Document of

The World Bank

Report No. 17160-CE

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED GRANT

FROM THE

GLOBAL ENVIRONMENT FACILITY TRUST FUND

IN THE AMOUNT OF SDR 3.4 MILLION

TO THE

GOVERNMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR A

CONSERVATION AND SUSTAINABLE USE OF MEDICINAL PLANTS PROJECT

NOVEMBER 6,1997

Rural Development Sector UnitSouth Asia Region

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Currency Equivalents(January 31, 1997)

Currency unit-Sri Lankan Rupee (SLR)US$ 1.00 = SLR 57.19

SLR 1 million = US$ 17, 486

Fiscal YearJanuary 1 to December 31

Weights and MeasuresMetric Unit System

Metric Unit = British/US Equivalent1 centimeter = 0.39 inch1 meter = 39.37 inches1 kilometer = 0.62 mile1 hectare (ha) = 2.47 acres1 square kilometer (km2) = 0.386 square mileI cubic meter (mi) 3 35.31 cubic meterI liter (1) = 0.264 gallons1 kilogram (kg) = 2.205 pounds1 metric ton (m ton) = 2,205 pounds

Abbreviations and Acronyms

ADB Asian Development BankBAP = Biodiversity Action PlanBMARI = Bandranaike Memorial Ayurvedic Research InstituteCAMC Conservation Area Management CommitteeCAS = Country Assistance StrategyCBO = Community Based OrganizationCISIR Ceylon Institute for Scientific and Industrial ResearchGEF = Global Environment FacilityGoSL Government of Sri LankaLOI Letter of InvitationMIM = Ministry in charge of Indigenous MedicineMoU = Memorandum of UnderstandingMPCA Medicinal Plant Conservation AreaMPRMC Medicinal Plant Reserve Management CommitteeMFE = Ministry of Forestry and EnvironmentNEAP = National Environmental Action PlanNGO Non-Governmental OrganizationNPSC National Project Steering CommitteeNTFP Non Timber Forest ProductsPA = Protected AreaPD Project DirectorPMU = Project Management UnitPPMC Provincial Project Management CommitteeSNR = Strict Nature ReserveSTAP Scientific and Technical Advisory PanelUNDP = United Nations Development ProgramVPMC = Village Project Management CommitteeWHO - World Health Organization

Vice President: Mieko NishimizuCountry Director: Roberto Bentjerodt

Sector Managers: Ridwan Ali/Michael BaxterTask Managers: Nadim Khouri/Malcolm Jansen

SRI LANKA

CONSERVATION AND SUSTAINABLE USE OF MEDICINAL PLANTS PROJECT

Project Appraisal Document

Table of ContentsPage

PROJECT DATA SHEET iii

BLOCK 1: PROJECT DESCRIPTION ............................ 1

A. Project Development Objectives .1B. Project Components .1C. Benefits and Target Population. 2D. Institutional and Implementation Arrangements. 2

Institutional Arrangements. 2Implementation Period. 3Executing Agencies. 3Project Oversight. 4Accounting, Financial Reporting and Auditing Arrangements 4Monitoring and Evaluation .............................................. 4

BLOCK 2: PROJECT RATIONALE .......................................................... 4

A. CAS Objectives Supported by the Project. 4B. Main Sector Issues and Government Strategy. 5C. Sector Issues to be Addressed b-y the Project. 6D. Project Alternatives. 7E. Major Related Projects .7F. Lessons Learned and Reflected in Project Design. 8G. Indications of Beneficiary Commitment and Ownership. 9H. Value Added of GEF and Bank Support. 9

BLOCK 3: SUMMARY PROJECT ASSESSMENTS ......................................... 10

A. Economic Assessment .10Economic Analysis .10Incremental Cost Analysis .10Fiscal Impact .11

B. Financial Assessment .12C. Technical Assessment .12D. Institutional Assessment. .13

E. Social Assessment .............. .................... 13Socio-Economic Characteristics .13Indigenous People .14Social Issues Addresses by the Project .14

F. Environmental Assessment.. 15G. Participatory Approach .16H. Sustainability .16I. Critical Risks .17J. Possible Controversial Aspects .18

BLOCK 4: MAIN GRANT CONDITIONS .18

A. Conditions for Effectiveness . . .18B. Other ... 18

BLOCK 5: COMPLIANCE WITH BANK POLICIES... 19

LIST OFANN~EXES

1: Project Design Summary2: Detailed Project Description3: Estimated Project Costs4: Incremental Costs and Global Environmental Benefits5. Financial Summary6.- Procurement and Disbursement Arrangements6A. Project Costs by Procurement Arrangements6B. Thresholds for Procurement Methods and Prior Review6C. Allocation of Grant Proceeds7. Project Processing Budget and Schedule8. Documents in the Project File9. Statement of Loans and Credits10. Country at a Glance

Map Number IBRD 29161 : Proposed Medicinal Plant Reserves and their ClimaticCharacteristics

iiiINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

South Asia Region

Project Appraisal Document

Sri LankaConservation and Sustainable Use of Medicinal Plants Project

Date: October 27, 1997 [] Draft [x] FinalTask Manager: Nadim Khouri/Malcolm Jansen Country Manager: Roberto BentjerodtProject ID: LK-GE-35828 Sector: AgricultureLending Instrument: PTI: [x] Yes [] No

Project Financing Data [] Loan [ Credit [ Guarantee [x] Other (GEFgrant)

For LoanslCredits/Others:

Amount (US$m): 4.57 SDR: 3. 4 millionProposed Terms: [X] Multicurrency [] Single currency

Grace period (years): [] Standard Variable [] Fixed [] LIBOR-basedYears to maturity:Commitment fee: % Not applicable

Service charge: %

Financing plan (US$m):Source Local Foreign Total

Government 0.41 0.09 0.50CofinanciersIBRD/IDAGEF 3.22 1.35 4.57Other (specify)Other (specify)Borrower:Guarantor:Responsible agency(ies):Estimated disbursements (Bank FY/US$M): 1998 1999 2000 2001 2002 2003

Annual 0.43 0.96 0.99 0.90 0.87 0.42Cumulative 0.43 1.40 2.38 3.28 4.15 4.57

For Guarantees: Not applicable [] Partial Credit [ Partial risk

Proposed coverage:Project sponsor:Nature of underlying financing:Terms offinancing:

Principal amount (US$)Final maturity

Amortization profileFinancing available without guarantee?: [ Yes [ NoIf yes, estimated cost or maturity:Estimated financing cost or maturity with guarantee:

Expected effectiveness date: By March 15, 1998 Closing date: June 30, 2003

I

Block 1: Project Description

A. Project Development Objectives (see Annex 1 for key performance indicators):

1. The objective of this project is to conserve globally and nationally significant medicinal plants,their habitats, species and genomes and promote their sustainable use in Sri Lanka.

B. Project Components (see Annex 2 for a detailed description and Annex 3 for a cost breakdown):

Component Category Cost Incl. Y%OfContingencies lta

(US$M)Expansion of in situ 1. Establishment of MPCAs. approximately 2.07 41%conservation: this willinclude the installation of 2. Baseline data collection.Medicinal PlantConservation Areas 3. Development of Village Action Plans.(MPCAs) in five areas(Bibile, Ritigala, Naula, 4. Sustainability studiesRajawaka and Kanneliya)where there is active 5. Conservation Strategy for MPCAscollection from the wild.

6. Extension and Education in the MPCAs.

Expansion of ex situ 1. Establishment of two new nurseries. approximately 0.48 9 %cultivation andconservation 2. Improve existing nurseries.

3. Research on propagation.

4. Home gardening and plantation research.

5. Dissemination of research results.

Information and 1. Promotion of appropriate legal and policy approximately 2.52 50 %institutional support environment through studies and

- - recommendations for regulations.

2. Establishment of information network onmedicinal plants.

3. Training and mass awareness onmedicinal plant conservation.

4. Monitoring and evaluation.

5. Support for project management,coordination and advisory functions.

TOTAL 5.07 million 100%

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C. Benefits and Target Population

2. The project's benefits accrue at both global and local level. Global benefits of this project willinclude the conservation of rare and endemic medicinal plants. At least 189 species of 1,414 medicinalplants used in Sri Lanka are endemic to the island (or geographically restricted to the Indian sub-continent) including 79 species which are threatened. Even among the non-endemic species found in SriLanka, the indigenous populations often represent types that are distinct from those found elsewhere.Conservation of these plants will secure the continued existence of these rare and endemic species ofplants. Another global contribution of the project will be the preservation of traditional knowledge onmedicinal plants. Practitioners knowledge of plants and their uses will be globally recognized and thesource of this knowledge will be easily identifiable. Laboratory research on plants and their uses willalso augment existing information on this subject. Research on identification of methods and levels ofsustainable extraction will help to improve global knowledge on sustainable cultivation of medicinalplants.

3. Benefits at the local level will include increased choices of livelihood and better incomeopportunities for people who will be involved in home gardening and plant cultivation. Further, MPCAswill induce a small increase in income for local communities. The project will also broaden people'schoices of livelihood by promoting alternative sources of income generation. Management of MPCAsand educational site visits will provide employment to local people. The project's focus on communityparticipation will promote community involvement in resource conservation and more equitable sharingof natural resources and benefits. The project will also clarify the role of the community andgovernmental agencies in resource management.

4. National benefits of the project will include improved supply of medicinal plants. Improvedinformation will be available on factors which affect the supply of plants and existing sources ofknowledge will be compiled and preserved in-country to maximize national benefits. An analysis ofmarket factors will promote greater efficiency in the production of traditional medicine and removesupply side inconsistencies which hinder their availability throughout the year. Further, the project willpromote sustainable use of natural resources through managing critically endangered habitats andmonitoring its rate of regeneration. The project will also build skills and increase awareness on theimportance of conserving medicinal plants.

5. Target Population: The project will work in close collaboration with local people to devise astrategy for the planning and implementation of activities. Through its alternative income generatingactivities, the project will also target people inhabiting villages close to the five MPCAs. The projectwill specifically target the growers of medicinal plants and improve their skills through a training andextension program. Additionally, the project will make every effort to include women, poorhouseholds and indigenous people in project activities. Practitioners of traditional medicine will alsoform an important target group and their knowledge of plants and uses will be compiled andpreserved. Another target group will be the visitors attracted to the sites who will gain information onplants and whose visits will be a source of income for the local communities.

D. Institutional and Implementation Arrangements

6. Institutional Arrangements: A temporary project management unit (PMU) will be establishedat the Ministry of Health and Indigenous Medicine (MIM). The PMU will be headed by a ProjectDirector (PD), supported by a Program Officer reporting to the Secretary, MIM. The PMU will

3

implement the Project through line departments, provincial councils and other institutions. Theimplementation of project activities will be the responsibility of the respective cooperating agenciesunder the overall coordination of the Project Director. As this project involves a diverse set ofstakeholders with a substantial involvement at the provincial level, the long term commitment of theprovincial administration will be ensured by the MIM entering into a Memorandum of Understanding(MOU) with the Provincial Councils detailing the cooperation and collaboration required, together withthe arrangements for disbursement of funds. The Provincial Commissioner of Department of Ayurvedawill act as a focal point who will overlap with the PD and the implementing agencies in the provinces.

7. To facilitate the implementation of village based activities, the project will identify andorganize Community Based Organizations (CBOs) to participate in the project. The CBOs will bestructured to ensure full scale community involvement in the planning and, later, management of theMPCAs. The project will establish a Village Project Management Committee (VPMC) consisting ofcommunity representatives and representatives of the concerned State agencies for local planning. Anumbrella organization, the Conservation Area Management Committee (CAMC) will oversee the-management of the herbarium, nursery, dispensary and the information center based at each MPCA. Itwill consist of representatives of the concerned State agencies, the Project Officer of the projectmanagement office established for the conservation area, and representatives of the relevant stateorganizations. The VPMC and CAMC will function in the five MPCAs only, and will be guided by aProvincial Project Management Committee (PPMC) at the provincial level. Comprising ofrepresentatives of government agencies and NGOs, the PPMC will meet quarterly to oversee theimplementation of project activities including monitoring and evaluation, approve plans of action andother related matters.

8. The project will have a National Project Steering Committee (NPSC) to provide overallguidance for project implementation and to ensure that project activities are consistent with theagreed objectives. The NPSC will also approve annual work plans and budgets for the project. TheMIM has suggested that the NPSC will be composed of the Secretaries in charge of IndigenousMedicine, Lands, Agriculture, Plantation Industries, Environment and Forests, the heads of theDepartments of Forestry, Wildlife Conservation, the Commissioner of Ayurveda, representatives ofthe Department of External Resources, participating Provincial Councils, and other relevantinstitutions, NGOs and parties.

Implementation Period: Five years

9. Executing Agencies: The Ministry of Health and Indigenous Medicine will be the principalproject executing agency with the Department of Ayurveda in charge of project management. Otheragencies directly involved in implementation of project activities include the Forest Department andthe Department of Wildlife. The project will link with the following entities (i) Provincial Councils ofprovinces where MPCAs will be established; (ii) the Agriculture Department's Extension andCommunication Center in Peradeniya; (iii) NGOs established in the areas covered by the MPCAs.

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10. Project Oversight (policy guidance, etc.): Project Oversight will be provided by the NationalProject Steering Committee.

I1. A joint international/national advisory group will meet in years 1, 3 and 5 of the project andwill hold workshops in those years to promote a forum for scientific and technical exchange ofregional and global importance.

12. Accounting, Financial Reporting and Auditing Arrangements: Disbursement of funds fromthe PMU will be based on an annual allocation and on an approved program of work. The cooperatingagencies will establish separate accounts for the project. These accounts, together with supportingdocumentation will provide a comprehensive record of project financing and expenditures. Assuranceswill be sought from the MIM that: (a) project accounts will be maintained and audited annually withsound auditing standards applied by independent and qualified auditors will be submitted to the Bank nolater than six months after the closing of each fiscal year; and (c) that the Special Account will beaudited annually and an audited statement of the account and the auditor's report will be submitted to theBank no later than six months after the close of each fiscal year. The formats for accounting reports willbe developed and agreed between the PMU, the Bank and the Auditor General. Certification of auditreports will be the responsibility of the Secretary, MIM, who will be the chief accounting officer.Auditing of accounts will be done by the Auditor General of Sri Lanka. Financial progress reportsindicating financial and physical progress will be made on a quarterly basis to ensure that up to dateaccounting books are maintained.

The PMU will transfer funds as an imprest, at the beginning of each year to the cooperating agencieson the basis of the agreed workplan. The imprest will be renewed at regular intervals by thesubmission of statement of accounts for the previous implementation period.

13. Monitoring and Evaluation Arrangements: M&E will be the primary responsibility ofProject Officer and staff . However, overall responsibility will lie with the Project Director who willhead the Project Management Unit to be set up within the Department of Ayurveda. The M&Efindings will be reported to the National Project Steering Committee by the Project ManagementUnit. The project will also assign a provincial officer for M&E at least on a part time basis. M&E atthe community level is critical to the smooth operation of the project. Once project activities are inplace, small committees will be formed at the community level, chaired by a person elected by thecommunity itself for this purpose. M&E at the next level will be undertaken by the District AyurvedaConservation Committees which will select representatives from the communities to monitor projectactivities. The Ayurveda Conservation Committee through its representation on the Provincial ProjectManagement Committee will link communities at provincial level for M&E. In addition, the projectwill contract the impact monitoring of activities to an independent multi disciplinary team from anindependent research institution or university.

Block 2: Project RationaleLatest CAS discussion, May 21, 1996, Document No. 15633-CE.

A. CAS Objective(s) Supported by the Project:

14. This project fits the CAS objectives to be pursued jointly by GoSL and the Bank. In particular,the conservation of natural resources is one area of priority of this strategy. Other country strategies thatthis project will contribute to include: (i) poverty reduction by the potential increase and diversification

5

of home gardening and plantation productivity; and (ii) institutional reform to ensure optimalcooperation and participation of private/public sectors and strengthening of institutions where there areclearly valid roles for them. The project is well integrated in Sri Lanka's NEAP and other relatednational development plans (in Forestry and Indigenous Medicine mainly) and is one of the areas ofpriority covered in Sri Lanka's Biodiversity Action Plan (BAP).

B. Main Sector Issues and Government Strategy

15. Decreasing populations of medicinal plants is the key issue in the sector. The factors whichcontribute to this are as follows:

16. Unsustainable collection and cultivation practices: The number and quality of medicinal plants isadversely affected by overharvesting and lack of care to their habitat when collecting plants from thewild. Overharvesting of plants is directly linked to the high demand for Ayurvedic medicines. Currently60% of the demand for medicinal plants is met through imports. The domestic production which meetsthe remaining demand, does so through over-exploitation of indigenous plant resources. Since most ofthe supply for plants is from the wild, this has led to overharvesting of wild populations of species.Nursery capacity and cultivation in home gardens, which has the potential to increase supply of plantsand thus take the pressure off wild stocks, is too restricted at present to meet the demand. In addition,increased demand for agricultural land and unsustainable cultivation practices such as shifting cultivationand 'Chena" or slash and burn cultivation destroy plant habitat. As a result about 79 species of medicinalplants are immediately threatened with extinction.

17. Lack of information, awareness and technical skills on medicinal plants and their uses: Since nocomprehensive analysis of social and economic causes of plant loss has yet been undertaken, the keycauses and effects of plant loss are not clear. Further, the lack of comprehensive and authoritativeinformation on medicinal plants hinders an assessment of their status, implementation of activitiesnecessary for preserving their habitat and monitoring the effect of rehabilitative efforts. At present eitherthe sources of knowledge are contradictory (e.g. several plants are identified under different names anduses by practitioners of traditional medicine) or are scattered and fragmentary.

18. Sri Lanka is fortunate to have a rich stock of indigenous knowledge on medicinal plants due to alarge number of practitioners of traditional medicine. However, this important source of knowledge iscurrently under threat as little effort has been made to understand and document their knowledge. As aresult, the death of a practitioner signifies a net loss to the pool of this important source of information. Ashortage of skills in ethnobotany is a key reason underlying the loss of this knowledge and hinderedeffective conservation strategies.

19. Government Strategy: Realizing the value of medicinal plants, GoSL has taken several steps toconserve them, for instance, through formation of medicinal plant gardens and Protected Areas (PAs).Despite the lack of resources and technical expertise, GoSL has taken measures for both in situ and exsitu conservation. In situ conservation is undertaken by various Departments through a system of PAs forwhich Sri Lanka has reserved 12% of its land area. Managed by the Forestry and Wildlife ConservationDepartments, PAs play an important role in conservation through maintaining natural habitats of wildplants and animals. Ex situ conservation has included the formation of medicinal plant gardens andnurseries. The Department of Ayurveda has established three medicinal plant gardens, some with supportform the IJNDP, WHO and WWF, and two extension centers. Smaller gardens are maintained at districtAyurvedic hospitals. In addition, a 100 hectare medicinal plant garden has been established atKataragama which is now under the administration of the Department of Town and Country Planning.Other efforts in this sector include demonstration plots set up by the Forest Department.

20. Despite Sri Lanka's commitment to the sector, its ability to provide increased resources and

6

attention to conservation and sustainable use of medicinal plants is limited due to other political andeconomic priorities. Consequently, funding for key ministries dealing with the conservation of medicinalplants, such as the Ministry of Forestry and Environment (MFE) and MIM, is expected to maintaincurrent expenditures roughly adjusted for inflation. While conservation of plants through PAs is animportant means of addressing plant loss, other factors such as lack of skills, information, improved exsitu conservation, research and methods to increase the supply also merit close attention. Throughaddressing these concerns, the project will enhance and augment the sector strategy pursued so far andcomplement ongoing conservation projects by GoSL and donors.

C. Sector Issues to be Addressed by the Project:

21. Inadequate Management of Habitats where Medicinal Plants are Found in the Wild: Throughcreation of five Medicinal Plants Conservation Areas (MPCAs), the project will sustain wild populationsof key plant species, monitor their population, harvesting and regeneration patterns and implementprogramns to conserve threatened species. The MPCAs are situated in areas which host populations ofthreatened and endemic species and where plant habitat is currently under threat. Management of habitatin MPCAs will be undertaken according to management plans drawn with the aid of participatoryplanning. Management plans will establish zones for-defining the types of activities that can be carriedout without undue damage to plant habitats. The nature and extent of human activities in the plant habitatwill be discussed and agreed with local communities. Extension and awareness building activities willtrain collectors to harvest wild plants without damaging their habitat.

22. Habitat management will also include measures to reduce overharvesting of plants. Managementof MPCAs will include enrichment planting to increase plant populations. Enhancement of nurserycapacity and support for home gardening and community cultivation of plants will increase the supply ofplants and take pressure off wild stocks which are overharvested to meet their high demand. The projectwill also conduct research to ascertain methods and levels of sustainable cultivation and pilot the resultsfrom research in MPCAs. Research will also identify plant uses and characteristics and it is likely thatthis information will be useful in substituting overused plants with those readily available to reduce thethreat to overharvested species.

23. Lack of Knowledge and Awareness on the Conservation of Medicinal Plants: The project willpromote mass awareness of the importance of conservation through (i) promoting educational site visitsto the five MPCAs; (ii) development of school curricula to include information on medicinal plants; (iii)publishing handbooks and manuals containing information on-plants for the use of practitioners; (iv)conducting research and inventories to better understand the number of plant species, their uses,propagation and cultivation, sustainable levels of cultivation and the possibility of substituting threatenedspecies with those that are widely available; (v) enhancing existing knowledge through compilingexisting databases of plants; and (vi) conducting ethnobotanical studies to understand the traditionaluses of medicinal plants.

24. Inadequate Technical Skills to Allow the Cost-Effective Conservation of Species. NaturalHabitats and Knowledge Related to Medicinal Plants: In addition to the specific training needs identifiedfor the implementation of the in-situ conservation and ex-situ cultivation and conservation componentsof the project, training in specialized disciplines will be supported under the project. The project willfinance some specialized post-graduate level training positions in ethnobotany and sustainablemanagement in suitable institutions outside the country. This training will be available to staff of the

7

Departments of Ayurveda and Forestry, universities and research institutions.

25. Teacher training will also be conducted to include the development of teaching material onmedicinal plants and their conservation, discussions and review of materials by curriculum developersfor integration into existing syllabi, teacher orientation through seminars and workshops.

D. Project Alternatives Considered and Reasons for Rejection

26. Extending and supporting the existing network of PAs to conserve medicinal plants in the wildwas the primary alternative to the project. This may have resulted in increased populations of plants inthe wild but not addressed the threat to plant populations due to unsustainable use. Current activities byGoSL and other donors in the sector already encompass the conservation of plants in the wild throughformation of PAs. Instead, the proposed project manages the threat to wild populations of plants throughincreasing their supply. The formation of MPCAs to propagat, and cultivate species, building of nurserycapacity and conducting targeted research on plants will contribute to increasing the supply of plantswithout placing pressure on wild stocks. In addition, the project strengthens the policy and legalinstruments for the promotion of sustainable use of plants. The project's approach, therefore,consolidates the "gains" made by PAs in conserving plants in the wild and ensures increase in plantpopulations by addressing the issues of sustainable use.

27. Support to individual components of the project (nursery development, for example) would haveincreased the supply of plants but not made an overall impact on the demand, supply and usage of plants.Additionally, the larger socio-economic, policy and legal issues would not have been addressed.

28. Other cost effectiveness considerations which have led to the rejection of alternative activities arementioned below.'

29. The without project alternative would have led to further depletion of medicinal plant populationsgiven the present and projected demand levels. This would mean a permanent loss in the country's stockof natural resources. The project aims to stop the decrease in wild populations of plants and aims toconserve threatened species which would be lost in a "without project" scenario.

E. Major Related Projects Financed by the Bank and/or Other Development Agencies (completed,ongoing and planned).

Sector Issue Bank Project Latest form 590 ratings(Bank financed projects

only)

Sustainable forestry, Forest Sector Development Project Senhancement of technical skills (Completed/World Bank)

Enhancement of technical skills, Environmental Action I Project Sinstitutional development, (Ongoing/World Bank).awareness building.

Training and skills enhancement. Biodiversity Skills Enhancement

For a fuller discussion, please see Block 3, section on Fiscal Impact.

8

Program (Ongoing/World Bank andMacArthur Foundation).

Other development agencies

Community involvement in forest Participatory Forestry Projectmanagement. (Ongoing/ADB)

Institutional development, Ritigala Community Participatorysustainable cultivation of plants. Program (Ongoing/USAID-Asia

Foundation).

Skills enhancement Medicinal Plant technical assistanceproject (Completed/WHO/UNDP)

Sustainable cultivation of plants Opanaike Medicinal Plant NurseryProgram (Ongoing/GEF Small Grants)

Skills enhancement, capacity Wildlife Conservation Projectbuilding and expansion of (Ongoing/GEF-UNDP).protected areas

Conservation through community Knuckles and Sinharaja Conservationinvolvement. Program (NORAD/IUCN)

F. Lessons Learned and Reflected in Proposed Project Design

30. Consensus on Project Objectives: The project has been sensitive to the need for developing astakeholder consensus on project objectives. A series of workshops and brainstorming sessions withgovernment agencies, Ayurveda practitioners, research institutions and NGOs were held to clarify keyissues and arrive at a common understanding of objectives. This participatory approach will continueduring project implementation and local communities will be closely involved in developingmanagement plans aimed at reaching project objectives.

31. Community Involvement and Inclusion of Disadvantaged Groups: The Ritigala Program hasprovided a recent example of community involvement in the management of natural resources. Thislesson has been applied in the proposed project by means of adopting a participatory approach, instead of"top down" planning. Local communities will be fully involved in the planning and implementation ofconservation activities around MPCAs. Village level institutions which represent all segments ofcommunities, including women and indigenous people, will be formed to coordinate and plan activities,monitor the impact of implementation activities and mobilize local support. The project also incorporatesa strategy for supporting communities in pursuing alternative livelihood strategies which are notdamaging to plant habitat. To facilitate community involvement, NGOs and CBOs will be co-opted todiscuss and outline with communities their choices on alternative livelihoods, raise awareness on theimportance of conservation and disseminate cultivation practices and home gardening. Theimplementation of alternative livelihood strategies will be based on the active cooperation of localcommunities and NGOs.

32. Inter-Agency Collaboration: A key lesson learnt and applied by the project is the need foreffective interagency cooperation and coordination. Since the project will involve various governmental

9

agencies such as MIM, Department of Agriculture, Department of Wildlife Conservation and theMinistry of Forestry and Environment, inter agency coordination is vital for its success. The project hassought to develop interagency coordinatioti through representation of the concerned governmentalagencies in the Project Management Team and the National Steering Committee during the preparationphase. Continuing this approach during the implementation phase, the project will ensure inter-agencycollaboration through having representatives from state agencies on VPMCs, CAMCs and PPMCs. Inaddition, MIM will enter into a MoU with other provincial councils and departments involved in thefunctioning of MPCAs.

G. Indications of Beneficiary Commitment and Ownership

33. GoSL's commitment to and ownership of the proposed project is evident from the proactive roleplayed by MFE and MIM in overseeing project preparation, keen participation in the BiodiversityWorking Group and related workshops organized for the project. MIM as the implementing agency hasalso formed a Project Management Unit and a Steering Committee to guide project development andimplementation. GoSL's commitment is also evident from the willingness to review legislation relatedto Intellectual Property Rights.

H. Value Added of GEF and Bank Support

34. GEF support will enable the project to target globally valued and threatened plants forconservation. As a result, MPCAs have been proposed for areas which are rich in threatened andendemic plants but with high levels of extraction. Propagation programs have also targeted threatenedand endemic species which have, hitherto, not received adequate attention. Secondly, GEF's support willenable the project to supplement conservation activities with those aimed at promoting sustainable use ofplants. Given the demand for Ayurvedic medicine, increasing supply through wider cultivation isnecessary to promote sustainable use of plants. However, in accordance with the GEF OperationalStrategy which states that "biodiversity and sustainable use must also be achieved outside the designatedPAs", the project supplements the activities aimed at increasing supply with policy and legal changesnecessary for preventing the loss of globally valued plants. GEF's support for "conservation ofbiodiversity and its sustainable use" will enable this project to address the reasons for plant loss througha multi faceted approach. Thirdly, GEF support will be instrumental in gaining valuable knowledge ofplants through data collection. Targeted research on threatened plants will enrich the activities of thecurrent project but also be valuable for the world at large. Lastly, GEF's support for preservingindigenous knowledge will be valuable in ensuring that the originators of this knowledge are recognizedat a global level and are eligible to receive any economic benefits from its commercial use.

35. The Bank will add value to the project through coordinating and ensuring the support ofgovernment agencies and donors that have been active in the sector. The Bank has played an active rolein developing the NEAP and has supported the Biodiversity Action Plan which was completed recently.This project also extends the Bank's current efforts in the sector such as Environmental Action I Projectand Forestry Sector Project which have aimed at conservation and strengthening of environmentalinstitutions.

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Block 3: Summaay Project Assessments (Detailed assessments are in the project file. SeeAnnex 8)

A. Economic [] Cost-Benefit Analysis: NPV=US$ [ Cost [x] OtherAssessment (see million; ERR= % Effectiveness (Incremental costAnnex 4): Analysis: analysis)

Economic Analysis:

36. As a stand-alone GEF project, the principal economic evaluation criterion to be considered wasthe "incremental cost" justification as discussed at the end of this section. In addition, the economicanalysis included a least cost analysis early in the selection of strategy and investment options. Inaddition, a systems analysis of the proposed MPCAs is now under preparation to explicate therelationships between medicinal plants, communities and the primary features of their environments.Using the graphic formalism of object relationship modeling, this analysis aims to describe the 'system'of incentives that govern the supply, demand, over- or under-exploitation of medicinal plants within thebroad natural and man-made contexts that are of interest to the project. The object relationship model(ORM) developed for the MPCAs will concretely indicate the points of contact between the project andthis 'system' and portray how the system should change as a consequence of the project'simplementation. As critical elements of the system, the project's primary stakeholders appear in themodel. These include collectors of raw materials, processors, farmers and other local households andother outsiders. The ORM should also aid the interpretation of the data to be collected as part of theproject. At present, there is little reliable data on the supply or demand of various plants and plantproducts: the growth and yield studies and the socio-economic surveys to be conducted throughout theproject period will be critical for filling this gap. These data will help determine whether a modifiedsystem as described in the ORM is indeed sustainable. Only when these data are available, along with afuller understanding of the pharmaceutical and ecological values of the plants, would it make sense tojudge whether the investment costs proposed in the project are high, or not, as compared to the value ofmaintaining the option of studying the plants in their natural environment. Even if one were to considerall project costs as being related directly or indirectly-to the establishment of the MPCAs, the economiccost of the project would then total less than US$500 per hectare of the MPCAs over the life of theproject. Such a cost would not be so great as to require expectations of implausibly high future returns tomaintaining the areas' biodiversity - especially by comparison to the pharmaceutical prospecting valuesthat have been estimated for other similar biodiversity 'hotspots'. Pharmaceutical prospecting value,moreover, is not the sole source of the biodiversity value of such areas.

Incremental Cost Analysis

37. Incremental costs of the project total US $ 4.57 million and cover the costs of financing the GEFalternative. Operationally, this means that GoSL will provide US $ 0.5 million as counterpart financingfor development commitments which would have occurred in the absence of the GEF alternative. Theseinclude village economic development activities, civil works for Ayurvedic medicinal centers, drugsupplies, staff allowances, taxes and duties which are not eligible for GEF financing. Regardingincremental benefits to the domestic economy, the proposed project is not expected to lead to an increaseover the baseline scenario in the overall number of families who will enjoy an improvement in incomethrough participation in village economic development. The proposed project would not add to currentlyplanned development activities: it would influence the prioritization of the location of villagedevelopment without relevant distributional consequences. The number of villages and households thatwould be so affected is indeterminate, but for working figures up to 200 villages and 2000 householdsmight participate in village economic devolopment sooner under the proposed project than they would

11

have under the baseline scenario. Also, there is no basis for assuming that the growth in incomes offamilies within the impact areas of the proposed botanic MPCAs would be higher than could be expectedin general for families benefiting from village economic development without the project. Accordingly,the project should not lead to a significant change, from baseline expectations, in the overall level of netemployment and should not have special, incremental impacts on any one particular sector of theeconomy. However, the project will ensure sustainability of income, remove the cyclical nature ofincome for most families living around MPCAs and increase choices of livelihood. The project couldalso contribute towards maintaining a certain quality of life by preserving the feasibility of traditionalhealth care options.

Fiscal Impact

38. The proposed project is not expected to have significant long run incremental fiscal impacts: asdescribed in Annex 5, the management of the five proposed medicinal plant conservation areas, theproject's focus, is designed to be self-financing through the implementation of community participationand the development of educational site visits to the sites.

39. The community-based management strategy of the MPCAs should strongly favor the long-termviability of this key component by developing incentives for surrounding villages to maintain theirenvironmental integrity. This is also an approach that minimizes Government recurrent expenditures:the main recurrent costs are for the O&M of local botanical gardens/nurseries and of local Ayurvedicdispensaries and information centers. These costs are small and within the ability of local communities tosupport through economic activities that will develop around the MPCAs. As discussed above, severalalternatives for the project's design were rejected for their fiscal implications. The botanical gardensestablished and improved to store genetic material representative of all eco-agricultural zones areintended to provide planting materials and stock at cost to private nurseries. Financed research willverify within the project period the direct applicability of technical options for implementation in thefield or on the farm. Capacity building under the project will develop in-country technical expertise tofacilitate the replication of activities in other area. Only temporary support is required for projectmanagement structures: the project from the start endeavors to implement activities through the multi-disciplinary planning and the strong coordination of existing organizations.

40. The formation of Strict Nature Reserves with vigilant enforcement of non extraction of plants wasthe primary alternative for the in situ component. This was rejected for being socially disruptive andfiscally expensive. Enclosure would not address the requirements of local inhabitants to supplies ofmedicinal plants and the recurrent costs following the completion of such a operation would be high andultimately unsustainable. The present approach seeks to develop incentives for maintaining the integrityof the MPCAs by surrounding populations through their involvement in the joint management of areas.In contrast to enclosures, the recurrent costs of the participatory approach are expected to be modest andassociated with essentially private sector activities that would be self-financing. The present approachwould also seek to involve NGO assistance where available as a means of using the project's resources tomobilize additional outside resources to participating communities.

41. The ex situ component restricts activities mainly to areas of horticultural research that have a goodpromise of providing results that can be directed into existing extension networks in the country. Thepursuit of a nation-wide promotion of farming medicinal plants through the provision of input or outputsubsidies would have contravened present directions of national agricultural policy and costly toadminister. Morcover, it would have been difficult to justify the use of subsidies to mitigate the risk offarmers learning to cultivate such crops.

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42. Research under the project would not duplicate laboratory facilities already available in thecountry, and would focus on strictly applied or adaptive research. Investments in bio-technologyresearch were judged as not being cost-effective and requiring substantial financial support over the longterm.

43. Under the information and institutional support component, the project will promote policyreforms only in those areas for which legislated regulatory authority has already been established. Thedrafting of new legislation would require substantially more resources for research and consultation thanwould the present focus of drafting regulations, and would offer a lower promise of delivered outputs bythe time of the completion of the project. Training for departmental capacity building concentrates onindividuals and skills most directly supportive of the project's participative strategy for in situconservation. The project avoids wide-scale general training of staff in environmental awarenessconcerning medicinal plants to intensify resources on producing a corps of highly qualified professionalsin sustainable management. These individuals are likely to have a much stronger and ultimately morepervasive impact on their institutions than broad institution-wide alternatives. The project'sdevelopment of an information network on medicinal plants favors the use of resources to link existingdatabases rather than construct a new, independent structure. Considerable resources have already beensunk in the compilation of data at several sites. Linking these sites and facilitating access to them wouldbe a more manageable output to deliver at minimum incremental cost than a wholly new, centralized databank.

B. Financial Assessment (see Annex 5) NPV=US$ million; FRR= %

44. A chief concern of the project is to devise mechanisms for cost recovery. To ensure that thisconcern is adequately addressed; the project incorporates activities which are able to cover their costssuch as botanical gardens, medical and information centers. The recurrent costs associated with theseactivities are not calculated to be high (estimated at $ 30,000, about 5% of MIM's non-developmentbudget for Indigenous Medicine) and will be financed through user fees and other charges. Enhancementof nursery capacity will also recover its costs through sale of seeds, plants and other related plantingmaterials. Through user fees, charges and other activities, educational site visits also have the capacity tobe financially sustainable. Educational site visits will be promoted according to observed demand for useof two MPCAs. The development of educational site visits will first be applied to Kanneliya and Ritigalaand the lessons learnt from these (including mechanisms for cost recovery) will guide development ofother MPCAs as visit sites.

C. Technical Assessment

45. GEF's Scientific and Technical Advisory Panel's (STAP) review of the project concept hadindicated that one of the main technical contributions of this project would be in the determination ofsustainable levels of harvesting and cultivation of medicinal plants. In addition to addressing Sri Lanka'snational priorities, the STAP review indicated that the project "serves GEF's purpose as a meaningfulactivity to both people in rural areas as well as at institutions in urban centers, and serves as a model thatcan be propagated elsewhere. Over the next decade, it will become increasingly difficult for the ca. 3.5 -4.0 billion people world-wide who require native plants for the provision of their primary health care toobtain these essential materials. Unless studies such as proposed in this project are implemented on asignificant scale, as we approach the third millennium there will be a severe shortage of plants utilized inprimary heath care".

46. Furthermore, the project integrates the following technical aspects that were identified by theSTAP review: (i) selection of medicinal plants is based on the degree of exhaustion of these plants in the

13

wild as well as indications of increased demand by local markets; (ii) thorough ethnobotanical andecological studies are essential for the determination of "sustainable" harvest in the wild; (iii) the projectwill try to promote the continued flow of economic benefits to local people following the completion ofthe project; (iv) an external advisory panel is important to guide the project and to help resolvedifficulties, refine strategies, make connections with global efforts elsewhere, including sustainableharvesting and the promotion of traditional medicines; (v) within agreed criteria for the protection ofintellectual property rights, it will be important to publish all data (negative and positive) resulting fromthis project; (vi) to keep the focus of the project on sustainable management strategies, the production ofdata base of medicinal plants will be based on filling the gap from existing data bases rather than anexhaustive and resource-intensive exercise; and (vii) some degree of assistance in inputs and instructionmay be required by farmers involved in propagation and cultivation of the medicinal plants, but by theend of the project, no outside assistance would be required by these farmers/home gardeners.

D. Institutional Assessment

47. An assessment of the institutions involved in this project revealed the following areas of strengthsand deficiencies that were taken into consideration in project design. Areas of Strength: The AyruvedicDepartment of MIM has been involved, at a pilot scale, in a number of actions that are directly related tothe project. In particular, plant taxonomic work, data management, and interaction with collectors,growers, and processors of medicinal plants are all experiences that will benefit project implementation,especially concerning ex-situ conservation, propagation of processing. For in-situ conservation, theForest Department, MFE has experience in joint management of forest resources with the private sector(leasing of plantations to private businesses) and local communities (through the Participatory ForestryProject mainly). For participatory village development planning, a number of rural NGOs have fieldexperience that will be sought around the MPCA component. Areas of Institutional Weakness include thekey areas of technical and administrative capabilities for sustainable harvesting and cultivation of plants.Weakness of skills in ethnobotany hinder the development of methods, implementation and monitoringof sustainable levels of harvesting. With respect to cultivation of plants, further research needs to beconducted together with skills enhancement for implementing wider propagation of plants and provisionof extension services in agriculture sector. Finally, MIM does not have a group to monitor overall projectimpact. The project will address these institutional deficiencies by: (i) providing technical assistance andtraining in some key areas; (ii) establishing output-oriented, multi-sectoral, project managementcommittees at the provincial and the MPCA-level; (iii) creating institutional linkages for better interagency cooperation, (iv) providing international support through the technical advisory committee; and(v) covering the contracting of an external institution for the monitoring and evaluation of overall projectimpact.

E. Social Assessment:

Socio-Economic Characteristics

48. Preliminary analysis shows that except for Kanneliya, which has a relatively lower poverty rateand more opportunities for employment, all villages are characterized by high level of poverty, highdependency ratio and low level of literacy. The economy of these villages is largely agrarian and there isa high level of dependence on Non Timber Forest Products (NTFPs). Agriculture is insufficient to meetthe subsistence needs of the people throughout the year and poverty is, therefore, intensified during thedry season when there is no agricultural income. The lack of other employment opportunities combinedwith dependence on subsistence agriculture lead to high levels of poverty increasing people's dependenceon forest products and other resources. In particular, land issues are central to poverty since land holdingsare small and nearly all land in these villages belongs to the State with limited freehold rights given to

14

local people.

49. All the above mentioned factors indicate that poverty is a major concern in the villages aroundMPCAs. Since people have little access to land, there is high dependence on the collection of medicinalplants leading to plant loss. The project will address this aspect through home gardening and supportingcommunity plots for cultivation. The project realizes that links between poverty and over exploitation ofplants are strong and must be addressed if conservation initiatives are to receive local support.

Indigenous People

50. Of the proposed sites, indigenous groups (Veddhas) are found only in Bibile. At present about 35families represent this group. They are the descendants of displacees from an earlier project in late 1 940s.Their dependence on NTFPs including medicinal plants is very high compared to other villages sincethey do not rely on agriculture.

51. Project design is tailored to ensure that indigenous people are included in the village developmentactivities and decision making structures. Due to their high level of poverty and dependence on medicinalplants for existence, they will form an important stakeholder group. NGOs with experience of workingwith indigenous people will be co-opted for working with these groups. Their specific economic andsocial needs and religious beliefs will be incorporated in developing village based activities.

Social Issues Addressed by the Project

52. Project design is based on the premise that sustainability of MPCAs depends on the nature ofhuman interactions with the resources contained therein. As a result the project takes a participatoryapproach to involving local people in planning and management and will not lead to any resettlement.The specific areas where the project will have an impact are outlined below:

53. Project Impact: If successful, the project will ultimately reduce the seasonal variation of incomeand dependence on extraction of species in the wild. As noted above, the agricultural economy of manyvillages is subject to the vagaries of weather. In the absence of off-farm employment on an appreciablescale, seasonal poverty is rampant. This will be achieved through a planned system of cultivation ofmedicinal plants in home gardens and through their propagation. These activities will enable more peopleto eliminate seasonal variations in income through involvement in production, processing and otherancillary activities.. In particular, the project will benefit women and female headed households.

54. Secondly, the project will reduce people's dependence on extensive use of land. Home gardeningand community plots will make efficient use of land resources, the absence of which has led toencroachments on state land in the past.

55. Thirdly, the project's village based participatory management of resources will create a sense ofownership in the communities. This is envisaged as an essential outcome of alternative incomegeneration activities as people realize the benefits that they can derive from the project. Further,participatory resource planning will resolve land management issues since the process will take intoconsideration not only conservation needs but also issues regarding community rights, access to land anduser rights. The assurance that they are the custodians of natural resources will foster the communities'sense of ownership over forests and their products.

56. Negative Impacts and their Mitigation: With the formation of MPCAs and projectimplementation, some controls are bound to be placed on people's use of forests, particularly in areas

15

where species are over extracted. This is not likely to be welcomed by people who have had uncontrolledaccess to species and have extracted them in a destructive way. Awareness programs will be carried outwhich can change the attitudes of people through realizing that conservation is a sustainable means ofassuring a continued income.

57. The proposed activities will also increase the work load of people. However, as economic benefitsare felt by communities, households may use more members to increase production. There is thepossibility that outside intervention may lead to over extraction of plants, without the consent of localpeople. This possibility is strong in case the propagation and home gardening of plants does not yieldeconomic benefits for local communities. It is envisaged that community involvement will lead to agreater sense of ownership and establish community rights. Additionally, a local system of marketingwill ensure that communities recognize the importance of conservation over and above excessiveextraction for short term gains.

F. Environmental Assessment: Environment category () A (x) B ()C

58. The project is classified as a "B" category project in accordance with the World Bank'sOperational Directive 4.0 on Environmental Assessment because it is not expected to have majoradverse environmental impacts. The project is expected to have a highly beneficial environmentalimpact. No large scale infrastructure improvements are envisaged under project activities to causenegative environmental impacts and adverse impacts are expected to be minimal because all investmentsare small, ecologically sound, and limited in scope.

59. Project preparation has included an environmental review which confirrned that project activitieswould produce wide scale beneficial environmental impacts, by improving productivity of PAs andbuffer zones, increasing the number of medicinal plants especially those which are threatened andreducing the pressure on wild populations of medicinal plants. Most of the project activities are focusedon the conservation of medicinal plants in five MPCAs and are expected to have beneficial results onplant populations. Other activities such as cultivation and enrichment in MPCAs and extension todemonstrate sustainable cultivation are small scale and widely dispersed and are not likely to cause majorsoil disturbance or exposure. In addition, these activities do not involve the use of agro chemicals orpesticides.

60. Complementary village level investments for alternative income generation activities will alsohave beneficial impact on the environment as the small scale low impact activities envisaged under thiscomponent will reduce people's dependence on wild habitats of plants. Similarly, value added activitieswill decrease harvesting of plants from the wild by developing incentives for people to sustainablymanage existing populations.

61. Activities which are likely to have minor negative impact on the environment have beenconsidered clearly and measures to mitigate adverse impacts have been arranged. For example, theconstruction of small scale dispensary and Ayurveda health information and treatment centers in eachMPCA will take place in the dry season so that the potential for soil erosion is reduced. Structures will belocated in the buffer zones and areas around the dispensary will be replanted with medicinal plants toavoid plant loss. Further, the risk of educational site visits causing over use of the MPCAs and pollutionis expected to be limited. The emphasis of educational site visits ventures will be their social andenvironmental benefits to the MPCAs and local communities. Although the project will have no directimpact on the issues of Intellectual Property Rights and other issues related to genetic patenting, itsupports the strengthening of legislation and policy so that adequate safeguards are in place to preventthe "piracy" of indigenous knowledge and plants in future. To ensure the protection of indigenous

16

knowledge and plants, GoSL will establish a Committee to develop guidelines and implement controls oninformation and resources.

62. Further, environmental screening will take place through M&E, which will measure projectsuccess and include close review of the ecological impact of the project, beginning with carefullydesigned and reliable resource mapping and baseline studies.

G. Participatory Approach

63. Project identification and formulation has adopted a participatory approach to project preparation.Stakeholders have provided their input to the preparation process through workshops, consultationmeetings, brain-storming meetings, and field consultations. Key stakeholders that have been consultedinclude Ayurveda practitioners, traders, exporters and manufacturers, scientists, policy makers, technicalspecialists, NGOs, and local community representatives2. Consultations with stakeholders were intendedto draw on expertise in the formulation of project activities, to identify constraints and issues needingaction, to solicit the views of potential community groups to the concept of the project, to obtainconsensus on the objectives of the project and proposed intervention, and to solicit the support ofstakeholders in project implementation.

64. Project design entails a participatory approach to implementation and operation. Localcommunities, NGOs, researchers, local government agencies, and line agencies would collaborate in theimplementation of the project at the local level. The long-term sustainability of project investments arepremised on the understanding that the operation and maintenance of activities beyond the life of theproject, would be devolved to community level institutions that would be established during the projectperiod, at the MPCA level. Participation of various stakeholders at different stages of projectpreparation, implementation and operation can be summarized as follows (IS = information sharing;CON = consultation; and COL = collaboration.

Identification/Preparation Implementation Operation

Beneficiaries/Community groups IS/CON COL COLIntermediary NGOs IS/CON COL COLAcademic institutions IS/CON COL COLLocal government IS/CON COL COLOther Donors IS/COL IS ISParticipating State Agencies CON COL COLNational Steering Group IS/CON COL COLAdvisory Group IS IS

H. Sustainability

65. Mechanisms for financial sustainability include the self financing nature of project activities. Thecosts for maintaining MPCAs, dispensaries and nurseries will be within the reach of the localcommunities and the self financing nature of these activities will ensure their financial sustainability.

2 Several NGOs and research institutes participated in workshops organized by the project. They includedBandranaike Memorial Ayurvedic Institute, WWF, Environmental Foundation, NAREPP Project,IUCN and Ayurveda Conservation Committee.

17

66. Social sustainability will be assured through involving local people and NGOs in the design andimplementation of the project. The project will ensure that the economic benefits from conservation ofmedicinal plants flow to local communities especially those involved in collecting and cultivatingmedicinal plants. Representative institutions will be supported at the local level and the clarification oflegal rights will contribute to the social sustainability of the project.

67. Through increasing the technical skills and capacity of government agencies, the project will alsobuild a sustainable skill base. Improved local skills will ensure that the technical aspects of the projectsuch as data collection and maintenance, ethnobotanical surveys and monitoring are continued beyondthe project's life.

L Critical Risks (see fourth column of Annex 1):

Project Outputs to Development Objectives (Risk rating 1: lowest, 5: highest)Risk - Risk Rating Risk Minimization Measure

Biodiversity conservation 2-3 Public awareness, promotion of educational site visits(especially related to medicinalplants) continues to be valued bysociety.

Property rights are definable and 3-4 Adoption of suitable regulatory frameworkenforceable

In situlex situ conservation will 2-3 Research to identify threatened species of globalpreserve globally valuable and importancethreatened plants.

Project Components to OutputsRisk Risk Rating Risk Minimization Measure

Appropriate size of a MPCA. 3 Interaction of joint local/international advisory groupto review and other country experiences

Critical, highly impacting 5 Peer pressure, linkage of project support to verifiablecommunities are receptive in indicators of compliance/cheating.sufficient numbers to permiteffective management planningover the whole of selected sites

Enrichment of MPCAs adversely 3-4 frequent monitoring of sustainability studiesaffects ecological integrity throughout implementation

Set of feasible and alternative 3 Detailed socio-economic field surveys that test thevillage incomes linked to the wider applicability of the experiences of the USAIDMPCAs exists. funded Ritigala project prior to project start

Continued local interest to 3 Awareness building and educational activities.preserve Ayurvedic knowledge

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Overall Project Risk Rating

Risk Risk RatingAdequate in country technical 3-4 Strong TA inputs, links to external technicalcapability institutions and training

J. Possible Controversial Aspects

68. Through increasing the supply of medicinal plants, the project increases the risk of increasingpressures on wild populations of endangered plants to meet even further increases in demands forAyurvedic medicine. To manage this risk, the project incorporates targeted research on the uses andcharacteristics of plants to allow for the opportunity to substitute endangered plants with other plantsthat are not threatened or easily cultivated. Careful monitoring of plant species in MPCAs andformulation of policy instruments to regulate the use and trade of plants will enable the project tomitigate the risks from further extraction of wild populations of plants.

69. The project has been sensitive to the risk of uncontrolled access to genetic material and hasensured its local ownership. The project has made stringent efforts to ensure that a local consensus isachieved for information sharing on medicinal plants. Further, the draft regulations concerningstandards, trade, property rights and land use will clarify and strengthen local ownership rights. Theproject has also made maximum use of local research institutions to gather information and conductresearch. Further training will enhance local ability to preserve and patent genetic material as anindigenous natural resource.

Block 4: Main Grant Conditions

A. Conditions for Effectiveness:(a) MIM shall have selected consultants for operational support to assist in theimplementation of the project.

B. OtherMIM shall:Project Management

I (a) establish a Project Management Unit and provide the agreed level of staff andtechnical assistance (Management) for its functioning no later than March 15, 1998;

I (b) by March 15, 1998, confirm to the World Bank that all organizational andinter-agency coordination arrangements (with Provincial Councils, Wildlife and ForestryDepartments, and other entities, as appropriate) are in place and operational, as per theMOUs agreed to at appraisal, and covering planning, implementation, research, study,and monitoring and evaluation activities;

Project Implementation

2 no later than March 15, 1998, ensure that the technical assistance (Operations)contract for operational support is finalized and key Consultants have started support tofield activities according to the agreed Technical Assistance schedule of all projectactivities;

19

3 implement the project according to a Project Implementation Plan satisfactory tothe Bank and agreed at appraisal as the same may be revised from time to time inconsultation between GOSL, other stakeholders and the Bank;

4. maintain polices and procedures adequate to enable it to monitor and evaluate onan ongoing basis, in accordance with benchmarks and indicators satisfactory to theBank, the carrying out of the Project and the achievement of the objectives thereof;

5. prepare, under terms of reference satisfactory to the Bank, and furnish to theBank, by January 15, 2000, a report integrating the results of the monitoring andevaluation activities performed on the progress achieved in carrying out of the projectduring the period preceding the date of said report and setting out the measuresrecommended to ensure the efficient carrying out of the project and the achievement ofthe objectives thereof during the period following such date; and

6. review with the Bank, by April 15, 2000 or such later date as the Bank willrequest, the report on monitoring and evaluation activities and thereafter, take allmeasures to ensure the efficient completion of the project and the achievement of theobjectives thereof, based on the conclusions and recommendations of the said report andthe Bank's views on the matter.

Block 5: Compliance with Bank Policies

[x] This project complies wth al 1applicable Bank policies.[][The following exceptions to Bank policies are recommended for approval:

The project complies with all other applicable Bank policies.]

Nadim Khouri erto BentjerodtTask Manager: Country Manager:

20ANNEX 1

Page 1SRI LANKA

Conservation and Sustainable Use of Medicinal Plants Project

Project Design Summary

Narrative Summary Key Performance Indicators" Monitoring and Supervision Critical Assumptions andRisks

CAS Objective (CAS Objective to BankTo conserve the natural resources of Mission)Sri Lanka.

Stop or reduce deforestation. International environmental World Bank/ GEF continueorganizations. to support biodiversity

Stop or reduce threats to conservation.plant and animal species. Research reports.

Other political and economicImproved land use. Government research and priorities for Sri Lanka

analysis. remain unchanged.Project Development Objectives: (Development Objectives to

CAS Objective)Conservation of globally and Declining threats to plants Reports of internationalnationally significant medicinal plants, and increased populations of environmental watch Other enviromnentaltheir habitats, species and genomes species (especially organizations (IUCN Red projects are successfullyand promotion of their sustainable use. threatened species). Data Book etc, national implemented;

statistics (Forestry Dept.,MFE etc.); report of Ministries, NGOs and localindependent monitors. people cooperate in the

implementation ofenvironmental projects;

GOSL continues to regardenvironmental conservationas a priority.

Project Outputs (Outputs to DevelopmentObjectives)

1. A viable participatory 1.1 Village harvest of 1. PMU reports ofmanagement system for medicinal species within sustainability sustainability studies; Biodiversity conservation,plants operating in MPCAs. limits defmded by Village sampling by especially related to

Action Plan in 30% of independent technical medicinal plants, continuesvillages by mid-term and monitors at mid-term to be valued by society.100% by project end. and completion.

Property rights are definable2. Increased production of selected 2.1 Increase in number of 2. PMU research reports. and enforceable.

medicinal plants species on farms medicinal plants for whichand in home gardens. cost-effective propagation & Candidates for training are

cultivation techniques are appropriately selected andavailable; 25 species trials afterwards placed to realisecompleted by mid-term, 50 the effective use of skills.species trials by project end.

Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of project and fulIl impact.

21 ANNEX IPage 2

2.2 Increase in number anddiversity of medicinal plantsbeing propagated and grownin Dept. Ayurveda nurseries;production increased by25% by year 3 and 50% byproject end.

2.3 Increase in the numberof farmers using propagationand agronomic informationgenerated by the project;increase of 25% over thebaseline by mid-term and50% by project end.

3. Enhancement of knowledge on 3. 1 Guidelines developed 3. PMU/independent farmmedicinal plants and capacity and implemented for the surveys before andbuilding for their management protection of traditional during projectand sustainable use. knowledge and plant interventions including

resources related to project copping pattems, yieldactivities. samples, etc.), PMU

documents, functional3.2 Recommendations database and outputdeveloped for strengthening documentation.legislation and regulationsrelated to conservation anduse of medicinal plants.

3.3 National database formedicinal plants establishedand functioning; data fromover 500 species entered byproject mid-term and over1000 species by project end.

3.4 Increase in number ofschools and students

_ - exposed to educationalmaterials produced by theproject.

3.5 Increase in the numberof persons with enhancedskills in medicinal plants;local training of over 25staff by project mid-termand over 100 staff and post-graduate and/or placementtraining for 5 specialists byproject end.

Project Components Input US$ 5.07 million total (Components to Outputs)cost including contingencies

t. Expansion of in situ conservation.

22 ANNEX I

Page 3

1.1 US$ 2.07 million total. PMU project procurement Lack of iiiformation on the1.1 Selection and demarcation of 10,000 -12,000 ha (1,000 ha and disbursement viable size of a MPCA.five botanical reserves in the areas of minimum per MPCA), documentation.Bibile, Ritigala, Naula (or Dolukanda) constituting five MPCAs, Adequate attention to keyRajawaka and Kanneliya. identified, established and PMU semi-annual project technical design and

enriched within framework implementation reports; management concerns.of participatory management documentation as output ofplanning involving local project activities. Critical highly impactingcommunities. communities are receptive in

Documentation of WB/GEF sufficient numbers to permit1.2 Technical advice and supervision missions effective management

1.2 Community organization and training provided on medical inspecting field work. planning over the whole ofmanagement planning for botanical plant cultivation, processing selected sights.reserves (including existing and marketing. Project mid term andKataragama reserve). completion studies Guidelines to ensure that site

according to agreed specific interventions do not1.3 Awareness of he WB/GEF technical TORs. adversely affect ecological

1.3 Enrichment planting of MPCAs linkages between integrity are implemented.(where necessary). biodiversity and Ayurvedic PMU training records.

medical practice promoted Set of feasible andin communities. Reports ofjoint alternative village incomes

local/international advisory linked to reserves exists.1.4 Promotion of alternative village 1.4 Portfolio of activities group.incomes linked to maintaining the researched, tested, supported Continued interest tointegrity of MPCAs. and adopted within preserve transmission of

cooperating villages. Ayurvedic knowledgeResearch on the sustainable through apprenticeship,use of medicinal plants in acquired knowledge andMPCAs conducted using in surveys etc.part local participation.Ethnobotanical studies Set of criteria guidingexecuted. information access is

implemented by MIM.1.5 Village training. 1.5 Adaptive farm researchSite specific research conducted to demonstrate Sustained interest of key

technicaUfinancial viability institutions (MIM,of cultivable species. Provincial Councils, Forest

Dept, MFE, NGOs to pursueproject objectives).

2. US$ 0.48 million total.2. Expansion of Ex Situ cultivation.

2.1 Two new botanical2.1 Strengthened protection of genetic gardens/nurseriesreservoirs. established, 3 existing

gardens/nurseries improvedby end of project.

2.2 Research on propagation2.2 Research in agronomy of selected of plants representative ofspecies. Promotion of cultivation of agro-ecological zonesmedicinal plants for harvest and trade. conducted. Home garden

and plantation researchcompleted. Research resultsdisseminated throughexisting extension networks.

23 ANNEX I

Page 4

3. USS 2.52 million total3. Information and Institutionalsupport. 3.1 Draft regulations

regarding standards, trade,3.1 Promotion of appropriate legal and property rights and land use.policy environment. Quality standards and

control measures developed.

3.2 Training of departmental3.2 Database development. staff, professional educationDepartmental capacity building and mass awareness

campaigns by end of project.

3.3 Support to temporary3.3 Installation of multi disciplinary Project Management Unit incapacity to implement present MIM, project coordinationenvironmental project. committees at national and

provincial levels and jointlocal/international advisory

Igroup.

24ANNEX 2

Page 1

Detailed Project Description

1. The objective of the project is to secure the active conservation of globally andnationally significant medicinal plants, their habitats, species, and genomes. This is to beachieved through the following project components and activities:

Component I:Expansion of In-situ Conservation of Medicinal Plants:($ 2.07 million)

A. Establish Medicinal Plant Conservation Areas

2. The foundation for in-situ conservation activities will be the identification andestablishment of medicinal plant conservation areas' (MPCA) in regions where there is activecollection of medicinal plants from the wild. The MPCAs are associated with a coreconservation zone where the primary focus of the project is the elimination of human activitiesthat have a negative impact on the conservation of medicinal plants. Surrounding the core zoneare sustainable use zones and areas where the cultivation of medicinal plants is possible. Theouter boundary of the MPCA is established based on a number of considerations includingaccess to selected communities, agreement of villagers, availability of land for MPCA facilities,plant cultivation, and village development activities. The implementation of project activitieswill be in accordance with the existing legislation governing each conservation area.

3. The project will establish MPCAs in five sites from key biogeographic zones: (1)Bibile-savannah grassland/intermediate zone in the Uva Province, (2) Ritigala-monsoon forest/dry zonein North-Central Province, (3) Naula-montane forest/intermediate zone in the Central Province,and (4) Rajawaka-evergreen forest/intermediate zone in the Central Province, and (5) Kanneliya-lowland rainforest/wet zone in the Southern province. In addition to these five sites, someproject activities relating to in-situ conservation of medicinal plants will also be implemented inthe existing conservation area at Kataragama.

4. To ensure the active participation of all segments of the community in the project, thefirst step in the establishment of the MPCA will be village mobilization. Social mobilizersworking at the MPCA level will be contracted by the project to initiate the discussion aboutproject objectives and to start organizing at the village level. A local sociologist will also becontracted to work at the PMU level, and an international sociologist will be contracted to designan initial workplan and to provide training to the social mobilizers.The provision of thesociologist and social mobilizers will be part of a comprehensive contract to provide technicalassistance to the PMU for the implementation and supervision of project activities in the fivemain medicinal plant areas.

5. Village level activities will be coordinated by a Village Project ManagementCommittee (VPMC) which will be set up by the project, except in those cases where otherrelevant local institutions already exist. Each VPMC will include at least one representative

The medicinal plant conservation areas will be associated with core conservation zones (i.e. forestreserves, strict nature reserves, sanctuaries or other forest categories that contain significantpopulations of medicinal plant species) and will also include contiguous traditional use zones, bufferzones, private lands, and/or village lands that influence use patterns within the core forest areas.

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from each household in the village. The executive council of the VPMC will includerepresentatives of each relevant village level organization (e.g. women's organization, youthorganization, etc.), medicinal plant collectors and traders, medicinal practitioners, and othermembers selected through village consensus. Typically, the executive council of the VPMC willinclude 10-12 members, the appropriate state functionaries (e.g. beat forest officer and localagriculture worker), and project staff. The social mobilizers and PMU sociologist will play a keyrole in setting up the VPMC.

6. The project will set up a parent organization for each MPCA comprised of tworepresentatives from each VPMC, representatives from relevant state organizations and NGOs,and the MPCA project officer. The parent organization, called the Conservation AreaManagement Committee (CAMC), would serve as the MPCA management office and wouldoversee the management and implementation of all project activities in the conservation area.

7. An important task in the early stages of the project will be the construction of adetailed base map for each of the MPCAs. The base map should show villages, roads, rivers,topographic features, existing land-use zonation (e.g. boundaries of forest reserves, sanctuaries,buffer zones, etc.) and vegetation cover with as much precision as possible. All informationshould be spatially referenced and controlled using standard cartographic techniques. Ifpossible, the cartographic information from each MPCA should be compiled and stored asseparate layers as part of a Geographic Information System (GIS). The project will supply fundsfor the execution of this mapping work which will be performed by specialists in the Departmentof Forestry. Once a preliminary version of the base map is available, it will be circulated to eachof the villages in the MPCA to field check the mapping units and to incorporate the observationsand corrections of each community. The review and revision of the base map should becompleted by the middle of the first year of the project.

B. Baseline Data Collection

8. Soon after the VPMCs have been established, two separate, yet interrelated, surveys willbe conducted. A socio-economic survey of local households will document income distributionwithin the community and will assess the importance of medicinal plants in the overall healthcare and economic condition of the village. Basic demographic data on the structure anddyngmics of the community will also be collected. These studies will be designed by an expertsociologist from the PMU in collaboration with the social mobilizers and the local PMUsociologist working at the MPCA level. A training workshop will be conducted to present andfield test the survey methodology before initiating field activities to insure that comparable dataare collected from all of the MPCAs. Follow-up surveys will be conducted each year for theduration of the project to monitor any changes in the social and economic conditions of thevillages that might occur as a result of project activities.

9. Preliminary information on the medicinal plants used in each village will be collected byan ethnobotanical survey. The basic objective of this survey is to provide an annotated list ofmedicinal plants ranked in order of local importance and frequency of use; general informationon associated non-timber forest products (NTFPs) of importance will also be collected at thistime. Although detailed information on the plant use and the preparation of medicinalcompounds will = be collected in these preliminary surveys, all data collection procedures willclosely adhere to the guidelines for Intellectual Property Rights established by the Ministry ofIndigenous Medicine. The surveys will be designed by an ethnobotanical expert working

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together with an ayurvedic specialist at the PMU level. The implementation of these surveyswill be carried out in each village by a specialized team including a botanist, an ayurvedicspecialist, a para-forester2, and local student assistants. The technical and support personnel forthe teams (i.e. the botanist and the student assistants) will be contracted locally by the projectand trained by the ethnobotanist in the appropriate survey methods. The results from thesesurveys will undoubtedly suggest topics and/or species that merit further investigation (e.g.collection and preparation procedures, use of different species for similar ailments,pharmacology of selected taxa, comparative studies between villages, etc.). These topics will beaddressed in subsequent ethnobotanical research carried out each year in the MPCA byrepresentatives of the Bandranaike Memorial Ayurvedic Research Institute (BMARI) and theDepartment of Ayurveda working closely with local ayurvedic practitioners. The collaborationof an ethnobotanical expert will be solicited to assist with the design and analytical phases of thisresearch. The ultimate goal of the work is to salvage and preserve critical indigenous knowledgeabout medicinal plants before it is lost.

10. A basic objective of the in-situ conservation component is to assess the degree to whichlocal communities impact natural populations of medicinal plants in the associated coreconservation zones (e.g. forest reserves) of each MPCA. Plant populations that are intensivelyexploited for medicine will clearly be more severely impacted than those that are exploited onlyon an infrequent or casual basis. Given this consideration, data collection will be prioritized forthose plant species that are of greatest importance to the community from a medical, economic,and cultural standpoint. Using the results from the socio-economic and ethnobotanical surveysas a guide, a selection of sample species will be conducted. This exercise will produce a shortlist of priority medicinal plants (approximately 15 - 20 taxa) in each village. The selectionprocess should involve full participation of the village3 with particular attention afforded to theinput of local ayurvedic practitioners and commercial collectors of medicinal plants. The resultsfrom each village will then be compiled to create a master list of priority species for the entireMPCA.

11. Given a listing of the medicinal plant species of greatest local importance, the nextcritical step is to quantify the actual distribution and abundance of each of these species withinthe forest. These data, which lay the foundation for a viable strategy of conservation andsustainable use, will be collected in a quantitative resource inventory. The MPCA base mapwill be used to layout a systematic, stratified sample of the existing forest area. Data will becollected along parallel, 1 Om-wide transects of variable length depending on the configuration ofthe forest. The transects will be spaced at intervals of 200m to provide an overall sampleintensity of 5%. Care should be taken to orient the transects at right angles to the topography tomaximize the amount of environmental variability encountered. Two sets of data will becollected along the transect. First, the number of individuals of each of the priority species willbe carefully counted and recorded, and measurements of plant size will recorded whereappropriate (e.g. diameter measurements will be recorded for tree species; height measurements

2 A para-forester is a local villager who is knowledgeable about medicinal plants and who has been trainedin the methodologies of ethnobotanical survey, forest inventory, and the collection and processing ofherbarium specimens. This village specialist will play an important role in all aspects of the in-situconservation components of the project. He will receive a stipend from the project for his trainingand participation in project activities.

The social mobilizers will facilitate and moderate this participation.

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will be recorded for poles, shrubs, and larger herbaceous plants). The data will be tallied at 20mintervals along the transect to provide discrete, 10 X 20m sample units. Second, a running list ofall the medicinal plants encountered along the transect will be recorded to construct a completelist of the medicinal plant resources found within the core conservation zone. Replicateherbarium specimens of each species will be collected, identified, and deposited in herbaria atthe University of Peradeniya and the BMARI.

12. The basic inventory procedure in each MPCA will be designed by an inventory specialistcontracted by the project working in collaboration with representatives from the Department ofForestry and/or Department of Wildlife. Training sessions will be held at both the MPCA leveland the village level to insure that all participants are clear on the mechanics of the inventorymethodology. Inventory crews will be composed of para-foresters, ayurvedic specialists, villagedata collectors, and student field assistants that have been contracted by the project from localinstitutions or universities. Representatives from the Department of Forestry (or from theDepartment of Wildlife in the case of Ritigala) and a contract botanist will operate at the MPCAlevel and circulate among village crews during the inventory operations. The inventoryspecialist contracted by the project will return after all field activities are completed to assist inthe compilation and analysis of the inventory data. The results from this work will provide themost detailed ecological accounting of medicinal plants ever conducted in Sri Lanka. A full setof the inventory data will be deposited with the Department of Forestry for their use indeveloping comprehensive management plans for the forest reserves associated with the MPCAs.

C. Development of Village Action Plan

13. The forest inventory will document the current status of the medicinal plant resourcebase in each MPCA, and it will be an invaluable tool in assisting the MPCA villages to makeinformed decisions about future actions that need to be taken to conserve these resources.Quantitative evidence of dwindling stocks in the forest provides a strong incentive for opening adialogue about forest conservation. Under the direction of the social mobilizers, village-levelplanning workshops will be held to present and discuss the results from the inventory and toassess local needs. During this workshop, a preliminary action plan for the management andsustainable use of medicinal plants at the VPMC level will be formulated. These plans shouldprovide broad operational guidelines for zoning local habitats and for defining the types ofactiVities that could be implemented in each habitat, and should include an assessment of themedicinal plant species that are in greatest danger of over-exploitation in the area. Thepreliminary village action plan should also list the perceived informational needs of thecommunity as related to medicinal plant conservation (e.g. technical assistance on thepropagation, care, and processing of certain species, periodic market updates, alternative incomegeneration opportunities, etc.). The planning workshop will be assisted by a conservationplanner (PMU level) contracted by the project working in collaboration with various members ofthe VPMC.

14. An important component of the preliminary village action plan will be prescribedextension activities and the cultivation of medicinal plants. The selection of species forpropagation will depend on a number of factors including level of endangerment, subsistence

4The village para-forester should play a key role in this phase of the workshop. Other members of theinventory crews should also be encouraged to share their observations.

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use, and market demand. The emphasis would be on species found to occur in low densities inthe forest. The cultivation of species in home gardens, agroforestry fields, buffer zones5, anddegraded areas will help maintain the genetic stocks of valuable medicinal species and shouldeventually relieve the pressure on wild populations within the forest. Local cultivation, on bothsmall and large scale, can also enhance the supply of raw materials for subsistence use andmarketing, and, in conjunction with local processing, can form the basis of small enterprises withincome generating capacity for local communities. Technical support and extension for thisactivity will be provided by the local agricultural officer and an extension horticulturistcontracted by the project. The information center established in each MPCA (discussed below)will be the primary source of information on the identification of local species, propagation,harvest, processing, and value-added technologies. Planting stock for the cultivation initiativewill be produced by the nursery facility established in each MPCA (discussed below);supplemental material will be produced, as necessary, by the villages themselves in simplenurseries.

15. To further respond to the technical needs of the villages in the MPCA, adaptive on-farm research will also be conducted by the project. This work will be designed and carried outby an extension horticulturist/agronomist contracted by the project working in collaboration withthe VPMC and selected villagers. The species and cultivation practices examined in thesestudies will be selected based on discussions with villagers. Village-level research activity willcontinue for the duration of the project, with new species and new cultivation techniques beingexamined each year. The results from this research will go directly to the information center fordissemination to all of the villages in MPCA. To provide a more comprehensive picture offarming activity at the village level, a local farming system expert will be contract by the projectto conduct a detailed village assessment. The objective of this research is to assess how thecultivation of medicinal plants fits into the overall agricultural scheme of the village and to makerecommendations on the intensification and improvement of local agricultural practice.Conserving medicinal plants and then cutting down the forest to grow food are clearlyconflicting concepts that need to be resolved at the village level.

16. The promotion of financial stability for ayurvedic practitioners and medicinal plantcollectors will be addressed in the project by investigating different alternative incomegenerating strategies that could be developed at the village level. Several promisingalternatives will be assessed including value-added activities, improved marketing and betteraccess to price information, eco-tourism, and post-harvest handling and processing. Forexample, by drying a fruit crop in the village rather than in a central factory, or by grinding itrather than selling it whole, transport costs are reduced and additional income could be obtainedby the villagers. These studies will be carried out by an inter-disciplinary team of specialists(e.g. marketing specialist, value-added expert, quality control expert, etc.) contracted locally bythe project.

17. Along these same lines, a village development fund will be established to providefinancial assistance to selected communities for establishing medicinal plant gardens, setting up

It is hoped that the Forest Department will complete the delineation and demarcation of Traditional UseZones within the forest reserves of each MPCA during the early phases of the project. Once this isaccomplished, the enrichment planting of medicinal plants in these areas can also be initiated. TheForestry Department will be responsible for implementing approved enrichment planting indesignated forest area.

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small-scale, demonstrative processing facilities, and for encouraging the development of localenterprises. The primary objective of the fund is to facilitate the creation of alternative incomeopportunities for those communities who are currently dependent on MPCA resources for theirlivelihood and to promote viable substitutes to currently destructive activities. The villagedevelopment program will be financed by channeling funds from existing government projectsoperating in the vicinity of the MPCAs. The Project Officer will work with other governmentagencies to direct such resources to the project areas.

18. The implementation of the preliminary village action plan will be reviewed annuallyand revised as necessary to best fulfill project objectives and the needs of the community.Although the appraisal will be coordinated by the social mobilizerand will be assisted by theconservation planner from the PMU, the actual management decisions will be made by thevillagers at an annual meeting convened expressly for this purpose. In this manner, thepreliminary village action plan will be continually refined during the project as communitiesbecome increasingly involved in the cultivation, conservation, and sustainable use of medicinalplants in the MPCAs.

D. Sustainability Studies

19. The project will undertake quantitative growth and yield studies of the prioritymedicinal plant species selected in each MPCA. Representative individuals of each species willbe located in the forest, plotted on the base map, permanently labeled, and the particular resourceof interest harvested (e.g. leaves, fruit, bark, etc.), weighed, and recorded. Although exact

6sampling procedures will vary according to the life form of the species , the basic objective is to-derive an estimate of the quantity of harvestable resource available from each individual. Tosimulate the actual harvest of the resource, local collectors should be employed in this fieldworkReplicate individuals or plots should be sampled for each species, with at least five trees perdiameter class being sampled for each tree species. The sample plants are left for a period of oneyear and then re-harvested. The amount of harvestable resource obtained during this samplingperiod represents the annual yield of each species. Multiplying this result by the number ofindividuals per hectare encountered in the resource inventory provides an estimate of the annualharvest volume per hectare of each species. Expanding this product by the total area of forestyields the total volume of medicine by species in the entire MPCA. From a managementstandpoint, this is an extremely important piece of data. The project will contract an inventoryspecialist to assist in the design of the growth and yield studies in each MPCA and to conductinitial training workshops. Annual data collection activities will be conducted by field crewscomposed of a para-forester, a botanist, a representative of the Forestry Department and studentfield assistants. These are the same crews that were contracted by the project to assist with thecollection of inventory data.

20. The next step in the sustainability studies is to assess the existing harvest level of eachspecies at the village-level. This type of research is fraught with methodological problems. Forthe purpose of the project, recording qualitative estimates of the harvestable volumes of differentspecies collected over the course of a year is sufficient. These data will be recorded by the para-forester living in each village with assistant from the social mobilizer, as necessary. . Whenever a

6 The harvest of a herbaceous plant will necessarily be different from that of a shrub which will also bedifferent from that employed for a large tree.

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new bundle of plant material is brought into the villages, the para-forester will record the date,the species, and the approximate volume.. Over time, it may be possible to enlist the help ofother villages in the monitoring process, or, under ideal conditions, to have the collectorsthemselves keep a cumulative record of their harvest activity throughout the year.

21. By comparing the current yield estimates with data on community collection rates,sustainability assessments can be generated each year. These assessments will provide a goodindication of the impact that local communities are having on the forest and will be of greatvalue in deciding which species merit increased cultivation as part of the village action plan.The data on annual harvest levels are also an important indicator for testing a key hypothesis ofthe project, i.e. that increasing the supply of medicinal plant through cultivation will decrease thedemand on wild stocks and enhance conservation. If village harvest levels decrease notablythroughout the life of the project, there is a good chance that this hypothesis is valid in thecontext of the MPCAs.

E. Conservation Strategy for Medicinal Plant Conservation Areas

22. The individual community action plans will be compiled and expanded to develop anoverall conservation strategy for each MPCA. Using the quantitative information on medicinalplants obtained from the resource inventory, the qualitative information on other forest resourcesobtained in the ethnobotanical surveys, and the results from the socio-economic studies, apreliminary conservation plan will be designed for each area. The plan will containrecommendations for the conservation and sustainable use of forest resources and for increasingvillage participation in the conservation process. Given the existing data and the objectives ofthe project, the primary focus of this document will be on medicinal plants. The conservationstrategies for the MPCAs will be developed by the conservation planner from the PMU workingin collaboration with the Department of Forestry. As with the village action plans, the MPCAconservation strategies will be reviewed and revised annually to reflect the input of new datafrom the sustainability studies and the on-farm research. The conservation strategies will besubmitted to the Department of Forestry to be included as part of their overall managementplanning for each forest reserve.

F. Extension and Education in the Medicinal Plant Conservation Area

23. An Ayurveda dispensary will be established in a selected community of each MPCA.Each will contain an ayurvedic physician and an assistant that will be supported by the project.The dispensary will also house a simple production and processing facility equipped by theproject for processing plant material and preparing herbal medicines. An information center,for the building of public awareness in traditional knowledge, medicinal plant identification,cultivation, and use, and market information will be established as part of the dispensary.Extension materials produced by on-farm research and the information component (see below)of the project will be disseminated through the information center. The government will beresponsible for the estimated recurrent costs of maintaining the dispensaries and informationcenters in each MPCA..

24. The dispensary and information centers will serve as sites where apprenticeshiptraining of future traditional healers will take place, becoming in effect the classrooms for

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communication of the traditional knowledge from the older generation of healers to the younger.The project will encourage the continuation -of the "guru-kula" system of apprenticeship, andinclude compensation for healers who are teaching students. Support for five students a year ineach MPCA will also be offered by the project. The selection of students will be coordinated bythe CAMC.

25. To provide a continual source of high-quality planting materials for the villages in theMPCA, a medicinal plant nursery will be established as part of the information center anddispensary facility. The nursery will be designed and managed by an agronomist from the PMUworking with a local support staff that have received training in nursery operation andmaintenance. The selection of plant species to be propagated will be based on the planting needsof local villages, and nursery stock will be periodically changed to reflect the annual adjustmentsin the village action plans. The project will also support the establishment of a medicinal plantgarden at each information center as a way of increasing awareness about different plant speciesand the ways that they can be incorporated into different management systems7. All plants willbe labeled with information about local name, scientific name, habitat, as well as brief useinfornation.

Component II: Expansion of Ex-situ Cultivation and Conservation: (S 0.48 million)

A. Establish Two New Nurseries

26. The project will support the development of new nurseries in the two biogeographiczones where no nurseries currently exist. One of the nurseries will be established at Miriswattein the Western Province, the other near Galle in the Southern Province. The establish of thesenurseries will involve several discrete steps. Within the two regions selected, the Department ofAyurveda will first identify, acquire and demarcate the sites for nursery development. Theadministrative and legal aspects of this land transfer must be completed early during the firstyear of the project. Given the availability of suitable land, the next task is to design thenursery. This activity will be directed by the Department of Ayurveda in collaboration with thePMU agronomist that has been contracted. Based on the design specifications, landpreparation will start and the necessary infrastructure developments such as irrigationsystems, fencing, and plant shelters will be implemented. These activities will be funded by theproject. Once the nursery is established, a comprehensive program of germplasm collectionand planting will be initiated. The Department of Ayurveda will organize annual collectingexpeditions and all of the new germplasm will be planted, multiplied, and made available fordistribution to interested parties.

B. Improve Existing Nurseries

27. The Department of Ayurveda currently has three nurseries that produce medicinalplanting material at Bathgoda, Girandurukotte and Pattipola. The project will provide support toexpand the production of planting stocks by these nurseries and to improve existing facilities so

7 Different sections of the medicinal plant garden will display different planting schemes including small,single plantings of herbaceous plants, diverse mixtures of species for home gardens, and multi-storiedagroforestry systems including herbs, shrubs, and trees.

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that they become repositories of the mother plants from different provenances and other selectedstock of value. Infrastructure developments (e.g. improvements to water systems, drainage,plant shelters, etc.) and the annual collection of germplasm and planting will be financed usingproject funds. The nursery improvements will be coordinated and implemented by theDepartment of Ayurveda. It should be noted that the objective of the nursery enhancementcomponent of the project is not to fulfill the planting needs of the entire country, but to supportthe maintenance of important germplasm and planting materials which can supply other privateand public sector nurseries.

C. Research on Propagation

28. Lack of technologies for the mass propagation is one of the most serious constraints towidespread cultivation of medicinal plants in Sri Lanka. To meet this need, the project willsupport research to develop simple techniques for propagating selected important taxa ofmedicinal plants. The selection of species and research design will be coordinated by a senioragronomist contracted by project. The selection of species for study will be based on severalcriteria: degree of endangerment in the wild, actual or potential market value, and availability ofexisting information. Sequential sets of experiments will be conducted for the duration of theproject. A first group of species will be selected, the experimental design implemented, and thedata collected until all treatments have been assessed. A new set of species will then be selectedand a new series of studies will start. At the completion of each experimental phase, the analysisand preparation of results will be undertaken and annual reports of the research results will beprovided to the project for distribution. The agronomists responsible for conducting thepropagation research (as well as the home garden and plantation studies described below) will becontracted locally by the project.

D. Home Garden and Plantation Research

29. The project will also support research focused on field planting techniques. The researchwill consist of a series of carefully designed experiments in home gardens and farmer's fields totest various parameters related to the cultivation of medicinal plants as an important componentof a local farming system. Research would be geared toward intercropping medicinal plants inplantation of estate crops such as rubber and coconut. The results of this adaptive researchcoupled with, detailed economic analyses of recommended management packages will form thebasis for providing these technologies to the end user.

30. As with the propagation studies, the home garden research will follow a strict protocol.The selection of study species will be based on degree of endangerment, local demand, andmarket value. The research design, which will vary according to the farming system beinganalyzed, will be coordinated by a senior agronomist contracted by the project. The selection ofstudy sites will also vary with the species and farming system being studied. To enhance theusefulness of the results, some-of the research will be carried out in the home gardens andagroforestry fields of the MPCA. The home garden research will be initiated early during the

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second year of the project, and data collection will continue for at least three more yearsAnnual reports of research results will be submitted to the project for distribution.

E. Dissemination of Research Results

31. The project will support the dissemination of the results from the propagation and homegarden research to farmers and the general public through existing extension channels (e.g.agriculture and forestry networks). The research findings will be grouped by species andprioritized based on the current demand/need for information. A series of technical bulletins willbe prepared each year for the medicinal plant species afforded the highest priority. The projectwill prepare the technical bulletins in-house, but may contract a research publicist to assist in thepreparation and final publication of these materials.

Component 3- Information and Institutional Support: (S 2.52 million)

A. Promotion of Appropriate Legal and Policy Environment Through Studies andRecommendations for Regulations

32. The legislative framework in Sri Lanka does not specifically address the status ofmedicinal plants and the traditional knowledge related to them. To address this issue, theGovernment of Sri Lanka has initiated a participatory process to define "strategies to regulateaccess to indigenous knowledge and other information resulting from the implementation of themedicinal plants projects". This process has resulted in agreement on a two-step strategy.

33. The first step will be to develop guidelines for ensuring the confidentiality ofinformation for incorporation in employment contracts for staff, consultants and institutionsinvolved in data collection under the project. These guidelines will be developed by theDepartment of Ayurveda in close consultation with the committee established for this purpose,before the award of employment contracts under the project. The Department of Ayurveda willimplement these guidelines and supervise their fulfillment by all actors involved in the collectionof data under the project.

34. This will be followed by the preparation of guidelines for collection, processing, storingand access to information under the project. These guidelines will include the followingconsiderations: (1) procedures for approving requests for data collection, (2) the conditionsagainst unauthorized disclosure of the information gathered, (3) the recording of the source ofinformation so as to ensure the respect of any right related to such data, (4) procedures forobtaining the permission of source person and/or community for collection of data, (5) specificprocedures for granting access to the data, (6) approval procedures for granting data access tothird parties; (7) approval procedures for request for information from foreign entities and/orpersons and conditions for repatriation of any benefits arising from data use to Sri Lanka and/orthe source of the data by foreigners, (8) conditions for mandatory joint partnership with localresearch institutions for foreign entities requesting access to the data or a permnit to collect data.

8Given the inherent value of this research, it is hoped that data collection will continue beyond the life ofthe project.

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35. The project will finance the preparation of these guidelines by providing local technicalassistance and workshop support to obtain consent of representatives of all stakeholders involvedin medicinal plant conservation and sustainable use. These guidelines will be prepared andenacted by the end of the first year of project activities. The Department of Ayurveda willappoint a "Committee" to review all applications for access to medicinal plant data and to adviseon all issues dealing with access to the medicinal plant data. It is also proposed that all suchprocedures including the application and approval of requests will be made public.

36. The second step will be to undertake a study related to the development ofcomprehensive legislation dealing with the protection of medicinal plants and the traditionalknowledge related to them, including intellectual property rights (IPRs). This long-termcommitment aims at establishing an adequate legal regime to safeguard the traditionalknowledge and ensure that benefits from the use of this knowledge will accrue to thestakeholders involved in the conservation and sustainable use of the medicinal plant resourcesand the traditional knowledge related to them. The current "Advisory Committee" comprised ofrepresentatives of ministries and various NGOs will review all IPR issues and will draft reportsand advisory papers to the Government for consideration. In order to ensure the participation ofall stakeholders involved, the project will assist in the funding of the study (national technicalassistance support) and workshops to define this long-term policy and related legislation. Inaddition, the project would provide support for consultation with the World Intellectual PropertyRights Organization and workshops on this important theme. The output of this exercise will berecommendations to the MIM for new and improved legislation for the protection of medicinalplant genetic resources and their products and traditional knowledge on medicinal plants.

B. Establishment of information network on medicinal plants

37. A large volume of information on medicinal plants based on floristic andphytosociological studies is available in the country. This informnation is scattered in floras,books on medicinal plants, the National Herbarium, relevant post-graduate theses, data bases inthe National Conservation Review, and Wetland Project site reports. These data sources will besearched to pull together information on medicinal plant species as they occur in their naturalhabitats, to improve the level of information collected for this section to supplement theinformation available at the BMARI, of the Department of Ayurveda. Although a databaseexists at the Department of Ayurveda, it is still rudimentary

38. The project will also support the establishment of an information management system atthe Department of Ayurveda in order to organize existing data and those generated through thisproject into a data base with the wide range of information necessary for medicinal plantconservation, including botanical and local names, distribution and ecology, chemicalcharacteristics, and market information. The data base will be established at BMARI, and willconsist of data sets compiled by different institutions and agencies. These datasets have been setup independently within each program (NCR, Wetland Project, National Herbarium, etc.) underthe management of the relevant institution to serve internal needs. Information contained withinthe data base will be accessible on the basis of procedures to be drawn up by the Department ofAyurveda. As part of the information development program, the Department of Ayurveda willinvestigate ways in which access to information contained within the system can be controlledand managed to ensure that benefits resulting from any commercial use are equitably shared withpractitioner's association, communities, BMARI and other groups which have contributedinformation. The data processing and information services center at BMARI will facilitate the

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establishment of databases at relevant institutions by providing technical support, training andensuring compatibility between different databases.

C. Training and Mass Awareness on Medicinal Plant Conservation

39. In addition to the specific training needs identified for the implementation of the in-situconservation and ex-situ cultivation and conservation components of the project, training inspecialized disciplines will be supported under the project. The Project will finance a verylimited number of specialized post-graduate level training positions (master's degrees) inethnobotany, sustainable management, etc. in suitable institutions outside the country. Theproject will also support the placement of local staff in short-term specialized technical trainingattachments in suitable institutions outside the country (e.g. Kew Gardens, United Kingdom;Central Institute of Medicinal and Aromatic Plants in Lucknow; Darwin Botanical Gardens,Northern Territories, Australia; etc.). In addition, participation at international meetings andstudy tours, and extensive local training will be financed under the project. This training will beavailable to staff of the Departments of Ayurveda and Forestry, universities and researchinstitutions, local communities and other participating institutions. The local training componentwill be managed by the Department of Ayurveda, who will contract individuals and institutionsto conduct the local training, where necessary. The Technical Assistance (Operational Support)consultants will assist the Department of Ayurveda in identifying institutions and in theplacement of participant trainees in international courses. A training plan defining the nature oftraining, number of people to be trained, training institutions, and training schedule will beprepared by the Department of Ayurveda, following a training needs assessment, prior to thecommencement of the project.

40. Although enviromnental matters have steadily increased in importance as part of theformal education system, medicinal plants do not feature prominently in environmentaleducation at present. However, by reaching the more then 10,000 schools in the country,perceptions of and activities relating to medicinal plants can be significantly affected. Medicinalplant curricula developed as part of this project will be designed to supplement traditionalsubject areas such as agriculture, botany, biology, social studies, etc., and will be built into theteacher training programs. Teacher training would be contracted to a national level NGO, andwould include the development of teaching material, discussions and review of.materials bycurriculum developers for integration into existing syllabi, teacher orientation through seminarsand workshops, publication of material, and evaluation of the program. The project will alsoprovide technical assistance support for the review and improvement of the existing curricula ofthe Institute of Indigenous Medicine.

41. The project would also support the development of social publicity programs andmaterials for public television and radio. The preparation of these materials will be contracted bythe Department of Ayurveda to a qualified communication specialist or institution.

42. There is a tremendous need for educational materials for use in the training andupgrading of the skills of Ayurvedic and other physicians, and this project will endeavor toproduce such materials through the activities of the BMARI. In addition, a manual covering the208 most widely used species of medicinal plants will be prepared, with sections on the botany,traditional uses, medical uses, clinical studies, biological activity and chemical composition,supplemented with black and white line drawings of the plants. It is expected that the publicationwill be in multiple language versions, in order to have as wide an impact as possible, including at

36ANNEX 2

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the international level, as it would also be useful to the worldwide community of Ayurvedic andother physicians whose practice involves the use of herbal materials.

43. The traditional knowledge found in the hundreds of old manuscripts written on palmleaves by practitioners of Ayurveda have not been interpreted, thus a valuable source ofinformation remains untapped. Some of the palm leaf manuscripts at BMARI are up to 700 yearsold, containing a plethora of ancient wisdom on plant use for diseases of humans and domesticanimals. To date some 100 of these manuscripts have been transcribed and published byBMARI, and the project will endeavor to transcribe and interpret, using specialists contracted forthis phase of the work, a manageable number (about 50) of the 500 old manuscripts housed:within the BMARI, and will promote the study of these and other old manuscripts. An expertgroup on ethno-medicinal studies will be commissioned by the Department of Ayurveda tooversee the project. Digitization of the original materials will be undertaken, in order tosafeguard the information and make it more widely available without risking the fragilemanuscripts themselves.

D. Monitoring and Evaluation of Project Achievements

44. In addition to the regular progress monitoring which will be undertaken by theDepartment of Ayurveda, the project would support impact monitoring to assess the ecologicaland socioeconomic impacts of the project so as to determine whether there is agreement withthose anticipated. Impact monitoring would also assess the effectiveness of project institutionsand processes in meeting project objectives. Impact monitoring would be contracted by theDepartment of Ayurveda to a multi-disciplinary team from an independent research institution oruniversity. The monitoring of project impact would be based on a conceptual framework to bedeveloped at the beginning of the project. The framework would embrace medicinal plant valuesin the MPCAs, anticipated changes, sampling methods, analytical methods, mechanisms forfeedback and project adjustment, and roles and responsibilities for monitoring. Monitoringwould be done at periodic intervals through a consistent set of measures or indicators that reflectvalues for which the MPCAs are being managed, the control and mitigation of threats to theconservation areas, and the effectiveness of institutions and processes. This is further discussedin the Project Implementation Plan.

E. Support to Project Management, Project Coordination and Advisory Functions

45. The implementation of the project will require very specific arrangements for projectmanagement, coordination and advisory support. These arrangements would facilitate thesmooth operation of the project and would be established as a temporary measure for the life ofthe project. These are discussed below:

46. Project Management: The Ministry in charge of the subject of indigenous medicine(Ministry of Health and Indigenous Medicine - MIM) will be responsible for project execution,and will work in close collaboration with the relevant government agencies, provincial councils,NGOs and communities. A project management unit (PMU) will be established within the MIMfor management of the project. The PMU will be headed by a Project Director, reporting to theSecretary, MIM. The PMU will implement the project through the line agencies, provincialinstitutions, and local community institutions, as appropriate.

47. In addition to the Project Director, the PMU would include core staff comprising a

37ANNEX 2

Page 14

Program Officer, Administrative Assistant, Accountant and Support Staff (typist, driver, etc.).The PMU would be located at Colombo.

48. The implementation of project activities will be the responsibility of the respectivecooperating agencies, under the overall coordination of the PMU. Since the project will involve asubstantial involvement of the provincial councils in the implementation of activities in theMPCAs, the long-term commitment of the respective provincial administration will be ensuredby MIM entering into a Memorandum of Understanding (MOU) with the relevant ProvincialCouncils (represented by the Chief Secretary) detailing the cooperation and collaborationrequired. Memoranda of Understanding will also be negotiated with other key participatingagencies like the Department of Forestry and Wildlife Conservation.

49. The project will support the staffing and functioning of the PMU to provide logistical,administrative and financial support services for various activities to be undertaken by theparticipating government agencies, NGOs, community organizations, and individuals.

50. Project Coordination: Since there is a diverse set of stakeholders involved with theproject, coordination arrangements are needed at the national, provincial and local levels. At theMPCA level, the Medicinal Plant Conservation Area Management Committee (CAMC) willguide and oversee the implementation of activities. Provincial Project Management Committees(PPMCs) will be established at each of the provinces where the MPCAs are located. Thesecommittees will be chaired by the Chief Secretaries of the respective participating provinces andwill include representatives from the state and provincial agencies and NGOs who are directlyparticipating in the conservation area programs. These committees will oversee theimplementation of project activities, including monitoring and evaluation, approve plans ofactions and work programs and other related matters. The Project Officer of the relevant MPCAwill serve as the convener of this committee.

51. At the national level, the existing national project steering committee on medicinalplants (NPSC) with some additional members, will provide overall policy and strategic guidancefor project implementation and to ensure that project activities are consistent with the projectobjectives. It will also approve annual work plans and budgets. This Committee is chaired by theSecretary, Ministry in charge of the subject of indigenous medicine. The Project Director willserve as the convener of the NPSC.

52. Project Advisory Group: This technical group of international and local scientists willinteract regularly (during the first, third and fifth years of the project) at international workshopsto be supported under the project to share experiences on similar types of projects. This groupwill review the technical aspects of the project.

38

ANNEX 3SRI LANKA

Conservation and Sustainable Use of Medicinal Plants Project

Estimated Project Costs

(US $: million)

Project Component Local Foreign Total-S--------------------- $ million-

1. Expansion of in situ conservation of medicinal plants 1.59 0.97 2.562. Ex situ conservation and cultivation within the project context 0.24 0.18 0.43.3. information and institutional activities within the project context 0.93 0.67 1.60

Total Baseline CostPhysical Contingencies 0.11 0.06 . 0.17Price Contingencies 0.20 0.11 0.31

Total Project Cost 3.07 2.00 5.07

- 39ANNEX 4

Page 1

SRI LANKA

Conservation and Sustainable Use of Medicinal Plants Project

Incremental Costs and Global Environmental Benefits

1. The objective of the GEF alternative is to secure the active conservation of globally andnationally significant medicinal plants, their habitats, species and genomes. The proposedproject aims at furthering Sri Lanka's overall strategy for natural resource conservation byadvancing the implementation of international cooperation to conserve biodiversity. Specificoutputs of the proposed project include: (i) A viable and participatory management system formedicinal plants operating in prime natural habitats and peripheral areas; (ii) Comprehensiveidentification of culturable medicinal plant species and establishment of best practices for theirpropagation and cultivation; (iii) A sustainable system for the collection and preservation ofinformation on medicinal plants, including ethnobotanical information.

The Country Context and Broad Development Goals

2. Sri Lanka is actively pursuing a strategy of rapid economic development, in which theprivate sector will have a substantial role, through the expansion of its infrastructure and thegrowth of industry. The transformation of subsistence agriculture is a complementary objectiveto the country's development strategy, focusing on the improvement of land productivity, cropdiversification and the realization of export-oriented comparative advantage. The Govermnentare aware that the pursuit of rapid, decentralized, economic growth might occasion thedegradation of natural resources, which would ultimately disturb the growth process itself, andhave acknowledged the need to incorporate sufficiently aspects of environmental sustainabilityinto the execution of its development strategy. At the same time the Government wish tomaintain a balanced approach towards environmental protection that integrates environmentalconcerns into the development process without hampering development itself. Formally, oneway to strike this balanced approach is to discuss openly developmental and environmentalagendas in the vetting of development projects at various levels in Government. MFE havemade considerable progress in institutionalizing this dialogue within Government.

3. The operational effectiveness of such a dialogue, however, will depend upon in-countrycapacity for environmental analysis and management. The Government has undertaken severalmeasures over the past few years to strengthen the institutional capacity of the public sector toassess the implications of sustainable environmental management, but further institutionalstrengthening will represent a considerable additional burden on the present allocation ofresources available to the Government. Further allocation of resources to institutionalstrengthening would come chiefly at the expense of other social and developmental priorities.The current compromise is to accept that, in view of the increasing pressures on land and thelack of institutional capacity for environmental management, some degradation will be inevitableand that existing institutional capacity should be used to the greatest extent to limit the breadthand degree of irreversibility of the damage.

40ANNEX 4

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Baseline

4. At present, several government agencies implement activities that can be regarded ascontributing to the conservation of medicinal plants or to their sustainable use. They are theDepartment of Ayurveda, the Forest Department, and the Department of Wildlife Conservation(MALF). In the absence of GEF facilities, Sri Lanka would be expected to continue someallocation of capital expenditures for medicinal plant conservation through these agencies, butthe commitment of resources would continue to be low, as in the example of the MFE, in viewof more pressing domestic environmental priorities of flood control, forest protection, solidwaste management, development of drinking water and sanitation. Even among these highpriority areas, the actual utilization of funds for capital and recurrent expenditures has beensomewhat erratic over the last five years. The pattern of the utilization of funds over the last sixyears suggests that the current trend for actual expenditures by the MFE is to maintain presentspending levels roughly adjusted for inflation. While resources to the division are not expandingin real terms, it is doubtful, in view of currently underfunded commitments, that there would besignificant changes in the allocation of funds specifically for the benefit of medicinal plants.

5. Department of Ayurveda. Current development plans for the department specify theestablishment of an Ayurvedic complex at Karagoda in Matara district. These plans include theestablishment of an Ayurvedic hospital, a herbarium, a drug factor, a training unit and a researchunit with a standardization and quality control central laboratory, a botanical research unit and aslinical research unit. By extending the availability of Ayurvedic medicine these activitieswould also aim to popularize an awareness of their value to Sri Lankan society, and sostrengthen a national consensus to give the conservation of medicinal plants a more prominentstatus among the country's environmental priorities. Although extending an appreciation ofAyurvedic practices and developing the knowledge base of the medical system's use of plantshave a role to play in securing a sustained effort at conserving medicinal plants, these activitiesphysically do not entail the conservation of plant habitats or the determination, in the interests ofoperations for the management of habitats, of their sustainable use. The development plan forMCPCLGIM has earmarked a total of Rs 154 million ((US$ 2.83 million) in current terms,beginning in 1997 through to the end of 2000, for the Karagoda complex. Incidentally, thedepartment also has plans to establish 63 Ayurvedic hospitals in 19 administrative districts at acost of Rs 614.8 million ($ 11.32 million) over the period of 1996 to 2000.

6. Forest Department. The Forest Department's main activities involve the developmentand management of plantation forests as well as the conservation and management of naturalforests. Naturally in many instances protected forests incorporate medicinal plant habitats. Inthese sites, the policing operations of forest management, although perhaps not primarily aimedat the production of non-timber forest products, would also in principle benefit the integrity ofat-risk plant populations. The Forest Department, moreover, can be expected in the future toundertake as part of its management operations in such areas some cultivation, conservation andextension specifically directed toward medicinal plants. In the plantation forests as well, theForest Department can be expected to be more active in ex situ cultivation of plants. Based onaverage Forest Department investments in period of 1995-1997, it is possible to identify that onepercent of the current department's budget, or about Rs. 1.4 million ($ 25,783) per year in 1996terms, would be utilized under the categories of the conservation and management of forests, andforest research, education and extension services primarily for the conservation management ofmedicinal plants.

41ANNEX 4

Page 3

7. Department of Wildlife Conservation. The mandate of the Department of WildlifeConservation extends to the protection of flora and to carrying out research to ascertain rare plantpopulations. The department also is charged with providing national park services for tourism.In as much as park areas also encompass medicinal plant habitats, the wildlife departmentparticularly can be expected to allocate resources that enhance the potential contribution ofmedicinal plants to the tourism value of some park areas. The current level of expenditure bythe department on conservation services is estimated at about Rs. 1.3 million ($ 23,941). In theabsence of the GEF opportunity, the department would have been expected to maintain this levelof expenditure.

8. To a much lesser extent a few other institutions have been involved in activities relatedto the conservation of medicinal plants in areas of interest to the present project. These includethe Ceylon Institute of Scientific and Industrial Research and the Town and Country PlanningDepartment.

9. Ceylon Institute of Scientific and Industrial Research (CISIR). The Ceylon Institute ofScientific and Industrial Research has been conducting studies on medicinal plants over the pastseveral years. The institute at present spends about Rs. 100,000 ( $1,841) per year on medicinalplant research. Although the institute might be expected to continue this level of finding, thecurrent state of medicinal plant supplies does not justify an expansion of research expenditure inthis area.

10. Town and Country Planning Department. The Town and Country Planning Departmentwas involved in the establishment of the medicinal plant garden at Kataragama and presentlymaintains it. In the absence of the GEF alternative, annual expenditures by the Town andCountry Department on the garden would likely to amount to Rs 1.5 million ($27,624).

Global Environmental Objective

I1. As a consequence to the current course of action, regarded as the baseline, Sri Lanka willprobably preserve ex situ a very limited number of the most commonly used medicinal plants.The plants that would most likely survive would be those which are presently cultivable andhave demonstrated an adequate profitability relative to other farm production. Given the presentpressures of agricultural and other competing demands on the use of land, and the present levelof institutional capacity, catastrophic loss of habitat areas will likely continue and gravelydiminish the quality of in situ biodiversity over the next ten to twenty years. The GEF alternativewould aim to install sufficient institutional capacity in Sri Lanka to increase the probability that awider spectrum of medicinal plant species would be preserved over the long term.

GEF Alternative

12. As part of this capacity strengthening, the GEF alternative would undertake theestablishment of botanical reserves in areas representative of the country's agri-ecological zonesto institutionalize the in situ conservation of medicinal plants and to establish operatingprocedures defining their sustainable use.

13. In an effort to reduce the pressures of populations adjacent to the areas enclosing thebotanical reserves, the GEF alternative would actively link the development of village incomesoutside forest areas to preservation of the integrity of the reserves. This type of village

42ANNEX 4

Page 4

development would be a targeted channeling of resources that are planned to made available forregional development initiatives in the central northern and southern areas. The establishmentof the botanical reserves under the GEF altemative would also tie into ongoing plans to expandthe provision of Ayurvedic medicine in rural areas. The GEF alternative would add otherfunctions to the currently planned medical centers, allowing them to serve as facilities providingtraining not only in Ayurvedic practice, but also in adding value to the cultivation or processingof medicinal plants or in activities associated with the conservation of plants in the reserves.

14. The GEF alternative would accelerate research on the propagation of plants ex situ andexpand agronomic research of those species that may be suitable for production on farms or inplantation forests. The GEF alternative would also intensify current efforts to expand knowledgeof the botany of medicinal plants and their use in Sri Lanka. Resources would be committed toraising local and international public awareness of the position of medicinal plants in Ayurvedicculture to encourage the development of eco-tourism, which would aid the sustainability of theconservation efforts.

System Boundary

15. The primary impact of the'GEF alternative, implemented in the period of 1998-2002, isto increase the number of medicinal plant species that would be preserved over time in SriLanka, both in situ and ex situ. The GEF alternative would achieve this in installing theinstitutional capacity for a specialized form of environmental management which is not highamong Sri Lanka's development priorities. The local population would benefit from the optionof continued availability of a wide range of medicinal plants that would have been lost withoutthe project. This domestic benefit may partly take the form, in the short run, of relatively lessexpensive health care, and, in the long run, of patented pharmaceutical products. The countrymay also realize additional international as well as domestic eco-tourism.

Domestic Benefits

16. In terms of village development, the GEF alternative should achieve the same level ofdomestic benefits as would have been achieved under the regional development plans now inpreparation for the central northern and southern areas of the country. The chief difference ofthe GEF alternative is that some of the funds that would have been committed for communitiestypical of those impacting medicinal plant habitats would now be directed for the developmentof alternative village incomes that would contribute to the easing of population pressures uponforest areas. The benefits from incremental eco-tourism are not expected to be large, but wouldoffset the recurrent operational and opportunity costs of maintaining the botanical reserves.

17. In terms of the avoided loss of plant species, Sri Lanka should realize some value inpreserved biodiversity as mentioned in the preceding section. The domestic benefit of theforegone loss in biodiversity value of medicinal plants provides an incentive for continued publicparticipation in the proposed project.

Costs

18. The baseline activities undertaken by the institutions described above and the GEFalternative can be grouped into the following categories: in situ conservation; ex situ cultivation;research, education, training and extension; and village development. The GEF alternative

43ANNEX 4

Page 5

would expand current in situ conservation through the establishment of botanical reserves, andwould involve village social organization, the development of village-based management plans,reserve enrichment and investments to improve the management of the forests hosting medicinalplant habitats. The total cost of in situ conservation under the GEF alternative is estimated atUS$0.99 million, as compared to US$0.26 million over the project period1. In the presentcontext, ex situ cultivation refers to physical investments in nurseries and gardens. As notedearlier, the Government have already made significant commitments to the financing of suchtypes of infrastructure. The GEF alternative would make additional investments to expand thecapacity of such 'gene banks', providing approximately US$2.81 million over the project periodas compared to a baseline estimate of US$ 2.76 million. Rather than add much more to alreadyplanned investment in gardens or herbaria, the GEF alternative would provide resources toencourage and facilitate ex situ cultivation on farms and other areas through intensified research,education, training and village extension. The GEF alternative would provide (incrementally)approximately US$ 0.30 million for research on the propagation of medicinal plants, homegarden and plantation cultivation and the dissemination of research results to existing provincialextension networks. The GEF alternative would also provide approximately US$ 50,000 toenhance the education and eco-tourism potential of the existing botanical garden at Kataragama.Village extension and education would also be key elements affecting the sustainability of thebotanical reserves that would be established under the GEF alternative, and would incorporateexisting commitments to expand Ayurvedic medical facilities into rural areas. The GEFalternative would provide approximately US$ 1.13 million in incremental resources foreducation and extension in villages about the reserves, financing, among other activities,medicinal plant farming, product processing and marketing. The GEF alternative wouldaugment other research, capacity building and institutional strengthening, identifyingapproximately US$ 0.83 million for sustainability studies and other research set within theproposed botanical reserves, and approximately US$ 1.07 million for the promotion of changesin legal and regulatory policy influencing the conservation or cultivation of medicinal plants, thedevelopment of a national survey and information network of medicinal plant botany and use,the undertaking of line agency capacity building and training, the development of qualitystandards and the promotion of quality control, and general public education. In total, the GEFalternative would allocate for research, education, training and extension approximately US$20.74 over the project period as compared to US$ 17.43 of the baseline. Village economicdevelopment, which is programmed in more than one regional development plan, does notchange in total under the GEF alternative. The GEF alternative would ensure that programmedresources would be directed to villages that are stakeholders of the proposed botanical reservesand would be linked to their participation in maintaining the integrity of the reserves. Theseresources for village economic development amount to approximately US$ 0.27 million.Finally, the GEF alternative would enhance project management capacity and project monitoringand evaluation with the commitment of approximately US$ 0.48 million over the project period.

Domestic costs from planning documents here and elsewhere were converted to US dollar equivalentsusing the following mid-year exchange rates (Rs/US$):

1998 1999 2000 2001 2002

60.86 64.48 67.07 69.75 72.54

44ANNEX 4

Page 6

19. Total financing requirements of the GEF alternative, including contingencies, over theperiod of 1998-2002 would amount to about US$ 25.29 million as opposed to a baseline US$20.72 million. The present value of the GEF alternative, using a LIBOR rate estimated at 5.15percent, totals approximately US$ 21.80 million.

Incremental Cost Matrix

20. The total incremental cost of financing the GEF alternative is estimated at US$ 4.56million (see Table A). Operationally, this would mean that the Government would providecounterpart financing of about US$ 0.5 million for development commitments that would haveoccurred in the absence of the GEF alternative. These commitments include US$ 0.27 millionfor village economic development, and other funds for the civil works of Ayurvedic medicalcenters, Ayurvedic drug supplies, staff allowances, taxes and duties.

FRAMEWORK OF PRIVATE INCENTIVES AND COSTS TO SOCIETY

21. The following tables are presented to lay out a framework for the collection of dataduring the implementation of the project that should clarify the long-term losses to society thatwould occur in the absence of action versus the incentives to individuals to realize short-termeconomic returns. The figures required should represent net present economic values discountedat the opportunity cost of capital, which is estimated at 12 percent.

22. The first table presents an organization of data showing the average net benefits toindividuals per hectare of conservation area from activities that either directly involve thephysical use of medicinal plants, or affect plant habitat conditions.

Average Net Benefits to Individuals (US$/ha of Conservation Area per Stakeholder)

Threats small plant commercial plant local household payments to third Total per hacollector collector parties

Excessive Plant to be quantified to be quantified probably not to be quantified based on rowExtraction applicable values....................................... ............................................................................................I................................................................ ..........................Forest Product to be quantified to be quantified based on rowCollection2 values~~~~~~.............. ................................... ....................................................... ...................................... ......Land Conversion 403. probably <25% of probably < 500

other benefits

Table elements:Excessive Plant Extraction: collection of raw materials from plants in excess of sustainableyields.Forest Product Collection: harvesting of timber, fuelwood and other products that might disturbplant populations.Land Conversion: clearing of land for agricultural use.Small Plant Collector: collector of small quantities of raw materials for local household use.Commercial Plant Collector: collector operating on contract to gather raw materials in bulk.Third Parties: individuals receiving payments from others carrying out the activities at the left ofthe table.

2 Assuming that extraction does not lead to the denuding of areas.

3 Estimated on basis of US$50 net profit per hectare from subsistence farming discounted 12 percent over thirty years.

45ANNEX 4

Page 7

23. The second table presents the net losses to society from excessive plant extraction, forestproduct collection and land conversion.

Net Losses to Society (US$/ha of Conservation Area)Threats Tourism Sustainable Ayur. Intellectual Biodiversit Forest Other Total

Harvesting Medicines/ Property y ProductsPharnaceutical Rents

sExcessive to be to be to be quantified to be non- relation of to be based onPlant quantified quantified quantified quantifiable plants to quantified rowExtraction products values

unknown....... ........................................................ ........ .................................................................................................. u w.............Forest to be probably probably probably based onProduct quantified insignificant insignificant insignificant rowCollection values

..................... ....... Gw............... Wi........... ............ i.6.................... 1~.............................................................................. ........... .... iwLand to be to be to be quantified to be non- to be to be based.onConversion quantified quantified quantified quantifiable quantified quantified row

values

Table Elements:Tourism: local incomes derived from site visits to the conservation areas plus travel costevaluations.Sustainable Harvesting: long-term incomes to collectors observing prudent harvesting and bestpractices.Ayurvedic Medicines/Pharmaceuticals: benefits of continued supplies of traditional medicinesand of keeping open the option for pharmaceutical prospecting.Intellectual Property Rents: public incomes derived from the licensing of pharmaceuticaldeveloped from medicinal plants.Biodiversity: the local and global ecological value of maintaining the gene pool of medicinalplants.Forest Products: incomes from sustainable harvests of timber, wood and other products

46ANNEX 4

Page 8

Table A: Incremental Cost Matrix

Cost US$Compone Category Million Domestic Benefit Global Benefit

ntIn Situ Baseline 0.26 Limited preservation of unrepresentativeCultivation (Govt sample of surviving species; severely restricted

development resources for medicinal alternatives.priority)

with GEF 0.99 Preservation of representative samples of Preservation of unique pool of geneticAlternative species in each major ecological zone through information of potential, future medicinal

the establishment of botanical reserves; value.improved scope for popularizing medicinalalternatives.

incremental 0.73

Ex Situ Baseline 2.27 Continued cultivation of current set of knownCultivation (Govt cultivable species

developmentpriority)

with GEF 2.81 Expansion of number of cultivable species; Preservation of unique pool of genetic

Altemative expansion of cultivation over baseline; reduced information of potential, future medicinalpressure on species in situ; improved scope for value.

I popularizing medicinal alternatives.

Incremental 0.54Research, Baseline 17.43 Efficiency and long-term effectiveness of theEducation, (Govt implementation of local rural developmentTraining & development initiatives.Extension priority)

with GEF 20.74 As above with emphasis & additional efforts Improved long-term sustainability of globalAlternative targeting the sustainable use of botanical efforts through increased local capacity for

reserves established under the project. biodiversity conservation, enhanced localappreciation of the preservation value ofdomestic resources & the equitabledefinition of intellectual property rights.

Incremental 3.31Village Baseline 0.27 Promotion of local income opportunities.Development (Govt

developmentpriority)

with GEF 0.27 Promotion of local income opportunities linked Sustainability of conservation effortsAlternative to medicinal plant cultivation and the in situ through the enhanced local appreciation of

integrity of habitats. the preservation value of domesticresources.

Incremental 0.00Project Baseline 0.00Management (Govt& M&E development

priority)

with GEF 0.48 Capacity to coordinate & implement resource Increased capacity for the management ofAlternative management project activities. biological reserves.

Incremental 0.48

Total Baseline 20.72 rural development & continuation of ayurvedictraditions.

with GEF 25.29 Same as baseline except substantially larger Considerably improved likelihood of

Alternative number of medicinal plants conserved & potentially globally significant habitats,cultivated; enhanced capacity to sustain species & genomes conserved; enhancedconservation initiatives (including improved operational experience of projectsopportunities for eco-tourism). involving intellectual property rights.

Incremental 4.56

47ANNEX 5

SRI LANKA

Conservation and sustainable Use of Medicinal Plants Project

Financial Summary

Years Ending(Cufrency: US $)

millionimplementation Period Operational Period

1998 1999 2000 2001 2002

Project CostsInvestment Costs 1.58 0.86 0.92 0.81 0.79Recurrent Costs 0.02 0.02 0.02 0.02 0.03

Total 1.60 0.88 0.94 0.83 0.81

Financing Sources (% of totaluroiect costs! Total

IBRD/IDACo-financiersGovernment 9.9%

CentralLocal

User Fees/BeneficiariesGEF 90.1%

OthersOthersOthersOthers

Total

48ANNEX 6

Page 1

SRI LANKA

Conservation and Sustainable Use of Medicinal Plants Project

Procurement and Disbursement Arrangements

Procurement

A. Works

* Package of Works: Due to the small size of these contracts (less than US $ 40,000) and asthese are geographically scattered, these can be awarded by inviting bids from at least threequalified contractors in the area of the project site.

* Procurement of Schedules: Detailed procurement schedules for works is presented in theProject implementation Plan.

* Design and Specification: The design and specification of building to be constructed will beprepared by MIM and approved by the Bank.

* Bidding Documents: Simplified bidding documents based on the Bank's Standard BiddingDocuments for Procurement of works (Smaller Contracts, January 1995) and adjusted tosatisfy requirements that are acceptable to the Bank and already agreed with GoSL will beused and contracts will be concluded following procedures acceptable to the Bank. Ingeneral, works under the project will be small and geographically scattered, and are notlikely to be of interest to outside bidders.

* Land: MIM will enter into an MOU with Provincial Councils and Forest Departments toacquire land for works.

B. Goods, Equipment, Machinery, Supplies, Vehicles

* Procurement Packages: Convenient procurement packages have been defined for eachcategory of goods, machinery, equipment and vehicles, and agreed with the Bank.Competitive Bidding is not expected to be required due to the size and propriety nature ofthe packages. The packages will include field equipment for planned studies under theproject, processing equipment for village information centers, some office equipment forvillage information centers, dispensary equipment, fencing, planting materials for botanicalreserves and gardens, training equipment whose use will be coordinated at the national level,office and other O&M (except for vehicles), and items to be purchased for villagedevelopment activities. The goods procurement account does not include items that may bepurchased or rented under the contracts for studies or research that are described below.

* Procurement Schedule: Detailed procurement schedules for all packages have beenprovided in Project Implementation Plan.

* Design and Specification: The design and specification for goods for National Shoppingprocedures will be prepared by MIM and approved by the Bank.

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Invitation Documents: Standard bidding documents agreed with MIM and based on theBank's Standard Bidding Documents for Procurement of Goods, January 1995, will be usedand contracts concluded using procedures acceptable to the Bank. Contracts for other goods,including special equipment, which can be grouped together to make large packages will beprocured following international shopping procedures. Items or groups of items estimated tocost less than the equivalent of US $ 25,000 for each contract will be procured followingInternational and/or National Shopping Procedures up to an amount of US $ 350,000 callingfor at least three quotations from reputed suppliers. All transport under the project will behired locally as necessary.

C. TA, Training, Studies & Services

* Procurement Packages: Consultants services will include both internationally and locallyrecruited consultants. The contract packages shall consist of: (i) an operations supportcontract to assist the PMU in implementing various project activities -- primarily those inthe MPCAs; and (ii) a number of small local contracts for carrying out studies/surveys andthe preparation of training and educational materials.

Local and international training for staff and officers of MIM will be based on detailed plansthat will be prepared by MIM. These plans will outline the areas of study, the number ofpersonnel to be trained, training institutions and the years in which training will take place.Local training will be arranged by MIM and procured using National Shopping procedures.Where the purchase of materials for training is required, items will be grouped, if feasible,into appropriately sized packages to facilitate national shopping. Stipends for studentsstudying under Ayurvedic trainers at the medicaVinformation centers established by theproject may be paid by Force Account.

There will be five bundles of contracts to execute studies, research and other professionalservices under the project: (i) plant propagation & on-farm research, agricultural systemsstudy, home garden and plantation research; (ii) ethnobotanical surveys, medicinal plantinventory in the MPCAs, growth and yield studies in the MPCAs; (iii) database design anddevelopment; (iv) monitoring and evaluation; and (v) development of training andeducational materials. Bundles (i) and (ii) involve a number of different tasks and may becarried out as one or more contracts. Items (iii) and (v) will likely be submitted as singlecontracts. Monitoring and evaluation, as it includes the costs of an advisory group involvingexperts abroad, will consist of one contract for actual M&E activities in country and thenpossibly several ad hoc arrangements defined under a Memorandum of Understanding withparticipating institutions to cover travel and subsistence expenses of convening advisorygroup members. Bidding procedures for the studies will be similar to those established forcontracted research under other Bank projects in Sri Lanka.

Miscellaneous services include the rental of office and building space, the rental ofcomputers and other equipment, the purchase of professional office services for wordprocessing, report production and replication, etc. These will be procured through NationalShopping procedures.

Procurement Schedule: Detailed procurement schedules for all TA inputs and studies havebeen provided in the Project Implementation Plan.

50ANNEX 6

Page 3

* Design and Specification: All TORs for TA and studies will be drafted by MIM andapproved by the Bank.

* Bidding Documents: Consultants will be recruited following the Bank's Guidelines,Selection and Employment of Consultants by World Bank Borrowers, January 1997 andusing the Bank's Standard Form of Contract for Consultants Services, June 1995.Consultants will be hired through normal quality and cost based Bank procedures. A requestfor sole sourcing of the TA contract to the IUCN has been received from MIM and approvedby the Bank. The Bank approved the sole sourcing request after fulfillment of the followingconditions: (i) receipt of a formal request from GoSL containing IUCN's understanding witha regional and international entity of excellence in the areas covered by the draft TORs; and(ii) assurance of financial management expertise. Sole-sourcing is decided on fair technicalgrounds and is awarded to an entity that has the best expertise to provide technicalassistance.

All studies will also follow the Bank's guidelines defined for the selection and employmentof services and use the standard Bank form of contract established for consultants services.Training expenditures and other services, to the extent that they can be packaged will bedocumented as appropriate for National Shopping procedures (see section C above).

D. Miscellaneous

Procurement Packages: Miscellaneous procurement items include: land surveys and laborfor improvements in the botanical reserves and gardens; project management personnel atthe reserves; and staff allowances. The labor required for land improvements at the reservesmay be grouped accordiig to specific tasks and arranged through local Direct Contracting.Project management personnel for the reserves will be hired through Direct Contracting.Staff allowances are not financed by GEF under the project.

* Procurement Schedule: Detailed procurement schedules for all packages have beenprovided in the Project Implementation Plan.

* Design and Specification: MIM will consult with the Bank regarding the methodology anddocumentation of the data of the land surveys to be conducted over the proposed sites of thebotanic reserves.

* Bidding Documents: The land surveys for the five botanical reserves may be grouped toform one package that may be documented as appropriate for National Shopping (see sectionC above).

E. Prior/Post Review

As most contracts will be below the threshold amounts, the Bank will review only the firsttwo contracts to ensure compliance with the Bank's thresholds and Standards BiddingDocuments for Procurement. Contracts will be subject to post review by the Supervisionmissions on a selected basis. As regards Consultants Services, contracts in excess of US $100,000 for firms and US $ 50,000 for individuals will be subject to prior review, but TORsin respect of all contracts, irrespective of amounts, will be subject to the Bank's prior review.

51ANNEX 6

Page 4

Table A: Project Costs by Procurement Arrangements

(in US$ million equivalent)

Pruwurenmert Method

Consulting* Other Services N.B.F. Tetal

A. Works1. Civil Works 0.18 - - 0.18

(0.15) (0.15)B. Goods

1. Vehicle 0.15 - - 0.15(0.12) (0.12)

2. Machinery & Equipment Purchase and Rental /b 0.14 - - 0.14(0.14) (0.14

3. Materials /c 0.46 0.15 0.40 1.0(0.46) (0.14 (0.58)

C. TA, Training, Studies & Services1. Institutional Development

TA Operations - 1.40 - 1.40(1.40) (1.40)

TA Management /d 0.13 - - 0.13(0.13) (0.13)

2. Local Training /e 0.15 - - 0.15(0.15) (0.15)

3. Development of Educational Materials - 0.14 - 0.14(0.14) (0.14)

4. Specialised Extenal Training - 0.29 - 0.29(0.29) (0.29)

5. Studies/Research/Service ContractsPropagation Research, On-Farm Research, Agricultural SystemsStudy, Home Garden and Plantation Research 0.38 - 0.38

(0.38) (0.38)Ethnobotanical Surveys, Medicinal Plant Inventory, Grwth andYield Studies 0.14 - 0.14

(0.14) (0.14)Database Design and Development - 0.14 - 0.14

(0.14) (0.14)Monitoring & Evaluation - 0.07 - 0.07

(0.07) (0.07)6. Misc Services /f 0.19 - 0.03 0.22

(0.19) (0.19)D. Miscellaneous

I. Labor for Improvements in Reserves & Gardens /g 0.14 - - 0.14(0.14) (0.14)

2. Project Management Personnel /h 0.38 - - 0.38(0.38) (0.38)

3. Staff Allowances /i - - 0.01 0.01

Total 1.93 2.70 0.44 5.07(1.90) (2.70) - (4.57)

Note: Figures in parenthesis are the respective amounts financed by GEF\a Includes some new & existing botanic garden & nursery structurevillage dispensary office/processing rooms\b Includes medical information center processing office, dispensary equipment; fencing for gardens.\c Includes planting materials; items for village workshops & meetings; items for village development activities; officegarden & infonmation center O&M\d Staffing of PMU.\e Village study tours, employment of Ayurvedic trainers, village apprentice stipends and village para-forester stipends,local staff training.\f Includes cartography, the rental of space, computers & other equipment; report production & replication; officeservices; village staff for information centers; ola manuscript transcription, research publication, chemical analysis.\g hnplemented by FD.\h Staffing of offices in the five project areas.\i TADA to be provided as Government contribution.

52

ANNEX 6Page 5

Table B: Thresholds for Procurement Methods and Prior Review

(US$: million)Expenditure Contract Value Procurement Contracts Subject to

Category (Threshold) Method Prior Review

1. WorksCivil works Local Shopping First two contracts

2. GoodsVehicles Local Shopping First two contractsMachinery International ShoppingMaterials and Local Shoppingconsumable

3. ServicesConsulting Services International Selection 100,000 for firms and

50,000 for individuals

4. MiscellaneousLocal ShoppingForce Account

Note:IS: International ShoppingICB: International Competitive Bidding

53ANNEX 6

Page 6

Table C: Allocation of Grant Proceeds

(US $: million)

Expenditure Category Amount in US$million Financing Percentage

1. Works 162,600 85 %

2. Goods 982,100 100% of foreignexpenditures; 100% oflocal expenditures (ex-factory cost) and 85%of local expendituresfor other itemsprocured locally.

3. Services 3,276,100 100%4. Unallocated 151,900

TOTAL 4,572,700

54ANNEX 7

SRI LANKA

Conservation and Sustainable Use of Medicinal Plants Project

Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Aotual(At final PCD stage)

N/A 157

B. Project Schedule Planned Actl(At final PCD stage)

Time taken to prepare the project (months) 30 (approx)First Bank mission (identification) 02/27/1995Appraisal mission departure 09/07/1997Negotiations 09/20/1997Planned Date of Effectiveness By 03/15/1998

Prepared by: Ministry of Health and Indigenous Medicine with consultancy assistance fromInternational Union for the Conservation of Nature (Sri Lanka).

Preparation assistance: PDF (Block B) grant of US $ 320,000.

Bank staff who worked on the project included:

Malcolm Jansen (ASUEN),Nadim Khouri (SASRD),Sumith Pilapitiya (SASRD),Mohammed Bekhechi (LEGEN),Jose P. Correia da Silva (LEGSA),Vimala Abraham (LOAAS),Hung Kim Phung (LOAAS).Geraldine B. Burnett (SASRD)

Bank consultant staff included:

Barry Deren (Economist),Michael Balick (Ethnobotanist),Charles Peters (Forester/Conservation Specialist), joined the Appraisal missionSalma Omar-Chowdhury (Social Scientist)

55ANNEX 8

SRI LANKA

Conservation and Sustainable Use of Medicinal Plants Project

Documents in the Project File*

A. Project Implementation Plan

B. Bank Staff and Other Assessments

1. Background report on environmental analysis for the project:(a) Threatened medicinal plants of Sri Lanka.(b) Commonly Used Medicinal Plants of Sri Lanka(c) Heavily Used Medicinal Plants of Sri Lanka(d) Selection of sites for establishment of MPCAs

2. Environmental Review

3. Social Assessment.(a) Report on Indigenous People

4. Technical reviews from GEF's Scientific and Technical Advisory Panel.

S. Economic Analysis:

(a) Considerations for the Conservation and Sustainable Use ofMedicinal Plants

(b) Working Paper: Economic Analysis

C. Other

*Including electronic files.

56ANNEX 9

page 1

Status of Bank Group Operations in SRI LANKAIBRD Loans and IDA Credits in the Operations Portfolio

(As of September 30, 1997)

Differn

between

expected

Original amount in USS and actual

Project Loan or Fiscal mlllioDs disbursementlID Credit No. Year Borrower Purpose IBRD IDA Cancell. Undisbursed Orig Fnn Revd

Number of Closed

Loans/Credits: 71

Active Loans

LK-PE-10498 C29380 1997 GOSL ENERGY SERVICES DELIVERY 24.20 22.93 23.92

LK-PE-10513 CN0140 1997 GOSL ENVIRONMENTAL ACTION 14.80 13.80 13.94

LK-PE-10526 C29820 1997 GOSL HEALTH SERVICES DEV 18.80 17.54 18.49

LK-PE-10517 C28800 1996 GOSL PVT. SECTOR INFRAS. DE 77.00 71.65 76.23LK-PE-42263 C28370 1996 GOSL TELECOM REG. & PUBL. 15.00 12.23 12.92LK-PE-42266 C28810 1996 GOSL TEACH ED& DEPLOYMEN 64.10 58.33 62.09LK-PE-10467 C27570 1995 GOSL COL. ENVIRON. IMPROVE. 39.00 29.30 34.11

LK-PE-10409 C24420 1993 GOSL COMMUNITY WATER SUP 24.30 7.16 7.63LK-PE-10419 C24840 1993 GOSL PRIVATE FINANCE DEV. 60.00 9.26 6.21LK-PE-10420 C24950 1993 GOSL COLOMBO URB. TRANSP. 20.00 9.65 9.39

LK-PE-10386 C22970 1992 GOSL POWERDISTRIBUTION 50.00 31.62 29.63LK-PE-10398 C23800 1992 GOSL 2ND AGR. EXTENSION 14.34 7.98 7.64

LK-PE-10363 C21830 1991 GOSL 3RDROADS 42.50 11.52 10.67LK-PE-10368 C22310 1991 GOSL POVERTYALLEVIATION 57.50 9.21 12.26 21.04 11.55LK-PE-10373 C22490 1991 GOSLICEB TELECOMS II 57.00 24.33 25.34 25.34

LK-PE-10378 C22600 1991 GOSL IRRIG. REHAB. 29.60 14.90 13.99

TOTAL 0.00 608.14 9.21 354.46 373.24 36.89

Active Loans Closed Loans Total

Total disbursed (IBRD and IDA) 234.60 1438.39 1672.99

Of which repaid 0.00 168.73 168.73

Total now held by IBRD and IDA 598.93 1222.20 1821.13

Amount sold 0.00 3.59 3.59

Of which repaid 0.00 3.59 3.59

Total undisbursed 354.46 - 6.63 361.09

a. Actual disbursements to date minus intended disbursements to date as projected at appraisal.

Note:Disbursement data are updated at the end of the first week of the month:

57ANNEX 9

Page 2

Sri Lanka - Statement of IFC Investments

Committed and Disbursed PortfolioAs of September 30, 1997

(In US$ Millions)

Committed Disbursed

IFC IFC

I I I IFYApproval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1980/84/85/86 Lanka Orix 10.00 0.00 0.00 0.00 2.00 0.00 0.00 0.001981 Lanka Hotels 0.00 0.64 0.00 0.00 010M 0.64 0.00 0.001988/95 Union Assurance 0.00 0.98 0.00 0.00 0.00 0.98 0.00 0.001992 CKN Fund Mgmt. 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.001992 Pyramid Trust 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.001993/94 Lanka Cellular 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001996/97 Asia Power 10.00 2.27 0.00 10.00 0.00 2.27 0.00 0.001997 Packages Lanka 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.00

Total Portfolio: 20.00 5.31 0.00 10.00 2.00 5.31 0.00 0.00

Approvals Pending CommitmnentLoan Equity Quasi Partic

1996 ASIA POWER 0.00 0.00 2.50 0.001997 LOFAC 1.50 0.26 0.00 0.00

Total Pending Commitnen 1.50 0.26 2.50 0.00

58 A.7NNEX 10

Page 1

Sri Lanka at a glance 8128197

POVERTY and SOCIAL Sri South Low- _Lanka Asia Income Development diamond*

Population mid-1996 (millins) 18.3 1,264 3,229GNP per capita 1996 (USS) 740 380 500 Life expectancyGNP 1996 (biiions US$) 13.8 481 1,601

Average annual growth, 1990-96

Population (%) 1.3 1.9 1.7 GNP GrossLabor force (%) 2.0 2.1 1.7 p Iross

Most recent estimate (latest year available since 1989) capita enrollnent

Poverty: headcount index (% of populabton) 22 .Urban population (% of total population) 22 28 29Life expectancy at birth (years) 72 61 63Infant mortality (per 1,000 live biOhas) 16 75 69 Accestosafe wabrChild malnutrition (% of children under 5) 36 .. ..Access to safe water (% of population) 57 63 53Illiteracy (% of population age 15+) 10 50 34 Sri LankaGross primary enrollment (% of school-age population) 105 98 105 L

Male 106 110 112 Low-Icome groupFemale 104 87 98

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1985 1996 1996

GDP (billions USS) 3.8 8.0 12.9 14.0 Econokratim'Gross domestic investmenVGDP 15.8 22.2 25.7 24.2 Openness of economyExports of goods and senricesiGDP 27.5 26.0 35.9Gross domestic savlngs/GDP 8.1 10.2 15.3 15.5Gross national savingslGDP 9.7 15.5 19.8 19.9

Current account balance/GDP -2.9 -7.0 -5.0. -3.9Interest paymentslGDP 0.5 1.9 2.1 1.8 Savings InvestmentTotal debtWGDP 21.5 59.2 49.6 45.2Total debt servicelexports 26.1 16.5 7.3Present value of deWVGDP . .. 43.1 .Present value of debWexports .. , 99.5 *- Indebbdness

1975-45 19o-9S 1996 1996 1997-05(average annual growth) - Sn LankaGDP 5.3 4.8 55 3.7 4.9 I

GNP per capita 3.7 3.0 4A 1.8 3.7 Low-income groupExports of goods and servIces 4.7 9.3 11.5 8.7 7.2

STIRUCTURE of tfh ECONOMY1975 1985 1095 199S

(% of GOP) Gr99 rates of outiA and inveabat I%)Agricuture 30.4 27.7 23.0 22A 15Industry 26.4 28.2 25.1 25.2 1.

Manufacturing 20.1 14.7 15.7 18.2Services 43.2 46.1 51.9 52.4 7

Private consumption 82.6 79.5 72.9 .. el 22 3 .4 o 5 General govemment consumpton 9.3 10.2 11.8 . GDI -- *-GDPImports of goods and services 35.0 38.0 48.3 .-. GI-G

1975-85 1986-96 1995 199o(average annual gwth) Grwth rats of ods wnd hbpt (%)Agrkulture 4.3 21 3.3 -4.6 1s

Industy 5.1 5.7 7.7 6.0 -

Manufacturing 4.3 7.8 9.2 6.5 10

Services 8.6 5.1 5.1 5.8

Private consumpton 6.1 4.4 7.1 ..

Generalgovemmentconsumption 5.2 3.7 -1.1 .. 12 93 94 95 isGross domestic invesment 12.5 2.6 0.5 .. -4Imports of goods and servAes 13.2 6.1 6.0 6.4 ExportB . ImporsGross natinal product 5.4 4.3 5.9 3.1

Note 1996 data are prelminary smats Fgures In Italics are for years other than thosespecfed.The diamonds show four key ndkators In the oountry On bodl) compared with Its Income-group average. If data are missing, the diamond willbe hncompiete.

ANNEX 10Page 2

Sri Lanka

PRICES and GOVERNMENT FINANCE1975 1985 1995 1996

Domestic prices Inflation(% change) 30Consumer prices 6.6 1.5 11,5 16.8 20Implicit GDP deflator 5.4 0.6 8.4 12.1

10.Govemment finance(%/ of GDP) Current revenue .. 22.3 20.7 20.3 91 92 93 94 95 99Current budget balance .. 2.2 -2.0 -2.4 GDP def. -O--CPIOverall surplus/deficit .. -11.7 -10.1 -9.5

TRADE1975 1985 1995 1996

(millions US$) Export and import levels (mill US$)Total exports (fob) .. 1,333 3,798 4,097 s,ooo

Tea .. 442 480 616Other agricultural goods .. 94 348 346Manufactures .. 233. 2,854 2,991 4,000

Total imports (cif) .. 1,948 5,312 5,416Food21 72 0 200

Fuel and energy 404 321 324Capital goods .. 382 1,188 1,202

Export price index (1987=100) .. 96 121 124 90 91 92 93 94 95 goImport price index (1987=100) .. 86 155 160 o Exports * ImoortsTerms of trade (19S7=100) .. 111 78 78

BALANCE of PAYMENTS1975 1985 1995 196

(millions US$) Current acceunt balance tO GOP nraiO 1%)Exports of goods and services 632 1,561 4,841 5,039 oImports of goods and services 804 2,296 6,064 6,209 . | | 92 93 94 95 9|Resource balance -172 -734 -1,223 -1,170

-2Net income -18 -127 -277 -248Net current transfers 80 443 853 869

Current account balance,be-fore official capital transfers -110 -419 -647 -549 |U

Financing items (net) 84 304 632 562Changes in net reserves 26 115 15 -13 -4

Memo:Reserves including gold (mill. USS) 57 472 2,066 2,011Conversion rate (/ocal/IUS$) 7.0 27.2 51.3 55.3

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1995 1996

(millions US$) Composition of total debt, 1996 (mill. US$)Total debt outstanding and disbursed 815 3,540 6,407 6,346

IBRD 36 61 49 40 G AIDA 39 397 1,463 1,516 F 535 B B

Total debt service 169 320 608 704 614 1516IBRD 6 9 12 11IDA 0 3 19 20

Composition of net resource flows S'Official grants 56 151 174Official creditors 61 297 317Private creditors -22 44 15 .. DForeign direct investment 0 26 63 .. E -581Portfolio equity 0 0 61 .. 3627

World Bank programCommitments 30 137 39 156 A - IBRD E - BilteralDisbursements 19 79 106 104 B - IDA D - Other multilateral F - PrivatePrincipal tepayments 3 5 15 16 C - IMF G - Short-termNet flows 16 74 92 88 I_1

Interest payments 3 8 16 15Net transfers 14 66 76 73

Development Economics 8128197

-10- 810: 811- 812 1 1 -0°ao- 81 SRI LANKA b2°

CONSERVATION AND SUSTAINABLE USEOF MEDICINAL PLANTS PROJECT

PROPOSED MEDICINAL PLANTCONSERVATION AREAS AND THEIR

CLIMATIC CHARACTERISTICS

Ub '. r l '-0\> g >> 4\ PROPOSED MEDICINAL PLANT CONSERVATION AREAS

A RAINFALL GUAGE STATIONS

O TOWNS

IA PROVENCE CAPITALS

NATIONAL CAPITAL

* AGRO'CUMATIC ZONE BOUNDARIES

RESERVOIRS

) NC R THr RN - PROVE OUNDARIES

J P R O V 1CE ALTIIUDE IN METERS:

2000

P. A-~

Si i '' Ki , 100K-50jS;giriya ? A ll*X - ICC (g _

50- loo nIn? Noula Tank

40 Pc.-, STE 5

30 , 000

20 Z DROOE so "ToI / ' (rainfall < 1900mm) oT 1 30

JFMA MJJS07D ( ),, | J.

CEN RL / '\-- JFMTAMRJASOND

, ~ ' j Tdowoo '- '^2 > + \ < hurgu > i G 'C Ppl -

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NORTH t'C""' fo,n, A ) Si!piriya r IC

\\i PROVINCE r > ;,9 . '' s " 'gi it 0 Xibile *1JFMAMJJASOND

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- ~~~W~~~SSqTHRER,"" aNo I 4 0

PRO NCE bileP *AN E /004000

A ~~~~ 0~~

so, Mat.., RI'~~~~~~~~~~~~~~~~~~~~IRMKu~~~~~\ -_XX1 mbonila K IOESTERN 2

g _ ~~~SOUTH ' <2 6c~~~~~RV