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Annual Report of theGlobal Environment Facility

1996

January 1997Published by the Global Environment Facility1818 H Street, NWWashington, DC 20433USA

This publication may be reproduced in whole or in part and in any form for educationalor nonprofit purposes, without special permission from the publisher, providedacknowledgment of the source is made. The Secretariat of the Global EnvironmentFacility would appreciate receiving a copy of any publication that uses this publicationas a source. Copies may be sent to the GEF Secretariat, G6005, 1818 H Street, NWWashington, DC 20433.

The designations of geographical entities in this book, and the presentation of materials,do not imply the expression of any opinion whatsoever on the part of the GEFconcerning the legal status of any country, territory, or area, or of its authorities, orconcerning the delimitation of its frontiers or boundaries.

Contents

Introduction v

Chapter One: Overview 1

Chapter Two: Biological Diversity 11

Chapter Three: Climate Change 23

Chapter Four: International Waters 39

Chapter Five: Ozone Layer Depletion 43

Chapter Six: Cross-Cutting Activities Including Land Degradation 47

Chapter Seven: Financial Resources 49

Annexes 55

Annex A: Intergovernmental Meetings in which the GEF Participated During FY96Annex B: Project Ideas Submitted to the Implementing AgenciesAnnex C: GEF Council Members, Alternates, and ConstituenciesAnnex D: Financial StatementsAnnex E: Contributions to GEF as of September 30,1996

FILE COPYr

INTRODUCTION

Nearly five years ago, the UNCED Conference in Brazil produced Agenda 21 andidentified sustainable development as the path toward a more secure, environmentallysound future for the planet. The Global Environment Facility (GEF) was recognizedduring the Earth Summit as a means toward that end because it promotesinternational cooperation and facilitates action for integrating global environmentalconcerns into sustainable development. In four focal areas -- climate change,biological diversity, international waters, and ozone layer depletion - GEF funds aredirected toward measures that enhance and protect the global environment. Activitiesconcerning land degradation, primarily those addressing desertification anddeforestation, as they relate to the four focal areas, are also eligible for GEF funding.The grants and concessional funds disbursed complement traditional developmentassistance in that they cover the difference (or agreed increment) of added costsincurred by a project undertaken with global environmental objectives in mind, overthe costs of a project that a country would implement in the absence of globalobjectives.

More than 155 countries currently participate in the GEF, which was restructuredfrom a pilot phase in March 1994, when some 73 governments negotiated to replenishits core fund. Thirty-four nations, including 13 of the recipient countries, then pledgedUS$ 2 billion. The GEF is implemented by the United Nations Development Program(UNDP), the United Nations Environment Program (UNEP), and the World Bank. AllGEF programs and activities implemented by these agencies are country-driven andbased on national priorities.

In addition to providing grants and concessional funds, the GEF helps catalyzeand garner additional funding for work in the focal areas. During fiscal year 1996, forexample, the GEF Council approved US$ 215.2 million for activities concerning climatechange. When combined with earlier GEF resources, the current total allocation forclimate change is US$ 462.43 million; this financing has been used to leverage anadditional US$ 2.6 billion from bilateral multilateral, and other sources.

The strategic framework for GEF operations, the GEF Operational Strategy, wasadopted by the GEF Council in 1995. The strategy incorporates guidance from theConvention on Biological Diversity (CBD) as well as the United Nations FrameworkConvention on Climate Change (FCCC), where the GEF serves as the interim financialmechanism. The strategy guides the GEF Secretariat and implementing agencies indesigning and implementing the work programs, business plans and budgets. It alsoguides the GEF Council in approving these activities.

This annual report examines the activities of the GEF from July 1, 1995 through June30, 1996. It addresses the work and progress of the restructured facility and reviews:

* Key developments, including major decisions by the GEF Council* Projects and programs in each focal area* Activities that cut across focal areas* Financial resources

Chapter One

The GEF Council

1.1 The council met three times during fiscal year 1996 (FY96): July 18-20, 1995; October 25-27,1995; and April 2-4, 1996. At each meeting, the council has elected from among its membersa chairperson to serve with the CEO/chairman at that meeting. The elected chairs wereMr. Carlos Sersale di Cerisano, Mr. Eric Fiil, and Mr. Tuiloma Neroni Slade. All decisionsof the council were adopted by consensus.

Decisions of the Council

1.2 During FY96 the council approved:

* The GEF Operational Strategy* Two work programs, adding US$ 321 million in GEF funding* Expedited procedures and an initial allocation of US$ 30 million to supportenabling activities in biodiversity and climate change* A draft Memorandum of Understanding between the COPs to the UN FCCCand the council of the GEF together with a draft annex on determination offunding necessary and available for implementation of the convention* Terms of reference for the Scientific and Technical Advisory Panel (STAP). Inreviewing the terms of reference, the council requested that STAP interact in acollaborative and cooperative manner with the scientific and technical bodies ofthe conventions. The council noted that STAP's work should be complementaryto, and not duplicative of, to the work of the convention bodies* The GEF policy on public involvement in GEF-financed projects* US$ 25.9 million for the Small Grants Programme* Establishment of an operational monitoring and evaluation system thatincludes scientific and technical monitoring and evaluation, and evaluation ofstrategic and cross-cutting issues* Funding for a senior monitoring and evaluation officer* A new budgeting system

The Operational Strategy

1.3 During FY95, the Secretariat coordinated a series of regional consultations with thinkersand practitioners in environment and development fields to provide input on issues such aslinks between projects and national sustainable development plans; participation of non-governmental organizations and communities in the project cycle; and strategic relationsbetween the GEF and other processes, especially the conventions. Consultations were heldNovember, 1994 in Geneva, Switzerland; January 1995 in Washington, DC, US; February 1995in Harare, Zimbabwe; March 1995 in Rio de Janeiro, Brazil; and April in Bangkok, Thailand.

Project Preparation and Development Facility

1.17 At its November 1994 meeting, the council agreed to establish the Project Preparationand Development Facility (PDF), with an initial allocation of US$ 15 million. The purpose ofthe PDF is to provide funding, when necessary, for project development from the initialconcept stage through final design. The council decided that the US$ 25,000 ceiling of Block Agrants can be exceeded up to a maximum of US$ 50,000, with CEO approval.

1.18 The council reviewed a note prepared by the Secretariat for the April 1996 meeting. Asof April 30, 1996, a total of US$ 11,310,000 was committed for PDFs. The council emphasizedthat the secretariat and the implementing agencies should seek co-financing for PDF grants,consistent with the principle of incremental costs and mainstreaming of GEF activities. Thecouncil also urged the implementing agencies to facilitate access to PDF grants through a rangeof potential executing agencies, including NGOs and academic institutions. The focus forapplication of PDF resources should be on project development. The council approved anadditional allocation of US$ 5 million for the PDF.

Table 1.2 GEF Existing PDFs as of June 1996 (US$millions)

Biodiversity Cl. Change Int. Water Ozone Total

# ($m) # ($m) # ($m) # ($m) # ($m)

GEF FY 95 7 1.8 2 0.84 2 0.687 0 0 11 3.80

GEF FY 96 35 5.23 24 3.8 7 1.9 2 0.38 68 11.31

Total 42 7.03 26 4.64 9 2.6 2 0.38 79 15.11

Project Activities and Outcomes

1.19 The Instrument assigns to the implementing agencies responsibility for the furtherpreparation of projects presented in the work programs and for their final approval, inaccordance with internal implementing agency procedures. During FY96, UNDP prepared 29technical assistance project proposals totaling US$69 million. The World Bank prepared 14investment projects totaling US$250.4 million. The three implementing agencies jointlyprepared a multifocal project to enable country-driven project development.

6

Project-related Issues

Project Cycle

1.20 At its May 1995 meeting, the council approved the GEF Project Cycle (document GEF/C.4/ 7). The approved project cycle document took into account the policies of theimplementing agencies concerning information disclosure to consultation with, andparticipation of, as appropriate, nongovernmental organizations and local communities in thepreparation and implementation of projects.

1.21 In approving the project cycle, the council asked the secretariat to explore theformulation of a project framework approach as a means of further streamlining the projectcycle. It also asked the secretariat to inform recipient governments of the GEF project cycle andto invite them to identify national operational focal points. The council further asked thesecretariat, in consultation with the implementing agencies, to use the GEF Project Cycle as abasis for preparing and distributing widely an information kit to inform interested parties onGEF procedures and how to present project concepts and proposals for GEF financing.

1.22 In response to the council's request to further streamline the project cycle,and in response to the requests by the COPs to the conventions to expedite GEF projectpreparation and approval process, the council agreed on the following measures during FY 96:

* Approval of work programs by mail, in addition to the current procedure of regularapproval conducted at GEF council meetings twice a year;* Request that the secretariat prepare a proposal for creation of medium-sized projects (lessthan US$ 1 million). An expedited procedure for medium-sized projects is under preparationby the secretariat;* Expedited approval process of enabling activities, recognizing the urgency for implementingthese activities; and* Instruction from the council to STAP, that selective project reviews bySTAP should not delay the project approval process.

Public Involvement

1.23 At its meeting in April 1996, the council reviewed Public Involvement in GEF Operations, anote prepared by the GEF secretariat, and approved the principles as a basis for GEF policy onpublic involvement in the design, implementation, and evaluation of GEF-financed projects.They are:

* Effective public involvement should enhance the social, environmental, and financialsustainability of projects;

* Responsibility for assuring public involvement rests within the country normally with thegovernment, project executing agency or agencies, with the support of the implementingagencies;

* Public involvement activities should be designed and implemented in a flexible manner,adapting and responding to recipient countries' national and local conditions and to projectrequirements;

7

Chapter Two

Biological Diversity

2.1 The second meeting of the COP to the Convention on Biological Diversity (CBD) tookplace in Jakarta, November 6-17,1995. The CEO of the GEF addressed the opening plenarymeeting. The COP, in its decision II/6 on "Financial Resources and Mechanism," providedguidance for the GEF, which operates as the financial mechanism of the convention an interimbasis.' The COP decided "that the restructured Global Environment Facility (GEF) shallcontinue to serve as the institutional structure to operate the financial mechanism under theConvention on an interim basis, in accordance with Article 39 of the Convention, until adecision will be taken on which institutional structure is to be designated in accordance withArticle 21 of the Convention. The Conference of the Parties shall endeavor to make such adecision at its third meeting."

2.2 As stated above, the GEF Council met three times during the reporting period approvedthe following items which are of direct relevance to GEF biodiversitv activities:* The GEF Operational Strategy;* Two biodiversity work programs;* Expedited procedures and an initial allocation of US$30 million to support enabling activities;* The GEF policy on public involvement in GEF-financed projects; and* A request to the secretariat to prepare for council consideration a proposal on ways to stream-

line the processing and financing of medium-sized projects.

Operational Strategy

2.3 The operational strategy, which fully incorporates the guidance of the COP, wasdeveloped to guide the GEF in the preparation of country-driven initiatives in its four focalareas, including biological diversity. Specifically, the operational strategy chapter concerningbiological diversity activities recognizes that:

The GEF's objectives in biological diversity derive from the objectives ofthe Convention on Biological Diversity: "the conservation of biological diversity, thesustainable use of its components and the fair and equitable sharing of the benefits arising outof the appropriate access to genetic resources and by appropriate transfer of relevanttechnologies, taking into account all rights over those resources and to technologies, and byappropriate funding." 2

l Decision II/6, "Financial Resources and Mechanism." A Call to Action, Decisions and Ministerial Statement from

the Second Meeting of the Conference of the Parties to the Convention on Biological Diversity, Jakarta, Indonesia, 6-

17 November 1995

2 Convention on Biological Diversity, Article 1.

11

2.4 The strategy provides that long-term measures are to be developed withinthe context of an operational program. An operational program is a conceptualand planning framework for the design, implementation, and coordination of aset of projects to achieve a global environmental objective. It organizes thedevelopment of country-driven projects and ensures coordination between theimplementing agencies and other actors.

2.5 In the area of biodiversitv, four initial operational programs have beenidentified:

* Arid and semi-arid ecosystems* Coastal, marine, and freshwater ecosystems (including wetlands)* Forest ecosystems; and* Mountain ecosystems

Enabling Activities

2.6 The operational strategy defines enabling activities in biodiversity as:"[Activities] that prepare the foundation to design and implement effective response measuresto achieve Convention objectives. They will assist recipient countries to develop nationalstrategies, plans or programs referred to in Article 6 of the Convention on Biological Diversity,and to identify components of biodiversity together with processes and activities likely to havesignificant adverse impacts on conservation and sustainable use of biodiversitv pursuant toArticle 7 of the Convention. They will normally involve the' review and assessment ofinformation and will assist a recipient country to gain a better understanding of the nature andscope of its biodiversity assets and issues as well as a clearer sense of the options for thesustainable management and conservation of biodiversity. Enabling activities includesupporting country-driven activities for taking stock of or inventorying biodiversity based onnational programs and relying on studies, without new primary research; identifying optionsand establishing priorities to conserve and sustainably use biodiversity; preparing anddeveloping biodiversitv planning exercises, such as national strategies, action plans andsectoral plans; and dissemination of information through national communications to theConvention on Biological Diversity." 3

2.7 Both decision II/ 6: Financial Resources and Mechanism and Decision II/ 7:Consideration of Article 6 and 8 of the Convention, adopted by the second meeting of the COP,asked the GEF to facilitate urgent implementation of Article 6.

3 GEF Operationa IStrategy, pagel2

12

2.8 In order to facilitate and expedite preparation and implementation of enabling projects,

the GEF has:* Prepared operational criteria for enabling activities in the area of biological diversity.

These criteria will facilitate project preparation and adoption. The criteria have been

developed in consultation with the GEF implementing agencies and the convention

secretariat.oApproved an expedited process for approving i enabling activity project !proposals

consistent with the operational criteria. The approval of this process recognizes the urgency

of implementing these activities, which, in light of their preparatory nature, enable countries

to move forward in implementing the convention;* Approved an initial allocation of US$30 million for enabling activities; a large portion of

this expedites a broad effort of enabling activities in support of the biodiversity and climate

change conventions;* Begun informing eligible countries of the availability of financial resources to assist the

implementation of enabling activities.

2.9 During FY96, fifteen project proposals for enabling activities, with GEF financing of US

$3,380,846 million, have been approved. With these projects, the GEF has provided enabling

assistance through country studies, national plans and other enabling activities components.

The countries assisted include: Argentina, Bahamas, Bhutan, Cameroon, Egypt, Equatorial

Guinea, Gambia, Georgia, Kazakhastan, Lithuania, Malawi, Mozambique, Ukraine, Yemen and

Zaire.

2.10 In addition, during the reporting period, nine proposals for project preparation

financing were approved to prepare projects that will provide enabling activities in 12

countries. They include: Angola, Argentina, Benin, Bolivia, Botswana, Central African

Republic, Comoros, Cote d'lvoire, Ghana, Guyana, Namibia, Pakistan, Peru, Romania, Uganda

and Zaire.

Project Preparation and Development Facility (PDF)

2.11 PDF Block A grants provide GEF financing for preparing project proposals. Block B and

C grants are used to prepare projects. Forty-eight percent of PDF resources approved to date

have been for the preparation of biodiversity projects. During the reporting period, 35 PDF

proposals were approved in the area of biodiversity, and US$ 5.23 million in project

preparation funds were committed.

2.12 At the meeting in April 1996, the implementing agencies informed the GEF Council that

a number of biodiversity projects are in an advanced stage of preparation. It is estimated the

PDF financing approved during FY96 will result in approximately US $120 million in GEF-

supported biodiversity projects (a ratio of about 1 to 30).

13

Biodiversity Projects

2.13 The council approved all biodiversity project proposals (21) presented in the two workprograms submitted during the reporting period. In preparing proposals for inclusion in theproposed work programs, the implementing agencies fully considered the guidance providedby the COP at its two meetings. The views of the CBD Secretariat were solicited on eachbiodiversity project proposal (when the project proposals were reviewed at the meetings ofGEF Operational Committee, prior to submission to the GEF CEO for inclusion in the proposedwork program).

2.14 US $23 million was committed for the 21 biodiversity project proposals approvedduring the fiscal year, and total project financing was US$ 40.10 million. Fifteen of theproposals were for enabling activities.

2.15 The GEF Council considered the specific needs of biodiversity projects as it approvedthe Small Grants Programmnme in October 1995, for an amount of US$24 million. The principalobjective of the programme is to reach out to local and indigenous communities in order tomobilize support at the community level for conservation and sustainable use of biodiversity.Approximately 70 percent of the GEF small grants approved to date have been allocated in areaof biodiversity. Countries participating in the program include, in Africa, Botswana, BurkinaFaso, Cameroon, Cote d'Ivoire, Ghana, Kenya, Mali, Mauritius, Senegal, and Zimbabwe; in theArab States, Egypt, Jordan, and Tunisia; in Asia and the Pacific, India, Indonesia, Nepal,Pakistan, Papua New Guinea, Philippines, Sri Lanka, and Thailand; in Europe, Poland andTurkey; and in Latin America, Barbados, Belize, Brazil, Bolivia, Chile, Costa Rica, theDominican Republic, Ecuador, Mexico, and Trinidad and Tobago.

2.16 It should also be emphasized that many activities in the GEF focal area of internationalwaters include significant biodiversity components. The following international waters projectproposals and proposals for project preparation, approved during the reporting period,contribute directly to the conservation and sustainable use of fresh, marine, and coastalbiodiversity elements. Total GEF financing for these activities is US$ 39.45 million.

14

Table 2.1: PDFs in the area of International Waters Including SignificantBiodiversity Components

Lake Ohrid(Albania/ Macedonia) $ 285,000

Bermejo River(Argentina/ Bolivia) $ 280,000

Okavango Delta (Angola,Botswana, Namibia $ 350,000

Black Sea (Bulgaria,Georgia,Romania, Russia,Turkey, Ukraine) $ 49,000

Danube River Basin(Bulgaria, Croatia,Hungary, Moldova, Romania,Slovenia, Czech, Ukraine) $ 290,000

Tuemen River $ 240,000

Total Financing $1,494,000

Table 2. 2 Approved during FY 96: International Waters Projects withSignificant Biodiversity Components

Title GEF Financing Total Financing

Lake Victoria (Kenya, Tanzania, Uganda) $ 35 000 000 $ 77 800 000

Gulf of Aqaba (Jordan) $ 2 700 000 $ 12 670 000

Implementation of Convention Guidance

2.17 In response to the request of the COP, this section summarizes how thefinancial mechanism has responded to the guidance to the Convention.

2.18 The policy, strategy, program priorities and eligibility criteria for access to financialresources adopted by the first meeting of the COP4 were fully considered during preparation ofthe GEF Operational Strategy, and are being further incorporated into the biodiversity

15

Country Project Project GEF IA Executing Associated Entry Approval Duration Total GEF Cofinancin Project StatusName Number Agency Participation into Date Costs Allocation g

WPArgentina National ARG/96/G UNDP Secretariat of 4/1/96 9/25/96 10 months .349 .349 -- The project

Biodiversity 31 Natural Resources document hasStrategy, and the been signed by

Action Plan Environment with the governmentand Report Technical and is initiatingto the CBD imnplementation.

Bhutan National BHU/96/G UNDP Ministry of 6/1/96 5 months .12 .12 -- ProjectBiodiversity 32 Agriculture, document under

Conser- Royal implementationvation Government of

Strategy and BhutanNational

Action PlanComoros Comoros - COI/95/G UNDP UNOPS 10/1/95 5 years 3.28 2.44 .60 Participatory

Biodiversity 31 process forConser- project designvation to be completed

8/96.Equitorial National EQG/96/G UNDP National 4/1/96 14 months .30 .30 -- Project

Guinea Biodiversity 31 Directorate, document beingStrategy and Ministry of finalized.Action Plan, Health andand Country Environment

Report tothe COP

Kazakhstan Country KAZ/96/G UNDP Ministry of To be determined 5/1/96 5/1/96 1 year 0.13 0.12 0.01 The projectStrategy on 31 Ecology and document isBiodiversity Biological being prepared

for Resources for GovermentKazakhstan signature in

May 1996.

Country Project Project GEF IA Executing Associated Entry Approval Duration Total GEF Cofinancin Project StatusName Number Agency Participation into Date Costs Allocation g

WPVietnam Creating VIE/95/G3 UNDP UNOPS National Wildlife 10/1/95 5 years 6.70 6.04 0.66

Protected I Federation,Areas for PrimateResource ConservationConser- International, Thevation Wildlife

(PARC) in ConservationVietnam Society,Using a Population

Landscape DevelopmentEcology International

ApproachYemen Biodiversity YEM/96/ UNDP Government of 6/1/96 1 year 0.29 0.29

Strategy and G3 I the Republic ofAction Plan Yemenand Reportto the CBD

Zaire National ZA1/96/G3 UNDP Comite 6/1/96 15 months 0.33 0.33Biodiversity I InterministerielStrategy and de CoordinationAction Planand Country

Report tothe CBD

Chapter ThreeClimate Change

Relevant Developments in the Framework Convention on Climate Change

3.1 The first meeting of the COP of the UN Framework Convention on Climate Change(FCCC) was held in Berlin, Germany, March 28 to April 7, 1995. The decisions made by theCOP, relevant to the GEF, included initial guidance on policies, program priorities, andeligibility criteria with respect to the operating entity of the financial mechanism, and decisionsconcerning the operation of the financial mechanism, the development of the GEF's operationalstrategy, and modalities for the functioning of operational linkages between the COP and theoperating entity of the financial mechanism.' The Subsidiary Body for Implementation (SBI)held two meetings in August 1995 and March 1996.

3.2 During FY96, the GEF Council made several decisions of direct relevance to GEFclimate change activities:

* Approval of the GEF Operational Strategy* Approval of two work programs* Approval of expedited procedures and an initial allocationof US$30 million to support enabling activities

Operational Strategy

3.3 The GEF Operational Strategy, which incorporates the guidance of the COP, wasdeveloped to guide the GEF in the preparation of country-driven initiatives in its four areas,including climate change. Specifically, the chapter concerning climate change activitiesrecognizes that "...all GEF-funded activities in climate change will be in full conformity with theguidelines provided by the Conference of the Parties to the FCCC."

3.4 In accordance with the COP's guidance, the operational strategy provides for threecategories of activities: operational programs encompassing long-term measures; enablingactivities; and short-term response measures. Land degradation, primarily desertification anddeforestation, as it relates to climate change issues has also been addressed in the strategy forclimate change activities.

3.5 The strategy provides that long-term measures are to be developed within the context ofan operational program. In the area of climate change, three initial operational programs havebeen identified: (i) removing barriers to energy conservation and energy efficiency; (ii)promoting the adoption of renewable energy by removing barriers and reducingimplementation costs; and (iii) reducing the long-term costs of low greenhouse gas-emittingenergy technologies.

l Decisions 9/CP. 1, I O/CP. 1, and I I /CP. I "Maintenance of the interim arrangements referred to in Article 2 1,paragraph 3, of the Convention; Arrangements between the Conference of the Parties and the operating entity orentities of the financial mechanism; and Initial guidance on policies, program priorities, and eligibility criteria to theoperating entity or entities of the financial mechanism." Report of the First Meeting of the Conference of the Partiesto the Framework Convention on Climate Change, FCCC/CP/ I 995/7/Add. 1, June 6,1995.

3.26 As requested by the GEF Council, the GEF is proactively informing eligible countriesof the availability of financial support for preparing national communications.

Activities aimed at strengthening research and technological capabilities for the implementation of theConvention through international and intergovernmental efforts

3.27 Some of the enabling activities projects support research and technological capabilities,such as those for Brazil and Mexico. Some of the global projects, such as the Country CaseStudies on Impacts and Adaptation; Economics of GHG Limitation; and Alternatives to Slashand Burn, have strong research components.

3.28 Future targeted research activities must be developed within the context of the long-term operational programs identified in the operational strategy.

Improving public awareness and education on climate change andresponse measures

3.29 The operational criteria for enabling activities provide for activities, as well asfunding, for building public awareness.

Formulation of comprehensive, nationally determined programmes toaddress climate change

3.30 As part of the preparation of enabling activities for national communication, a nationalplan for fulfilling commitments under the convention is also prepared.

Be available to support national programmes

3.31 As noted above, the GEF funds projects which are country-driven, based on nationalpriorities, and are designed to support sustainable development, as identified within thecontext of national programs.

Support of agreed activities to mitigate climate change

3.32 Significant amounts of funding during FY96 in the climate change focal area weredirected to agreed activities that mitigate climate change either by addressing anthropogenicemissions by sources or through removals by sinks of all greenhouse gases not controlled bythe Montreal Protocol. By emphasizing long-term mitigation measures, the initial reduction ofgreenhouse gas emission will be less than those resulting from a strategy exclusively focusedon short-term measures. However, the cumulative long-term impact is expected to be muchgreater because the projects will drive down costs, build capacity, and start to put in placetechnologies that can ultimately avoid (rather than merely reduce) greenhouse gas emissions.

28

Eligibility Criteria

Eligibility of countries

3.33 GEF grants made available within the framework of the financial mechanism of theconvention conform with the eligibility criteria set forth by the COP. The criteria provide thatonly developing country parties are eligible to receive funding from the GEF under thefinancial mechanism.

Eligibility of Activities

3.34 The guidance of the COP concerning eligibility of activities is strictly followed. Evenwhen the GEF provides assistance to countries outside the convention's financial mechanism, itensures that the activities are fully consistent with the guidance provided by the COP.

Adaptation

GEF will meet the agreed full costs of stage I adaptation activities

3.35 The operational criteria for developing enabling activities projects allow forvulnerability assessments in agriculture, forestry, coastal zones, water resources, health andnatural ecosystems as components of national communications. Additionally, the GEF hasfinanced, on an agreed full cost basis, several enabling activities projects that emphasize Stage Iadaptation activities. Examples include the Maldives project, the regional PICCAP andCARICOM projects, the Global CC:TRAIN Programme and UNEP's Country Case Studies onImpacts and Adaptation.

3.36 In addition, the GEF Operational Strategy further defines Stage I adaptation activitiesfor climate change efforts (page 39).

Agreed full incremental costs

The concept of agreed full incremental costs should be appliedflexibly, pragmatically, and on a case-by-case basis

3.37 While approving the approach on incremental costs, the GEF Council recognized theneed for a flexible application of the concept of incremental costs. The concept has beenapplied pragmatically, and on a case-by-case basis, in GEF operations.

Adopts a mixed strategy wherein projects will be selected if theymeet either one of long-term or short-term programme priorities

3.38 The GEF Operational Strategy provides that GEF operations will be programmed in threebroad, interrelated categories: long-term operational programs, enabling activities, and short-term response measures. These three categories follow the guidance of the COP. The strategyalso provides that in view of GEF's limited resources and the finite capacities of recipientcountries and implementing agencies to program activities at any given time, the GEF must

29

structure and sequence activities to best achieve global environmental objectives. Thesequencing of GEF tasks will be a dynamic process, shaped in part by the evolving nature ofguidance from the relevant conventions and the increased capacity for program development.

Project Development and Preparation Facility

3.39 The Project Development and Preparation Facility (PDF) provides GEF financing forpreparing project proposals. As indicated in paragraph 3.8, 24 PDF proposals for climatechange activities were approved during the reporting period; a total US$ 3.8 million wascommitted. Please see the list of approved PDF resources in the Quarterly Operational Report.

3.40 As provided in the convention's rules of procedure, the FCCC's secretariat wasrepresented at each GEF Council meeting by the executive secretary or his representative. Theyaddressed each meeting and responded to council members' questions. The FCCC Secretariatand representatives from the Subsidiary Body for Scientific and Technical Advice (SBSTA)attended relevant meetings of STAP, and the FCCC Secretariat participates in meetings of theGEF Operations Committee. The GEF Secretariat staff participated in the meetings of SBSTAand SBI in August 1995 and March 1996, and also addressed the first meeting of the COP.

30

Table 3.1 Climate Change Projects Included in the FY96 Work Program

Country Project Name Project GEF IA Executing Associated Entry Approval Duration Total GEF Cofinan- Project Status

Number Agency Participation into WP Date Costs Alloca- cingtion

Global Renewable World Special Fund Commercial 4/1/96 9/1/96 15 years 175.00 30.00 145.00 FeasibilityEnergy and Bank/ Management investors in Fund; studies

Energy IFC Company; IFC Private sector completed.Efficiency project sponsors/ Approved by

Fund cofmanciers GEF CouncilApril 1996.

IFCManagement

approvalexpected in late

1996.

Regional Pacific Island RAS/95/G UNDP South Pacific 10/1/95 2.44 2.44 0.00 ProjectClimate 31 Regional document beingChange Environment fmalised for

Assistance Program submission to

Project GEF CEO.(PICCAP)

Albania Enabling ALB/96/G UNDP Government of 6/1/96 2 years 0.28 0.28 -- ProposalAlbania to 31 Albania, approved onPrepare its Committee for 6/30/96 by GEF

First National Environmental CEO.Communi- Protectioncation inResponse

to itsCommitments

to theUNFCCC

Bhutan GHG BHU/96/G UNDP National To be determined 4/1/96 2/1/96 3 years 0.30 0.30 0.00 Project recently

Enabling 31 Environment approved byCommission, CEO. PIR

Royal scheduled 10/96Government of

Bhutan.

Country Project Name Project GEF IA Executing Associated Entry Approval Duration Total GEF Corinan- Project StatusNumnber Agency Participation into WP Date Costs Alloca- cing

tionBrazil Commitment BRA/95/G UNDP Government of 10/1/95 18 months 1.50 1.50 --

to UNFCCC 31 BrazilBrazil Biomass BRA/96/G UNDP Public/Private Co. 4/1/96 30 months 6.52 3.75 2.77

Power 31Generation

China Efficient 35693 World Ministry of Chinese small and 4/1/96 11/26/96 6 years 100.80 32.80 68.00 DetailedIndustrial Bank Machinery medium scale preparation/feas

Boilers Industry recipient ibility workenterprises well advanced

with PDF BlockC grant. Project

approved byGEF Council in

April 1996.Appraisal

mission wasfielded in July

1996.China Promoting CPR/96/G UNDP National Environ- To be determined 4/96 4 years 19.57 5.29 14.28 Project

Methane 31 ment Protection document underRecovery and Agency preparation

Utilizationfrom MixedMunicipal

WasteHungary Energy- World Hungarian Private Ministry for 4/1/96 9/1/96 5 years 25.00 5.00 20.00 Approved by

Efficiency Bank/IF Commercial Environment and GEF CouncilCo-Financing C Banks and Regional Policy; April 1996.

Fund Leasing Ministry of IFCCompanies Industry and Management

Trade; private & approvalpublic recipient expected

enterprises/institu Septembertions 1996.

Country Project Name Project GEF IA Executing Associated Entry Approval Duration Total GEF Cofinan- Project StatusNumber Agency Participation into WP Date Costs Alloca- cing

tionIndia Solar 43021 World Rajasthan State KfW 4/1/96 2/1/97 5 years 245.00 49.00 176.00 Detailed

Thermal- Bank Electricity Board; preparation ofElectric Rajasthan Energy tender

Development documentsAgency underway with

Germansupport. The

GEF grant wasapproved in

principle by theCouncil 4/96.World Bank

Board approvalexpected 2/97.

Indonesia Solar Home 3700 World Agency for the Mins. of Finance 10/1/95 10/8/96 5 years 74.30 24.30 37.50 DetailedSystems Bank Assessment and & Cooperatives; preparation/feas(SHS) Application of BAPPENAS; Dir. ibility work is

Technology of Electricity & almost complete(BPPT); Energy Dev.; and the project

Indonesian Rural Indonesian Solar was appraisedElectrification Energy Assoc.; May-June 1996.

Steering Solar PV system Presentation toCommittee dealers/suppliers the World Bank

Board isexpected 10/96.

Indonesia Renewable 42944 World National Power Private small 10/1/95 11/1/96 4 years 168.00 6.00 150.00 DetailedEnergy Small Bank Utility (PLN), power prep./feasibilityPower (RESP) Directorate of developers; work is almost

Private Power BAPPENAS; complete andSugar Council; project was

Palm Oil appraised May-Association June 1996.

Presentation toWB board is

expected 11/96.


tionJordan Reduction of JOR/96/G UNDP Ministry of 4/96 3 years 4.00 2.5 1.5

Methan 31 PlanningEmissions

Lao PDR National LAO/95/G UNDP Science, TERI and/or 7/26/06 9/1/95 2 years 0.31 0.31 0.00 projectGreenhouse 31 Technology and Asian Institute of document

Gas Inventory Environment Technology, recentlyProject Organisation Bangkok submitted to

(STENO), Prime CEO.Minister's Office

Lebanon Building LEB/95/G UNDP Govermment of Association 7/26/96 10/1/95 2 years 0.32 0.29 0.03 PA missionCapacity for 32 Lebanon Libanaise pour la fielded in May

GHG Matrise d'Energie 1996 to finalizeInventory and National Council projectAction for Scientific document.Plans in Research Project

Response to documentUNFCCC approved byCommunicati GEF-CEO inons

July 1996.ObligationsMalaysia National MAL/95/ UNDP Government of Center for 5/1/95 7/1/95 24 months 0.63 0.47 0.16 Project

Greenhouse G3 1 Malaysia Environment documentGas Inventory Studies, Institute recentlyand Response for Strategic epproved byto the United Studies (ISIS) CEO.

Nations Malaysia.FrameworkConventionon Climate

Change.

Country Project Name Project GEF IA Executing Associated Entry Approval Duration Total GEF Cofinan- Project Status


Papua New Papua New PNG/96/G UNDP Governnent of To be determined 4/96 1 year 0.35 0.35 --

Guinea Guinea GHG 31 Papua NewEnabling GuineaActivity

Romania Capacity ROM/95/ UNDP Ministry of 1/1/96 1/1/96 5 years 6.48 2.27 4.21 First draft of the

Building for G31 Industries & project

GHG Romanian Energy document has

Emissions Conservation been reviewed

Reduction Agency (ARCE) and a final draft

through will be

Energy submitted to the

Efficiency first SteeringCommittee

meeting in May1996

Senegal Sustainable 42056 World Ministry of ENDA-TM 4/1/96 1/15/97 7 years 18.90 4.70 13.20 Preparation well

and Bank Environment and (Dakar); CILSS; advanced.

Participatory Protection of Conv. to Combat Approved by

Energy Nature; Ministry Desertification; GEF Council in

Management of Industry and Appropriate April 1996.

Energy Technology World Bank

International; Board approval

IUCN; expected in

Directorate January 1997.

General forInternational

Cooperation ofthe Netherlands

Country Project Name Project GEF IA Executing Associated Entry Approval Duration Total GEF Cofinan- Project StatusNumber Agency Participation into WP Date Costs Alloca- uingtion

Seychelles Enabling SEY/96/G UNDP Seychelles Ministry of 6/1/96 2 years 0.25 0.25 --Seychelles to 31 National Climate Foreign Affairs,

Prepare its Committee Planning andFirst National Environment;

Communi- Ministry ofcation in Tourism and

Response to Transportits

Commitmentsto the

UNFCCCSri Lanka Energy 39965 World Renewable 4/1/96 3/1/97 5 years 53.80 7.30 41.50 Preparation wellServices Bank Energy Fund advanced,Delivery Mgt. Unit of the supported by a

Min. of Finance; PDF grant.Ceylon Electricity Approved by

Board GEF Council inApril, 1996.World Bank

Board approvalexpected early

1997.Sri Lanka Renewable SRL/96/G UNDP Ministry of To be determined 4/1/96 2/1/96 2 years 1.45 1.45 0.00 Project enteredEnergy and 31 Transport, GEF workCapacity Environment and programmeBuilding Women's Affairs 4/96. ProjectImplementationReview 10/95.

TripartiteReview

scheduled 5/96.

Country Project Name Project GEF TA Executing Associated Entry Approval Duration Total GEF Corinan- Project Status


Uganda Enabling UGA/96/G UNDP Ministry of 6/1/96 2 years 0.08 0.08 -- Project

Uganda to 31 Natural document being

Prepare its Resources; finalized

First National NationalCommuni- Environmentcation in ManagementResponse Authority

to itsCommitments

to theUNFCCC

Uganda Uganda UGA/95/G UNDP Government None 10/1/95 2.80 1.80 1.00 Preparatory

Photovoltaic 31 Assistance

(PV) pilot underway.

phase for rural Project

electrificaiton formulationmission

underway inUganda.

Outputs: (1)finalisation of

projectdocument and(2) securing ofco-financing.

Uzbekistan Country Study UZB/95/G UNDP Government of 10/1/95 0.33 0.33 0.00 Project

on Climate 31 Uzbekistan/ State document under

Change Committee on preparation for

Nature and submission to

Environment al the Government

Protection/ State in June 1996.

Hydrometeorological Department


tionZaire Enabling ZA1195/G3 UNDP None 10/1/95 2 Years 0.35 0.35 0.00 Project

Activities to I Documentrespond to the being prepared.

UnitedNations

FrameworkConventionon Climate

Change

Chapter Four

International Waters

Relevant Developments

4.1 In the GEF Operational GEF Strategy that was approved by the council in October 1995,concerns relating to international waters include:* Degradation of the quality of transboundary water resources* Physical habitat degradation of coastal and near-shore marine areas, lakes and watercourses* Introduction of nonindigenous species* Excessive exploitation of living and nonliving resources

4.2 The GEF's objective in the international waters focal area is to contribute primarily as acatalyst to the implementation of a more comprehensive, ecosystem approach to managingintemational waters and their drainage basins as a means of achieving global environmentalbenefits. The GEF will act as a catalyst to ensure that countries better understand thefunctioning of their international waters systems, gain appreciation of how their sectoralactivities influence the global water environment, and find means for collaborating withneighboring countries to collectively pursue effective solutions.

4.3 GEF-funded intemational waters activities aim to meet the agreed incremental costs of:* Assisting groups of countries to better understand the environmental concerns of their

international waters and work collaboratively to address them* Building the capacity of existing institutions to utilize a more comprehensiveapproach for addressing transboundary water-related environmental concerns* Implementing measures that address the priority transboundary environmental concerns

4.4 The GEF initiatives will address the following imminent threats to international waters:

* Control of land-based sources of surface and groundwater pollution that degrade the qualityof international waters* Prevention and control of land degradation where transboundary environmental concernsresult from desertification or deforestation* Prevention of physical or ecological degradation, and hydrologic modification, of criticalhabitats that sustain biodiversity, provide shelter and nursery areas for the production of fishprotein sources, and otherwise are important for restoring and maintaining ecosystemsassociated with international waters* Control of unsustainable use of marine living resources as well as nonliving resourcesresulting from inadequate management measures such as overfishing, excessive withdrawal offreshwater, and resource extraction* Control of ship-based sources of chemical washings and nonindigenous species thatcan disrupt ecosystems or cause toxic and human health effects

4.5 Where appropriate, GEF activities in international waters will be coordinated with thosein other GEF focal areas. GEF projects integrating several focal areas have the potential tomultiple global benefits from GEF interventions. For example, wetland restoration andprotection initiatives can provide benefits for both biodiversity protection and water qualityimprovement. Biodiversity protection and carbon sequestration have potential linkages andimportant roles in restoring damaged transboundary basins.

There are strong and complex linkages among land use policies and practices, landdegradation, and the impairment of water-related ecosystems.

4.6 Three operational programs have been prepared:* A waterbody-based operational program* An integrated land and water multiple focal area operational program* A contaminant-based operational program

4.7 In order to ensure that a diverse portfolio of projects is developed and that the imminentthreats to international waters are addressed, the following criteria will beapplied:

* Whether a project meriting transboundary concerns involves one or more of theimminent threats to international waters

* The severity of the transboundary problem* The threat of irreversible damage to biodiversity and time scale of reversibility* The extent of leveraging for additional development assistance, international agencycofunding, or private sector or other country commnitments to provide associated financingfor priority solutions in the baseline as well as for transboundary concerns The capacity forimplementation or plans for inclusion of capacity-building components* The degree to which the problems are common to other geographic regions andinterventions are replicable* The consistency with national environmental planning documents and international legalobligations

Summary of International Waters Projects and Project PreparationActivities during GEF

4.8 In the two work programs approved by the Council during the reporting period, twoprojects were approved in the area of international waters. The total amount allocated from theGEF for projects in 'international waters during FY 1996 is US$ 37.7 million, which leveragedUS$ 42.77 million.

GEF Project Descriptions - International Waters (approved by the GEF Council in FY 96)

Gulf of Aqaba Environmental Action Plan (Jordan)World Bank: As part of the regional Environmental Action Plan for the Gulf of Aqaba, theproject will (a) develop regional collaborative mechanisms for strengthening the capacity toprotect coastal zone and marine biodiversity; (b) develop and enforce the legal framework and

40

regulations for control of transboundary pollution; (c) provide safeguards against oil pollution;(d) establish and implement guidelines for sustainable development of the coastal zone; (e)assess the effects of wastewater seepage on the quality and level of the transboundary watertable; (e) implement a plan to control solid waste impacts on marine and coastal waters; and (g)demarcate and manage a marine protected area.

Lake Victoria Environmental Management (Kenya, Tanzania, Uganda)World Bank: The project (including IDA financing) will address the major threats facing LakeVictoria, including overfishing, eutrophication and algae levels, other forms of pollution, andintroduction of invasive exotic species like water hyacinth & various fish species. Componentsinclude (a) regional cooperation in fisheries research, extension and management; (b) research& monitoring of water quality and pollution, strengthening & harmonization of regulatory,incentive and enforcement systems concerning pollution, and priority investments in wastemanagement; (c) wetland monitoring & sustainable use; (d) control of water hyacinth; (e)management of land use in the catchment, including data collection, pollution assessment andpilot projects in soil conservation and deforestation; and (e) support for policy initiatives,institutions for lake-wide research and management and pollution disaster contingencyplanning.

4.9 Given the programmatic approach used by the GEF in preparing its work programs,projects in international waters can generate global benefits in other GEF focal areas, such asclimate change and biodiversity, in particular biodiversity. Both the projects include significantbiodiversity components (see chapter two).

4.10 Seven PDFs have been approved in the area of international waters during the reportingperiod.

4.11 The table below summarizes the number and amount of funds (US$) approved forPDFs, and projects during 1996.

TABLE 4.1 Number and Amount of International Waters PDFsand Projects in FY96

PDFs - PDFs - Number ProjectsNumber US$ of US$

Projects

7 1,940,000 2 37,700,000

41

Table 4.2 International Waters Projects Included in the FY96 Work Program

Country Project Project GEF IA Executing Associated E;ntry Approval Duration Total GEF Cofinan- Project StatusName Nuumber Agency Participation into WP Date Costs Alloca- cingtionRegional Lake 2 World Ministries of Communities 4/1/96 7/30/96 5 years 77.80 35.00 35.00 DetailedVictoria Bank Agriculture -- around Lake preparationEnviron- Kenya, Uganda, Vict.; Fish completed inmental Tanzania process/marketing each country,Manage- industries; funded byment Manufacturers' project

Associations; preparationFAO; UNDP; advances

UNEP; Makerere, (PPAs).Maseno & Moi Approved byUnivs.; Ocinala GEF Council

4/96 and theWorld Bank

Board in July1996.Jordan Gulf of 5237 World Ministry of Jordanian Society 10/1/95 6/13/96 3 years 12.67 2.70 7.77 Approved byAqaba Bank Planning; Aqaba for Control of World BankEnviron- Regional Env. Pollution; Board 6/96.mental Authority Royal Soc. for the

Action Plan Cons. of Nature;UNDP

Chapter Five

Ozone Depletion


5.1 The GEF's objective in ozone depletion is to contribute to measures that protect humanhealth and the environment against adverse effects resulting, or likely to result from, humanactivities that modify or are likely to modify the ozone layer. The GEF's assistance inpreventing the release of ozone-depleting substances will be in accordance with countries'commitments to the Montreal Protocol concerning phase out schedules and control measures.

5.2 Although the GEF is not linked formally to the Montreal Protocol, the GEF operationalstrategy in ozone depletion is an operational response to the Montreal Protocol, itsamendments, and adjustments. Therefore, the GEF will use the Montreal Protocol specificallyto guide:* Control measures* The list of controlled substances contained in the annexes to the protocol* The phase out schedules for ozone-depleting substances and the amendments and

adjustments that are approved occasionally by the Meeting of the Parties.

5.3 In accordance with the GEF Instrument, the GEF Secretariat has exchanged letters withthe secretariats of the Montreal Protocol and the Multilateral Fund that show areas ofcooperation such as coordination of activities; exchange of information of mutual interest,methodologies, and methods of project assessment; and interpretation of relevant decisions of

the parties to the protocol. This cooperation will facilitate consistency and complementaritywith operations to phase out ozone-depleting substances within the legal ambit of the MontrealProtocol.

5.4 The overall thrust of the ozone depletion portfolio is to support activities to phase outozone-depleting substances that are committed under the Montreal Protocol, with specialemphasis on short-term commnitments and enabling activities. Because of the short deadlinesfor this phase out, all measures will be considered under criteria for short-term responseresources.

5.5 The Multilateral Fund provides assistance only for (a) developing countries operatingunder Article 5, paragraph 1 of the Montreal Protocol; and (b) activities incurring eligibleexpenditures.' In conformity with the principle of complementarity-avoiding duplication ofeffort and not substituting for other sources of funds-the GEF will provide onlycomplementary assistance outside the financial mechanism. This means, in effect, that the GEFwill assist otherwise eligible recipient countries that are not Article 5 countries; or whoseactivities, while consistent with the objectives of the Montreal Protocol, are of a type not

1 In accordance with Decision IV/5 of the Fourth Meeting of the Parties to the Montreal Protocol which established a

list of eligible activities in an indicated list

covered by the Multilateral Fund.2 To be eligible, countries must also be parties to the MontrealProtocol, have ratified the London Amendments, 3 and have fulfilled their obligations to reporton the production and consumption of ozone-depleting substances and trade according to therequirements of the Protocol.4

5.6 During FY96 the GEF Secretariat was represented at the COP to the Montreal Protocol ofthe Vienna Convention for the Protection of the Ozone Layer (December 4-7 1995, Vienna). Itwas also represented in the X Montreal Protocol Implementation Committee Meeting (March2224 1996, Geneva). Representatives from the secretariat of the Montreal Protocol attended theGEF Council meetings and other relevant GEF meetings during the FY 96. This helped facilitatecooperative efforts between the GEF and the Montreal Protocol (and its Multilateral Fund) todiscuss technical and policy issues, as well as the financial mechanism of the Montreal Protocol.

5.7 In the reporting period, the Council included in the work program three ozone projects.Two PDFs have also been approved by the GEFOP.

Summary of Ozone Depletion Projects and Project Preparation Activities During FY96

5.8 The table below sununarizes the number and amount of funds (US$) approved forPDFs, and projects during the reporting period. More detailed information on Pilot Phaseprojects is provided in Quarterly Operational Report.

Table 5.1 Number and Amount of Ozone PDFs and Projects in FY96

PDFs - PDFs - Projects ProjectsNumber US$ Number US$

2 380,000 3 48,610,000

2 Many CEITS, but not all, are outside the financial mechanism. Article 5 defines eligibility in terms of per capitaconsumption of ozone-depleting substances, and some CEITs (such as Romania) are eligible under the MultilateralFund.

Subject to Council consideration of an overall policy on research and monitoring, such activities could include aproject such as the Latin America regional project in the Pilot Phase Monitoring and Research Network for Ozoneand Greenhouse Gases in the Southem Cone.3 Modest technical assistance to enable country program preparation may be provided after Montreal Protocol

ratification, even if the process of ratifying the London Amendment has not been finalized.4 Montreal Protocol, Article 7.

44

Table 5.2 Ozone Depletion Projects Included in the FY96 Work Program

Country Project Project GEF Executing Associated Entry into Approval Durationi Total GEF Cofinan- Project Status

Name Number IA Agency Participation WP Date Costs Alloca- cingtion

Belarus Phaseout of 44729 World Ministry of Recipient 4/1/96 12/1/96 3 years 14.70 7.40 7.30 Subproject

Ozone- Bank Natural Resources enterprises; preparation

Depleting and Danish Govt. nearing

Substances Environmental completion with

Protection PDF Block Cassistance.

Approved byGEF CouncilApril 1996.

Poland Phaseout of 35081 World Ministry of Recipient 4/1/96 10/24/96 2 years 19.72 6.21 13.51 Subproject

Ozone Bank Industry and enterprises preparation

Depleting Trade completed.

Substances Approved byGEF Council

4/96, and WorldBank Boardapproval is

expected 10/96,pending

ratification ofLondon

Ammendments.

Country Project Project GEF Executing Associated Entry into Approval Duration Total GEF Cofinan- Project StatusName Number IA Agency Participation WP Date Costs Alloca- cingtion

Russian Phaseout of 8800 World Ministry of Recipient 4/1/96 11/l/96 2 years 56.50 35.00 21.50 A $60 millionFederation Ozone Bank Environmental enterprises; US "umbrella"Depleting Protection and Trade & Dev. project wasSubstances Natural Resources Agency approved by the(second World Banktranche) 5/96. This

second group ofsubprojects,totaling $35

million in GEFgrant assistance,is fully preparedtechnically andwas approvedfor funding by

the GEFCouncil 4/96.

Itsimplementation

Chapter SixCross-Cutting Activities Including Land Degradation


6.1 During the reporting period, two cross-cutting projects were approved: Small andMedium Enterprise Program and Small Grants Program. The total resources are US$24.56million.

Small Grants Programme: UNDP

6.2 UNDP manages the GEF Small Grants Programme on behalf of the three GEF partneragencies. The program supports grassroots action that addresses global environmentalproblems. A key challenge in this effort is to identify community-based approaches that arerelevant to people's daily lives and needs, while at the same time making a real contribution tothe four GEF priority areas. The Small Grants Programme is operational in 33 countries. Tomore than 600 projects have been approved for funding. Grants of up to $50,000 are awardedby national selection committees, on a competitive basis, to community groups and NGOs.Countries participating in the program include, in Africa, Botswana, Burkina Faso, Cameroon,Cote d'Ivoire, Ghana, Kenya, Mali, Mauritius, Senegal, and Zimbabwe; in the Arab States,Egypt, Jordan, and Tunisia; in Asia and the Pacific, India, Indonesia, Nepal, Pakistan, PapuaNew Guinea, Philippines, Sri Lanka, and Thailand; in Europe, Poland and Turkey; and in Latin

America, Barbados, Belize, Brazil, Bolivia, Chile, Costa Rica, the Dominican Republic, Ecuador,Mexico, and Trinidad and Tobago.

6.3 With regard to land degradation, the operational strategy, approved by the GEF Councilin October 1995, states, "Land degradation issues, primarily desertification and deforestation, as

they relate to the four focal areas will also be addressed by GEF activities, particularly in thosecountries in Africa experiencing serious drought and/or desertification, consistent with theGEF Instrument."'

6.4 The operational strategy has a separate rubric of land degradation in each of the

chapters on biological diversity, climate change and international waters. Among the fourinitial operational programs for biological diversity, there is one to address and semi-aridecosystems.

6.5 At the April meeting, the council took note of a STAP proposal to convene a

brainstorming session and workshop on land degradation. The session, held on June 10, 1996,explored ideas on how the GEF should respond to issues on land degradation with respect tothe focal areas of biodiversity, climate change and international waters. The meeting also maderecommendations on the possible terms of reference and outputs of the workshop, which willbe held in September 1996 in Dakar.

6.6 Representatives of the Secretariat of the Convention to Combat Desertification areregularly invited to attended the GEF Council meetings as well as the relevant meetings, such

The GEF Operational Strategy, page 3.

47

as the above mentioned brainstorming session. GEF representatives have also been invited toattend the relevant meetings of the Convention.

Summary of Cross-Cutting Projects and Project Preparation Activities during GEF and thePilot Phase

6.7 The table below summarizes the number and amount of funds (US$) approved forPDFs and projects during FY96.

Table 6.1 Number and Amount of Cross-Cutting PDFs, and Projects

PDFS* - PDFS* - Projects ProjectsNumber US$ Number US$

FY96 * 1,075,000 -Total * 1,075,000 2 28,000,000

* Block A PDFs allocated to the Implementing Agencies for use in all focal areas

Communications and Outreach Activities

6.8 During FY96 the GEF undertook a number of communications and outreach activities toinform interested institutions, groups, and individuals about its activities. Please see chapters 2and 3 for outreach activities undertaken by the GEF for enabling activities for theimplementation of the CBD and FCCC

6.9 Publications included:

* Three Quarterly Operational Reports (August 1995, December 1995, and April 1996Bulletins and Quarterly Operational Summaries* The GEF Operational Strategy (English, French, and Spanish)* The GEF Project Cycle (English, French, and Spanish)* The GEF Annual Report FY95 (English, French, and Spanish)

A Question and Answer sheet on the Restructured GEF was updated before each councilmeeting. The GEF also established on the Internet a home page,(http://www.worldbank.org/htmll/gef/geffiles/gef.html), which enables users to access GEFdocuments through EcoNet.

48

CHAPTER SEVEN

FINANCIAL RESOURCES

7.1 This section covers sources of funds, including the total amounts of approvedwork programs, commitments, and disbursements (by focal area), an account of thesources and applications of GEF funds (including investment income), andadministration and overhead.

7.2 Table 7.1 shows the value of approved work programs, commitments, anddisbursements by agency from inception through FY96:

TABLE 7.1

SUMMARY OF AUTHORIZED WORK PROGRAMS, COMMITMENTS, AND DISBURSEMENTS

(US$ millions)Authorized Work Commitments DisbursementsProgram Funding

UNDP 376 285 161UNEP 27 27 15World Bank 828 525 161*TOTAL 1,231 837 337

(*Includes PDFs - US$12 million)

Sources of Funds

7.3 To date Instruments of Commitment for contributions to the first replenishmentof the GEF had been received for nearly all pledging countries, and amounted to over$2 billion. Pledges for which instruments were not yet received totalled $28 millionequivalent (Argentina, Brazil, and Spain). The intruments received from the USA andItaly were conditional. Encashment is on a needs basis, spread out over the period1996-2005. The cash needs for the years 1994-95 were covered by pilot phaseencashments (that were based on a fixed schedule).

7.4 Table 7.2 below shows the status of contributions to the first GEF replenishmentas of June 30, 1996. The GEF Consolidated Financial Statements are provided in annexD. The list of Council constituency membership and country groupings as of June 30,1996 is in annex C.

Table 7.2Contributions' to the First GEF Replenishment (US$ millions)2

(une 30, 1996)

Country Contributions Country Contributions

Argentina 5.0 Italy 114.7Australia 29.2 Japan 414.6Austria 20.0 Korea, Rep. of 5.6Bangladesh 2.8 Luxembourg 5.6Belgium 32.0 Mexico 5.6Brazil 5.6 Netherlands 71.4Canada 86.6 New Zealand 5.6China 5.6 Norway 31.2C6te d'Ivoire 5.6 Pakistan 5.6Czech Republic 5.6 Portugal 5.6Denmark 35.1 Slovak 5.6

Republic

Egypt 5.6 Spain 17.3Finland 21.6 Sweden 58.3France 143.3 Switzerland 44.8Germany 240.0 Turkey 5.6Greece 5.0 United 134.6

KingdomIndia 8.4 United States 430.0Ireland 2.4 Other * 9.1

Total 2,030.2* Includes value of accelerated encashments not already included above

and new and additional contributions made to the GEF Trust Fundand expected to be available for the GEF.

Cofinancing Arrangements

7.5 Burden sharing with respect to the first replenishment of the GEF was on thebasis of core fund contributions. In addition to its core fund contribution, Austriaconcluded in October 1995 with the Bank as Trustee of the GEF Trust Fund an

I Instruments of Commitments were received for all pledges except Argentina, Brazil, Luxembourg and Spain2 Using the Replenishment exchange rate of US$ 1.4010 = SDR1

50

agreement to set up the Austrian Global Environment Cooperation Trust Fund. Thisco-financing agreement for up to SDR4.5 million is intended to enhanceenvironmentally sound and sustainable projects and activities in the countries witheconomies in transition. Such projects or activities are to benefit one or more of the GEFfocal areas. The consultants to be financed by the trust fund shall be of Austriannationality or employees of Austrian firms, provided, however, that up to 25 percent ofthe trust fund resources may be used to finance consultants from the countries whichwill benefit from the technical assistance when working in conjunction with Austrianconsultants. As of June 30, 1996 allocation of funds through the World Bank hasstarted, with contracts totalling some $300,000 under consideration. UNEP was alsoactively considering activities eligible for financing from the Trust Fund. As for UNDP,discussions to work out its subagreement with the Trust Fund's Trustee are still underway.

Funds Disbursements

7.6 As of June 30, 1996, approximately US$337 million had been disbursed forprojects in the GEF work program: $161 million through UNDP, $15 million throughUNEP, and $161 million through the World Bank (includes US$ 12 million for PDFs).Over the past year, the pace of disbursements has started to increase. For the timeprofile of commitments and disbursements since the start of the GEF in 1991, see figure1.

Investment Income

7.7 Investment income from the core fund is credited to the GEF, thus enhancingcommitment authority. Funds received are held in various currencies and, as of June30, 1996, had yielded cumulatively the equivalent of US$68.8 million (See annex D).

Commitment Authority

7.8 The GEF Trust Fund's commitment authority includes contributions received inthe form of notes and cash deposits and investment income generated on cash deposits,less actual project disbursements and administrative costs of the trust fund. Based onthe notes and cash received and expenditures incurred to date, commitment authorityas of June 30, 1996 was US$1,056 million. Details of the status of commitment authorityare given in annex D.

Administration and Overhead

51

7.9 The revised Council-approved corporate budget for FY96 was $31 million.Estimated expenditures for FY96 amount to $28.5 million,3 a savings of $2.6 million or 8.4percent. The status of each agency's work program and associated expenditures for FY96is summarized below.

7.10 In May 1995, the council approved a FY96 corporate budget for GEF of $30.6million. Subsequently in July, the council approved 2 amendments -- a) an allocation forIFC for $.512 million and b) a downward revision to the STAP administrative budget of$1.032 million. These amendments put the Council-approved revised budget at$31million. In November, the CEO authorized a small midyear adjustment of $722,000 or2 percent of the approved revised budget for the following special agency requests: forUNDP one staff year (covering the remainder of FY96 totaling $122,000), for the WorldBank for 2.5 staff years (for the remainder of the year totaling $400,000), and for the WorldBank for costs of projects delayed from FY95 (totaling $200,000) which had been returnedby the Bank the prior year.

7.11 Table 7.3 (attached) shows a breakdown of estimated year-end expenditures byeach entity. The Corporate end-year underrun of $2.6 million is significantly larger thanprojections at mid-year, mostly due to delays in project outputs and staff recruitment. 4

3Actual end-year figures will be available in November/December 1996 following the formal year-end closing andposting of actual expenses against accrued commitments.

4As described in the document FY96 Midyear Budget Review (GEF/C.7/Mnf.6)

52

Table 7.3: GEF Estimated Year-end Expenditures -FY96 (in US$ thousands)

FY96 UNDP UNEP BANK/ STAP TRUSTEE SECRT TOTALIFC

_ _ _ _ _Original Council 5980.0 1676.6 15148.4 1102.0 813.0 5911.0 30631.0Approved BudgetRevised Council 5980.0 1676.6 15660.4 1032.0 813.0 5911.0 31073.0Approved Budget*

CEO AuthorizedMidyear (122.0) (600.0) - - - (722.0)Adjustments**(2 percent) (6102.0) (16260.4) (31795.0)Estimated Year-end 5580.0 1276.6 14650.0 782.0 696.3 5461.0 28445.9Expenditures .

'Difference ($) 400.0 400.0 1010.4 250.0 116.7 450.0 Corporate(compared to Council ProjectedRev. Budget) Underrun

2627.1*Reflects Council approval of IFC budget in July 1995 ($512 thousand), and October1995 approval of STAP's Revised Budget ($1.032 million)** Reflects small mid-year staffing adjustments for UNDP and World Bank andreauthorization of some project costs to the Bank returned to the GEF in FY95 due toproject delays.

53

8. Project ideas that meet eligibility requirements and are considered technically

good candidates for further development can be awarded by an implementing agency a

PDF Block A grant of up to US$25,000 for further development of the idea and

preparation of a project proposal. If, in the judgement of the implementing agency, a

project idea merits more extensive project development, the implementing agency can

prepare a request for PDF funding through a Block B grant (up to US$350,000). That

request will be submitted to the GEFOP for its review and recommendation. The GEF

CEO is responsible for final approval of Block B project preparation grants.

9. Few project ideas are submitted to an implementing agency already in the form of

a well-developed project proposal and require no further, or little, preparation. Such

proposals may be submitted by the implementing agency to the GEFOP for review with a

view to inclusion in the proposed work program to be presented to the council. The

GEFOP's recommendations on project proposals are presented to the CEO who is

responsible for determining the content of the proposed work program presented to the

GEF Council for its approval.

10. Tables I to 7 present data on the project ideas received by the implementing

agencies in FY96. This data shows that of the 375 project ideas that were submitted to

the GEF in FY96, 176 were received by UNDP, 71 were received by UNEP, and 128

were received by the World Bank. The project ideas were for activities that addressed

capacity-building (e.g. technical assistance and institution-building), investment, enabling

activities (e.g. preparation of national inventories, national reports, strategies and plans),

education/outreach, trust funds, and research. Ideas were submitted by governments,

implementing agencies and other international organizations, non-governmental

organizations (NGOs), private companies, and individuals. In some cases, ideas have

come from collaborating institutions (e.g. governments and implementing agencies,

intemational organizations and non-governmental organizations); these are listed

according to which institution has taken the lead in submitting the project idea.

FY96Table 1: Project idea Originator

Idea UNDP UNEP World Bank Total PercentageOriginatorGovermment 119 18 71 208 55.47NGO 33 17 34 84 22.4Implement. 13 23 - 36 9.6AgencyOther Int. 4 13 11 28 7.47Org.Private 1 - 12 13 3.46CompaniesIndividuals 6 _ _ 1.6Total 176 71 128 375 100

Table 2. Project idea by Type of ActivityActivity UTNDP UNEP World Bank Total PercentageCapacity- 157 40 48 245 65.34BuildingInvestment - 1 70 71 18,94Enabling 17 30 2 49 13.06ActivitiesEducation/In - - 5 5 1.33fo.Reserach 2 1 3 0.8Trust Fund - - 2 2 0.53Total 176 71 128 375 100

Table 3. Status of Project Idea (FY96)Status of UNDP UNEP World Bank Total PercentagProjectProposals

Pending 136 50 79 265 70.67

GEF COUNCIL MEMBERS, ALTERNATES, AND CONSTITUENCIES ANNEX C

(June 30, 1996)

Antigua 8i Barbuda, Bahamas, Barbados, Belize, Cuba, Dominica, Dom.

Mr. John Ashe Mr. Ramiro Leon Torras Rep., Grenada, Guyana, Haiti, Jamaica, St. Kitts & Nevis, St. Lucia, St.

(Antigua and Barbuda) ICuba) Vincent & the Grenadines, Suriname,Trinidad and Tobago

Mr. Carlos Vazquez Ochoa Ms Ruth Decerega Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua,

(Mexico) (Panama) Panama, Venezuela (@)

Ms. Maria Stela Frota Mr. Jairo Montoya

(Brazil) (Colombia) Brazil, Colombia, Ecuador

Mr. William Ehlers t.b.d(Uruguay) (Chile) Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay

Mr. A. Averchenkov(Russia Fed.) t.b.d. Armenia, Belarus, Russia Fed.

Mr. Tadeusz Strojwas Mr. Sergiy Kulyk Albania, Bulgaria (@), Croatia (@), Georgia, FYR Macedonia (@),

(Poland) (Ukraine) Moldova 1@), Poland, Romania, Ukraine

Mr. Lionel Johnson Mr. Rafe Pomerance(USA) (USA) United States

Mr. Yasufumi Uenishi Mr. Yukihiro Nikaido(Japan) (Japan) Japan

Mr. Hans-Peter Schipulle Ms. Erika Wagenhoefer(Germany) (Germany) Germany

Mr. Bertrand de Mazieres Ms. Monique Barbut(France) (France) France

Mr. David Turner Mr. Chris Austin(UK) (UK) United Kingdom

Mr. Giuseppe Maresca Ms. Paola Pettinari(Italy) (Italy) Italy

Page 2

GEF COUNCIL MEMBERS, ALTERNATES, AND CONSTITUENCIES ANNEX C(June 30, 1996)

t.b.d. Mr. Ralmo Anttola(Sweden) (Finland) Estonia#, Finland, Sweden

Mr. Ad Koekkoek Mr. Hans van Zijst(The Netherlands) (The Netherlands) The Netherlands

Mr. Jim Carruthers Mr. Mark Gawn(Canada) (Canada) Canada

Mr. Phillippe Roch Mr. Jean-Bernard Dubois(Switzerland) (Switzerland) Switzerland

t.b.d. Mr. Erik FiilINorway) (Denmark) Denmark, Latvia#, Lithuania#, Norway

Mr. Harald Sitta Austria, Belgium, Czech Republic#, Hungary#, Luxembourg, Slovak(Austria) Republic#, Slovenia#, Turkey#

Ms. Alicia Montalvo Ms. Helena Cordeiro(Spain) (Portugal) Greece, Ireland, Portugal, Spain

Ms. Ellen Shipley t.b.d.(Australia) (Korea, Rep.) Australia, New Zealand, Republic of Korea#

Countries listed are those that have submitted their notification of participation in the restructured Facility.@ Participant countries preliminarily grouped in the constituency subject to final agreement between the country and the other participant countries in the constituency.N Recipient countries in non-recipient constituencies. I

The constituencies for the following new member countries are yet to be determined: Azerbaijan, Cambodia, Israel, Libya, Malta, and Uzbekistan.

Page 3

ANNEX D

Financial Statements

The Trustee's Note to Council (GEF/C.7/INF12,3/13/96) explained that because of the differingaudit cycles* of the implementing agencies and the use of differing external auditors by theagencies, audited consolidated financial statements cannot be presented for the GEF.Accordingly, the consolidated financial statements in this report are unaudited. However, thefinancial statements of each implementing agency, the trustee and the secretariat are subject toexternal audit. The most recent audited financial statements that have been received andseparately distributed to Council members are included in this annex:

Financial statements as ofTrustee June 30, 1996World Bank as Implementing Agency June 30, 1996Secretariat June 30, 1996UNEP December 31, 1995

At this time, UNDP has not provided its December 31, 1995 financial statements and report of itsexternal auditors. The trustee understands that the financial statement on UNDP's GEF activitieswill be provided by UNDP in the form of a statement which will be included in the forthcomingDecember 31, 1995 Biennium Financial Report and Audited Financial Statements. That report ofthe external auditors will be an opinion on the entire UNDP biennial financial report, includingthe GEF financial statement. The trustee understands that this UJNDP GEF financial statementcomingles GEF activities with GEF related cost sharing and co-financing contributions anddisbursements thereof from sources other than the GEF Trust Fund. This is a transitionalarrangement proposed by UNDP and accepted by the Trustee. With effect from December 31,1996 onward UTNDP will provide a discrete annual financial statement of its GEF Trust Fundfinanced activities, together with an audit report.

UNDP and UNEP operate on a calendar fiscal year. They are audited every two years. The World Bank and theGEF Secretariat (which is supported administratively by the World Bank) operate on a July to June fiscal year andare audited annually.

Annex D

1. GEF Consolidated Financial Statementas of June 30, 1996 (Unaudited)

GLOBAL ENVIRONMENT FACILITY UNAUDITEDCONSOLIDATED FINANCIAL STATEMENT AS OF JUNE 30, 1996

STATEMENT OF ACTIVITIESExpressed in millions of US dollurs

July 1, 1995 March 14, 1991to (inception) to

June 30. 1996 June 30. 1996Receipts

Contributions

Cash $ 59.5 $ 277.5Notes encashed 123.5 562.5

Investment income 25.3 74.1

Total Receipts 208.3 914.1

Disbursements

Project disbursements

World Bank managed activities 89.7 161.2UNDP managed activities 57.0 159.8UNEP managed activities 4.0 14.1Secretariat managed activities 0.4 0.9

Administrative expensesWorld Bank managed activities 14.7 63.8UNDP managed activities 5.8 24.2UNEP managed activities 1.3 8.3Secretariat managed activities 5.2 17.0

Total Disbursements 178.1 449.3

Excess of receipts over disbursements 30.2 464.8

Net foreign exchange gains/(losses) (13.3) (11.6)


Cash & investments, net of accruals, atbeginning of period 436.3 _

Cash & Investments, net ofaccruals, at end of period $ 453.2 $ 453.2

The accompanying notes are an integralpart of this financial statement.


NOTES TO THE FINANCIAL STATEMENT (Continued)

concessional funding to meet agreed incremental costs of measures to achieve global environmental benefits In

the focal areas of climate change, biological diversity, international waters and ozone layer depletion, and the

agreed Incremental costs of such other relevant activitles under Agenda 21 (the action plan of the 1992 United

Nations Conference on Environment and Development) that may be agreed by the Council. The Implementing

Agencies of the GEF are the International Bank for Reconstruction and Development (the Bank), the United

Nations Development Programme (UNDP), and the United Nations Environment Programme (UNEP).

Procedural arrangements for operational cooperation among UNDP, UNEP and the Bank under the GEF were

signed by the Executive Heads of the three agencies on October 28, 1991. The Bank was also invited to serve

as and accepted the role of Trustee of the GEF Trust Fund (the Fund) which was established under the

Instrument. Under the Instrument, specific responsibilities are assigned to each of, the Trustee, the

Implementing Agencies and the Secretariat. With the establishment of the Fund the pilot phase Global

Environment Trust Fund (GET) was terminated and all funds, receipts, assets and liabilities held In the GET

were transferred to the Fund at book value.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES AND

PROCEDURES

Basis of Accounting

The accompanying financial statement has been prepared by the Bank from the June 30, 1996 audited

financial statements of the Trustee, the Bank as an Implementing Agency and the Secretariat, and from

unaudited draft reports of their GEF operations to June 30, 1996 submitted by UNDP and UNEP. The flnancial

statement reports the consolidated financial activities of the Trustee, each of the Implementing Agencies and

the Secretariat, as they relate to the sources and uses of contributions and investment income of the Fund.

Cumulative figures In the accompanying flnancial statement report combined Fund and GET operations.

Foreign Exchange

The financial statement is expressed in terms of US dollars solely for the purpose of summarizing the GEF

flnoncial position and the results of Its operatlons. Administrative expenses are Incurred In US dollars, while

project commitments are made by the Implementing Agencies In US dollars or Special Drawing Rights (SDRs),

as determined by their internal operating procedures. Pledges outstanding, cash, Investments and notes not

encashed In currencies other than USD are translated at market rates of exchange at the end of the accounting

period. Cash contributions and notes encashed In currencies other than USD are converted Into USD upon

receipt and are recorded at the rate ruling at the date of conversion. Investment income earned In currencies

other than USD is periodically converted into USD and recorded at the rate In effect on the date of conversion:

Investment income held in currencies other than USD at the end of the accounting period Is translated to USD

at the market rates of exchange in effect on the date the income was earned.

(Continued)



Investments and Investment Income

Monies held pending disbursement are Invested. Investment securities are recorded at cost or amortized cost.Investment Income earned on undisbursed advances to UNDP and UNEP Is apportioned from the agencies'scentral pools on an annual basis. Investment income accrues to the GEF.

Approved Commitments

The Implementing Agencies are authorized by the Council to make commitments by extending grants toeligible recipient countries.

Administrative Expenses

The Councii is responsible for approving the administrative budget of the GEF. The Bank (as ImplementingAgent and as Trustee, and in respect of costs It incurrs In providing administrative support to the Secretariat).UNDP and UNEP are reimbursed by the Fund for administration costs incurred on behalf of the GEF.

Included In cumulative administrative expenses of UNDP managed activities of USD 24.2 million Is USD 0.93million of expenses paid by UNDP on behalf of the Secretariat.

Project Disbursements

Each implementing Agency observes the same procedures and requires substantially the same documentationin connection with GEF disbursements as it does for Its own affairs.

Annex D

2. GEF Trust Fund - Operations of the Trusteeas of June 30, 1996 (Audited)

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

GLOBAL ENVIRONMENT FACILITY TRUST FUND -OPERATIONS OF THE TRUSTEE

WORLD BANK REFERENCETF020065

REPORT AND FINANCIAL STATEMENTJune 30. I

Price Waterhouse 7 -e Haoue :ew.v YorK

: ternationa; ' - nKVOIona Kcrn Nashington

. )naon

Price WVaterhouse

Report of Independent Accountants

September 19, 1996

To Global Environment Facility Counciland International Bank for Reconstructionand Development as Trustee for the GlobalEnvironment Facility Trust Fund

We have audited the accompanying statement of activities for the period July 1, 1995 to June 30,

1996 and for the period March 14, 1991 (date of inception) to June 30, 1996 of the Global

Environment Facility Trust Fund - Operations of the Trustee, for which the International Bank for

Reconstruction and Development (the Bank) acts as Trustee. This financial statement is the

responsibility of the Bank's management Our responsibility is to express an opinion on this financial

statement based on our audit

We conducted our audit in accordance with generally accepted auditing standards. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statement is free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statement. An audit also includes assessing

the accounting principles used and significant estimates made by management, as well as evaluating

the overall financial statement presentation. We believe that our audit provides a reasonable basis

for our opinion.

As described in Note 4, this financial statement was prepared on the basis of cash receipts and

disbursements, modified to reflect accruals in respect of administrative expenses incurred but not

paid. This financial statement is not intended to be a presentation in conformity with generally

accepted accounting principles.

In our opinion, the financial statement referred to above presents fairly, in all material respects, the

activities of the Global Environment Facility Trust Fund - Operations of the Trustee, for which the

Bank acts as Trustee, fortheperiodJuly 1,1995 to June 30, 1996 and for the period March 14, 1991

(date of inception) to June 30, 1996 on the basis of accounting described in Note 4.

( F)L~

GLOBAL ENVIRONMENT FACILIlY TRUST FUNDOPERATIONS OF THE TRUSTEE

STATEMENT OF ACTIVITIESExpressed in millions of US dollors

July 1, 1995 March 14, 1991

to (lnception) toJune 30. 199 June 30. 199

Receipts

Contributions

Cash $ 59.5 $ 277.5Notes encashed 123.5 562.5

Investment income 24.1 68.8

Total Receipts 207.1 908.8

Disbursements

Disbursements on behalf of and transfers and reimburse-ments to Implementing Agencies and the Secretariat

Disbursements on behalf of and expensereimbursements to IBRD 104.3 221.8

Transfers to UNDP - 181.6Transfers to UNEP 4.4 27.3Disbursements on behalf of and expense

reimbursements to the Secretariat 5.6 17.9Administrative expenses of the Trustee 0.7 3.2

Total Disbursements 115.0 451.8


Net foreign exchange losses (13.3) (11.6)

Change in fund balance 78.8 445.4

Fund balance at beginning of period 366.6 _

Fund balance at end of period $ 445.4 $ 445.4

Comprising:

Cash and investments S 444.0Accruals 1.4

$ 445.4The accompanying notes are an integral

port of this financial statement

GLOBAL ENVIRONMENT FACILITY TRUST FUNDOPERATIONS OF THE TRUSTEE


Included in pledges outstanding as of June 30, 1996 of USD 840.8 million are Qualified Instruments of

Commitment totaling USD 353.0 million. These may be converted into payments by way of notes or cash, only

upon approval by the legislatures of the concerned Participants.

NOTE 3 - ORGANIZATION AND OPERATION OF THE GEF TRUST FUND

The Global Environment Facility (GEF) was established by the Instrument for the Establishment of the

Restructured Global Environment Facility (the Instrument) to provide new and additional grant and concessional

funding to meet agreed Incremental costs of measures to achieve global environmental benefits In the focal

areas of climate change, biological diversity, international waters and ozone layer depletion and the agreed

incremental costs of such other relevant activities under Agenda 21 (the action plan of the 1992 United Nations

Conference on Environment and Development) that may be agreed by the Council. The Instrument provides for a

GEF Trust Fund (the Fund) to be established. In accordance with the provisions of the Instrument, the Fund

became effective on March 16, 1995, the date on which instruments of commitment for contributions to the

Fund deposited with the Trustee exceeded Special Drawing Rights (SDRs) 980.53 million. Wth the

establishment of the Fund the pilot phase Global Environment Trust Fund (GET) was terminated and all funds,

receipts, assets and liabilities held in the GET were transferred to the Fund at book value.

The Intemnational Bank for Reconstruction and Development (the Bank) was invited to serve as and accepted the

roles of Trustee and of one of three Implementing Agencies of the Fund. Under the Instrument, specific

responsibilities are assigned to each of, the Trustee, the Implementing Agencies and the Secretariat.

The resources of the Fund in the custodianship of the Trustee are kept separate from the resources of the

Bank.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES ANDPROCEDURES

Basis of Accounting

The accompanying financial statement reports the Fund operations of the Trustee, and not the consolidated

operations and financial position of the GEF or monies administered by each of the Implementing Agencies or

the Secretariat; separate financial statements report the operations of each of the Implementing Agencies and

the Secretariat. Cumulative figures in the accompanying financial statement report the combined Fund and

GET operations of the Trustee to June 30, 1996.

The financial statement has been prepared on the cash basis of accounting modified to include accruals in

respect of administrative expenses incurred but not paid.

Foreign Exchange

The financial statement is expressed In terms of United States Dollars (USD) solely for the purpose of

summarizing the Fund's financial position and the results of Its operations. Administrative expenses are

Incurred in USD. Pledges outstanding, cash, Investments and notes not encashed In currencies other than

(Continueo)

GLOBAL ENVIRONMENT FACILITY TRUST FUNDOPERATIONS OF THE TRUSTEE


USD are translated at market rates of exchange at the end of the accounting period. Cash contTibutions andnotes encashed in currencies other than USD are converted into USD upon receipt and are recorded at the raterullng at the date of conversion. Investment income earned in currencies other than USD Is perlodicallyconverted into USD and recorded at the rate in effect on the date of conversion; investment income held incurrencies other than USD at the end of the accounting period is translated to USD at the market rates ofexchange in effect on the date the income was earned.

Investments and Investment Income

Contributions pending disbursement are invested. Investment securities are recorded at cost or amortized cost.Investment income accrues to the Fund.

Disbursements, Reimbursements and Transters

On request from the Bank as an Implementing Agency and from the Secretariat, the Trustee makes projectdisbursements on their behalf. The Trustee reimburses the Bank for administrative expenses incurred In its roleas an Implementing Agency. and for administrative expenses paid on behalf of the Secretariat. The Trusteemakes transfers to UNDP and UNEP from time to time upon request. Disbursements, reimbursements andtransfers are made on the basis of the budget and work program approved by Council.


The Fund reimburses the Bank for reosonable actual administrative costs it incurs in its capacity as Trustee.The Council is responsible for approving the administrative budget of the GEF.

Annex D

3. GEF Trust Fund - IBRD as an Implementing Agencyas of June 30, 1996 (Audited)

OPERATIONS OF THEINTERNATIONAL BANK FOR RECONSTRUCTION

AND DEVELOPMENT AS ANIMPLEMENTING AGENCY FOR THE

GLOBAL ENVIRONMENT FACILITY TRUST FUNDWORLD BANK REFERENCE

TF020065

REPORT AND FINANCIAL STATEMENTJune 30 1996

Price Waterhouse The Hague New York(International Fkmy Beijing Tokyo

Honqc K=g wa"nrt'nLondort

Price Waterhouse f

Renort of Independent Accountants

September 19, 1996

To Global Environment Facility Counciland Intemational Bank for Reconstructionand Development as ImplementingAgency forthe Global Environment Facility Trust Fund


1996 and for the period March 14, 1991 (date of inception) to June 30, 1996 of the portion of the

Global Environment Facility Trust Fund - Implementing Agency Operations for which the

International Bank for Reconsucion and Development (the Bank) acts as an Implementing Agency.

This financial statement is the responsibility of the Bank's management. Our responsibility is to

express an opinion on this financial statement based on our audit.







for our opinion.

As described in Note 2, this financial statement was prepared on the basis of cash receipts and





activities of the portion of the Global Environment Facility Trust Fund - Implementing Agency

Operations, for which the Bank acts as an Implementing Agency, for the period July 1, 1995 to June

30, 1996 and for the period March 14, 1991 (date of inception) to June 30, 1996 on the basis of

accounting described in Note 2.

(ew)

GLOBAL ENVIRONMENT FACILITY TRUST FUNDOPERATIONS OF THE INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT AS AN IMPLEMENTING AGENCY

STATEMENT OF ACTIVITIESExpressed in millions of US dollars

July 1, 1995 March 14, 1991to (inception) to

June 30. 1996 June 30. 1996Disbursements

Project disbursements $ 89.7 $ 161.2Administrative expenses 14.6 60.6

$ 104.3 $ 221.8

Of which:

Disbursed by the Trustee on behalf of theImplementing Agency $ 89.7 $ 161.2

Reimbursed by the Trustee 14.0 60.0Reimbursable by the Trustee 0.6 0.6

$ 104.3 $ 221.8

The accompanying notes are an Integralpart of this flnancial statement

GLOBAL ENVIRONMENT FACILITY TRUST FUND

OPERATIONS OF THE INTERNATIONAL BANK FOR RECONSTRUCTION

AND DEVELOPMENT AS AN IMPLEMENTING AGENCY

NOTES TO THE FINANCIAL STATEMENT


The Global Environment Facility (GEF) was established by the Instrument for the Establishment of the

Restructured Global Environment Facility (the Instrument) to provide new and additional grant and concessional

funding to meet agreed incremental costs of measures to achieve global environmental benefits In the focal

areas of climate change, biological diversity, international waters and ozone layer depletion and the agreed





Fund deposited with the Trustee exceeded Special Drawing Rights (SDRs) 980.53 million. With the



The International Bank for Reconstruction and Development (the Bank) was invited to serve as and accepted the

roles of Trustee cnd of one of three Implementing Agencies of the Fund. Under the Instrument, specific

responsibilities are assigned to each of, the Trustee, the Implementing Agencies and the Secretariat.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POUCIES AND

PROCEDURES

Basis of Accounting

The accompanying financial statement reports the Fund operations of the Bank as an Implementing Agency of

the Fund, and not the consolidated operations and financial position of the Fund or monies administered by

each of the other Implementing Agencies or the Secretariat; separate financial statements report the operations

of the Trustee. each of the other Implementing Agencies and the Secretcriat. Cumulative figures in the

accompanying financial statement report the combined Fund and GET operations of the Bank as an

Implementing Agency to June 30, 1996.

The financial statement has been prepared on the cash basis of accounting modifled to include accruals in



The Bank observes the same procedures and requires substantially the some documentation in connection with

Fund disbursements and advances as it does for its own affairs.

(continued)

GLOBAL ENVIRONMENT FACILITY TRUST FUNDOPERATIONS OF THE INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT AS AN IMPLEMENTING AGENCY

NOTES TO THE FINANCIAL STATEMENT (continued)

On request from the Bank as an Implementing Agency, the Trustee makes project disbursements on its behalf.Project disbursements at June 30. 1996 include both disbursements for project expenditures and outstandingadvances to grant recipients for future expenditures.


The Fund reimburses the Bank for reasonabie actual administrative costs it incurs in its role as an ImplementingAgency. The Council is responsible for approving the administrative budget of the GEF.


The Bank is authorized by the Council to make commitments by extending grants to eligible recipient countries.

NOTE 3 - SCHEDULE OF APPROVED COMMITMENTSExpressed in millions of US dollars

June 30, 1 June 30. 1995

Approved CommitmentsInvestment Projects $ 515.7 $ 418.3Project Preparation Advances (PPA) 13.1 13.7Project Preparation and Development (PDF) 6.4 0.8

Total Project Commitments 535.2 432.8

Cumulative disbursements 161.2 71.5

Commitments Awciftng Disbursement $ 374.0 $ 361.3

Annex D

4. GEF Trust Fund - Operations of the Secretariatas of June 30, 1996 (Audited)

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

GLOBAL ENVIRONMENT FACILITY TRUST FUND -OPERATIONS OF THE SECRETARIAT

WORLD BANK REFERENCETF020065

REPORT AND FINANCIAL STATEMENTJune 30. 1996

Price Waterhouse

Price Waterhouse The Hague New York

(International Firm) Beijing Tokyo

Hong Kong Washington

London

Price Waterhouse ft

Report of Independent Accountants

September 19, 1996

To Global Environment Facility Counciland International Bank for Reconstructionand Development and to the Secretariat for

the Global Environment Facility Trust Fund


1996 and for the period March 14, 1991 (date of inception) to June 30, 1996 of the Global

Environment Facility Trust Fund - Operations of the Secretariat. This financial statement is the

responsibility of the Bank's management. Our responsibility is to express an opinion on this

financial statement based on our audit.







for our opinion.

As described in Note 2, the financial statement was prepared on the basis of cash receipts and





activities of the Global Environment Facility Trust Fund - Operations of the Secretariat, which is

supported administratively by the International Bank for Reconstruction and Development, for the

periodJuly 1, 1995 to June 30, 1996, and for the period March 14, 1991 (date of inception) to June

30, 1996 on the basis of accounting described in Note 2.

GLOBAL ENVIRONMENT FACILITY TRUST FUNDOPERATIONS OF THE SECRETARIAT

STATEMENT OF ACTIVITIESExpressed in millions of US dollars

July 1, 1995 March 14,1991to (inception) to

June30. 1996 June30. 1996Disbursements

Project disbursements $ 0.4 $ 0.9Administrative expenses 5.2 17.0

$ 5.6 $ 17.9

Of which:

Disbursed by the Trustee on behalf of theSecretariat $ 0.4 S 0.9

Reimbursed by the Trustee 4.4 16.2Reimbursable by the Trustee 0.8 0.8

$ 5.6 $ 17.9

The accompanying notes are an integralpart of this financial statement

GLOBAL ENVIRONMENT FACILITY TRUST FUND

OPERATIONS OF THE SECRETARIAT

NOTES TO THE FINANCIAL STATEMENT


The Global Environment Facility (GEF) was established by the Instrument for the Estoblishment of the

Restructured Global Environment Facility (the Instrument) to provide new and additioncl grant and concessional

funding to meet agreed incremental costs of measures to achieve global environmental benefits in the focal

areas of climate change, biological diversity, internationcl waters and ozone layer depletion and the agreed





Fund deposited with the Trustee exceeded Special Drawing Rights (SDRs) 980.53 million. With the



The GEF Secretariat is supported administratively by the International Bank for Reconstruction and

Development (the Bank) and operates in a functionally Independent manner to discharge the responsibilities

allotted it under the Instrument. The Instrument similarly allots other responsibilities to the Trustee and the

Implementing Agencies.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES AND

PROCEDURES

Basis of Accounting

The accompanying financial statement reports the Fund operations of the Secretariat, and not the consolidated

operations and financial position of the Fund, nor monies administered by each of the Implementing Agencies:

separate financial statements report the operations of the Trustee and of each of the Implementing Agencies.

Cumulative figures in the accompanying financial statement report the combined Fund and GET operations of

the Secretariat to June 30, 1996.

The financicl statement has been prepared on the cash basis of accounting modified to include accruals in



On request from the Secretariat the Trustee makes project disbursements on its behalf.

(Continued)

GLOBAL ENVIRONMENT FACILITY TRUST FUNDOPERATIONS OF THE SECRETARIAT

NOTES TO THE FINANCIAL STATEMENT (continued)


The Bank is reimbursed by the Fund for the reasonable actual administrative costs it incurs in providingadministrative support for the Secretariat. The Council is responsible for approving the administrative budget ofthe GEF.


The GEF Administrctor's Office, to which the Secretariat is the successor, was authorized by the GlobalEnvironment Facility Pilot Phcse participants. twenty nine members of the Bank and Switzerland, to commit anexpenditure of USD 2.6 million in respect of the Program for Measuring Incremental Costs for the Environment(PRINCE) project.

NOTE 3 - SCHEDULE OF APPROVED COMMITMENTSExpressed in millions of US dollars

|June 30. 199 June 30. 1995

Approved CommitmentsPRINCE project

S 2.6 $ 2.6

Total Project Commitments 2.6 2.6

Cumulative disbursements 0.9 0.5

Commitments Awaiting Disbursement $ 1.7 S 2.1

Annex D

5. UNEP - Externally Audited GEF Accountsas of December 31, 1995 (Audited)

+254 2 623162FROM: GEF COORD PDMIN FAX H0.: N 254 2 623162 05- 11 -96 1 7: 18 P .0 210o/25/96 15:34 V.AX Z129633684 L\NBOARD-OF-AUDIT 0 002

UNITED NATIONS ( NATIONS UNIES

SOARD OF AUOITORS

NEW YORK

25 October 1996

Dear Mrs. E. Dowdcswell,

I enclose herewith our audit opinion and long-fonrn report on the audit of the Global EnvironmentFaculties (GEF) Trust Fund of UNE-P. Your letter dated 18 September 1996 refers.Kindly acknowledge receipt.

Yours sincerely,

Direct ternal Audit, India

Mrs. Elizabeth DowdeswellUnder-Secretary-GeneralExecutive SecretaryUnited Nations Environment Programme (UNEP)P.O. Box 30552NairobiKenya

FROM : GEF COORD ADMIN 1 H+254 2 623162

lo'Z5'96 I5:Js. r.s - FAX NO.: + 254 2 62316205-1 1-96 17:18 P .0:3

THE. INITED NATIONS OARD Off-AUDITORS

THE UNITED NATIONS ENV1RONMENr PROGRARM

UDIX OErIQ

We have audited the accompanying Statcment of CominiLmnents as of 31 Deccmber 1994 and 31

December 1995 and the Statement of Changes in Cash and Lnvestments for the ycars tCe caded of the

Global Environecnt Facility (GEF) Trust Fund of the United Nations Environment Programme (UNEP).

These statements are the responsibility of UNEP management. Our responsibility is to express an opinion

on these statemeats based on our audit.

We conducted our audit in accordance with the Commoin Auditing Standards of the Panel of

External Auditors of the United Nations, Spccialized Agencies and the International Atomic Encrgy

Agency. Our examination included a general revicw of the accounting procedures and such tests of the

accounting records and other supporting evidence as wcre considered necessary in the circunstances.

We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the anncxed statements present fairly, in all material respec.s, the comrnutmenrs

made by andi the fuiancial position of the Global Environncnt Facility Trust Fund as of 31 Deccmber 1994

and 31 Deccmber 1995 respectively and the changes in cash and invest=ents for the years then ended. 31

December 1994 and 31 December 1995 respectively Further, in our opinion. the resources of the Trust

Fund have been uscd in accordance with the Instrument for the establishment of the Global Environment

Facility and the decisions taken by the Council.

Our long form report on the audit of the Global Environmental Faciliry Trust Fund of UNEP is

attached.

.. ....... .. ..Dj f External Audit, India

On be of the United Nations Board of Auditors

Date: 25 October 1996DC 1-2680New York NY 10017

ANNEX A

Global Environmental Facility Trust FundFinvAgia1 Statement for UNEP

Statement of Cbanges in casb and investmentsExpressed in mllons of US dollar

1994 1995 1994/1995

Receipts

Djsbursemnents received from Trustee 12.032 4.655 1S.697Investment Income

0.242 0.492 0.734Miscell.aneous Income

0 0.003 0.003Total Receipts 12.274 S.150 17.424

Outgoings

Disbursements 5.383 4.543 9.924

Administrative Rxpenacs 1.953 1.657 3.610Total Outgoings 7.334 6.200 13.534

Increase (Decrease) in cashand investments

4.940 (1.050) 3.890Cash and investments at beginningof period

L.955 6.895 1.95SCash and investments at end of period 6.895 5.845 5.945

ANNEX 3

Global Environmental Facility trust Fund

Financial Statement for CMP

statement of Commit3e0.ta

Exprsmand in mlllioona of US dollars

1994 199S 1994/1935

Approved cOV=tzt=ent

Investment projects 0 0 0

Technical Asaintanc* 9.831 9.264 l9.095

pre-2nveatment Facility (PRIW) 0 0 0

Project Preparation Advar.ce (PPA/PDF) 0 O.025 0.025

Other (Administrative project) 1.417 1.344 2.761

STAP 0.674 1.112 1.786

Total approved commitment 11.92Z 11.745 23.667

Annex E

Contributions to GEFas of September 30, 1996

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I

ANNEX E

Contributions to GEF as of September 30, 1996Special Drawing Rights (SDR millions)

Pilot Phase 1 First GEF Replenishment Total CoreCo-/Parallel Core Contributions

Core Financing Contributions 2 Pledges

Argentina - - - 3-57

Australia 9.68 8.03 10.42 20.84 20.10Austria 26.02 - 7.14 14.28 33.16

Bangladesh - - 1.00 2.00 1.00

Belgium 5.00 5.00 14.76 22.86 19.76

Brazil 4.00 - - 4.00 4.00

Canada 6.33 9.50 41.15 61.78 47.48

China 4.00 - 4.00 4.00 8.00

Cote d'lvoire 2.00 - 2.00 4.00 4.00

Czech Republic - - 2.00 4.00 2.00

Denmark 16.25 - 12.54 25.08 28.79

Egypt 4.00 - - 4.00 4.00

Finland 20.44 - 15.45 15.45 35.89

France 110.08 - 51.13 102.26 161.21

Germany 110.02 - 85.65 171.30 195.67Greece - - 0.89 3.57 0.89

India 4.00 - 3.00 6.00 7.00

Indonesia 4.00 - - - 4.00

Ireland - - 0.44 1.71 0.44

Italy 65.14 - 20.47 81.86 85.61

Japan 27.36 19.08 3 295.95 295.95 323.31Korea - - 1.72 4.00 1.72

Luxembourg - - - 4.00

Mexico 4.00 - 2.00 4.00 6.00

Netherlands 37.74 - 25.49 50.97 63.23New Zealand - - 2.00 - 2.00

Nigeria 4.00 - - - 4.00

Norway 19.56 - 11.15 22.29 30.71

Pakistan 4.00 - 2.00 4.00 6.00

Portugal 4.50 - 2.00 4.00 6.50

Slovak Republic - - 1.00 4.00 1.00

Spain 10.00 - - 12.36 10.00

Sweden 24.54 - 20.80 41.60 45.34

Switzerland 30.06 8.62 15.99 31.97 46.05Turkey 4.00 - 2.00 4.00 6.00

United Kingdom 54.73 - 48.02 96.04 102.75United States - 109.60 110.63 306.92 110.63

Total 615.46 159.83 812.77 1438.66 1428.23

1 In SDR equivalents based on average daily exchange rates for the three month period ending September 30, 1990

2 In SDR equivalents based on average daily exchange rates for the period February 1, 1993 to October 31, 1993.

Includes payments in the form of promissory notes or cash. SDR 1 = US$1.401 03 Based on grant equivalence

Addendum

Subsequent to printing of the Annual Report, the Trustee received UNDP's "Financialreport and audited financial statements for the biennium ended 31 December 1995" (theFinancial Report) and the associated "Report of the Board of Auditors" (the AuditReport).

The Trustee notes that the Audit Report is qualified with respect to the effect of anyadjustments that may be found to be necessary upon receipt of outstanding auditedexpenditure statements related to nationally executed projects. However, as explained inAnnex D of the GEF Annual Report, the UNDP Financial and Audit reports report on theentirety of UNDP's operations and not just on its GEF operations. Based on additionalinformation provided by UNDP, audited expenditure statements have not been receivedin respect of $10.9 million of UNDP's 1995 GEF disbursements which amounts to 9% oftotal GEF disbursements during the same period. Looking forward, UNDP has assuredthe Trustee it is taking steps to ensure sufficient audit coverage with the aim of providingits extemal auditors with the evidence they need to support an unqualified audit opinionon the discrete annual GEF financial statements it has undertaken to provide from 1996onwards. The first of these audited GEF financial statements, in respect of the year toDecember 31, 1996, is expected to be available by June or July of 1997.

Copies of UNDP's 1995 Financial Report and Audit Report from the Board of Auditorsare available from the Secretariat upon request.

X r (l I G

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