small-scale          revolving credit programmes and other innovative forms of finance, provided
                   credit or large-scale         to projects that have been identified as having a high environmental priority.
                   investment funds to           The NEDF includes facilities which give loans directly to enterprises
Investment         individuals, groups and       implementing cleaner production programmes, support a range of small
and credit         businesses who want           energy-efficiency investments, and provide financing for environmental
                                                                        25
funds              to engage in                  investments on farms . The Asian Conservation Company (ACC) was
                   environmentally-friendly incorporated in 2001 with a capitalisation of $12.5 million. It aims to
                   activities.                   assemble a portfolio of private equity investments that conserve biodiversity,
                                                 while remaining profitable and competitive for shareholders. ACC mobilises
                                                 private equity in a holding company, in order to leverage long-term funding.
                                                                                                                              26
                                                 It invests only in companies that operate in high priority biodiversity areas .
                           Currently there is no earmarking of credit and investment funds for environmental business
                                                 Work carried out on conserving and restoring the wetlands and lakes of the
                                                 central Yangtze region in China has focused on reversing the problems
                   Develops new
                                                 arising from land reclamation and resource over-utilisation. A range of
                   production,
                                                 alternative livelihoods have been promoted among local communities,
                   consumption or
                                                 including eco-fisheries, eco-tourism, and growth of aquatic vegetables. Two
                   business opportunities
Alternative                                      particular successes are a chemical-free "eco fishery" model (which has
                   to shift people away
livelihoods                                      now expanded from 4 households to 100, and has been incorporated into
                   from environmentally-
                                                 the Zhangdu Fishery Authority Master Plan for fish farming) and a bamboo
                   damaging activities
                                                 project as an alternative to chemical fish farming (which has been expanded
                                                                                    27
                                                 from 4 ha to more than 1,300 ha) .
                       Already being practiced in other parts of Russian Federation (see section above on Building on
                                national experiences of sustainable financing and livelihood mechanisms)
Improving          Adds value, income or         A range of sustainable enterprises have been developed in the high-
the                employment to                 biodiversity Talamanca region of Costa Rica, with the aim of reaping
sustainability     sustainable production,       sustainable economic gains from tropical rainforest areas by diversifying and
of existing        consumption and               adding value to forest products. During the course of the project a tourist


22
  Schelske, O., 1998, ‗Financial innovations for biodiversity: the Swiss experience‘, presented at workshop on 10 th Global Biodiversity
Forum, Bratislava. Available online at
http://biodiversityeconomics.org/applications/library_documents/lib_document.rm?document_id=646
23
  Emerton, L. and I. Mfunda, 1999, Making Wildlife Economically Viable for Communities Living Around the Western Serengeti,
Tanzania, Evaluating Eden Discussion Paper EE DP 01, International Institute for Environment and Development, London. Available
online at http://www.iied.org/pubs/pdfs/7794IIED.pdf
24
  Fearnhead, P. 2003. Tourism Concessions: Public-private partnerships for commercially sustainable conservation, Sustainable
Financing Stream, Vth IUCN World Parks Congress, 8-17 September 2003, Durban. Available online at
http://www.conservationfinance.org/Workshops_Conferences/WPC/WPC_documents/Apps_06_Fearnhead_v1.pdf
25
     See http://www.nefco.org/financing/NMF
26
     See http://www.asianconserve.com/
27
     WWF China: Restoring a living Yangtze. http://www.wwf.org.uk/researcher/places/0000000249.asp

                                                                                                                                     23
Mechanism           Short description           Examples
activities          business opportunities      lodge was built, and sustainable organic banana and banana vinegar
                                                                                            28
                    linked to existing          production facilities were also developed .
                    activities.
                         Already being practiced in other parts of Russian Federation (see section above on Building on
                                national experiences of sustainable financing and livelihood mechanisms)
                                                An eco-labelling initiative named the "Green Certificate" is being
                                                implemented by the Latvian Country Tourism Association and the Latvian
                    A voluntary trademark
                                                Environment Protection Fund. It aims to promote environmentally-friendly
                    awarded to products or
                                                tourism in rural areas and small towns, conserve biodiversity, and improve
                    services deemed to be
                                                the quality of life of local communities. The ―Green Certificate‖ is an eco-
                    environmentally
                                                label assigned to country houses, vacation cottages, guest houses and
                    sustainable, enabling
                                                camping grounds in the countryside of Latvia which save natural resources
Eco-labelling       them to charge a price
                                                and use them rationally, offer environment friendly tourist activities, serve
                    premium and reach
                                                healthy locally produced food, and provide extensive information on the local
                    new markets.
                                                natural, cultural and historical attractions. It is one of only a few European
                                                                                                                          29
                                                eco-labels which deals exclusively with small-scale accommodation .
                        As yet is not widespread in Russian Federation – although there are some examples of PA labels
                     being used (see section above on Building on national experiences of sustainable financing and
                                                              livelihood mechanisms)
                                                In the County of Cheshire in the UK, the Vale Royal Borough Council
                                                Environmental Sustainability Grant scheme is open to all community groups,
                    Prizes or funding grants voluntary groups, schools, businesses and Town and Parish Councils. It
                    given to individuals,       funds projects which address sustainable transport, sustainable local food,
                    groups or                   sustainable use of natural resources, energy efficiency, and environmental
Grants and          villages/towns which
                                                                                     30
                                                education and awareness raising . The village of Sinca Noua in Romania
awards to           display particularly        has declared itself to be the first "ecological village" in the country, and the
good                good environmental          local council has elaborated a sustainable development strategy. This
conservation        practice, in recognition    includes measures to strengthen small-scale traditional agriculture by
practice            and reward for their        certifying it as organic, the development of eco-tourism, the creation of
                    efforts.                    protected areas, and the implementation of an environmental education plan
                                                for the local population. In recognition of these efforts, Sinca Noua was
                                                                                                             31
                                                awarded the ‗European Village‘ prize by the EU in 2005 .
                                                  As yet is not widespread in Russian Federation

Although many of these sustainable livelihood mechanisms are potentially applicable to the project, certain
ones have been singled out – and are described in the next section of the report – based on their fit with
project goals, contribution to overcoming the weak economic incentives for sustainable land, resource and
business management in the Lower Volga.

Outline of potential mechanisms to improve the sustainability of businesses, land and
resource uses the Lower Volga
Strengthening and extending existing incentive mechanisms
As described earlier in this document, economic, financial and fiscal incentives are already used to
promote activities in other sectors of the economy – most notably small-scale farmers and agro-processing
industries. The project should investigate, with decision-makers, whether it is possible to extend these
schemes and privileges to environmentally sustainable enterprises and activities: for example the eco-
agriculture, livestock and fisheries activities described below. Using existing incentive mechanisms, which
are already accepted and being applied elsewhere, also enhances the likelihood of continuation after the
project ends.

As mentioned earlier in the document, Federal Law on Environmental Protection No 7-FZ of 2002
recommends that tax concessions and other economic and financial incentives should be provided to
individuals and groups who engage in activities that conserve the environment, and to businesses which
display good environmental practice. There is a clear opportunity for the project to pilot efforts to

28
  Poverty and Conservation Learning Group: Case study on Agrícola Aiko de Talamanca.
http://www.povertyandconservation.info/en/case/C0155.php
29
     Eco-tourism Latvia, http://eco.celotajs.lv/pn/index.php?module=ContentExpress&func=display&meid=6&ceid=11
30
     http://www2.valeroyal.gov.uk/internet/vr
31
  Sinca Noua Foundation and Stroming Ltd, 2005, A policy field guide to Sinca Noua and the Tagla Mountains: Building a new,
sustainable economy. Report commissioned by WWF, Stroming Ltd, Nijmegen. Available online at
http://www.panda.org/about_wwf/what_we_do/policy/agriculture_environment/publications/index.cfm?uNewsID=54740

24
operationalise these legal provisions (in addition to the legally-enabled disincentives which penalise for
poor environmental performance) in the Lower Volga region.

Sustainable tourism, agriculture and fisheries
Sustainable tourism, agriculture and fisheries are all obvious areas for development under the project,
given their importance as economic activities and predominance as land and resource uses in the Lower
Volga, as well as their currently negative impacts on biodiversity. Project activities in these areas should
linked explicitly to environmental sustainability, and to ensuring that existing environmental, land and
resource use, and planning regulations are enforced and reinforced. The project should be working to
mainstream biodiversity concerns throughout the sourcing, business and marketing cycle of the
landholders and entrepreneurs it is working with.

It is also recommended that where project support is being provided to commercial activities, this be given
in the form of credit or loans (which may be at a preferential interest rate, or include the provision of free
technical advice and training), not as grants. This type of arrangement has been used successfully in other
parts of the Russian Federation - for example in the National Park Ugra, a micro-credit mechanism was
developed on the basis of the State fund for small business support in the Kaluga region. An open
competition was announced in the mass-media calling for business projects from people living in the park
and its buffer zone. The main use of credits was for the development of ecologically friendly agriculture and
guest service in private homes. As a result, the income of the participants in the national park Ugra has
increased by about 30%.

Elements of the project‘s approach might include:

For tourism:
 Support to environmental improvements to existing accommodation facilities, and in the development of
  new facilities, including accessing sustainably-sourced building materials, dealing properly with waste
  management and disposal, and identifying more efficient and cost-effective energy sources. If the
  market exists, domestically or internationally, it may be appropriate to support the development of
  facilities and tours which cater to the specialist nature tourism market (for example bird watching, nature
  appreciation and hiking).
 Encouraging tour operators to take responsibility for their surrounding areas and clientele, meaning that
  some form of reward for good behaviour is offered, contingent on activities having a minimal impact on
  the ecosystems surrounding tourist facilities. Where a tourist facility is clearly transgressing the law,
  effective enforcement of regulations and fines should be encouraged.
 Development of secondary and support industries. There are ample opportunities to support value-
  added activities, based around the development of secondary and support industries for tourism. These
  might include the promotion of locally-produced food, produce and other services (such as
  transportation, tours, sports activities, souvenirs, restaurants and shops). As well as supporting the
  development of these activities outside PAs, the project could also investigate the possibility of
  developing concessions for local businesspeople to provide these facilities within PAs themselves (see
  above).
 The use of eco-labelling and awards for best practice. If properly accredited, monitored and endorsed
  by government, and offering sufficient material rewards to tourism operators (either directly, or through
  improved marketing and price premiums), such mechanisms can provide a strong incentive for tourist
  facilities, and its support industries, to improve their environmental sustainability record. The provision
  to allow for branding, via the use of PA logos (discussed above), may be applied. Various international
                                                               32
  eco-tourism certification and labelling schemes also exist , which may be useful tools if and when the
  international tourism market develops in the Lower Volga. For example, as part of the European Charter
  for Sustainable Tourism in Protected Areas, Harz National Park in Germany has started to certify
  national park friendly accommodation (Nationalparkfreundliche Unterkünfte) which fulfil special quality
  criteria, get involved with environmental protection activities and receive regular up-to-date information
  from the national park.

For agriculture:


32
  See http://www.globalecolabelling.net/, http://www.ecocertification.org/, http://www.greenglobeint.com/about/history/,
http://www.blueflag.org/, http://www.tourismpartnership.org/

                                                                                                                           25
 Support to the development of more environmentally-friendly farm practices and products. Efforts can
  be made to improve the sustainability of existing land uses and farming patterns, and minimise their
  impacts of biodiversity – for example integrating biodiversity into fields and pastures (such as through
  ecological set-asides, maintaining hedges and woodlands, or allowing for fallow), carrying out crop and
  livestock activities at levels which are compatible with the carrying capacity of the land, as well as
  applying and using agro-chemicals properly and dealing appropriately with solid and liquid wastes. The
  development of organic agriculture may be a possibility, although further research is required about
  costs, profitability and market demand. The promotion of organic production has been a successful
  activity among other PAs in the Russian Federation. For example in the Katunsky biosphere reserve,
  micro loans have been issued and used for producing and packing organic local products, first of all
                     33
  mountain honey . Borrowers established a non-governmental association of honey producers, and
  average income among project participants increased by about 30%. A concept of ―eco-agriculture‖
  farming practices may be one which has direct relevance to project efforts, describing a vision of rural
  communities managing their resources to jointly achieve enhanced rural livelihoods, biodiversity and
                                                                                       34
  ecosystem conservation, and more sustainable and productive agricultural systems .
 Value-added in processing and marketing. There may be the potential for adding value to existing
  agricultural production, if this is found to be an effective incentive for farmers to increase their support
  for biodiversity conservation. Organic agriculture, mentioned above, may be one such opportunity,
  others include the development of processing activities - for example the production of juices, jams,
  dried fruit and vegetables, milk products, meat products, wool and fur. Improving marketing for existing
  products is also a way of increasing local income and value-added: for example, alongside the
  development of more environmentally-responsible tourism, efforts should be made to promote the local
  sourcing of foods and other agricultural products.
 The use of eco-labelling and awards for best practice. If properly accredited, monitored and endorsed
  by government, and offering sufficient material rewards to farmers (either directly, or through improved
  marketing and price premiums), such mechanisms can provide an incentive for agricultural producers to
  improve their environmental sustainability record. The provision to allow for branding, via the use of PA
  logos (discussed above), may be applied in eco-labelling and awards. This provision has been used
  elsewhere in the Russian Federation – to increase local people income taking into consideration the
  potential of the biosphere reserve Katunsky as an ecologically clean territory, a project on marketing
  local agriculture products (described above) using the reserve logo was implemented. The reserve
  Katunsky trade mark was officially registered and the product (mountain honey) comes to the markets
  of Moscow, St. Petersburg and Novosibirsk marked with the reserve logo. In 2002, honey with the
  reserve logo was awarded a medal for the best Russian good at the exhibition 'Regions of Russia'
  (Exhibition of National Economy Achievements). For agriculture there also exist various internationally-
                         35
  recognised eco-labels - if export markets develop for agricultural products from the Lower Volga,
  these may be of relevance.

For fisheries:
 Support to the development of more environmentally-friendly fishing practices. It is not known whether
  the type of fishing gear and techniques that are used in the Lower Volga region are destructive to
  biodiversity and ecosystems. If the fishing gear and techniques are identified as a problem, project
  support could usefully work to improve these – at the same time as making efforts to increase the
  efficiency of fishing activities, where possible.
 Take pressure off wild stocks. The over-exploitation of stocks of certain commercially valuable species
  has been registered as a definite threat to biodiversity in the Lower Volga region. Where
  overexploitation pressures exist and there is the possibility for substitution, project support could be
  given to exploring alternative sites and species for exploitation, as well as to the development of
  fishponds and aquaculture activities as an alternative to the exploitation of wild fisheries. Care should
  however be taken in ensuring that sustainable use is being promoted at alternative sites and for
  substitute species, that the construction of aquaculture ponds does not impact negatively on wetland
  status, and that any introduced fish species do not pose threats as potentially invasive species.




33
  Grigoryan, A., 2004, National Parks - Benefits for Local Communities. Prirodno-resursnye vedomosti newspaper, # 15-16: 16
(available on http://www.biodiversity.ru/eng/programs/management/grigoryan_eng.html)
34
     See http://www.ecoagriculture.org/
35
  See http://www.globalecolabelling.net/, http://www.soilassociation.org/certification,
http://www.ifoam.org/about_ifoam/standards/ogs.html,

26
 Value-added in processing and marketing. Depending on demand and market feasibility, there may be
  opportunities for adding value to fishing (with a view to limiting expansion in the scope of fishing), such
  as through the promotion of fish drying, canning or other processing activities.
 The use of eco-labelling and awards for best practice. If properly accredited, monitored and endorsed
  by government, and offering sufficient material rewards to those engaged in fishing (either directly, or
  through improved marketing and price premiums), such mechanisms can provide an incentive for the
  fisheries sector, and its support industries, to improve their environmental sustainability record. The
  provision to allow for branding, via the use of PA logos (discussed above), may be applied in eco-
  labelling and awards. Various international efforts at eco-labelling of fisheries products are currently
                                         36
  under the early stages of development , which may be applicable if any of the Lower Volga‘s fish catch
  is exported.

Grant funding support to community conservation activities
As mentioned above, it is recommended that grants are used primarily to support socially-driven and
socially-targeted projects or for activities such as the purchase of new technologies and pilot
demonstration activities than for the start-up of commercial enterprises, rather than for the development of
commercial enterprises. There are various ways of administering grants – either as direct funding support,
or through prizes or awards for environmental best practice:
 Grants for the purchase of new technologies and pilot demonstration activities in commercial tourism,
  agriculture and fisheries sector. These should only be undertaken in support of existing activities which
  are already proven to be commercially viable, and where additional support from the project would lead
  to major changes in negative biodiversity impacts. This type of support should be made conditional on
  the recipient making equivalent investments in improving the sustainability of their activities, and
  maintaining environmental standards in the future.
 Grants to individuals and institutions who wish to invest in improved technologies such as alternative
  energy sources, improved waste disposal, water efficiency, eco-friendly construction, and so on. Again,
  it is recommended that grant support should only be provided on a cost-sharing basis, with the recipient
  undertaking to make investments from their own funds on improved environmental sustainability. This
  form of support could be made available to individual householders, as well as to institutions such as
  schools, health centres, community centres, government offices and so on.
 Awards and prizes for good environmental practice in commercial sectors are described above. They
  can also be extended to the community, to promote biodiversity-friendly activities at the landscape level
  – for example making awards for the best-kept or ―greenest‖ village, or the most innovative
  environmental idea among households. Their aim would be to minimise the broader impacts of human
  settlements and economic activities on biodiversity and ecosystems across the Lower Volga landscape.

Summary: sustainable livelihood options for the project
A variety of sustainable livelihood activities at both the individual and the community/landscape level have
been identified as having potential for development under the project, based around providing incentives
for more sustainable business, settlement, land and resource uses. These include:
 Strengthening and extending existing incentive mechanisms, including those which are currently
  applied to other sectors in the project area as well as operationalising the recommendations that
  existing laws make about providing incentives for environmentally-friendly business.
 Sustainable tourism, agriculture and fisheries, including support to environmental improvements in
  existing activities and practices, developing value-added to sustainable production and enterprise,
  identifying alternatives to activities which deplete species or damage ecosystems, and eco-labelling and
  awards for best practice.
 Grant funding support to community conservation activities, including for the purchase of new
  technologies and pilot demonstration activities in commercial tourism, agriculture and fisheries sector,
  to individuals and institutions who wish to invest in improved technologies, and awards and prizes for
  good environmental practice.

Further modalities and needs for planning and implementing these mechanisms as part of the project are
given in the last section of the report.

36
     See http://www.globalecolabelling.net/, http://www.msc.org/,

                                                                                                          27
7. NEXT STEPS IN THE DEVELOPMENT OF SUSTAINABLE FINANCING
   LIVELIHOODS MECHANISMS UNDER THE PROJECT
This report has provided an initial scoping of mechanisms for strengthening project activities in the spheres
of sustainable PA financing and sustainable livelihoods. It builds on the preliminary work carried out during
the project development phase and in the early stages of project implementation. It identifies specific
mechanisms that can be developed under the project in support of Outputs 3.4 and 4.

Further information, consultation, feasibility analysis, planning and design are now required to make a final
selection from this shortlist of sustainable PA financing and sustainable livelihoods options, and to
operationalise them as concrete activities to be implemented under the project.

It is recommended that, on the basis of the results of this more detailed design and planning exercise, one
to two sustainable financing mechanisms and two to three sustainable livelihoods mechanisms are
selected for actual implementation, in addition to strengthening existing financing and incentive
mechanisms.

It is important for the project not to be over-ambitious, and to limit itself to carrying out activities which are
achievable within the project period, resources and capacity. It should be borne in mind that both
sustainable PA financing and sustainable livelihoods mechanisms are complex and time-consuming to
carry out and to yield results. They require substantial inputs in terms of stakeholder consultation,
negotiation and technical support to implementation. Due to the fact that both categories of mechanisms
are relatively new to biodiversity conservation practice in the Russian Federation, the project should also
be aware that additional time and inputs may need to be invested in ensuring that they have the active
support of decision-makers in both economic and conservation sectors.

As described in earlier sections of this report, it seems that the most appropriate, attractive and viable
mechanisms for the ―Conservation of Wetland Biodiversity in the Lower Volga‖ project are:
 Strengthening existing financial planning, budgeting and administration processes.
 Conservation contributions from upstream hydropower schemes.
 Biodiversity offsets in the oil and gas sector.
 Payments for ecosystem services to fisheries.
 Additional extra-budgetary sources of revenue (including rationalising existing charges and fees,
  branding and eco-labelling, concessions and leases on commercial PA services, sponsorship and
  advertising from the private sector, lottery proceeds).
 Strengthening and extending existing incentive mechanisms.
 Sustainable tourism, agriculture and fisheries (including support to the development of more
  environmentally-friendly fishing practices, taking pressure of natural habitats and wild stocks, value-
  added in processing and marketing and the use of eco-labelling and awards for best practice).
 Grant funding support to community conservation activities.

The recommended next steps in the design and planning process are outlined below.

Needs for additional information on legal and regulatory frameworks
It is important that any sustainable PA financing or livelihoods mechanism selected by the project is
enabled by law. This report has provided a preliminary review of relevant legal instruments and regulations
which are available in English language, but it is recommended that further analysis is carried out, in
consultation with the relevant government authorities. In particular:
 The provisions for tax concessions and other privileges to environmental activities, under Articles 14
  and 17 of the Federal Law on Environmental Protection No 7-FZ of 2002 and other relevant laws and
  regulations.
 The provisions for payment of compensation for environmental damage under Articles 14 and 16 of the
  Federal Law on Environmental Protection No 7-FZ of 2002, Ministerial Decree No. 410 of 2005, and
  other relevant laws and regulations. Especially their application to the downstream effects of


28
   hydropower facilities, and to requirements for environmental mitigation and restoration for oil and gas
   sector prospecting and restoration activities.
 The extent to which the development of extra-budgetary financial retention mechanisms (including but
  not limited to trust funds) can be established by PA authorities, can receive various funding sources and
  donations from domestic and overseas private and public sources, and can be used to provide a long-
  term source of finance for biodiversity conservation.
 The modalities, rules and monitoring requirements associated with granting the right to use official PA
  logos to private enterprises and businesses.
 The extent to which the provisions of Federal Law No. 123-FZ of 1997 and other relevant laws and
  regulations would allow for the allocation of concessions or leases to the private sector to operate
  businesses (such as shops and restaurants) in PAs.
 The range of fiscal and other incentives that are offered to businesses and production facilities, and the
  extent to which these can be extended or targeted to environmental enterprises.

Sustainable PA financing mechanisms
In order to select and further develop specific sustainable PA financing mechanisms to be implemented
under the project, the following steps are recommended:
 Detailed planning of the future investment needs and budgets for each of the four PAs within the project
  area, to determine their financial and budgetary needs. It is recommended that this is carried out as part
  of the development of management and financial/business plans, so as to ensure that biodiversity
  conservation needs are properly costed.
 Training support to PA managers in the development of finance/business plans. It is recommended that
  this is also carried out as part of the development of management plans.
 Consultations and negotiations with the agencies and groups who would be involved in providing
  payments under each of the identified sustainable PA financing mechanisms, including:
  - Consultation with OAO Volzhskaya GES about their willingness to fund downstream biodiversity
     conservation, as well as the form and amount of these payments. Consultation with other Federal
     and Regional authorities will also be required to establish how these payments, if forthcoming, would
     be allocated and used.
  - Consultation with the companies who are carrying out oil and gas prospecting in the Volga Delta
     region about their willingness to engage in biodiversity offsets or other conservation funding.
     Consultation with other Federal and Regional authorities will also be required to establish how these
     payments, if forthcoming, would be allocated and used.
  - Consultations with the State Committee on Fisheries/Federal and Regional Agencies for Fisheries
     as well as with private fisheries operators to ascertain their willingness to transfer funding to
     conservation (for the former), and their response to conservation levies (for the latter).
  - Consultation with groups and agencies who might be involved in the development of other extra-
     budgetary financing mechanisms for PAs (e.g. concessions, private sector sponsorship, lotteries,
     etc.) to gauge their interest and willingness to collaborate.
 Based on this more detailed scoping, projections of the income that can be generated from the selected
  sustainable PA financing mechanisms.
 Feasibility analysis of each of the recommended sustainable PA financing mechanisms, including
  estimation of the costs of developing and implementing them, their acceptability to both government
  authorities and to other stakeholders who would be involved in making payments or providing finance,
  and their likely contribution to PA financial resources.
 On the basis of this detailed financial planning, consultation and negotiation and financial feasibility
  analysis, one or two of the most appropriate and likely-to-succeed sustainable financing mechanisms
  can be selected for actual development by the project.

Sustainable livelihood mechanisms
In order to select and further develop specific sustainable livelihoods mechanisms to be implemented
under the project, the following steps are recommended:




                                                                                                         29
 Detailed analysis of the link between, and information base about, livelihoods and biodiversity
  conservation. In particular the extent to which people currently engaged in activities which degrade
  biodiversity would be willing to modify their activities, and what incentives or activities they would
  require in order to do so.
 Business feasibility and market feasibility analyses of the selected sustainable livelihoods activities
  which are based on supporting commercial tourism, agriculture and fisheries activities (both primary
  production and secondary/value-added industries), from both project (economic) and enterprise
  (financial) viewpoints.
 Identification of specific areas for grant support under the project.
 Scoping of potential environmental prizes and awards, in consultation with local authorities and
  residents.
 On the basis of this detailed stakeholder consultation, business and market feasibility and scoping
  analysis, two or three of the most appropriate and likely-to-succeed sustainable livelihood mechanisms
  can be selected for actual development by the project.

Impact monitoring
Monitoring the impacts of sustainable financing and livelihoods activities on biodiversity conservation in the
Lower Volga is difficult. It involves complex interactions between socio-economic and ecological factors,
and many of the impacts are long-term in nature and may only be felt after the project‘s end. Although
progress in terms of achieving key milestones and outputs in the development of these mechanisms during
the course of the project is relatively easy to monitor and evaluate, it will be much more difficult to track the
impacts of changed financial and economic conditions on biodiversity conservation.

Broad suggestions for monitoring the impact of sustainable financing and livelihood mechanisms are
provided below in Annex 3: Suggestions for monitoring the impact of sustainable financing and livelihood
mechanisms, and additional work on this topic is also recommended as follows:
 Establish baselines of both the socio-economic situation in the project area for the groups who will be
  targeted in sustainable livelihoods activities, as well as PA financial health and status.
 For the selected PA financing and livelihood mechanisms, identify indicators of progress and success
  from the perspective of both the project and of communities/PA authorities themselves.
 Formulate a monitoring plan for sustainable PA financing and sustainable livelihoods components of the
  project which incorporates both the achievement of key milestones in the development and
  implementation of these activities, as well as their broader socio-economic and ecological impacts and
  biodiversity conservation results.

Additional uses of economic and financial approaches to biodiversity conservation:
It is strongly recommended that the project take steps, in support of Outcomes 1 and 5 of the project, to
generate and disseminate information about the development and economic benefits of biodiversity
conservation in the Lower Volga.

If biodiversity conservation in the Lower Volga is to be accorded the priority it requires, and the measures
to be implemented under the project are to get high-level support, it will be necessary to raise awareness
on the economic case for investing in biodiversity conservation as a necessary component of both private
profits and regional/national development. Sustainable financing and livelihood components require the
project to work with partners from outside conservation and environmental agencies, and to engage with
(and convince) financial and economic planners from development sectors, regional planners, and the
private sector, and these partners need to be convinced of the wisdom of biodiversity conservation.




30
ANNEX 1: TERMS OF REFERENCE AND SCHEDULE
Terms of reference
Scope of work
Item 1 – sustainable financing for PAs
1. Analysis of financial data on actual income and expenditure from different sources for maintenance and
   management of the PAs (based on local data provided by national Assistant and the PAs);
2. Identification of direct use, indirect use (ecological services) and existence values associated with the
   PA system [this item was removed during consultations with the project team];
3. Assessment of investment needs (volume of financing) for a more effective PA management &
   capacities – improved territorial management potential, improved technical-material basis, improved
   infrastructure – as well as their cost-benefit analysis; [this item was removed during consultations with
   the project team]
4. Outline description of relevant international & domestic experience on improved financial sustainability
   and introduction of financial mechanisms on income generation for PA management and development;
5. Feasibility analysis and prioritisation of appropriate potential additional direct income generating
   activities and financing mechanisms, including an analysis of their investment costs & benefits as well a
   risk assessment to the PA management;
6. Recommendations on activities for further economic analyses to be undertaken during project
   implementation, to confirm assumptions made to establish a viable sustainable financing mechanism for
   the enhanced management of PAs;

Item 2 – alternative livelihoods
1. Support to the baseline analysis and selection of suitable alternative livelihood options for the local
   population, based on international experiences in comparable environmental and socio-economical
   conditions, including baseline economic appraisal and environmental valuation.
2. Analysis of experiences and opportunities for the introduction of revenue sharing mechanisms between
   the private sector and PAs of commercial benefits received from natural resources use.
3. Consultancy on the suitability of introducing micro-credits & grant facilities as well as biodiversity
   conservation funds for the introduction of selected alternative livelihood options (based on project
   reports, project small grants facility and local socio-economical conditions).

Expected outputs
Consultancy report containing at least the following:
 brief review of current income & expenditures of PA financing;
 overview of international experience on improving the financial sustainability of PAs;
 analysis of relevant available financial mechanisms for additional PA income generation, including cost-
  benefit analysis [this item was removed during consultations with the project team], and their
  contribution to the UNDP/GEF project‘s general objectives;
 assessment of assumptions, needs, constraints and risks to proposed financial mechanisms proposal;
 baseline analysis of international experiences of alternative livelihood options for the local population
  and recommendations for the strengthening the project activity in this sphere.

Schedule
Aug 22        Reading of background documentation, preparation of            Colombo
              materials and presentations
Aug 23        Reading of background documentation, preparation of            Colombo
              materials and presentations
Aug 24        Travel from Colombo to Moscow, reading of background           Colombo – Moscow
              documentation, preparation of materials and presentations


                                                                                                         31
Aug 25       Arrive Moscow and transfer to Volgograd, reading of           Moscow – Volgograd
             background documentation, preparation of materials and
             presentations
Aug 26       Meeting in project office on aims and scope of consultancy,   Volgograd – Volga-Akhtuba
             travel to workshop venue                                      Floodplain Nature Park
Aug 27       Workshop with project partners on sustainable financing       Volga-Akhtuba Floodplain
             and alternative livelihoods                                   Nature Park
Aug 28       Workshop with project partners on sustainable financing       Volga-Akhtuba Floodplain
             and alternative livelihoods                                   Nature Park
Aug 29       Travel to Vologograd, meeting in project office on findings   Volga-Akhtuba Floodplain
             from the workshop and conclusions for sustainable             Nature Park – Volgograd
             financing and livelihoods
Aug 30       Review of project documents, report writing                   Volgograd
Aug 31       Review of project documents, report writing, discussion of    Volgograd
             draft findings with project team
Sep 1        Transfer to Moscow and travel to Colombo, report writing      Volgograd – Moscow –
                                                                           Colombo
Sep 2        Arrive Colombo
Sep 2 - 14   Report writing
Sep 14       Submission of Draft Report
Sep 14-30    Review of report by UNDP and project team, revision of
             draft report based on comments received
Sep 30       Submission of Final Report




32
ANNEX 2: CASE STUDIES OF INTERNATIONAL EXPERIENCE IN
SUSTAINABLE FINANCING MECHANISMS
Downstream compensation payments from hydropower schemes
Although compensation payments for the onsite impacts of hydropower schemes (the impacts of flooding
an area in order to create a reservoir, and the use of land to develop infrastructure) are relatively
widespread, there are less examples of financial compensation being made for downstream impacts.
Compensation measures are usually defined during the project planning period, rather than being applied
retrospectively once the hydropower scheme has been operating for some time.

The Song Bung Hydropower Project, Vietnam37
The Song Bung project consists of the construction of a 156 MW hydropower plant in the Vu Gia-Thu Bon
river basin in Quang Nam province, Central Vietnam. It is expected that the project will be completed in
2013.

The planned hydropower scheme will lead to changes in water level downstream of the dam, especially a
reduction of floods, large fluctuations in waterflow, and water level variation in the river between the dam
and the confluence with Song Cai. This will have a large impact on aquatic life, and strongly reduce the
biological productivity of the river. Long distance migratory species such as the highly-priced fish Angulla
marmorata will disappear due to the barrier effect of the dam, and breeding and spawning patterns of other
fish species will also be affected. Other aquatic animals will decline both in terms of species diversity as
well as in productivity. Fish is the staple food for communities living downstream of the dam, and the
expected changes will seriously impact household food security as well as on commerce and income.
Reduced fish catches and changes in access to the river will impact the economy of these households.

Although current government policy in Vietnam does not require compensation for the downstream impacts
of hydropower facilities, the hydropower scheme plans to fund a range of activities to compensate for its
effects on biodiversity and livelihoods. Livelihoods development programs are being established in order to
compensate for the lost food resources and livelihoods through support to fishponds, improved natural
fisheries management, allocation of land for alternative livelihoods, cattle breeding and improved
cultivation methods. In addition to livelihood restoration measures, some form of cash compensation is
also planned, to be made to subsistence fishermen, commercial fisherman, and at the village level.

The Hungry Horse Dam, USA38
Hungry Horse Dam is located just outside Glacier National Park in Montana, and is the State‘s highest dam
and the country‘s eleventh largest concrete dam. The dam is used for electricity generation (428 MW total
capacity), flood control and irrigation. The project, located on the South Fork of the Flathead River, was
authorized to help prevent the recurring spring floods on the Columbia and Flathead rivers and to alleviate
the annual winter power shortage in the Pacific Northwest.

The dam has led to a number of changes in downstream hydrology and ecology. Water level fluctuations
caused by dam operations at Libby and Hungry Horse reservoirs result in: (1) altered thermal stratification,
(2) indirect losses in phytoplankton and zooplankton production, (3) direct washout of phytoplankton and
zooplankton through dam penstocks, (4) reductions in standing crop of benthic organisms and of insects
on the water surface, and (5) reduced fish growth in the late summer and fall. The impacts on downstream
fisheries have been particularly intense: dam construction has resulted in estimated annual losses of
65,500 migratory juvenile westslope cutthroat and 1965 adult migratory bull trout from the Flathead Lake
and River system. In addition, operations of Hungry Horse and Kerr dams caused annual losses
conservatively estimated at 96,300 river-spawning and 131,000 lakeshore-spawning kokanee adults.




37
  From Sweco Ltd, 2007, Song Bung 4 Hydropower Project, Phase II: Final Report Environmental Impact Assessment (EIA). Report
prepared for the Asian Development Bank and Electricity of Vietnam under project TA 4625-VIE. Available online (with other project
documents) from http://www.adb.org/Projects/project.asp?id=36352
38
  From Fredenberg, Wade and D. Carty - U.S. Fish and Wildlife Service; Deleray, Mark and L. Knotek - Montana Fish, Wildlife and
Parks; Hansen, Barry - Confederated Salish and Kootenai Tribes, Hungry Horse Dam Fisheries Mitigation: Kokanee Stocking and
Monitoring in Flathead Lake, 1999, Final Report 1999 to Bonneville Power Administration, Portland. Available online from
http://pisces.bpa.gov/release/documents/documentviewer.aspx?pub=R60559-5.pdf

                                                                                                                                  33
In line with the Northwest Power Planning Council's Fish and Wildlife Program for the Columbia River
system, mitigation, compensation, and protection alternatives were developed in 1990 for reservoirs and
downstream river reaches affected by hydropower development, and approved in 1993. This project
specifically addresses the losses on the Flathead Indian Reservation (1.2 million acres) attributable to
Hungry Horse Dam. The problem it addresses is the loss of habitat, both in quality and quantity, in the
interconnected Flathead Lake and River basin resulting from the construction and operation of Hungry
Horse Dam. Pilot mitigation projects began in 1992, and have received annual funding since that time.
They include funding fish passage projects, zooplankton entrainment project, reservoir revegetation, off-
site lake rehabilitation, and restoration of spawning inlets.

Biodiversity offsets in the oil, gas and mining sectors
As oil and gas operations can affect biodiversity at all stages, from exploration through to marketing and
decommissioning, there is a growing need for oil and gas companies to address their impacts on
biodiversity. Not only is there is a sound rationale for business to take action, but a growing number of oil
and gas companies are voluntarily engaging in biodiversity offset and other programmes in order to
compensate for their effects on natural ecosystems and wild species.

The Baku-Tbilisi-Ceyhan (BTC) oil pipeline, Azerbaijan, Georgia and Turkey39
The BTC pipeline is a dedicated crude oil pipeline system in the Caspian region, which will extend from
landlocked Azerbaijan, through Georgia, to a terminal at Ceyhan on the Mediterranean coast of Turkey.
The pipeline can transport up to 1 million barrels per day, and at 1,760 kilometers is one of the longest of
its kind in the world. The BTC pipeline will complement oil transport from two existing pipelines—the
Northern Route pipeline to Novorossiyk, Russia, and the Western Route pipeline which ends in Supsa,
Georgia.

In order to comply with government and donor requirements, the environmental and social approach to the
project has been one of avoidance of adverse impacts and enhancement of positive impacts. Where it has
not been possible to avoid adverse impacts, a process of impact reduction has been followed – including
biodiversity offset compensation. In order to ensure compliance with World Bank Group Safeguard Policies
OP4.04 on Natural Habitats and OPN 11.03 on Cultural Property, BTC has committed to implement offset
mitigation where significant residual impacts have been identified for natural habitats and cultural property.
A total of $9,175,000 has been allocated for offset and additionality programs, of which approximately $2.5
million is being used to fund eight offset projects.

For example, where the pipeline has been unavoidably routed through a forested area, the area of forest
removed is being recreated at a nearby location as compensation for the fact that the forest cannot be
restored in its original location because of planting restrictions that apply. In addition, funding is being
allocated out to strengthen PA management at sites along the pipeline. BTC is sponsoring the
development of a Strategic Environmental and Cultural Plan for Gobustan Cultural Reserve and the
proposed Gobustan National Park in Azerbaijan. It has also committed funding to the government for
management planning in Ktsia-Tabatskuri Managed Reserve in Georgia, and has established special
mitigation and restoration measures which are designed to create forest habitat off project areas and to
ensure survival and propagation of rare floral species in order to compensate for losses to Tetritskaro
Primary Forest Fragments in Georgia. BTC will also implement an eco-compensation plan, a rare species
management programme and management planning assistance along areas of secondary forest from the
Tkhratskharo Pass to Tiseli in Georgia, and in Turkey‘s Posof Wildlife Protection Area and Sarikamis
Natural Site Area.

The Chad-Cameroon Oil Pipeline Construction Project40


39
  From IPIECA/OGP, 2007, Biodiversity and the Oil and Gas Industry in the Caspian Region: Workshop Report. International
Petroleum Industry Environmental Conservation Association-OGP Biodiversity Working Group, London, available online at
http://www.ipieca.org/activities/biodiversity/downloads/workshops/may_07/report.pdf; IFC, 2003, Baku-Tbilisi-Ceyhan Pipeline:
Environmental and Social Action Plan. International Finance Corporation, Washington DC, available online at
http://ifcln1.ifc.org/IFCExt/spiwebsite1.nsf/0/76e86b2e17ee0cc085256d42006c8939/$FILE/BTC%20ESAP%20FINAL.PDF;
40
  From Bisseck, P., 2003, FEDEC: An Environmental Compensatory Mechanism Set Up within the Framework of a Pipeline
Construction Project, Cameroon, Paper presented at workshop on Forging Effective Partnerships with Oil and Gas Companies for
Protected Area Conservation, Vth World Parks Congress, Durban. Available online at
http://www.conservationfinance.org/Workshops_Conferences/WPC/WPC_documents/Apps_08_Bisseck_v3.pdf ; ten Kate, K..,
Bishop, J., and Bayon, R., 2004, Biodiversity offsets: Views, experience, and the business case. IUCN, Gland, and Insight
Investment, London. Available online at http://www.mitigationactionplan.gov/Executive_Summary_Biodiversity_Offsets_Report.pdf

34
The Chad/Cameroon Development Project, run by a consortium of three oil companies – ExxonMobil,
Chevron and Petronas – is developing oilfields in southern Chad, under a 30 year concession from the
Government of Chad. The project is building a 1,070 kilometre underground pipeline to a marine terminal
off the coast of Cameroon. Compensation plans address such issues as resettlement, compensation for
lost crops, an offsite environmental enhancement programme to protect biodiversity, oil spill prevention
and response, pipeline routing, disease control, protection of indigenous peoples and accident prevention.

Mitigating action includes two biodiversity offsets being established in the Atlantic coastal forest and the
Deng Deng forest areas to compensate for the residual impacts in the pipeline corridor. A small area of
tropical forest in Cameroon will be affected by the oil pipeline. To compensate for this residual damage,
two large new PAs have been created in Cameroon – Mbam-Djerem and Campo-Ma'an National Parks.
Together these PAs cover an area many time the size of the area impacted by the oil pipeline. The
                                                          2
Presidentially decreed National Parks exceed 4,000 km of intact ecosystem, while the converted areas
                       2
total less than 100 km . Funding is routed through the Fondation pour L‘Environnement et le Development
au Cameroun (FEDEC), an environmental compensatory mechanism set up within the framework of the
project. The oil companies‘ consortium allocated FEDEC start-up capital of $3.5 million. In January 2003,
FEDEC signed two three-year funding agreements of $0.5 million each to cover the preliminary phase for
the two parks, resulting in the finalisation of management plans. Up to and including the 2nd quarter of
2004, the project has paid approximately $12.7 million in cash and in-kind compensation, including
assisting in the implementation of the National Park management plans.

From the point of view of the three oil companies, it is interesting to consider why they agreed to contribute
funding million to the foundation. A recent analysis of the project states that one of the main reasons was
their wish to avoid negative publicity, especially from environmental NGOs such as Greenpeace, Human
Rights Watch, and Friends of the Earth. ExxonMobil, Chevron and Petronas all have highly visible brands,
making them vulnerable to boycotts by consumers of their end products. If this analysis is correct, oil
companies may come to find that biodiversity offsets are an important tool in their environmental
management arsenal.

Payments for wetland ecosystem services to the fisheries sector
Payments for environmental services are becoming more and more widespread across the world, and
being used both to raise finances for biodiversity conservation as well as to generate economic incentives
for landholders and resource managers to act sustainably. To date, most experiences of payments for
environmental services involve charging water users and supporting upland catchment ecosystem
conservation: fisheries and wetlands are a relatively new, and untested, area.

Payment for environmental services in the Danube Basin41
WWF is currently implementing a project developing payment for environmental services to the
conservation of important PAs and their surrounding areas, focusing on countries in the Lower Danube
Basin: Bulgaria, Moldova, Romania and Ukraine. Ecosystems in the Danube River Basin provide many
economically valuable services, including biodiversity conservation, water purification, flood control,
pollution reduction, and support for socio-economic activities such as fisheries and tourism.

The Danube countries, basin agencies, and many other stakeholders are working to address the
environmental threats to the Danube Basin. Yet, due to lack of moneys many of these projects may never
go beyond the ―pilot‖ phase or will be at risk as soon as the initial funds dry up. In such cases a system of
payments for environmental services (PES) has been identified as a potential source of sustainable
financing for conservation. PES schemes that reward the maintenance, improvement or adoption of
conservation-friendly land uses are in place or well advanced in several locations along the Lower Danube
and Danube Delta, and are beginning to deliver in terms of conservation and improved rural incomes and
livelihoods.

One set of examples of PES being implemented in the Danube Basi are agri-environmental payments. The
main land use is agriculture, mainly cereals and vegetable production, and it is important to generate
finance and incentives to ensure that the impacts of agriculture on biodiversity are minimised. WWF‘s
project aims to identify and support land uses that protect the rural environment and provide environmental
services that may trigger payments from the European Union EU, from country agencies, and from

41
  From WWF Danube-Carpathian Program Office, Fostering Payment for Environmental Services (PES) in the Danube Basin,
available online at http://assets.panda.org/downloads/danube.pdf; WWF Danube-Carpathian Program Office, Why Payment for
Environmental Services and Why the Danube Basin, available online at http://assets.panda.org/downloads/2danube.pdf

                                                                                                                          35
businesses or consumers. Direct payments for biodiversity services, particularly in agricultural areas, have
become a growing focus of attention in the European Union and elsewhere. However, the effectiveness
and efficiency of these payments have often been questionable. The challenge is to establish a system in
which the appropriate amount and form of payment for environmental services will have the desired effect
in influencing the decisions of land owners.

Another initiative being carried out by WWF in the Danube Basin is the development of payments for
watershed hydrological services in Maramures and for the City of Baia Mare, both in Romania. In Baia
Mare, studies have been carried out on characteristics of the catchment area; land-use; the drinking water
supply system; potential sellers and buyers of the environmental services; placing a monetary value on the
ecosystem services delivered by the grasslands and forests; and scenarios for a functional payment
scheme. The next step is to implement an information campaign -- to convince possible buyers and the
necessary institutional arrangements and monitoring. In Maramures, WWF is working with a local mineral
water company to develop a system of payments for environmental services in which the company
supports preservation of a forested valley – the company‘s interest of course being protection of the spring
that is the source for their water.

Payment for ecosystem services to fisheries in the Banc d’Arguin National Park, Mauritania42
Fringing the Atlantic coast, the Banc d‘Arguin National Park occupies two-thirds of the northern half of the
Mauritanian coast; it comprises coastal swamps, small islands and shallow coastal waters. It lies in the
Sahelian upwelling marine ecosystem between the Canary Islands and Guinea-Bissau, which has the
highest priority for marine conservation in Africa. Its wealth of organic life creates the wide range of marine
and littoral environments which support the huge populations of fish, birds and marine mammals. Because
of its high productivity in a variety of marine biotopes, the Arguin Gulf is a major fish-spawning and nursery
ground for the whole West African coast.

The contribution of the Banc D‘Arguin National Park to the sustainability of the Mauritanian fishery is
recognised. Income generated through fishing was estimated at €250 million in 2005, of which €150 million
is directly linked to the existence of the National Park. In 2006, an agreement to make a financial
contribution to the Banc D‘Arguin National Park in recognition of these fisheries services was signed,
based around the EU-Mauritania commercial fishery agreement. Applicable for 2 years from 2007, and
renewable up to a maximum of 6 years, this transfers 1 million €/year to the Mauritanian government,
earmarked for the conservation of the Banc D‘Arguin National Park. The financing has been adopted by
parliament, and integrated into the Banc D‘Arguin National Park budget.

Protected Area business plans
Suggested elements of a PA business plan
The World Parks Congress 2003, held in Durban South Africa, contained a training session on business
                                                                43
planning for Protected Areas. Materials produced for this course lay out the suggested elements of a PA
business plan as follows:
 Executive Summary: Summarises the content of the business plan, provides a quick look at the results,
  highlights important findings, mentions opportunities for stakeholder involvement.
 Manager’s Foreword: Introduces the reader to the business plan, provides direction on how to use the
  document, offers insight to where the protected area is headed, highlights opportunities the protected
  area is hoping to explore with the business plan results.
 Protected Area Overview: Contains the PA mission statement and explains the purpose of the PA,
  describes enabling legislation, unique features of PA, PA inventory, natural and cultural resources,
  facilities and infrastructure.
 Management and Partnerships: Describes the management structure of the PA, its partners (co-
  management organisations, NGOs, community groups, other agencies) and their role in the success of
  the PA, identifies possibilities for new partnerships.


42
 Hegener, K., 2007, Payments for Ecosytem Services case study Mauritania: Regeneration of fish resources in Mauritanian sea
waters thanks to the Banc d‘ArguinNational Park (PNBA), paper presented at BfN training course on Finance Mechanisms for
Conservation, Isle of Vilm. Available online at http://www.bfn.de/fileadmin/MDB/documents/ina/vortraege/18_HEGENERPES.pdf
43
  For further details see training materials prepared for the 2003 World Parks Congress:
http://www.conservationfinance.org/Workshops_Conferences/WPC/WPC_documents/Course_busplanning_NPCA_trainingmodule2_
ppt.pdf, Course_busplanning_NPCA_trainingmodule3_ppt.pdf, Course_busplanning_NPCA_template_ppt.pdf

36
 Market Analysis: Describes customers/stakeholders, current and future value of the PA to the nation.
  Outlines the PA‘s competitive landscape (including identifying competitors/alternatives, national
  comparisons, regional comparisons, threats to non-protected areas), caries out a SWOT analysis
  (strengths, weaknesses, opportunities and threats).
 Functional Area Analysis: Splits the PA into 3-5 key functional areas, further split into 15-30
  programmes which define the activities of the PA. Activity-based cost accounting is used to determine
  the costs and resource allocations for each programme area.
 Historical and Current Analysis: Describes the goals, strategic priorities and objectives of the PA.
  Analyses successes and failures to date. Provides a mission critical analysis and optimal state analysis.
 Financials: Defines investment priorities and projections (What are total investment needs? What are
  top investment priorities? What are the estimated future investment costs? What are priorities for all
  investment funding sources). Reviews funding and expenditures (historical, expected, required for each
  state). Carries out a gap analysis and scenario analysis. Identifies strategies to increase funding, to
  decrease costs, and for investments.
 Marketing Plan: Asks various questions such as: How well known is PA? Why PA is important,
  Outcomes of PA operations, Partnerships and Alliances.
 Impact Analysis: A discussion of the outcomes of the activities of the PA. Discusses how society gains
  from the fulfilment of the PA‘s mission, Identifies the role of the PA in attracting and serving visitors in
  the region, estimates the economic impacts of park visitor spending on the nation and local levels.
 Implementation Timeline: Defines operational strategies (prioritization of operational changes, timeline
  to implement changes), financial strategies (directly tied to funding operational/investment needs), and
  presents a timeline for effective implementation.

Business planning for Masoala National Park, Madagascar44
Created in 1997, Masoala National Park is the largest protected area in Madagascar, a country that ranks
as one of the world‘s top five ―hotspots‖ for biodiversity. Masoala NP comprises seven different units,
including three marine parks. The park is rich in rare and threatened species including a variety of palms, a
recently discovered variety of ancient flowering plant, ten lemur species and marine turtles.

Since April 2000, the National Park Service (ANGAP) has been involved in a co-management agreement
at Masoala with the Wildlife Conservation Society, which has provided both financial and technical support
to park staff for the development of a business plan.

Developing a business plan for Masoala National Park was not easy. To begin with, it was difficult to
establish a coherent budget history due to high rates of inflation and frequent changes in exchange rates,
as well as management changes over time. The adoption of activity-based cost accounting was also a
novel concept in Madagascar, where PA staff were more accustomed to plan activities based on the
available resources. The business plan determined that US$555,000 in annual funding would be required
to operate the park to the standard set by park management. With operating expenditures of only
US$263,000 in 2002, however, there was a large funding gap. In terms of personnel needs, the business
plan identified 90 full-time equivalent (FTE) posts needed to operate Masoala at the agreed standard. In
2002, however, the park employed 72 FTEs, implying a shortage of 18 FTEs. However, the plan also
concluded that most of the additional funding was needed to implement systems to protect biodiversity
rather than to employ more staff.

The business planning process for Masoala can be seen as a success on several counts: At the level of
the park itself, the business plan is useful for fund raising and as a general communication tool, and has
helped to identify high standards of operation for planning. More generally, it has stimulated improvements
in overall planning approaches at both the park and national levels. Partly as a result of the experience in
Masoala, ANGAP has announced its intention to develop business plans for all principal protected areas in
Madagascar, as well as a system-wide business plan to guide its operations.




44
  For further details see Masoala National Park Business Plan, available online at
http://www.conservationfinance.org/Workshops_Conferences/WPC/WPC_documents/Tools_BusinessPlan_MasoalaNP.pdf

                                                                                                              37
ANNEX 3: SUGGESTIONS FOR MONITORING THE IMPACT OF
SUSTAINABLE FINANCING AND LIVELIHOOD MECHANISMS
The project logical framework matrix lays out the indicators, baseline, target and means of verification for
each objective and outcome, including those relating to sustainable finance and sustainable livelihoods.
This is reproduced below.

Further guidance is given in this section of the report on ways to elaborate and track these indicators and
means of verification. It also provides suggestions on how the project might monitor more broadly the links
between sustainable livelihood activities, sustainable finance, and biodiversity conservation in the Lower
Volga region.

It should be noted that the project objectives, outputs and existing targets are taken as given, and no
changes to them are proposed. In some cases, however, additional indicators or issues to address are
suggested.


Indicators and means of verification to track project progress
Sustainable livelihoods
The project log frame states the following targets and indicators:
 Four hundred small and medium family businesses oriented toward alternative economic activities
 Thirty percent of households employed in alternative economic activities in communities within
  protected areas and their vicinities
 Ten examples demonstrated by the project of alternative livelihood options in CWAs
 Net income of enterprises & private land owners engaged in project-supported alternative livelihood
  activities positive (making a profit)
 Progress is to be verified and measured through household surveys and official statistics data

These indicators and means of verification are fairly clear, straightforward and easy to track and measure.
Simple quantitative information can be collected on the baseline situation (number and nature of
businesses in the project area overall, employment in the project area overall, and enterprise profits for
participants in project activities), and any changes in them can be monitored on a regular basis. There
should be no great difficulties ascribing any changes which occur to project interventions, although it will
also be important to monitor the other factors which are leading to any changes in employment and
enterprise in the project area.

An important gap however remains in the indicators stated in the project log frame. There is no mention of
improved environmental sustainability and reduced negative environmental impacts as an indicator of
success, nor any suggestions about how to monitor this. It is strongly recommended that environmental
sustainability be incorporated into the baseline assessment of livelihood and employment in the project
area, and into project indicators and means of verification.

The information gathered to track environmental sustainability may to a large extent be qualitative rather
than quantitative. It may involve, for example, indicating in the baseline whether existing activities are
having or are likely to have negative environmental impacts; and then tracking changes in the incidence of
these activities, the ways in which they are carried out, and the reduced pressures or threats on linked
environmental indicators. It should be noted that, in any case, some kind of assessment of the
environmental threat of different livelihood and employment options will have to be made by the project in
order to select target households and target activities in the first place.

In terms of tracking the longer-term impact of livelihoods on biodiversity and ecosystem integrity, further
suggestions are given in the next section of this report.

Sustainable finance
The project log frame states the following targets and indicators:



                                                                                                          1
 Increase in non-budgetary revenues generated by PAs in relation to government budget contributions
  for nature conservation activities to 40% of PA operational costs
 Budget contributions to PAs for nature conservation activities by government authorities increase 50%
  over baseline
 Progress is to be verified through budget analysis of PAs

As is the case with sustainable livelihoods, these indicators and means of verification are fairly clear,
straightforward and easy to track and measure. Simple quantitative information can be collected on the
baseline situation (amount and composition of PA budgets), and any changes in them can be monitored on
a regular basis. There should be no great difficulties ascribing any changes which occur to project
interventions, although it will also be important to monitor the other factors which are influencing PA budget
allocations over the project period.

Two important gaps however remains in the indicators stated in the project log frame. One concerns the
overall financial sustainability of PAs, and the other concerns improved and more effective biodiversity
conservation. Both need to be monitored by the project.

It is strongly recommended that a more comprehensive (and management-related) tool for tracking PA
financial sustainability and conservation impacts is developed as part of the management planning process
(so as to ensure that financial management and monitoring forms a long-term component of PA
management planning and conservation outcome monitoring). These indicators and targets would rely
heavily on self-monitoring by PA staff, in relation to the financial and management constraints, goals and
targets that they themselves have set as part of the management planning process. It should also be noted
that this kind of integrated financial monitoring is anyway a key part of best practice in PA financial
planning and business planning (see the section above on Protected Area business plans).

As mentioned earlier in this document (see section on Sustainable PA finance), there are a number of
components of PA financial sustainability, and various financial constraints in PA management to be
overcome by the project. These include more adequate budgets, a more diversified revenue base,
improved forward security, more effective financial planning and budgeting arrangements, and a broader
definition of PA costs and funding needs.

It is recommended that a series of simple indicators and targets are incorporated into the financial sections
of PA management plans by PA staff themselves, and tracked on an annual basis, for example:
 Extent to which annual budgets were successful in predicting the real amount of funding required for the
  year in relation to the management activities needed for effective biodiversity conservation (adequacy
  and effectiveness)
 Increase in the number and range of funding sources the PA is getting financial resources from, as well
  as their overall amount in relation to government budget contributions (diversity)
 Improvements in the time period (length of time) over which each source of finance is guaranteed for
  (security)
 Improvements in the balance of budget allocation between capital and recurrent costs, and between
  direct operational management activities and those concerned with community outreach and benefits
  (scope)

In terms of tracking the longer-term impact of PA financing on management and biodiversity conservation
effectiveness, further suggestions are given in the next section of this report.

Monitoring the links between sustainable livelihoods, finance, and biodiversity
conservation
The sustainable financing and sustainable livelihood activities being carried out by the project are informed
by two key assumptions as regards their impacts on biodiversity conservation:
 That improvements in household or individual livelihoods will encourage people to better conserve
  biodiversity, and improve their attitudes and perceptions about the importance of conservation.
 That improved financial planning and increased funding for PAs will result in better and more effective
  biodiversity conservation.


2
Although the these assumptions may seem self-evident, this is not necessarily the case. As pointed out in
this document (and highlighted in the broader literature on financial and economic aspects of biodiversity
conservation), improved funding does not necessarily translate into improved PA management
effectiveness; and improvements in people‘s livelihoods do not necessarily encourage them to conserve
biodiversity. Both may be necessary conditions for biodiversity conservation, but they may not alone be
sufficient.

Possibly one of the most challenging (and yet one of the most important) tasks for the project will therefore
be to monitor the links between and impact of changed financial, economic and livelihood circumstances
for PAs and residents of the Lower Volga region on the one hand, and improved biodiversity conservation
on the other hand. This is of necessity a long-term process, as many of the intended biodiversity
conservation outcomes and impacts will only be felt after the project‘s end.

Monitoring economic and financial impacts on biodiversity is difficult, as they involve complex interactions
between socio-economic and ecological factors. Some brief suggestions are given below which may be
further developed by the project:
 It is first necessary to think through the assumptions that the project is making about the links between
  financial, economic and livelihood factors and improved biodiversity conservation. In other words –
  which activities and outcomes is the project aiming to achieve in terms of PA finance and livelihoods,
  and why is it thought that these particular activities and outcomes will influence the status of biodiversity
  in the Lower Volga?
 Thought should then be given as to what are the financial constraints to effective PA management and
  biodiversity conservation area. Some preliminary suggestions have been provided in this document, but
  it is recommended that a more detailed analysis be made in consultation with PA staff in the project
  area.
 Analysis should also be made about how people‘s livelihood and economic status influences their
  perceptions, attitudes and practices as regards biodiversity conservation, and what are the socio-
  economic changes which will persuade them to conserve biodiversity better. Methods and techniques
  for conducting knowledge-attitudes-practice studies are relatively well-developed in the conservation
  world, and could be adapted by the project for the Lower Volga region.
 Information on both the financial constraints to PA management effectiveness and the links between
  livelihood/economic status and conservation perceptions, attitudes and practices should highlight the
  types of indicators that should tracked over the project‘s lifetime, in relation to the project‘s biodiversity
  conservation goals. The fundamental questions to be understood and addressed, via the project‘s
  monitoring framework are: are livelihood improvements in the project area leading to better biodiversity
  conservation by the residents of the Lower Volga region; and is improved financial sustainability
  causing PA managers to manage PAs more effectively, and better conserve biodiversity?




                                                                                                              3
Project indicators, baselines, targets and means of verification as specified in the project Logical Framework Matrix
Project Objective & Outcomes                Indicator                                           Baseline level         Target level                     Means of verification
                                            Small and medium family businesses oriented
                                                                                                20                     400
                                            toward alternative economic activities.
              Outcome 4:                    Employment in alternative economic activities for
              Opportunities for the         communities within protected areas and their        3.5%                   30%
              development of                vicinities.
Sustainable
              sustainable alternative
livelihoods                                 Project demonstrated examples of alternative
              livelihoods are facilitated                                                       0                      10
              within CWAs and their         livelihood options in CWAs
              vicinities                    Net income of enterprises & private land owners
                                            engaged in project-supported alternative            0 (no support)         Positive (making profit)
                                            livelihood activities

              Outcome 3:                                                                        AZ: 40%
                                            Non-budgetary revenues generated by PAs, in                                AZ: 60%
              The Lower Volga System                                                            IBR: 0%
                                            relation to government budget contributions for                            IBR: 30%
              of Protected Areas is                                                             NPVAF/VO: 30%
                                            nature conservation activities                                             NPVAF/VO: 45%
              strengthened                                                                      NPRK: 0%
Sustainable                                                                                                                                             Budget analysis of
finance       Outcome 5:                                                                                               Increase 50% over baseline:      PAs
              Increased awareness of                                                            AZ: US$360,000
                                                                                                                       AZ: US$540,000
              and support for               Budget contributions to PAs for nature              IBR: US$35,000
                                                                                                                       IBR: US$52,500
              biodiversity conservation     conservation activities by government authorities   NPVAF/VO: US$230,000
              and sustainable                                                                                          NPVAF/VO US$345,000
                                                                                                NPVAF/RK: US$24,000
              development in LV                                                                                        NPVAF/RK: US$36,000
Indicators, baseline and targets from Project Implementation Report 2007; updated Project Document.
AZ - Astrahanksiy Zapovednik; IBR - Ilmenno – Bugrovoi Reserve (Astrakhan Oblast); NPVAF/VO - Natural Park Volga- Akhtuba floodplain (Volgograd oblast); NPVAF/RK - Natural
Park Volga- Akhtuba floodplain (Republic of Kalmykia); NPRK - Nature Park of the Republic of Kalmykia




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