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INKA TERRA:INKA TERRA:

An Innovative Partnership for Self-FinancingAn Innovative Partnership for Self-Financing Biodiversity Conservation & Community DevelopmentBiodiversity Conservation & Community Development

A Medium Sized Project Proposal A Medium Sized Project Proposal

from the International Finance Corporation from the International Finance Corporation to the Global Environment Facilityto the Global Environment Facility

OCTOBER 2003OCTOBER 2003

Table of Contents

PROJECT SUMMARY..............................................................................................................................2

PROJECT RATIONALE & OBJECTIVES..........................................................................................17

GLOBALLY SIGNIFICANT BIODIVERSITY CONSERVATION..................................................18

BASELINE SITUATION.........................................................................................................................19

ROAD CONSTRUCTION.............................................................................................................................19LOGGING..................................................................................................................................................20HUNTING AND FISHING............................................................................................................................20MINING....................................................................................................................................................20ECOTOURISM............................................................................................................................................21

ECOTOURISM MARKET ASSESSMENT...........................................................................................21

EXPECTED OUTCOMES.......................................................................................................................22

FOREST CONSERVATION AND MANAGEMENT PLAN................................................................................22COMMUNITY PARTNERSHIPS FOR FOREST CONSERVATION & SUSTAINABLE DEVELOPMENT................22ENVIRONMENTAL TRAINING....................................................................................................................23LONG-TERM CONSERVATION FINANCE THROUGH ECOTOURISM DEVELOPMENT...................................23

PROJECT ACTIVITIES..........................................................................................................................23

BUSINESS EXPANSION..............................................................................................................................23FOREST MANAGEMENT AND CONSERVATION PLAN................................................................................24COMMUNITY PARTNERSHIPS FOR CONSERVATION & DEVELOPMENT.....................................................24LONG-TERM CONSERVATION FINANCE THROUGH ECOTOURISM DEVELOPMENT...................................25EDUCATION AND TRAINING.....................................................................................................................26

IMPLEMENTATION PLAN...................................................................................................................27

INNOVATIVE PARTNERSHIP......................................................................................................................27FINANCING PLAN.....................................................................................................................................28

SUSTAINABILITY ANALYSIS..............................................................................................................29

ENVIRONMENTAL SUSTAINABILITY.........................................................................................................29SOCIAL SUSTAINABILITY.........................................................................................................................29INSTITUTIONAL SUSTAINABILITY.............................................................................................................30FINANCIAL SUSTAINABILITY....................................................................................................................30

RISK ASSESSMENT................................................................................................................................31

STAKEHOLDER PARTICIPATION.....................................................................................................32

INCREMENTAL COST ASSESSMENT...............................................................................................33

BUDGET....................................................................................................................................................34

MONITORING & EVALUATION.........................................................................................................34

REPLICATION.........................................................................................................................................35

ITA CASH FLOW PROJECTIONS.......................................................................................................36

Annex 1: ITA’s Organizational Structure...................................................................................................37

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Project Summary

Project Identifiers1. Project Name:

Inka Terra: An Innovative Partnership for Self-Financing Biodiversity Conservation & Community Development

2. GEF Implementation Agency:World Bank (IFC)

3. Host Country: Peru 4. Country Eligibility:Peru ratified the Convention on Biological Diversity on March 12, 1993.

5. GEF focal area(s): Biodiversity

6. Operational program:Operational Program # 3: Forest Ecosystems

7. Linkage of the Project and national priorities, action plans and programsThe project helps to achieve Peru's objectives related to biodiversity as articulated in “The Law on the Conservation and Sustainable Use of Biodiversity.” Specifically, the project is aligned with Articles 3 and 5, which state Peru’s desire to: (i) foster education, information exchange, human resource development, and scientific research concerning biodiversity and the sustainable use of its components; (ii) promote economic development based on the sustainable use of biodiversity by encouraging private sector involvement; and (iii) generate funding mechanisms in order to adequately manage biodiversity.

The project is also fully consistent with Peru’s National Strategy for Biological Diversity. This Strategy specifies the development of sustainable uses of biodiversity as a national priority. In fact, one of its specific objectives is to promote sustainable tourism. The document indicates that the Peruvian Government seeks to ensure that tourism operators have incentives to promote conservation. It also seeks to foster nature-based tourism that is carried out with appropriate management plans, both in and around protected areas. In addition, the Strategy specifies that the Peruvian government will seeks to promote the granting of long-term concessions to tourism operators so that they are able to manage and protect natural areas.

Peru’s Flora and Fauna Act of 2000 provides a legal basis for granting long-term forest concessions for ecotourism purposes. This law specifies that ecotourism operators may obtain the legal right to manage natural areas of up to 10,000 hectares for 40 years. It specifies the procedures for obtaining such a concession, the responsibilities that it entails, and the instances in which concessions may be revoked. This project will help to pioneer the implementation of this legislation.

In 1998, Peru’s National Environment Council (CONAM) sponsored a Sustainable Tourism Roundtable that recommended the promotion of ecotourism as a vehicle for biodiversity conservation. In October 2000, the Ministry of Tourism stated that a major strategic direction of its tourism planning will focus on the promotion and development of eco-tourism. In 2001, the President of Peru issued a decree that specifies the basic characteristics and offerings that tourism operators should have in order to be classified as “ecotourism” facilities. At present, PromPeru (a government agency that promotes tourism) is carrying out a large-scale public relations campaign In various countries, including the Unites States, in order to increase tourism visitation to Peru. PromPeru is focusing heavily on the promotion of ecotourism. Beyond that, considerable efforts on the part of the local government and other stakeholders are now being focused on promoting ecotourism speficically in the state of Madre de Dios – where this project will be located – because it generates economic benefits with less environmental impacts than other industries.

8. GEF National Focal Point and endorsement date of the Project:Mariano Castro, Executive Secretary of the National Environment Council (CONAM), endorsed this proposal on February 14, 2001.Project Objective, Outcomes and Activities9. Project Objective: Indicators:To catalyse self-financing uses of the 10,000 hectare Inka Terra Ecological Reserve (IER) that achieve biodiversity conservation and sustainable development for local communities. This is expected to provide a replicable model for engaging the private sector in achieving financial sustainability for protected areas.

Elimination of logging Reduction in hunting and poaching to sustainable levels Increase in population of endangered species. Increase in community involvement in conservation-

compatible livelihoods Increase in revenues available for biodiversity conservation &

community development.

10. Project OutcomesBusiness Expansion Inka Terra will significantly augment its product range by expanding its existing facilities and developing new hotels

Quarterly reports submitted by Inka Terra to IFC will indicate progress on construction and commercialisation of new &

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in Cusco (the gateway city to Machu Picchu) and Puno (on Lake Titicaca).

expanded facilities

Forest Management The Forest Management and Conservation Plan is developed and implemented through local, national and international alliances.

Forest characterization document describes the detailed characteristics of the forest.

Forest conservation activities are carried out with support of local inhabitants, local institutions (FADEMAD and FEDAMAD), national entities (the Ministry of Agriculture, Mining, Tourism and Fisheries) and international organizations (CI, ACEER, etc.)

Community Partnerships Effective partnerships are established between ITA and the four communities located in and around the IER. These partnerships will allow the local communities to become allies in helping to preserve the IER in exchange for various forms of technical assistance.

50% of the families and 100% of the organizations of the 4 communities are anticipated to participate in community development & conservation efforts.

Level of technical assistance provided by ITA # of agricultural ecosystem techniques being applied in 4

communities. Feedback from community members

Ecotourism DevelopmentITA develops new eco-tourism attractions that generate long-term revenues for forest conservation and community development

# of new eco-tourism products implemented Level of profits generated

Environmental TrainingTraining for local communities and other local stakeholders with regard to forest management, sustainable use, and ecotourism.

# of people receiving training Feedback from community members

11. Project ActivitiesBusiness Expansion Expansion of Machu Picchu Pueblo Hotel and Reserva Amazónica lodge, and development of two new hotels in Cusco and Puno

Quarterly reports submitted to IFC

Forest Management Forest reserve is characterized and zoned using Geographic Information Systems (GIS)

Forest categorization document is produced.

Endemic forest species are inventoried, including their potential uses

The database of endangered flora and fauna is established. A catalogue of current and potential uses of flora and fauna

is produced.Community PartnershipsFormal agreements are reached with 4 communities concerning the use and conservation of the forest (including hunting, fishing, and tree cutting).

# of agreements established # of people participating

Programs are developed with 4 local communities to promote crop rotation, natural pest control, soil management, and drainage techniques to avoid damage from flooding

# of people participating in program Community feedback

Eight native tree nurseries are established to repopulate the IER with species that have been depleted

# trees successfully replanted Community feedback

Eight small-scale fish aquaculture operations are established (2 per community) to supplement local consumption and provide income

# of fish produced amount of income generated

Animal breeding programs, including chickens, ducks, capybaras peccaries, will be established in each community for local consumption

# animals bred Community feedback

A Community Fund will be established to finance small-scale community development projects proposed and executed by the local inhabitants

# of small scale projects financed Evaluation results of community-based projects

A Contingency Fund will be established to assist communities if/when they experience extraordinary hardships from flooding or other adverse climatic events

Amount of funds made available Community feedback

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Ecotourism DevelopmentFour new eco-tourism attractions will be developed: Palm Forest Walk, Canopy Walk, Primate Rescue Center, and Giant Otter Observation.

New eco-tourism products are constructed and operational Amount of profits generated

Environmental TrainingAt least four workshops on forest conservation and sustainable use will be held each year for local people (including women and youth) from groups that constitute both opportunities and threats for forest conservation (e.g., colonists, loggers, teachers, unions, public officials).

Reports on workshop results Participant feedback

A special training center will be set up for ecotourism operators and guides

# of individuals receiving training Participant feedback

A mining campaign will be undertaken to create awareness about the detrimental effects of mercury and to promote alternatives that reduce impacts

# of individuals who learn about the deleterious effects of mercury

# of gold miners who improve their practices

12. Estimated Budget (in US$)

Project Preparation:GEF: $ 25,000 PDF-ACo-financing: $ 65,518 José Koechlin (cash) TOTAL: $ 90,518

Project Implementation:GEF Grant: $ 361,757GEF Loan: $ 363,243TOTAL GEF: $ 725,000

Co-financing: $ 5,103,465 Inka Terra (cash and in kind) $ 187,000 ACEER (cash)

$ 90,000 Missouri Botanical Gardens (cash) $ 919,601 ITA (cash) $ 5,000,000 IFC (loan)

TOTAL: $ 11,300,066

GRAND TOTAL: $ 12,115,584

Information on Institution Submitting Project Brief 13. Information on Project ProposerThis project has been developed and will be implemented by the Inka Terra Association (ITA), a not-for-profit, nongovernmental organization that aims to conserve and sustainably utilize biodiversity in Peru in conjunction with the local ecotourism company Inka Terra Peru (ITP). Although ITA is a relatively new organization, it contains highly capable and dedicated staff who have been working on biodiversity conservation in Peru for many years. The staff members have undertaken various conservation projects in conjunction with the Missouri Botanical Garden. These have included, for example, an orchid conservation project (which has been in operation since 1989), and a reforestation of the “cock of the rock” habitat (which has been in operation since 1983). ITA staff members have also implemented a conservation project for the spectacled bear (which has been in operation since 2000) and collaborated on a biological research project with the University of Kansas, which was financed by the National Geographic Society.

ITP has a long track record of promoting successful ecotourism in Peru. Since ITP began in 1976, it has grown into a multi-million dollar company that currently owns and operates a major eco-lodge located near Machu Picchu. ITP also has a wholly-owned subsidiary called Palma Real which operates an ecolodge called Reserva Amazónica (formerly Cusco Amazonico). Located in the Madre de Dios region of southeastern Peru, Reserva Amazónica is situated within a 10,000 hectare biological reserve (known as the Inka Terra Ecological Reserve), for which the company has a private concession. ITA and ITP have been spearheaded by Mr. José Koechlin, a well-known leader of eco-tourism and biodiversity conservation in Peru. Mr. Koechlin is an Emeritus Board Member of Conservation International. Working through private sector business associations, Mr. Koechlin has encouraged the Peruvian government to pass laws for the development and promotion of sustainable tourism in Peru. And through his efforts with ITP and ITA, Mr. Koechlin has pioneered the use of scientific tourism as a vehicle for biodiversity conservation in the Amazon jungle. In fact, E.O. Wilson conducted his seminal work on ants at ITP’s privately managed biological reserve near Puerto Maldonado – identifying the area as having the world record for the number of ant species found in a single location.

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14. Date of Initial Submission of the PDF-A Proposal February 28, 200115. Project Identification Number 50605016. Contact Person in the GEF Executing Agency Mr. Sam Keller, Projects Officer, skeller@ifc.org17. Project Linkage to Implementing Agency Programs:The GEF's existing portfolio in Peru aims largely at strengthening the country's capacity to implement the National System of Protected Natural Areas and developing a participatory approach to protected area management. There are several full-sized projects and roughly five medium-sized projects (MSP) under implementation by UNDP and the World Bank for this general purpose. The proposed Inka Terra MSP will complement these GEF projects by increasing the involvement of the private sector in protected area management. It will also complement these projects by demonstrating that some protected areas have the potential to be self-financing through on-site revenue-generation if appropriate market linkages are established.

The proposed Inka Terra MSP also builds upon IFC’s portfolio of biodiversity projects. IFC has provided support to various types of “biodiversity businesses”, which are commercial enterprises that help to conserve biodiversity. Either directly or through intermediaries, IFC has helped to finance organic agriculture companies, ecotourism companies, sustainable cocoa growers, a sustainable hearts-of-palm producer, a sustainable babassu producer, a shade-grown coffee producer, and a poison dart frog export company. IFC has also supported protected area management through innovative approaches in the Philippines (Asia Conservation Company) and Indonesia (Komodo National Park). The Inka Terra MSP builds upon these initiatives by providing a promising new model: An ecotourism company will manage several new attractions in order to increase revenues, which, in turn, will cover the long-term costs of managing a biological reserve and working with local communities.

The Inka Terra proposal does not overlap geographically with any other GEF project in Peru. Cooperation shall take place with an MSP currently under implementation by UNDP called Conservation and Sustainable Use of the Biodiversity of the Amarakaeri Communal Reserve and Indigenous Lands. Located along the south-eastern border of the Manu National Park, this project seeks to enhance biodiversity conservation through participatory preparation and implementation of management plans at several sites. The Inka Terra project will be coordinated with UNDP's activities to ensure maximum benefits from information sharing and lessons learned.

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Project Rationale & Objectives

InkaTerra is a Peruvian hotel owner and operator that specializes in facilities oriented towards eco-tourism. The company has been offering eco-tourism experiences since the mid-1970s, initially in the Amazon region and more recently in the Machu Picchu area. It has carefully managed its operations and it has been able to generate sufficient cash to slowly grow its properties while also helping to preserve and investigate the local ecology.

Due to its small size and limited product offerings, InkaTerra does not, as yet, have the ability to offer stand-alone vacation packages. Consequently, most of its guests tend to stay at its properties for only 1-2 nights. Inka Terra's business strategy is to expand its product range by developing hotels at two new locations, Cusco (the gateway city to Machu Picchu) and Puno (on Lake Titicaca), thereby creating a network of hotels in Southern Peru which collectively would provide eco-tourism and cultural experiences in three distinct zones -- the cloud forest (Cusco/Machu Picchu), the

high andes (Lake Titicaca), and the rainforest (Amazonia).

Inka Terra believes that a network of this type will enable tour operators and clients to plan themed vacations centered around its properties, thereby creating complementary demand from one property to the next. In addition to increasing guest stay duration at its properties, the expanded network would also generate efficiencies from the company's centralized administration structure and in its sales efforts. IFC has agreed to provide an US$5 million loan for this expansion program.

In addition to this expansion program, an “incremental” proposal has been developed to save globally significant biodiversity in conjunction with Inka Terra’s Reserva Amazónica lodge in

southeastern Peru. Reserva Amazónica has been in operation for over 25 years and was one of the first eco-tourist facilities developed in Peru. 1 During much of this time, Inka Terra has leased a 10,000 hectare area of tropical rainforest located adjacent to the lodge.

Known as the Inka Terra Ecological Reserve (IER), the company has supported considerable ecological research within this reserve. The studies carried out to date in the reserve have identified considerable biological diversity, including 136 species of mammals, 366 species of birds, 83 species of reptiles, and 362 species of ants. In fact, after conducting some of his seminal work in the IER, Harvard biologist E.O. Wilson cited the area as having more species of ants than any other location in the world. Many of the species of flora and fauna in the reserve were discovered there and some have not been found elsewhere in Peru.

Despite Inka Terra’s desire to promote forest conservation, the IER has remained largely unmanaged because the company has been largely occupied with running its tourism operations. Inka Terra has fostered considerable ecological research in the IER, but most of it has been driven by the specific academic interests of visiting scientists. Although Inka Terra possesses staff members with considerable conservation experience and expertise, until recently these individuals faced conflicting demands on their time (between commercial and conservation priorities). And although the company has developed a basic management plan which meets its legal requirements as lessee of the reserve, this plan does not divide the reserve into usage zones or contain a strategy for mitigating threats. In fact, until this MSP proposal was developed, there had been relatively little diagnosis of the threats to the area’s biodiversity.2

Yet various threats have emerged to the forest. A transcontinental road has been built on the back (north) of the reserve, going to Brazil. Since it is still a dirt road it does not have heavy traffic yet, but it has nonetheless facilitated

1 The Reserva Amazónica lodge was formerly known as Cusco Amazónico. 2 To date Inka Terra Peru has been authorized to lease the 10,000 hectare reserve because of a Ministerial Decree. However, Peru’s Flora and Fauna Act of 2000 provides a more solid legal basis for managing long-term forest concessions for ecotourism purposes. Since the regulatory framework for this law has recently been completed, the concession is being officially awarded to Inka Terra Association in accordance with this legislation. Henceforth Inka Terra Association will need to demonstrate to INRENA each year that the reserve is being properly managed. The regulatory framework of the Flora and Fauna Act stipulates that concessions may be revoked if the concessionaire does not fulfill its responsibilities.

Figure 2: Reserva Amazonica Lodge

Figure 1: Project Location

Project Location

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encroachment upon the reserve. The threat of logging has also been exacerbated by the road. Furthermore, in addition to three communities on the border of the IER, a fourth community arose within the reserve in recent years. Although the Peruvian Government has recently modified the boundaries of the reserve so that this fourth community no longer falls within the protected area, these communities nonetheless place pressure upon the forest and its biodiversity. Finally, mercury pollution from gold mining in the Madre de Dios River is threatening aquatic biodiversity (as well as human health).

As a result, IFC has worked with Inka Terra to develop a comprehensive strategy for managing the IER. It has involved establishing a parallel NGO called the Inka Terra Association (ITA). Some of Inka Terra’s staffmembers who possess considerable conservation expertise have been transferred to ITA, where they will be able to focus full-time on implementing the strategy. The specific objectives of the strategy include the following: (1) To develop a Forest Conservation and Management Plan that properly zones the reserve based upon a solid understanding of its ecology; (2) To develop partnerships with the four local communities so they can improve their quality of life while helping to preserve the forests; (3) To promote increased support for forest conservation and sustainable development through training programs; and (4) To generation long-term funding for conservation through ecotourism development (and eventually other forms of “biobusiness” as well). In pursuing these objectives, Inka Terra will go above-and-beyond IFC’s minimum environmental and social requirements. Doing so will involve incremental costs that the GEF is asked to cover in the form of a grant and concessional loan.

It is expected that this proposal will eliminate deforestation and poaching within the IER; reduce hunting to sustainable levels; provide conservation-compatible livelihoods for a significant portion of the four local communities; and increase awareness of and support for conservation among local and regional stakeholders. It will also generate long-term revenues to help ensure sustainability of the conservation and community development measures.

Globally Significant Biodiversity Conservation

Peru is one of the eight “mega-diverse” countries which together possess more than 70% of the world’s biodiversity. The IER is located within an area of Peru that is often cited as the “global epicenter of biodiversity.” Specifically, the IER is found 15 kilometers northeast of Puerto Maldonado – which the Peruvian Government officially recognized in

1994 as the “biodiversity capital” of the nation. Puerto Maldonado is found within the state of Madre de Dios. Although this state represents only 7 percent of Peru's total territory (i.e., 83,000 km2), more than 30 percent of amphibian, reptile and fish species from continental waters are found here as well as at least 40 percent of Peru's mammal and bird species. As a result, Madre de Dios is a key region within Conservation International’s Tropical Andes Hotspot.

The IER is located near numerous protected areas within the state of Madre de Dios that are virtually interconnected. On the southern side, across the Madre de Dios River, the IER is bordered by the Tambopata National Reserve (TNR). To the southeast is found

the Bajuaja Sonene National Park (BSNP). Together the TNR and BSNP make up 1.3M million hectares. Further west are located the Amarakaeri Comunal Reserve, Los Amigos Conservation Concession, and Manu Biosphere Reserve (which UNESCO declared to be the “Natural Heritage of Humanity” in 1987). In total, these protected areas cover more than 60% of the state of Madre de Dios. Quite importantly, the IER and these other protected areas form a key part of the 30 million hectare Vilcabamba Amboró Conservation Corridor, which extends from the Apurímac Reserve in central Peru to the Amboró National Park in central Bolivia. Preserving the ecological integrity of this corridor is a priority for Conservation International, World Wildlife Fund, and other conservation organizations.

Figure 4: Inka Terra Ecological Reserve

Figure 3: Project Location within Madre de Dios State

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Although the IER is relatively small compared to other protected areas in Peru, it nonetheless possesses globally significant biodiversity. Because it located adjacent to the Madre de Dios River, much of the IER constitutes a floodplain. As such, the IER contains various types of flooded and non-flooded tropical forests. The forests that are prone to flooding include highly diverse Mauritia palm swamps (known is Spanish as “aguajales”). The fruits of the Mauritia palm are used as food by fish, mammals, birds, and people. The trunks serve as nest sites for macaws and other birds and are often harvested for starch or insects by local people. The Mauritia palm and other trees within the swampy forests are covered with a huge array of vines, bromeliads, and orchids. In fact, the IER is home to more than 1,000 species of flowering plants. Thirty-three of the floral species in the IER have been identified as endemic to the

Peruvian Amazon. The IER also contains at least 366 species of birds, 83 species of reptiles, 442 species of spiders, 362 species of ants, and 44 species of mollusks. When conducting his seminal work on ants, the renowned Harvard biologist E.O. Wilson declared that the IER contains more species of ants than any other single location in the world.

The IER is also important for many species of fish. The state of Madre de Dios contains over 250 species, which constitutes more than 30% of all fish species in Peru. Nearly all of the fish in the state, in one way or another, are linked to floodplain rainforests such as those of the IER. Many fish species eat fruits and seeds – and the flooded forests are their orchards. To conserve the fish of the Amazon basin it will be necessary to protect the floodplain rainforests on which they depend for food, shelter, and breeding habitat.

Baseline Situation

Madre de Dios state has the lowest population density in Peru and represents only 0.3% of the country's population, or 84,000 inhabitants. This said, Madre de Dios' population is increasing at a faster rate than any other state in Peru, with a 3.3 percent annual growth rate. Large influxes of immigrants, mostly from Peru's poverty-stricken Andean mountains, have been putting increasing pressure on the IER and other protected areas within the state. As Figure 6 indicates, there are now three communities on the border of the IER: Juan Velasco, Juan Pablo3, and Madama.4 There are also two communities located near the reserve: Micaela Bastidas (adjacent to the Reserva Amazónica lodge) and Rolin (on the other side of the Madre de Dios river). In the “business as usual” scenario, the activities of these communities, combined with the pressures from outside groups, would constitute ongoing threats to the IER. As explained below, these threats include illegal logging, panning for gold with toxic mercury, hunting and poaching, road construction, and potential impacts from ecotourism.

Road Construction

The Transoceánica Highway is intended to link Brazil with the Pacific Ocean. In the state of Madre de Dios, it passes within 8km of the IER. At present, it is paved in Brazil but still unpaved in Peru. This helps to minimize the amount of traffic for the time being. But there is now a smaller dirt road that extends from the highway to merely 4km away from the community of Madama, which is adjacent to the IER. These roads effectively link Madama to Puerto Maldonado. They pose a threat to the IER because they are being used to extract lumber from the reserve. At the same time, however, these roads present an opportunity for new businesses to arise based upon the sustainable production of non-timber forest products (since it will become more feasible to transport such products to domestic and international markets).

3 Juan Velasco and Juan Pablo are located adjacent to each other and in some respects are like a single community.4 The community of Madama consist of 25 families that have moved to the area from Puerto Maldonado over the past decade. These families actually invaded the reserve, establishing Madama within its boundaries. They received legal title – which superseded Inka Terra’s concession – to 30 hectare parcels amounting to 400 hectares in total. However, more recently the Peruvian Government has modified the boundaries of the reserve so that Madama no longer falls within the reserve.

Figure 5: Palm Swamps

Figure 6: Local Communities

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Logging

Logging is now a threat to much of the Amazon Basin. It is evident at the IER where there are "highways" behind the reserve and in the rear part of the Madama and Micaela Bastidas communities. Tractors drag out the logs through these areas. The exit route of the logs is through the Transoceánica Highway located 8 km from the community of Madama. Most of the logging is not done by local settlers but by illegal loggers who operate businesses based in Puerto Maldonado. This type of uncontrolled logging in the Amazon basin has increased the list of endangered endemic species. To mitigate this threat, alliances need to be established with the local communities. However, in the baseline scenario, InkaTerra would have a limited ability to establish effective partnerships with the local communities.

Hunting and Fishing

Local communities are hunting and fishing within the reserve primarily for their own consumption. At present, the levels of extraction from local communities are relatively low and are not severely impacting the reserve. However, gold miners and other ‘outsiders’ are also invading the territory for hunting and fishing purposes. Some species, such as red deer, have high reproductive rates and can withstand fairly substantial pressure. But other animals, such as turtles, giant otters, crocodiles, monkeys and many species of bird, have lower reproductive rates and could become endangered if proper management is not provided.

Mining

Artesanal miners who extract gold from the bottom of the Madre de Dios River and other local streams constitute a major threat to aquatic biodiversity. The miners live in small barges anchored near the riverbanks. These barges typically contain a small deck and cabin with a tin or plastic roof to keep out the rain, mounted on two large wooden canoes. Although most miners struggle to make a meager living with homemade equipment and small, family-run operations,

poverty and political tensions have lured thousands of mountain dwellers into the Amazon over the past 30 years in pursuit of gold mining.

The mining practices involve the use of highly toxic mercury. In fact, after metallic mercury mixes with sediments at the river bottom, it can convert into organic mercury, which is an even more dangerous toxin due to its ability to move through the food chain. A study by the Frankfurt Zoological Society of fish from various rivers in Madre de Dios state has already found concentrations of mercury above legal limits for human consumption in Germany and the United States. The Amazon Conservation Association has found that most, if not all, communities in the state of Madre de Dios suffer from mercury contamination. With regard to biodiversity, the impacts of the gold mining practices have been chronicled in a WWF report published in April 2003. Lucila Pautrat, the report's author, found that along with mercury contamination of

wildlife, gold mining produces a myriad of negative environmental effects including oil, gas and noise pollution, aquatic habitat destruction, and an increase in suspended particle matter which can kill fish populations.

According to WWF, the Peruvian government has granted 210,000 hectares, or 5.9 percent of Madre de Dios, to mining concessions. But since the majority of operators do not hold legal concessions, WWF estimates that the actual amount of area under mining exploitation is much higher. It is a difficult problem to address because Peruvian laws governing gold mining are typically not enforced. To make matters worse, the Ministry of Energy and Mines is generally not informed about on-the-ground mining practices because large mining companies usually subcontract the artesanal miners. In the baseline scenario, such mining practices will continue – and likely increase – in the areas in and around the IER. WWF estimates that by 1999 only 10 percent of the state's estimated gold reserves had been extracted. At current rates of extraction this means that hundreds of tons of mercury will be dumped into this part of the Amazon in coming decades. Without GEF assistance, ITA would have a limited ability to find solutions to this problem in and around the IER.

Ecotourism

The impact of the Reserva Amazónica lodge on the IER has been continuously reduced by measures such as training employees on forest conservation practices and improving waste disposal methods. Some of the organic waste is now used as animal fodder by nearby inhabitants and the rest is used as compost. Paper, cardboard, glass and plastic are

Figure 7: Gold Miners

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taken to a small nearby landfill. IFC has found that all of Inka Terra’s operations in Peru – including the Reserva Amazónica lodge – comply with IFC’s environmental and social policies and guidelines. In fact, the Reserva Amazónica lodge is seeking to go above-and-beyond IFC’s minimum requirements. It is committed to turning its facilities into fully eco-efficient operations. The company has entered into a strategic alliance with ITA to ensure that all staff, including maintenance personnel, are trained in the concepts of eco-efficiency. The strategic alliance will allow ITA to ensure that all new infrastructure and trails will be implemented and operated in a manner that respects the ecology of the local environment as much as possible. These actions will be consistent with the certification guidelines for Tourism Sustainability that were established in 1999 by the Costa Rican Tourism Institute (Instituto Costarricence de Turismo-ICT). They will also adhere to an additional eco-tourism certification system to be established in Peru. Thus, the ecotourism activities in the IER will not constitute a significant threat to biodiversity in the baseline scenario.

Ecotourism Market Assessment

In recent years, Inka Terra Peru has invested considerable amounts of time and money towards investigating the tourism market. Major efforts to analyze the tourism market were also undertaken as part of IFC’s appraisal process as IFC considered whether to provide a loan to ITP. A brief summary of the results is included below.

The World Tourism Organization estimates that the global tourism industry will continue to grow at an average annual rate of about 4% in coming years. Peru has been achieving – and expects to continue to achieve – a much faster growth rate. Since 1996 the number of foreign tourist visits to Peru has increased at an average annual rate of 10%. Although tourism arrivals declined by 1% in 2001 (as a result of turbulent elections and September 11 th ), they increased by 10% in 2002. In coming years it is hoped that foreign tourist visits will continue to grow at a similar rate due to the Peruvian Government’s major promotion efforts. Indeed, Peru is well-positioned for cultural and nature-based tourism – which, at a global level, have been growing much faster than the overall tourism industry.

The annual number of tourists visiting Peru has exceeded 1 million per year over the past three years. A large percentage of these tourists go to Machu Picchu. For instance, approximately 400,000 tourists visited Machu Picchu in 2001, which was about 40% of the total. Importantly, virtually all tourists that visit Machu Picchu also visit Cusco since it is the ‘gateway’ to Machu Picchu. Many of these tourists – who often have a high willingness to pay – are interested in experiencing the Amazon in addition to Machu Picchu. It is for this reason that the Peruvian Government is interested in promoting Puerto Maldonado as a nature-based tourism destination. Puerto Maldonado offers some of the best ecotourism experiences in the world because of the extraordinary rainforest and biodiversity found within the state of Madre de Dios. And it is also only a short, inexpensive flight away from Cusco. In fact, the Peruvian Government has recently invested heavily in the Puerto Maldonado airport in part because it perceives this strategic opportunity for nature-based tourism development. The Puerto Maldonado airport is now an international airport with better conditions and a longer runway than the Jorge Chavez International Airport in Lima. At present there are 8 weekly flights connecting Cusco to Puerto Maldonado (with three airlines).

In recent years, only about 30,000 tourists have visited Puerto Maldonado each year. But the state of Madre de Dios clearly has potential to increase visitation rates to exploit nature-based tourism as part of its strategy for achieving sustainable development. Indeed, tourism visitation rates to Puerto Maldonado have been increased relative to Iquitos, which was historically the prime destination within Peru for visiting rainforest. If appropriate marketing efforts are undertaken, it would be realistic for Puerto Maldonado to eventually attract about 50% of tourists who visit the Inca Trail (125,000 in 2002) as well as 25% of tourists who visit Machu Picchu (an estimated 457,000 in 2002). In sum, there is a strategy opportunity to increase ecotourism in Madre de Dios. By establishing new ecotourism attractions in conjunction with complementary marketing efforts on the part of Inka Terra Peru, ITA can catalyze long-term revenues for community development and forest conservation.

Expected Outcomes

This project is expected to achieve long-term conservation of the 10,000 hectare Inka Terra Ecological Reserve and its many species of flora & fauna. This will include eliminating illegal logging; reducing hunting to sustainable levels; preventing poaching of plants and wildlife; recovering populations of endangered species; and reducing mercury pollution in local waterways.

These results will be accomplished by generating the following four outcomes:

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Business Expansion

Inka Terra will significantly augment its product range by expanding its existing facilities and developing new hotels in Cusco (the gateway city to Machu Picchu) and Puno (on Lake Titicaca). This will create a network of hotels in Southern Peru which collectively provide eco-tourism and cultural experiences in three distinct zones -- the cloud forest (Cusco/Machu Picchu), the high andes (Lake Titicaca), and the rainforest (Amazonia). With a broader range of product offerings, Inka Terra will have the ability to offer stand-alone vacation packages. Consequently, its guests will tend to stay at its properties for a longer period of time, thereby increasing revenues (some of which will go towards biodiversity conservation and community development). IFC financing has been provided for these business expansion activities; no GEF funds will be utilized for this project component.

Forest Conservation and Management Plan

This project will establish and implement a Forest Conservation and Management Plan (FCMP) to guide the long-term utilization and conservation of the IER. It will provide a detailed map of the IER indicating its different types of forests and habitats. It will also include an inventory of floral and faunal species located within the reserve and their potential uses. This data will allow ITA to divide the IER into different zones so that each area will be used (or not used) in an appropriate manner based on its ecological characteristics. The FCMP will also allow ITA to develop a sophisticated program for monitoring forest conditions over time. It will also establish protocols by which local villagers will be hired to provide surveillance throughout the perimeter of the reserve and communicate any instances of illegal logging or poaching to ITA. Finally, the FCMP will describe the procedures that ITA will follow if there any such infractions. Thus, the FCMP will provide a sound basis for properly managing the IER indefinitely into the future.

Community Partnerships for Forest Conservation & Sustainable Development

This project will develop partnerships between ITA and the four communities located in and around the IER. These partnerships will reverse the current situation in which there is a tension between the conservation interests of the ecotourism venture and the livelihood interests of the local communities. Whereas the local communities currently constitute a threat to the reserve, these partnerships will allow them to become allies in helping to preserve the IER. ITA will accomplish this by establishing formal agreements with the local communities in which they will receive various forms of assistance so that they can improve their quality of life without damaging the forest. Technical assistance will allow the local communities to improve farm yields through crop rotation, soil management, and integrated pest management. ITA will also help them to breed animals (some of which they typically hunt, such as capybara and peccaries), to supplement their own food consumption and to sell in local markets. Finally, ITA’s assistance will enable the local communities to participate in reforestation programs involving native tree species that have been depleted from the reserve. In exchange for this assistance, the communities will agree to help preserve the IER and mitigate threats from outside parties. Some of the community members will be directly employed to patrol the reserve and communicate any infractions to ITA. During the process of preparing this GEF proposal, the local communities repeatedly emphasized their interest in entering into this type of strategic alliance with ITA.

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Environmental Training

The project will foster awareness, support, and capacities for rainforest conservation among local, national and international stakeholders, including communities, government agencies, tourism operators, and academic groups. This will be achieved through development of a comprehensive education and research center in partnership with the Amazon Center for Environmental Education and Research (ACEER) and the National Geographic Society. The center will offer environmental education programs and support basic and applied research. It will include a biological field station, distance learning center, ethnobotanical garden, interpreted trails, and other educational facilities.

Long-Term Conservation Finance through Ecotourism Development

This project is expected to generate considerable financial resources indefinitely into the future in order to cover the annual costs of managing the IER. This will be done by constructing four new ecotourism attractions – namely, a canopy walk, monkey island tour, giant otter tour, and palm forest tour. As indicated in Figure 8 below, ITA will own these new attractions (so that it will have an asset base with which to generate ongoing revenues). InkaTerra’s wholly-owned subsidiary named Palma Real will operate, maintain and market the new attractions. In addition, Palma Real – which also owns and operates the Reserva Amazónica lodge – will transfer 20% percent of its total revenues to ITA each year.5 It is expected that this arrangement will lead to over $300,000 in annual revenue for ITA by 2006. After the GEF funds are fully utilized, it is anticipated that this arrangement will generate the maximum annual payment of US$400,000. But even in the worst case scenario, ITA should receive enough funds to pay for its basic operating costs, community programs, and forest management activities (see page 18). Thus, this project is expected to catalyze a self-financing protected area.

Figure 8: Project Diagram

Project Activities

Business Expansion

Inka Terra will expand its Machu Picchu Pueblo Hotel and its Reserva Amazónica lodge by 15 and 12 rooms, respectively, in order to meet the growth in demand for these properties. Inka Terra may also develop two new hotels in Cusco and Puno on the company's existing properties at these locations. Finally, Inka Terra plans to construct a new hotel at Concepcion in Amazonia and a new mid-level hotel, the Machu Picchu Pueblo Lodge, in Aguas Calientes, in order to complement its existing hotels at these locations. IFC financing has been approved for this project component; no GEF funds will be utilized.

Inka Terra will continue to implement a sophisticated marketing strategy in order to maximize occupancy rates at its facilities. IFC has been working intensely with Inka Terra to ensure that the company adequately conveys the

5 As described in the Implementation Plan, this will be subject to a minimum payment (“floor”) of US$132,000 and a maximum payment (“ceiling”) of US$400,000.

InkaTerra Ecological Reserve

Palma Real gives 20% of its total revenues

InkaTerra (ITP)(ITP

InkaTerra Association (ITA)(Not-for-Profit NGO)

Reserva Amazónica, (Ecolodge located on 200 hectare property)

within the reserve)

ITA owns the new ecotourism attractions but allows Palma Real to

market & operate themPalma Real

(Ecotourism Company)

ITA is responsible for managing the reserve and carrying out all GEF-funded activities.

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extensive offerings of its facilities to tour operators in the United States, Peru, and elsewhere. This past year Inka Terra hired a highly-capable, Wharton-educated individual to handle marketing and sales. As a result, revenues have been increasing considerably. At the same time, Inka Terra has conducted market research that has indicated that many tourists would be interested in visiting its Reserva Amazonica lodge if there were additional attractions, such as a Canopy Walk. This project is therefore appropriately tailored to take advantage of this opportunity to catalyse additional revenues for biodiversity conservation and community development.

Forest Management and Conservation Plan

Forest Zoning & Management Planning: The IER will be characterized using Geographic Information Systems (GIS) and divided into usage zones based upon the ecological characteristics of each area. After carrying out considerable on-the-ground assessments, a written Forest Conservation and Management Plan (FCMP) will be drafted that describes how the reserve should be utilized (or not utilized) in each area. It will also allow the reserve to be physically demarcated. Furthermore, the FCMP will contain a detailed plan for monitoring the biodiversity of the reserve. Finally, the FCMP will describe the protocols for guarding the reserve against illegal logging, hunting, and poaching. It will contain detailed provisions for hiring local villagers to patrol the boundaries of the reserve and to report any instances of illegal logging or poaching to ITA. It will also describe the steps that ITA will take to ensure that INRENA and the National Police deal appropriately with any such infractions. In sum, the development and implementation of the FCMP, in conjunction with the community alliances described below, will ensure that the IER is a well-managed reserve.

Biodiversity Inventory: Over the past 25 years, Inka Terra has developed a partial inventory of the IER’s flora and fauna with the help of many visiting scientists. This inventory will be expanded over the course of this project so that comprehensive information will exist for many of the key species found within the reserve, including their ecology and potential sustainable uses. The information gathered through this exercise will be classified and made readily available in a database. This program component will be developed in collaboration with the Missouri Botanical Garden (MOBOT).

Community Partnerships for Conservation & Development

Community Agreements: The project will establish formal agreements with the four local communities concerning conservation and use of the forest. These agreements will include specific provisions for regulating and monitoring hunting, fishing, and tree cutting. They will also describe ITA’s responsibilities in terms of sharing the benefits of the ecotourism activities with the communities. These agreements will help to ensure that the community development and forest conservation activities continue after IFC-GEF involvement ends.

Sustainable Agriculture Program: The project will include technical assistance programs with the four local communities on crop rotation, pest control and soil management (including drainage techniques to avoid damage from flooding). This will require a joint analysis between ITA and the local farmers regarding their agronomic needs and the factors that hinder their agricultural activities. This program will facilitate knowledge-sharing between local farmers and will bring experienced practitioners from other areas to share their best practices. This program will help to prevent the villagers’ need to clear additional forest.

Reforestation Program: The project will establish two tree nurseries in each of the four local communities. Villagers will use the seedlings to repopulate the IER with species of native trees that have been depleted.

Fish Farming: The project will establish two small-scale fish aquaculture operations in each of the four local communities. Fish farming offers multiple benefits to local communities because: (i) it supports the breeding of native fish species for which there is local demand; (ii) it reduces the need to extract wild fish, which are increasingly laden with mercury; (iii) it promotes food safety by providing an alternative way to generate protein besides hunting; (iv) it generates financial resources for local families; (v) it provides livelihood options for women; (vi) it promotes community-building; and (vii) it intensifies land use, thereby reducing pressure on forests.

Fish farming represents an ecologically, economically and socially viable activity for communities located within and around the IER. The reserve offers excellent conditions for fish farming due to the abundance of water found in the swampy forest. The placement, construction, and maintenance of the fish ponds will not harm the local ecology because it will be done in accordance with the zoning system to be established as part of the forest management

Figure 9: Local Farmers

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plan. The average size per pond will range from 100 to 200 square meters. The costs of establishing and maintaining the fish ponds is quite reasonable. The fish food will be derived from fruits and legumes that are available locally; this will not pose any threat to the natural food supply for wild species. The farmed fish will mainly be consumed by local families, but part of the surplus will be bought by Palma Real in order to feed tourists a healthy, mercury-free product. The rest of the surplus will be channelled to the Puerto Maldonado market. Prices will be based on the local market; they should not decline as a result of this project since the production volume will not cause an over-supply.

Animal Breeding Program: The project will implement community-based programs to breed animals, such as chicken, ducks capybaras, and peccaries, for local consumption. These programs will be based on successful initiatives that have been launched by Conservation International in Madre de Dios and by the Institute for Research in the Peruvian Amazon (IIAP) in Iquitos.

Community Development Fund: The project will establish a Community Development Fund to provide grant funding for small-scale livelihood projects to be proposed and executed by the local inhabitants. ITA will allocate a total of US$ 20,000 towards this Fund over the first four years. Starting in the fifth year, ITA will allocate US$ 5,000 of its revenues to this Fund each year. The Fund will provide grants in order to stimulate diverse initiatives that the local community members believe would enhance their livelihoods in a sustainable manner. Each proposal will be evaluated on a case-by-case basis. No GEF funds will be allocated towards this project component; ITA will pay for it through the revenues that it generates via the new ecotourism attractions.

Contingency Fund: As ITA’s revenues increase, it will channel some of them into a small Contingency Fund. This Fund will allow ITA to assist community members to deal with extraordinary hardships that may arise (such as loss of crops due to flooding). The Fund will not give cash to the villagers; rather; it will provide qualifying candidates with the particular materials (e.g., seeds, tools) they need in order to deal with their particular hardship that they face. ITA will only award this type of assistance if/when community members present a compelling case. This Contingency Fund will provide an additional means by which villagers are able to share in the benefits of the ecotourism activities. The GEF is not being asked to contribute towards this project component; it will be paid for entirely by ITA.

Long-Term Conservation Finance through Ecotourism Development

To ensure long-term financial sustainability of ITA’s conservation and community development activities, this project will develop four new ecotourism attractions in the 200 hectares of forest owned by Inka Terra as well as within the 10,000 hectare leased reserve. All of these attractions will be constructed and operated in a manner that avoids significant impacts on the forest. The activities associated with these attractions will fall within the carrying capacity of each part of the forest, which will be determined during the first stage of the forest management planning process and monitored thereafter on an ongoing basis. 6

1. Palm Forest Tour: This new attraction will involve establishment of an observation platform, two wooden bridges, and new trails so that visitors may experience the wonders of the “aguajales” (palm swamps). Visitors will be able to observe the rich array of orchids, bromeliads and other species that occupy this highly diverse ecosystem. With experienced guides, they will also learn about its wildlife and ecology.7

2. Canopy Walk: This new attraction will involve construction of hanging bridges that run through the forest canopy. As such, the canopy walk will give visitors – including tourists, students, local villagers, and researchers – an extraordinary exposure to the upper levels of the forest ecosystem. The hanging bridges will be constructed with

technical support from organizations with expertise in this area, such as ACEER, Canopy Access Providers, and/or Green Heart Conservation.

3. Primate Rescue Center: This new ecotourism product will give visitors an opportunity to observe seven types of Amazonian monkeys and to learn about the myriad issues facing these species. It will involve establishment of a facility to rehabilitate and reintroduce monkeys that authorities have captured from poachers, or which have been displaced from their original homes due to habitat

6 During the PDF-A process, considerable attention was devoted to ensuring that the planned ecotourism activities will fall within the carrying capacity of the reserve. Indeed, even if there are enough visitors to achieve the Optimistic Scenario (see Sustainability section), this means that an average of less than 70 individuals will visit the new attractions per day. Biologists are highly confident that this will not significantly impact the biodiversity of the reserve as long as ITA puts in place appropriate management systems (which it is committed to doing). 7 This infrastructure will also provide opportunities for scientific research into the aguajal ecosystem.

Figure 10: Example of Canopy Walk

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destruction. In addition to providing an amazing experience for visitors, this facility will help to protect threatened primatological fauna.8 It will also provide important research information regarding reintroduction of primates into the wild. Close monitoring will be conducted of the monkeys’ behavior both before and after they are released into the reserve. The Center will be located on Rolín Island, which is found in the middle of the Madre de Dios River, right in front of the IER. It is expected that the Dirección de Capitanías y Guardacostas de la Marina will award a long-term concession for managing this island to ITA.

4. Giant Otter Observation Tour: This new attraction will involve contruction of a wooden deck and acquisition of several small boats so that tourists can observe giant river otters. These beautiful animals were previously found in large numbers from Venezuela to northern Argentina. But due to fur hunting and habitat destruction, only an estimated 2,000 to 5,000 exist today, and their range in restricted to pockets of the Amazon basin. The observation tours will be conducted in a manner that is highly respectful of the otters’ ecology and habitat. In fact, a small hut will be constructed to serve as a laboratory, office, and cabin. A biologist will occupy the facility to carry out research and to ensure that there are no impacts on the otters.

Education and Training

Awareness-Raising Program for Forest Conservation & Sustainable Use: At least four workshops on forest conservation and sustainable use will be held each year for men, women and youths who come from groups that constitute both threats and opportunities for forest conservation (e.g., colonists, loggers, teachers, unions, public officials).

Ecotourism Training Program: A special training center will be set up for eco-tourist operators and guides from many outfits within Peru. ITA will provide training for eco-guides in conjunction with ACEER, Missouri Botanical Gardens (MOBOT), and San Antonio University. This component will be paid for through co-financing; no GEF funds will be utilized.

Park Ranger Training Program: A park ranger program will be developed in coordination with local villagers as part of their contribution to forest protection. The idea is for local individuals to actively patrol the reserve. Training will be provided by the personnel of INRENA, ACEER and ITA. Specific protocols will be developed for reporting infractions upon the reserve and working with local authorities to address them. The GEF is not asked to contribute funding to this project component.

Mining Campaign: ITA will host a series of roundtable discussions with organizations that have an interest and role in preventing the widespread use of mercury in the Amazon Basin. These organizations will include the Ministry of Energy and Mines, Ministry of Health, Ministry of Education, Ecological Police, Conservation International, National Environment Council, and others. The roundtable discussions will allow each organizations to share its experience with the small-scale mining sector and its views regarding how to move forward. These events will help to foster concrete plans for addressing the deleterious usage of mercury. In addition, ITA will launch an awareness campaign among local gold miners with the aim of reducing the harmful effects of mining. Courses, workshops, brochures, radio programs and other means of communication will be used to disseminate information about the negative effects of mercury on human health and the environment, and to promote alternatives that reduce impacts. This component will be paid for through co-financing; no GEF funds will be allocated.

Implementation Plan

Project Management and Administration

All of the GEF-funded activities will be spearheaded by ITA. ITA will be responsible for implementing the forest conservation, community development, and environmental education activities described above. It will do this in conjunction with local partners such as ACEER. ITA will also be responsible for overseeing the construction of the new ecotourism attractions. It will do this by contracting Canopy Access Providers, an organization that specializes in canopy walks. ITA will possess adequate staff to implement this project. ITA’s General Manager (José Purisaca) has more than

8 In fact, the Primate Rescure Center will be directly supportive of the Species Conservation Objectives in Appendix II of the Convention in International Trade in Endangered Species (CITES).

Figure 11: Giant River Otters

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20 years of experience with regard to biodiversity conservation in Peru. ITA will also hire a highly capable Project Leader in Puerto Maldonado to oversee individuals in charge of each program component. It will not be difficult for ITA to find well qualified, dedicated individuals to implement each aspect of this project. Indeed, ITA has proven itself quite capable of doing so while executing the PDF-A activities associated with this proposal.

Innovative Partnership

As part of the development of this project, ITA established a formal partnership with Palma Real (owner of the Reserva Amazónica lodge). In fact, it has been codified in a legal agreement between these two entities. This agreement stipulates that each party will fulfill the following responsibilities:

ITA’s responsibilities:

ITA will give marketing exclusivity to ITP for the four new ecotourism attractions. In other words, ITP will have the sole right to collect fees for their usage (which in turn will be shared with ITA).

ITA will also be responsible for monitoring the new ecotourism activities to ensure that they do not generate any significant environmental impacts.

Palma Real’s responsibilities:

Palma Real will market the new ecotourism attractions through its website and extensive network of tour operators. Palma Real will bear all of the associated costs.

Palma Real will operate and maintain the new ecotourism attractions. It will do so at its own expense and in accordance with environmental guidelines stipulated by ITA.

Palma Real will give 20% of its revenues to ITA. This will be subject to a minimum annual payment (“floor”) of US$132,000 to help ensure that ITA has sufficient revenue to cover its basic costs of managing the reserve and working with the local communities.9 In exchange for accepting this downside risk, Palma Real’s payments will be capped at a maximum annual value (“ceiling”) of US$400,000.10

Over the first four years Palma Real will provide in-kind resources worth approximately US$104,000 in order to help cover ITA’s operating costs. This will broken down as follows: US$56,466 in year 1, US$28,000 in year 2, US$10,000 in year 3, and US$10,000 in year 4. The in-kind contributions will include food, transportation, and lodging.

Palma Real will maintain appropriate insurance to cover accidents or damages that tourists or visitors may suffer while visiting facilities owned by ITA or Palma Real.

Financing Plan

The GEF funds being requested for this MSP will be channelled to ITA as a grant and a concessional loan:

The grant will amount to US$386,757 (including US$25,000 already provided for project preparation). It will help to cover the costs associated with forest management, community development, and environmental education. Some of the grant will also help cover ITA’s administrative expenses during the first few years of the project. By year 4, the revenues catalysed by the new ecotourism attractions should allow ITA to become self-financing.

The loan will amount to US$363,24311 and will cover the costs of installing the four new ecotourism products (except for the Giant River Otter Tour, which will be established in Year 2 based upon revenues earned by ITA in Year 1).12 The loan will include a grace period during the four years of project implementation. The repayment period will begin immediately thereafter and will last for six years. The loan will be repaid in twelve equal instalments. There will be no

9 The basic costs of managing the reserve and working with the local communities is estimated to be $132,000 per year.10 The ceiling of $400,000 was agreed upon through negotiations between IFC and Inka Terra Peru. It is realistic to expect that this figure may be achieved because it assumes feasible prices (i.e., $183/two night stay) and occupancy rates (i.e., 55%). If ITP revenues reach a level that triggers the capped payment of $400,000, then ITP will have been appropriately compensated for its risk and ITA will have plenty of funds to launch additional conservation-related projects. 11 It would not be possible for GEF to provide these funds as equity because ITA is an NGO, not a for-profit company. 12 ITP will be obligated to contribute additional funds if there are cost overruns.

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additional incentives or disincentives with regard to pre-payment of the loan. It will be denominated in US dollars. Because Inka Terra’s invoices are also denominated in US dollars, there will be essentially no foreign exchange risk.

The loan will include 3.0% interest. After estimating future cash flows and conducting sensitivity analyses, it was determined that 3% is the maximum interest rate that could be stipulated without unduly compromising ITA’s ability to cover the ongoing costs of managing the reserve. ITA would not be able to afford the 18% interest that banks currently charge in Peru.

Implementation Schedule

Year 1 Year 2 Year 3 Year 4Business ExpansionExpansion of Existing Hotel Facilities XEstablishment of New Facilities X X XForest ManagementForest Characterization & Zoning XDrafting of Management Plan XBiodiversity Inventory X X X XCommunity Partnerships for Conservation & DevelopmentSustainable Agriculture Promotion X X X XReforestation Program X X X XFish Farming X X X XAnimal Breeding X X X XCommunity Development Fund X X XContingency Fund XEcotourism DevelopmentPalm Forest Observation Walk XCanopy Walk XPrimate Rescue Center XGiant Otter Observation Tour XEnvironmental TrainingForest Conservation & Sustainable Use Training Program X X X XEcotourism Training Program X XPark Ranger Training Program X XEducational Campaign on Mercury & Mining X XMonitoring and Evaluation ITA & IFC Monitoring of Envtl, Social & Financial Indicators X X X XExternal Evaluations X X X X

Sustainability Analysis

Environmental Sustainability

Inka Terra has proven over many years that it is committed to conducting its business activities in an environmentally respectable manner. IFC has concluded that Inka Terra’s existing facilities meet or surpass IFC’s environmental and social guidelines. All of the new and expanded facilities will also be constructed and operated in an environmentally sustainable manner. In fact, although Peru has not yet completed its ecotourism certification system, ITP and ITA will continue to operate in accordance with the standards of the Costa Rican ecotourism certification system.13

13 Inka Terra will continue to collaborate with the Ministry of Tourism, Peruvian Association of Adventure Tourism and Ecotourism (APTAE), and the Peruvian Association of Hotels and Restaurants (AHORA) in a joint effort to develop a Peruvian ecotourism certification system. Having formed the National Commission for Tourism Certification, these groups are seeking to implement a certification system referred to as the “Sello Verde Inka” (SVI).

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Beyond that, the environmental sustainability of this project will hinge on the extent to which the project is able to successfully mitigate the threats to the IER. If the threats remain at a manageable level then it is anticipated that the project will be able to successfully mitigate them. Yet some threats stem from – and may be exacerbated by – government policies. Public sector agencies such as the Ministry of Agriculture, Ministry of Energy and Mines, Ministry of Fisheries, and INRENA sometimes promote policies that have a negative impact on biological diversity. For instance, this is the case with road that’s being constructed along the back of the reserve. ITA will do everything possible to prevent such policies from being instituted and will do its best to avoid negative impacts on the IER if/when such policies are instituted. With strong support of local communities, it is probable that ITA will be able to ensure the long-term conservation of the 10,000 hectare reserve.

Social Sustainability

The sustainability of this project in a social sense will hinge on the extent to which local communities continue to embrace the project’s goals. So far they have indicated strong support for the project. They have expressed genuine desire to enter into a partnership with ITA in which they will become stewards of the forest in exchange for technical assistance and other forms of support that allow them to provide for their families in a conservation-compatible manner. Figure 12: President

of Micaela Bastida

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Institutional Sustainability

If ITA has sufficient ongoing funds, then it is highly likely that it will continue to focus on managing the reserve, promoting sustainable development with the local communities, and fostering environmental awareness. However, ITA will depend on ITP for its revenues; thus, in many respects the institutional sustainability of this project will hinge on ITP continuing to allocate 20% of its revenues to ITA each year (with a guaranteed minimum payment of US$132,000). IFC will be able to make sure that ITP does so during the 4 year project implementation period and the subsequent 6 year loan repayment period. However, mechanisms will need to be instituted to ensure that ITP continues to adhere to this arrangement thereafter. Fortunately, José Koechlin (owner of ITP) has proven to be an ardent supporter of conservation over several decades.

Financial Sustainability

The financial sustainability of this project will depend on ITP and general economic conditions. If ITP is able to increase occupancy rates and accommodation prices then it will be possible to cover the recurrent costs associated with each of the activities included in this proposal. This is likely to be the case for the following reasons:

The Reserva Amazónica lodge has been underpriced relative to competitors. Increasing prices should therefore be feasible, especially since the lodge has recently been renovated into a relatively upscale facility and will soon be accompanied by some new ecotourism attractions.

It is realistic to expect the new ecotourism products to give Palma Real a major marketing advantage. Tour operators have indicated that they would be more inclined to bring clients to the lodge if the new products are installed. In particular, the canopy walk is expected to be a significant new attraction. Indeed, canopy walks have proven to be profitable in other parts of the world. For instance, in 1995 a canopy walk was built in a national park in Ghana. Visitation to the park increased from 1,000 people per year to 80,000 – an eighty-fold increase. The canopy walk has generated an average annual income of US$ 780,000. Thus, it is highly likely that Inka Terra will be able to increase occupancy rates at the Reserva Amazónica lodge.

In addition to the above analysis, the financial sustainability of this project was assessed by examining four different scenarios, as described below.14

In the Most Likely Scenario15, cash flow projections have been based on an initial flow of 3,924 tourists, which accounts for a 25% occupancy rate at the Reserva Amazónica lodge. (The occupancy rate in 2001 and 2002 was 20% and 21% respectively.) This percentage is forecasted to grow to 45% by Year 4. Additionally, it is assumed that Palma Real will be able to attract tourists from other lodges who are willing to pay to visit the new ecotourism attractions. This is expected to amount to 5% of total revenues. Thus, the Most Likely Scenario is based upon very conservative assumptions. And yet sufficient revenues are nonetheless generated to cover the recurrent costs and pay back the loan. [It is reasonable to assume that the Most Likely Scenario has about 60% chance of occurring.]

The Pessimistic Scenario was based on an initial flow of only 3,500 tourists, which constitutes a mere 22% occupancy rate at the Reserva Amazónica lodge (i.e., a negligible increase). This percentage is forecasted to grow to only 34% after a few years and remain at that level. It is assumed that Palma real will not be able to attract paying customers from other lodges to visit the new ecotourism attractions. The Pessimistic Scenario is useful to see what would happen if ITP were somehow unable to increase revenues. It is not likely to occur. [It is reasonable to assume that the Pessimistic Scenario has about 15% chance of occurring.] Yet sufficient revenues are nonetheless generated to pay back the loan and to cover the recurrent costs of an ongoing forest conservation and community development program. The only items that would need to be reduced would be the following: (i) ITA would have to scale back its Community Development Fund. Instead of having US$20,000 to allocate per year, it would only have US$10,000; (ii) ITA would have to dramatically reduce its Educational Programs. The only educational activities to be carried out would be those paid for by ACEER; and (iii) ITA would have to scale back its management and administration costs.

The Worst Case Scenario assumed that occupancy rates at Reserva Amazónica would remain at the 2002 level of 3,300 visitors per year. In this case, ITA would receive the minimum payment of $132,000 per year. This would allow ITA to carry out the same set of activities as described in the Pessimistic Scenario. However, ITA would have

14 In accordance with the Inka Terra business plan, these scenarios assumed that Inka Terra’s accomodation prices – and its operating costs – will increase by 2% each year. This is appropriate given that inflation in Peru was 0.2% in 2002 and is expected to be about 2% in 2003 and 2004. 15 The “Most Likely Scenario” is expected to occur because it is based upon the most realistic assumptions, given all the due diligence and market assessment that has been carried out.

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even less funds available for administering these programs; there would be essentially no funds available for additional organizational development activities. This scenario is even less likely than the Pessimistic Scenario. [It is reasonable to assume that the Worst Case Scenario has about 5% chance of occurring.] And yet it still provides comfort that the essential components of this project will be financially sustainable.

Finally, the Optimistic Scenario was based upon significant growth in Palma Real’s occupancy rate – from 32% in 2004 to 55% in 2007. It also assumed that Palma Real will be able to get more than 3,000 guests from nearby lodges to visit the new ecotourism attractions. Although it’s not clear that Palma Real will be able to attract so many paying customers from other lodges, it is quite possible for Palma Real to achieve these increases in occupancy. If the Optimistic Scenario proves to be true, then ITA will begin receiving the maximum payment of US$400,000 starting in Year 4. In this case, ITA would be able to implement significant ongoing educational campaigns in addition to its forest management and community development programs. ITA would also be able to devote roughly US$30,000 per year towards researching and developing new “bio-businesses” – i.e., additional ways for ITA and local communities to sustainably generate economic benefits from the forest reserve. [It is reasonable to assume that the Optimistic Scenario has about 20% chance of occurring.]

Risk Assessment

Despite the sustainability factors above, the project faces risks associated with constructing the new ecotourism attractions, achieving sufficient revenues, retaining the long-term concession to the IER, and maintaining successful relations with local stakeholders. The following table lays out these risks and the corresponding mitigation strategies.

Project Risks and Corresponding Mitigation StrategiesRisk Description Level Risk Mitigation Strategies

Construction Delays in work completion Low ITA will hire & closely supervise highly qualified personnel. It will undertake realistic planning that considers climatic, operational and social factors.

Mistakes in architectural design Low ITA will hire a qualified architect, who has experience at Palma Real.

Delay in work initiation Low ITA will have strong agreements with contractors and realistic start dates.

Costs overruns Medium ITA has established detailed budgets that anticipate hidden costs. And ITP will contribute additional funds if necessary.

Non-compliance in delivery of materials Low ITA will purchase materials from experienced contractors in the area.

Market Inability to attract sufficient clients to Palma Real

Low ITP will utilize its linkages with tour operators & other marketing capacities to attract clients from Cusco

Competition with Tambopata or Manu as a tourist destination

Low ITA will focus on an upscale customer niche who could not be properly served as these other destinations.

Competition with other lodges of the area Medium There are numerous competitors in the Peurto Maldonado region. But Inka Terra will focus on the upscale niche.

Price war with the area’s competitors Low Inka Terra will avoid a price war by focusing on its own particular market niche (i.e., upscale clientele).

Political Instability in Puerto Maldonado and/or nationally in Peru

Low Political risk at the national level is outside of Inka Terra’s control. However, Inka Terra has contingency plans and routes to ensure that guests may be transported in & out if there is political unrest in Puerto Maldonado (which is unlikely).

Staffing and Technical capacity

Adequate staff available Medium Proactive training and recruitment

Operations Power supply loss Low Inka Terra has a good generator so this risk is low. But if power goes out, it has packaged goods in stock that do not require refrigeration.

Water supply loss Low ITA has a filtration system for river water Staff/customer accidents Low Inka Terra will have appropriate insurance policies.

Safety procedures and equipment will be

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installed/implemented.Poor solid, liquid, air waste handling Low Adequate systems have been installed and will be

properly maintained.Governmental Change in regulations regarding the

permissibility of private conservation concessions

Low A supportive law called the Wildlife and Forestry Act (Law Nº 27308) has already been passed by the Peruvian Congress. It explicitly allows INRENA to award conservation concessions to private groups.

INRENA does not renew the concession for the reserve

Low INRENA has indicated that ITA may be in charge of managing the reserve.

Social Community development activities lead to inmigration

Low ITA will work with the local communities so that they understand that it is not in their interest to allow additional inmigration because the available financial resources would get divided among a larger group of people; thus, each family would receive fewer benefits if inmigration occurs.

Relationships with local communities deteriorate

Low ITA has established a community development plan that provides real benefits that are desired by the local communities. The local communities will also be closely involved in many aspects of project implementation; it will be highly participatory.

Stakeholder Participation

During the preparation of the project, special care was taken to involve local stakeholders. Extensive consultations were conducted with the communities near the reserve (e.g., Madama, Juan Velazco, Juan Pablo, Micaela Bastidas and Rolín). These consultations were conducted by ITA consultants and staffmembers who possess considerable sociological and anthropological expertise. These consultations culminated in a sophisticated socio-economic assessment of the communities.

The local communities consist of approximately 580 families in total. These families are primarily immigrants from the districts of Abancay, Ayacucho, Cusco, Junin, and Puno. The fact that they are immigrants has meant that they do not possess much knowledge of agricultural practices that could be conducted in equilibrium with the forest. Most of the community members plant crops such as corn, soybean, and yucca; however, they vehemently complain about the low market prices. In addition, they have indicated that they do not have access to credit and receive very little attention or support

from government agencies. It is also clear that the organizational structure of each community is very weak. Although there is a primary school in some of the communities, attendance is quite low. In light of these circumstances, the community members repeatedly voiced strong support for entering into a long-term partnership with ITA in which they will assist in protecting the forest in exchange for technical assistance and the other benefits inherent in this proposal.

Discussions were also held with regional institutions, including the Regional Government of Madre de Dios, Regional Directorate of Agriculture of Madre de Dios, Regional Directorate of Education, and the Federation of Indigenous Peoples of the Madre de Dios River (FENAMAD). Beyond that, national agencies, such as INRENA, as well as the local staff of international organizations, such as Conservation International (CI), were consulted in the development of this proposal. During implementation, the local communities will be directly involved in many aspects of the project. Indeed, the project’s strategy for conserving the forest rests upon the formation and maintenance of successful partnerships with the local communities.

Incremental Cost Assessment

Most ecotourism operators in Peru have inadequate skills to develop or to implement forest conservation management plans and thus wider conservation benefits from private sector eco-tourism are constrained. A smaller number of companies (including Inka Terra) have demonstrated commitment and some capacity to manage forest assets. In the case of Inka Terra, the company has been actively supporting cataloguing and inventory work on biodiversity for a period

Figure 13: Consultation with Madama Community

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of at least 20 years. The company has also undertaken environmental education work with tourist clients as part of the eco-tourism experience.

Since the Reserva Amazónica lodge (originally known as Cuzco Amazonico) was established 27 years ago, the company has provided approximately US$625,000 (historical value) in in-kind support (room and board) for visiting researchers. This amounts to an average contribution of about US$23,000 per year (as indicated by accounting records of the company). In the Baseline Scenario, Inka Terra would continue to support the IER as it has done in the past. But without the four new ecotourism attractions, Palma Real’s occupancy rates – and thus its revenues – would not be as high. As a result, there would be less funds available to support forest conservation and community development via the Inka Terra Association.

Without GEF support, Inka Terra would continue to support researchers who are interested in studying the forest, but it would be unable to produce a full inventory of the endemic species found in the reserve. Nor would it be able to rehabilitate primates and return them to the wild. Likewise, Inka Terra would continue to reach out to the local communities but it would have limited resources to offer them. It would not be able to provide agronomic assistance, reforestation programs, or animal breeding programs. Nor would the local communities receive much support from other nongovernmental or governmental institutions. For the most part, they would have to continue to fend for themselves.

Finally, in the Baseline Scenario, Inka Terra would continue to have ITA as a parallel not-for-profit organization but it would be unable to significantly strengthen ITA’s organizational capacities. ITA’s staff would need to continue to work with the ecotourism operations unless they were obtain to obtain grant funding from some other source besides GEF. ITA would not be able to obtain a loan to develop the ecotourism attractions because it does not have sufficient creditworthiness for local banks. In sum, ITA would not become a self-financing conservation organization in the Baseline Scenario.

The opportunity exists for GEF finance to create a significantly greater return in terms of forest conservation and management by covering the incremental costs of developing an integrated biodiversity management system (FCMP) and supporting institutional framework (ITA) in order to maximize the biodiversity benefits of the reserve. The GEF Alternative would allow ITA to be developed as a highly capable parallel NGO dedicated to preserving the forest, promoting conservation-compatible livelihoods in the surrounding communities, and fostering environmental knowledge, appreciation and skills among many different local stakeholders. It would also allow ITA – and thereby the IER – to become self-financing by allowing the installation of four new ecotourism attractions that would catalyse significant ongoing revenues. Beyond that, the GEF Alternative would enable ITA to carry out the other activities contained in this proposal – forest management planning, primate rehabilitation and reintroduction, animal breeding, fish farming, sustainable farming, and various forms of environmental training and awareness-raising. All of these items offer global benefits and entail incremental costs that the GEF is asked to cover.

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Budget

This budget corresponds to the “Most Likely Scenario” described on page 18. It is based on very conservative assumptions. It would not be unrealistic for this project to catalyse even more funding if the new ecotourism attractions prove to be as successful as Inka Terra anticipates. If so, ITA will be able to devote resources towards investigating and developing additional sustainable uses of biodiversity (“biobusinesses”) in conjunction with ITP and the local communities.

IFC GEF Inka Terra ACEER MOBOT José Koechlin ITA TOTAL

Project Preparation - 25,000 - - - 65,518 - 90,518

Inka Terra Expansion & Refinancing 5,000,000 - 5,000,000 - - - - 10,000,000

Forest Management & Conservation - 166,307 40,465 - 90,000 - 254,782 551,554

Community Partnerships for Cons. & Devt - 33,312 - - - - 93,464 126,776

Environmental Training Programs - 21,510 - 187,000 - - 310,050 518,560

New Ecotourism Attractions - 363,243* - - - - 37,015 400,258

ITA Staff - 140,628 - - - - 203,290 343,918

Travel Expenses - - 25,200 - - - 8,400 33,600

Miscellaneous Administrative Costs - - 37,800 - - - 12,600 50,400

TOTAL (US$) 5,000,000 750,000 5,103,465 187,000 90,000 65,518 919,601 12,115,584 Percentage of Total 41.3% 6.2% 42.1% 1.5% 0.7% 0.5% 7.6% 100.0%

*This will be provided as a loan. ITA’s payback of the loan has not been counted as co-financing.

ITP has paid for much of the ITA staff costs to date. In the future, ITP will continue to pay for the conservation work that ITA will carry out at Machu Picchu, Cusco, and Lake Titicaca. Yet because this GEF proposal focuses on the IER reserve near Puerto Maldonado, these planned expenditures are not shown. Likewise, ITP will continue to pay for much of ITA’s staff costs at the IER reserve. ITP will transfer these funds to ITA in accordance with the legal agreement to be established as part of this project. Since these expenditures will essentially constitute ITA’s own sales revenues (from use of the Canopy Walk and other attractions), the budget credits these expenditures to ITA (instead of ITP).

Importantly, GEF is only being asked to cover the incremental costs associated with part of the additional work (including new staff) that ITA will carry out as part of this project. In fact, GEF will not need to cover the full incremental costs because this project will catalyse its own long-term revenues. This is one of the innovative aspects of this proposal: a conservation NGO will generate its own revenues rather than rely upon continuous grants.

Monitoring & Evaluation

The project sponsors and IFC have established a rigorous monitoring and evaluation plan, which will be further refined during the first stage of project implementation. A basic summary is provided below.

Monitoring

A comprehensive set of indicators has been established to measure the project’s effectiveness in implementing each set of activities and achieving each expected outcome. A summary of these indicators can be found in the log frame at the front of this document. ITA will be responsible for monitoring these indicators and reporting progress in their quarterly reports to IFC. Participating community members will also help to monitor certain indicators, such as the occurrence of illegal logging. Both ITA and the participating community members will make sure that rigorous baseline data is obtained at the start of project implementation.

Evaluation

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Although monitoring will be done by ITA, formal evaluations will be done by a third party in Peru. The formal evaluations will be done at Year 1, Year 2.5, and Year 4. The evaluation at Year 1 will emphasize process and will be designed to give feedback to the implementation team; it will also be a dry run of the impact evaluation. The evaluation at Year 2.5 will emphasize impacts, and will also draw lessons on the most effective processes. Finally, the evaluation at Year 4 will examine the extent to which the project has achieved its overall goals.

Although the M&E plan has been designed to answer many specific questions about the project, in the broadest sense it will seek to determine: (i) the impact of the project in mitigating threats to the forest; (ii) the ability of the project to generate sustainable long-term finance for conservation and community development; (iii) the ability of the project to establish a replicable model for harnessing private sector resources and know-how to help make protected areas self-financing.

The project has crafted a cost-effective approach for achieving its M&E plan. It will control costs by allowing the implementation team to gather the monitoring data (as opposed to relying on an outside contractor). And it will contract Peruvian consultant(s) to conduct the external evaluations in an affordable manner (in conjunction with full participation from IFC).

Replication

This project contains numerous aspects that have considerable potential to be replicated in Peru and elsewhere:16

First of all, there is considerable potential for other ecotourism organizations to obtain long-term forest concessions in Peru. Inka Terra is a pioneer in this regard and is committed to sharing its experience and expertise with other organizations.

Second, it is highly innovative for an ecotourism company to establish a parallel NGO. This allows the company to operate successfully as a business, and the NGO to operate effectively as a not-for-profit organization. This approach can help to maximize the benefits for biodiversity conservation. There is significant potential for other ecotourism companies in Peru and elsewhere to establish strategic partnerships with conservation-oriented NGOs (if not form their own parallel not-for-profit organizations). ITP and ITA are committed to documenting and sharing their experience with other companies and NGOs in order to foster similar partnerships.

Third, there is major potential for environmental NGOs in Peru and elsewhere to develop revenue generating activities so they will be less dependent on grants. ITA arose from the for-profit private sector; as a result, it’s staff has knowledge and appreciation for the need to generate sales revenues from environmentally-friendly economic activities. ITA will therefore assist other NGOs to develop business plans and initiate revenue-generating activities.

Finally, there is significant potential for entrepreneurs in Peru and elsewhere to initiate businesses based upon the sustainable use of biodiversity. ITP and ITA staff members will give presentations at business schools and other locations in order to encourage people to become interested and active in launching additional “biobusinesses.”

16 This project is also innovative and replicable because it allows the GEF to utilize non-grant financing.

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ITA Cash Flow Projections

The following cash flow projections are based on the “Most Likely Scenario” described on page 18. They are based on conservative assumptions about future occupancy rates and other parameters.17 It would be possible for the Reserva Amazónica lodge to generate even more funding for ITA. If so, ITA would be able to implement significant ongoing educational campaigns and devote funding towards researching and developing new “bio-businesses” – i.e., additional ways for ITA and local communities to sustainably generate economic benefits from the forest reserve.

17 An NPV analysis was not conducted because it would require selection of a particular discount rate, which was not appropriate in this case since there is no specific required rate of return. An IRR analysis was conducted instead because it gives a more useful picture of the robustness of the expected cash flows.

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Annex 1: ITA’s Organizational Structure

As incorporated under Peruvian law, the formal organizational structure of ITA is as follows:

As the highest-level body within ITA’s organizational structure, the General Assembly consists of individuals and organizations who have signed ITA’s Articles of Incorporation. It is responsible for electing ITA’s Board of Directors and determining the broad set of policies that will guide the organization’s programs and activities.

The Board of Directors is in charge of approving the specific programs and activities to be carried out by ITA. It is made up of ITA’s President (José Koechlin), Vice President (Denise Guislain Mc Kee), Treasurer (Máximo Collao Castro) and General Manager (José Purisaca). It will receive assistance from an Advisory Committee and a Technical Committee.

Figure 14: ITA Organizational Chart

The Advisory Committee will provide advice to the Board of Directors regarding the formulation of policies, strategies and programs. It will be made up of representatives of donor institutions, local and international conservation NGOs, scientific research institutions, and other organizations with expertise in biodiversity conservation. These organizations may include INRENA, CONAM, ACEER, Moore Foundation, Conservation International, Missouri Botanical Garden, National Geographic Society, UNDP, San Marcos Natural History Museum, and the University of Cusco. GEF is welcome to nominate a representative for the Advisory Committee.

The Technical Committee will consist of individuals who are specifically knowledgeable about environmental and social issues in the Peruvian Amazon and the various efforts underway to address them. It will help to ensure that ITA’s activities in southeastern Peru are well coordinated with other conservation-related efforts.

The President (José Koechlin) will liase with the General Assembly and handle other high-level strategic work.

The General Manager (José Purisaca) will be responsible for the following: (i) implementing the decisions of the Board of Directors and the recommendations of the Advisory and Technical Committees; (ii) overseeing the technical aspects of the project and supervising the individuals involved in implementing each project component; (iii) elaborating new strategies for supporting local communities; (iv) developing technical proposals for new bio-business opportunities (v) establishing strategic alliances with other organizations; (vi) disseminating information and lessons learned. The General Manager will receive support from an Administrative Assistant and Accounting Assistant.

Board of Directors

General Manager

Forest Conservation & Management

Ecotourism Development

Education & Training

Community Partnerships

Technical CommitteeAdvisory Committee

General Assembly

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