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ANNEXES GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 98 OF 101 I Annex XI: Project sustainability: an innovative response by PROFONANPE A recurring question emerges from almost all projects funded mainly by international sources, no matter if they deal with conservation, sustainable development, climate change or infrastructure: how sustainable are post-project activities? In fact, there is little empirical evidence based on appropriate indicators that objectively demonstrates the degree of sustainability after a project has come to the end of its life span. Partly because: (a) there are very few ex-post evaluations five years after the closing periods;(bi) in certain cases there are insufficient provisions to ensure the future sustainability of actions; (c) the design of certain works are poorly adjusted to the real needs of beneficiaries; (d) very few financial resources are allocated by governments and/or donors for such assessments; and (e) the continuous changes in government staff tend to erode the memory of commitments given. Some of these causes by themselves, or a combination of them, may, in fact, explain the recurring question. PROFONANPE has almost 23 years of experience in funding projects from bilateral, multilateral, corporate and international foundation sources; and two decades facing the same question. However, its institutional design has enabled it to implement a unique arrangement, not yet practised in most developing countries: the allocation of trust funds. These can be of two types: sinking funds and endowment funds. The first is fully disbursed during the project life span and the second is a capital invested in the stock market the annual returns on which are used for project funding. The resulting capital is granted to PROFONANPE in perpetuity. Thanks to the trust fund mechanism, PROFONANPE has managed to apply a useful answer to the uncertainty of sustainability, particularly in the case of beneficiaries for whom the average duration of a project (five years) is still insufficient within which to consolidate operations achieved during that period. To date, PROFONANPE has a total of USD 50 million in endowments, the purpose of which is to facilitate the sustainability of project achievements in the long run. A formula derived from this mechanism is the generation of an endowment from the annual income gained by a sinking fund during its lifetime. In spite of the fact that a sinking fund has a determined period, by means of the proper management of investments it is possible to obtain capital in perpetuity at the end of the project. PROFONANPE has called this modality "mixed trust fund" and it is the first institution of its kind that has applied it in Latin America. The purpose of such a mechanism is not to replace the potential sustainability of certain investments or to simply subsidize sustainability. Applying a reasonable investment strategy, the idea is to technical assist some initiatives during a certain period in order to achieve full sustainability, especially those with little prior experience or facing long periods of maturity. Examples of PROFONANPE achievements in the past five years are shown in the following table: Endowment funds set up by PROFONANPE 2010-2015 Source Project Implementation period Project amount (USD millon) Endowment amount (USD millon) Estimated endowment amount (USD millon) GEF/WB/KfW PRONANP 2010-2015 23.7 12.6 – Debt swap SINANPE III 2013-2018 10.0 – 4.0 a
ANNEXES GREEN CLIMATE FUND FUNDING PROPOSAL | PAGE 99 OF 101 I (Germany) GEF/WB Guaneras 2014-2019 9.0 2.0 – IFAD Payment for ecosystem services 2015-2020 5.0 2.0 – a Expected amount to be obtained at the end of 2018 after cumulative returns of the sinking fund. In the specific case of the project Building the resilience of wetlands in Datem del Marañón - Peru (Wetlands project), there is an endowment of USD 5.5 million, resulting from a mixed trust fund obtained from a project whose original value (now extinct) was USD 9.2 million. The annual returns of this capital are to be allocated in perpetuity and exclusively to the Province of Datem del Marañón. Besides serving as co-financier for the implementation of the wetlands project, after its completion it will serve to strengthen and facilitate the sustainability of the activities financed during the project’s life span. An average of USD 350,000–400,000 will be allocated annually. 15 The core of future funding will be aimed at strengthening those bio-businesses that still require broader terms for consolidation. In particular and as appropriate, it will finance technical assistance in areas such as technology transfer, identifying new markets, marketing, maintenance of equipment, development of training workshops, internships, etc. To fulfill this purpose, an allocation of USD 250,000–300,000 annually is estimated. Likewise and in order to ensure the follow up of post-project activities, the project endowment will provide financial resources to perform the tasks of monitoring and reporting for at least five years after project completion. In this case, an annual budget of around USD 40,000 is estimated. 15 These amounts are referenced to the historical average annual return of around 7 per cent.
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Page 106: GCF/B.11/04/Add.01 No-objection let
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