FP022: Development of Argan orchards in Degraded Environment - DARED Morocco | Agency for Agricultural Development of Morocco (ADA) | Decision B.14/17 27 September 2016 Project/Programme Title: Development of Argan orchards in Degraded Environment - DARED Country/Region: Morocco Accredited Entity: Agency for Agricultural Development Date of Submission: 26 september 2016 Contents Section A PROJECT / PROGRAMME SUMMARY Section B FINANCING / COST INFORMATION Section C DETAILED PROJECT / PROGRAMME DESCRIPTION Section D RATIONALE FOR GCF INVOLVEMENT Section E EXPECTED PERFORMANCE AGAINST INVESTMENT CRITERIA Section F APPRAISAL SUMMARY Section G RISK ASSESSMENT AND MANAGEMENT Section H RESULTS MONITORING AND REPORTING Section I ANNEXES Note to accredited entities on the use of the funding proposal template  Sections A, B, D, E and H of the funding proposal require detailed inputs from the accredited entity. For all other sections, including the Appraisal Summary in section F, accredited entities have discretion in how they wish to present the information. Accredited entities can either directly incorporate information into this proposal, or provide summary information in the proposal with cross-reference to other project documents such as project appraisal document.  The total number of pages for the funding proposal (excluding annexes) is expected not to exceed 50. Please submit the completed form to: [email protected] Please use the following name convention for the file name: “[FP]-[ADA]-[20160926]-[DARED 01]” A PROJECT / PROGRAMME SUMMARY GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 1 OF 63 A.1. Brief Project / Programme Information Development of Arganorchards in Degraded Environment A.1.1. Project / programme title ‐ DARED A.1.2. Project or programme Project A.1.3. Country (ies) / region Morocco Ministry Delegate to the Ministry of Energy, Mines, Water and A.1.4. National designated authority (ies) Environment, responsible for the environment A.1.5. Accredited entity Agency for Agricultural Development A.1.5.a. Access modality ☒ Direct ☐ International Executing Entity: National Agency for the Development of Oases and Argan Zones (ANDZOA) A.1.6. Executing entity / beneficiary Beneficiary: 26 000 A.1.7. Project size category (Total investment, million ☐ Micro (≤10) ☒ Small (10<x≤50) USD) ☐ Medium (50<x≤250) ☐ Large (>250) A.1.8. Mitigation / adaptation focus ☒ Mitigation ☒ Adaptation ☐ Cross-cutting A.1.9. Date of submission Contact person, position Mr Hamid FELLOUN, Director of Projects Management Organization Agency for Agricultural Development of Morocco ‐ ADA A.1.10. Project Email address [email protected] / [email protected] contact details (+212)537 57 37 12/ (+212) 6 61 11 02 42 Telephone number Mailing address www.ada.gov.ma A.1.11. Results areas (mark all that apply) Reduced emissions from: Energy access and power generation ☐ (E.g. on-grid, micro-grid or off-grid solar, wind, geothermal, etc.) Low emission transport ☐ (E.g. high-speed rail, rapid bus system, etc.) Buildings, cities and industries and appliances ☐ (E.g. new and retrofitted energy-efficient buildings, energy-efficient equipment for companies and supply chain management, etc.) Forestry and land use ☒ (E.g. forest conservation and management, agroforestry, agricultural irrigation, water treatment and management, etc.) Increased resilience of: Most vulnerable people and communities ☒ (E.g. mitigation of operational risk associated with climate change – diversification of supply sources and supply chain management, relocation of manufacturing facilities and warehouses, etc.) Health and well-being, and food and water security ☐ (E.g. climate-resilient crops, efficient irrigation systems, etc.) ☐ Infrastructure and built environment (E.g. sea walls, resilient road networks, etc.) Ecosystem and ecosystem services ☐ (E.g. ecosystem conservation and management, ecotourism, etc.) A PROJECT / PROGRAMME SUMMARY GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 2 OF 63 A.2. Project / Programme Executive Summary (max 300 words) Please provide a brief description of the proposed project/programme, including the objectives and primary measurable benefits (see investment criteria in section E). The detailed description can be elaborated in Section C. The recognition the natural argan forest (Argania spinosa (L.) Skeels), by UNESCO since 1998, as a Biosphere Reserve (RBA) highlighted its rich biodiversity and the economic opportunities. The argan oil “market boom” and its rising demand improved household income but generated serious pressure on the natural forest and reduced its natural regeneration thereby threatening its sustainability. Morocco vulnerability to climate change exacerbate such negative trend. Morocco committed, also, within its INDC, to reduce its Greenhouse Gases (GHG) emission by 32% by 2030, through NAMAs. Arganiculture, aiming to plant 43.000 hectares of argan tree orchards, is a priority NAMA. Through a large stakeholder consultation process involving 8 provinces and 31 rural communes, spread over six years and will require funding of $ 49,2 million and target a 80 % grant from GCF and 20% as co-financing. The project aims to strengthen the resilience of rural communities and the arganeraie biosphere reserve through planting 10.000 ha of argan tree orchards with soil conservation and rain water harvesting capabilities, and supporting argan fruit producers’ professional organizations and market access, and promoting beneficiaries capacity building, knowledge sharing and natural forest co-management. The activities once achieved pursue to contribute to relieve the anthropic pressure on the natural forest, improve livelihoods of the communities members mainly women. In the long-term, carbon sequestration is estimated at 604 223 Mt CO2 eq. this will contribute to set off a new business paradigm that stimulates change in “doing business as usual” from fruit collection from natural forest towards private investments to address the issues of climate change and unleash the full business potential of the biosphere value chain. . A.3. Project/Programme Milestone Expected approval from accredited entity’s 30/10/2016 Board (if applicable) Expected financial close (if applicable) 26/12/2016 Start: 01/01/2017 Estimated implementation start and end date End: 30/12/2022 Project/programme lifespan 5 years ____0__ months B FINANCING / COST INFORMATION GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 3 OF 63 B.1. Description of Financial Elements of the Project / Programme Please provide: (cid:31) an integrated financial model in Section I (Annexes) that includes a projection covering the period from financial closing through final maturity of the proposed GCF financing with detailed assumptions and rationale; and a sensitivity analysis of critical elements of the project/programme The use of GCF grants is justified by the lack of climate funding raised by Morocco so far and the African continent’s share in terms of donations from the international community. The funding in grants for the project will be 80 % of the total project budget. This request is justified by the lack of locally available funding for this type of project as Morocco is a developing country and as such will need the support of the international community to contribute to the preservation of the RBA which is classified as World Heritage. The requested funding will help preserve the Argane natural forest and limit its degradation mainly resulting from climate change factors. COMPONENT TOTAL ANDZOA's Partners GCF ( USD) ANDZOA (USD) (USD) BUDGET (USD) Component 1 26 996 000,00 2 484 000,00 5 800 000,00 35 280 000,00 Component 2 7 773 600,00 836 400,00 0,00 8 610 000,00 Component 3 4 523 000,00 775 000,00 0,00 5 298 000,00 Total budget of 39 292 600,00 4 095 400,00 5 800 000,00 49 188 000,00 Project The project will be implemented in three components: Component 1 (35,3 Million USD) : planting argane tree orchards on an area of 10 000 hectares with grants of 35,3 million US dollars. This financing requirement is justified by the difficulty of raising alternative sources of funding given the vulnerability of beneficiaries and the difficulty of access to universal financial products in Morocco. The contribution of ANDZOA and its partners including the beneficiaries will amount to 24% of component 1. This co- funding in grants allocated from ANDZOA’s operating budget will contribute to the implementation of NAMA Arganiculture. The beneficiary’s contribution will focus on the maintenance of orchards (trimming and maintenance) after the first two years of planting. Land contributions to the project in kind will be made by some of the beneficiaries. Water resources availability for irrigation is a key success factor for this project. The Agence du Bassin Hydraulique Sous- Massa Draa, an important partner involved in the project, conducted a study on rainwater harvesting and identified the implantation sites and the appropriate techniques1. The need for funding for this activity is justified because of the low budget available from the implementation partner for the construction and/or rehabilitation of such infrastructure. The proposed co- financing will address the technical assistance of the catchment works and the supervision of their construction. The success of plantations necessarily requires technical assistance for the duration of the project as justified by the large areas to be planted and given the innovative experience for the domestication of the Argane tree in the orchard. Technical assistance during this project will be funded by the grant. This contribution will be downgraded in the next phases of NAMAs Arganiculture program. Component Sub-component budget budget (for funding Currency (for entire entire request disbursement project) in project) from GCF ($ recipient Million Million Million US) USD dollars USD 1 Beside securing water delivery and safeguarding water resources, the Water Resource Integrated Development Master Plan for the Souss basin A [19] aims to protect the argan ecosystem and boost the up/downstream solidarity.The average water demand in 2030 is estimated at 654 M3 in the souss basin with a 15% gap; to satisfy this demand an investment plan of approximately 1, 273 billion dollars has been designated. B FINANCING / COST INFORMATION GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 4 OF 63 Component 1: 1.1. Arganiculture on 10,000 ha 26,0 26,0 20,0 Million dollars USD implementation of 1.2. medicinal and aromatic Million dollars USD arganiculture on plants Intercropped with argane 2,2 2,2 2,2 10 000 ha on 2000 ha 1.3.Water harvesting and water Million dollars USD 5,2 5,2 3,0 and soil conservation 1.4.Technical assistance and Million dollars USD 1,8 1,8 1,8 works supervision total component 1 35,3 35,3 27,0 Million dollars USD Component 2 of the project ( 8,6 Million USD) : is about the organization of the upstream components of the argane value- chain through support of fruit producers cooperatives and “Groupement d’Interet Economique” (GIE) or interest groups in order to improve market access for the products. The implementation of this component requires funding in the form of a grant from the GCF and co-financing by ANDZOA’s budget and contributions of beneficiaries. Component Sub-component budget budget funding Currency of disbursement (for (for entire request entire project) from GCF project) Million ($ Million in dollars US) Million USD USD Component 2: 2.1: Professional organizations Million dollars USD Organization of on the upstream of Argan sector 0,9 0,9 0,9 the upstream structured and GIE components of 2.2: Argan's products are valued Million dollars USD the argane 7,7 7,7 6,9 value-chain total component 2 8,6 8,6 7,8 Million dollars USD Component 3 ( 5,3 Million USD) aims to strengthen the Arganeraie Biosphere actors’ capacities to manage and adapt to climate and will contribute to rehabilitate the Argan naturel forest. The project will address these shortcomings in the sites that have not had the opportunity to benefit from major field training on adaptation to Climate Change. Local communities have valuable ancestral indigenous knowledge they used in adapting to climate change and resources scarcity. The consultation workshops organized while developing this proposal confirmed that there is an awareness that climate change exacerbated usual risks. The GCF grant will contribute to the establishment of the Argane national center of excellence that will channel the efforts of all scientific and professional actors and will promote a cluster of cultural heritage of the Argan tree. Component Sub-component (if applicable) budget budget funding Currency of disbursement (for (for entire request entire project) from project) Million GCF ($ in dollars Million Million USD US) USD Component 3 : 3.1: Climate change management Million dollars USD capacity building, Capacities of institutional actor, knowledge elected representatives and 3,4 3,4 2,7 management, Co- professional organizations are management of reinforced and developed and RBA Natural Argan co-management are implanted Forest and 3.2: Argan research is consolidated Million dollars USD 1,9 1,9 1,8 scientific and encouraged B FINANCING / COST INFORMATION GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 5 OF 63 research promotion total component 3 5,3 5,3 4,5 Million dollars USD (cid:31) a description of how the choice of financial instrument(s) will overcome barriers and achieve project objectives, and leverage public and/or private finance The funding through grants helps to contribute to the implementation of NAMAs arganiculture but will also accelerate the implementation of the Argan program which aims to address challenges and pressure on the biosphere, promoting arganiculture and carbon sequestration as demonstrated in the NAMAs arganiculture. Also, Morocco committed to contribute to the international efforts of reducing greenhouse gases and has already set clear objectives and plans in its national plan ( INDC ) officially presented in June 2015. Morocco’s INDC committed to 32% greenhouse gases emission reduction by 2030 compared to its projected emissions for the same year according to its "doing business as usual" scenario. This commitment requires that Morocco gain access to new sources of funding and additional support compared to that received in recent years .The need for additional financing was raised by Morocco at the United Nations Climate Conference. The required budget is around $ 45 billion USD of which 35 billion are conditioned by international support through new mechanisms of climate finance. Moreover, the argane natural forest faces major challenges because of its geographic location at the frontier of one of the hottest deserts in the world, and the predicted impacts of climate change on the area predict a temperature Increase of 0.6 to 1.1 °C , and a rainfall decrease between 10 to 15 % by 2020 2. Such trends threaten fruit production and the stability of vital ecosystem services provided by the natural forest. Without international support Morocco will not be able to face these serious threats. Another key outcome of the grant program is to promote self-financing by the interest groups by developing their capacity to gain access to equity finance. This process will make these interest groups and cooperatives bankable and attract investment funds to Arganiculture and create interest for new financing mechanisms (In a way similar to what happened in other sectors like( Citrus , OLIVE ... ) where the regular banking system took more interest as the industry became more structured and profitable). B.2. Project Financing Information Curren Financial Instrument Amount Tenor Pricing cy (a) Total ……49,2… million project (a) = (b) + (c) ………… USD ($) financing …………… Options ( ) years ( ) % (i) Senior Loans …………… Options …………… ( ) years ( ) % (ii) Subordinated Loans Options …………… ( ) % IRR (iii) Equity Options (iv) Guarantees Options (v) Reimbursable grants* million (b) GCF (vi) Grants * …39,3… USD ($) financing to * Please provide economic and financial justification in section F.1 for the concessionality that recipient GCF is expected to provide, particularly in the case of grants. Please specify difference in tenor and price between GCF financing and that of accredited entities. Please note that the level of concessionality should correspond to the level of the project/programme’s expected performance against the investment criteria indicated in section E. Total requested million 39,3… (i+ii+iii+iv+v+vi) USD ($) Name of (c) Co- Financial Amoun Pricin Currency Instituti Tenor Seniority financing to Instrument t g on recipient Grant 4,10 million ANDZOA ( ) ( ) % Options Grant 5,0 USD ($) DRA SM years ( ) % Options 2 : http://www.fao.org/nr/climpag/pub/FAO_WorldBank_Study_CC_Morocco_2008.pdf B FINANCING / COST INFORMATION GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 6 OF 63 Grant 0,80 million ABH SM ( ) ( ) % Options Grant USD ($) years IRR Options Lead financing institution: ANDZOA * In cases where the accredited entity (AE) deploys the GCF financing directly to the recipient, (i.e. the GCF financing passes directly from the GCF to the recipient through the AE) or if the AE is the recipient itself, in the proposed financial instrument and terms as described in part (b), this subsection can be skipped. If there is a financial arrangement between the GCF and the AE, which entails a financial (d) Financial instrument and/or financial terms separate from the ones described in part (b), please fill out the terms between table below to specify the proposed instrument and terms between the GCF and the AE. GCF and AE Financial (if applicable) Amount Currency Tenor Pricing instrument ( ) years ( ) % Choose an item. …………………. Options Please provide a justification for the difference in the financial instrument and/or terms between what is provided by the AE to the recipient and what is requested from the GCF to the AE. B.3. Financial Markets Overview (if applicable) How market price or expected commercial rate return was (non-concessional) determined? Please provide an overview of the size of total banking assets, debt capital markets and equity capital markets which could be tapped to finance the proposed project/programme. Please provide an overview of market rates (i.e. 1-year T-Bill, 5-year government bond, 5-year corporate bond (specify credit rating) and 5- year syndicate loan. Provide examples or information on comparable transactions. No other potential funding sources have been identified. Climate change mitigation activities have concentrated resources in the Green Climate Fund (GCF) as a strategy to centralize the decision-making process, thus providing clear, transparent and fact-based guidance and developing funding criteria through a consensus-building process between donors and developed and developing nations. Local population lack access to finance especially for arganiculture. In addition, the arganiculture sector in Morocco is a new agriculture sector and is not an attractive investment opportunity for banks because of its perceived high risk today. Due to this, private sector financing is not available. The project aims to address these barriers in order to allow the local population and community to access funding. ANDZOA remains the only entity responsible for promoting the sector of arganiculture in the area and is the sole financial contributor for the implementation of this project. Other Entities (ABH and DRA and beneficiaries) will help finance the project. Their contribution is reflected in the financing set up of the project. C DETAILED PROJECT / PROGRAMME DESCRIPTION GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 7 OF 63 Please fill out applicable sub-sections and provide additional information if necessary, as these requirements may vary depending on the nature of the project / programme. C.1. Strategic Context Please describe relevant national, sub-national, regional, global, political, and/or economic factors that help to contextualize the proposal, including existing national and sector policies and strategies. 1. NATIONAL CONTEXT 1.1. Argan Biosphere Reserve (RBA) in Morocco Morocco is the universal depositary of the Argane tree and UNESCO had labeled the argan tree's geographic range as the Argan Biosphere Reserve3 (RBA) in 1998. This Biosphere covers an area of approximately 2.5 million hectares where the Argan tree holds first place with a total covered tree area of 829,087 ha, or 60% of the total forest area. Several studies and research tried to measure degradation trends of the argane natural forest by monitoring the evolution of its general area and land cover density4. These studies were implemented in different sites of the RBA. Reported degradation levels vary from one area to another and depend on the nature of the pressures they are subjected to. The Ademine argane forest, is undergoing pressure from urbanization because of its location on the frontier of the faste growing city of Ait Melloul, and its annual loss is estimated at 600 ha (EL Yousfi, M.S., 1988). Another study investigated an area of 100,000 hectares in the province of Taroudant where the argane forest degradation in terms of density was measured on the basis of aerial photos and satellite images. This study revealed a density loss of 44, 5% between 1970 and 2007, mainly due to desertification (Polain Waroux, 2011). Airborne Data collection and satellite sensing of the Haha Argan forest revealed a density loss rate estimated at - 2.04% in 22 years and a surface loss of - .21% in 13 years. (El Wahidi, 2013). In the mountainous area of Ait Baha, data showed that argane tree cover appears to be stable between 2003 and 2011, however, an estimated 2 to 3% of the trees present in 2003 disappeared in 2011. This relative stability confirms that, in the mountainous area, no significant degradation of the "arganeraie agro-ecosystem is noticed. (Aouragh, 2012). The study on the state of degradation of the Mesguina forest at the frontier of Agadir city, between 1988-2015 revealed a surface loss of 203 hectares of argane due to urban settlements (an annual rate of 7.5%). Major differences are noticed from mountain areas with 59 ha (an annual rate of 2.2%) and 416 ha in the plain area (an annual rate of 15.4%). A density loss was recorded in the plain area of 381 ha (an annual rate of 14.1%). (Eddaif, 2016). 1.2. Importance of Biodiversity RBA Since the argan woodland serves as foundation species for over 1,200 species (Aymerich and Tarrier 2010), the intensifying pressure on the natural argane forest may threaten the broader biodiversity of the Acacia-Argania eco-region. 3 : www.unesco.org 4. EL Yousfi, S.M. (1988). La dégradation forestière dans le Sud marocain. Exemple de l’arganeraie d’Ademine (Souss) entre 1969 et 1986, mémoire de 3e cycle, I.A.V. Hassan II, Rabat, 117 p./Benzyane. M, 1995 - Le rôle socio-économique et environnemental de l'arganier./Polain de Waroux. Y, 2011 - La dégradation de l’arganeraie et ses causes dans la province de Taroudant./El Wahidi. F, 2013 – Thèse de doctorat : Dynamiques des dégradations de l’arganeraie et modélisation spatiale de l’évolution forestière : scénarios d’aménagement pour une gouvernance locale.