Insights from the Kalagala biodiversity offset associated with the Bujagali power project in Uganda MAY 2020 EMERGING LESSONS SERIES NO. 5 PREVIOUS REPORTS IN THE EMERGING LESSONS SERIES No. 1: Involuntary Resettlement—April 2016 No. 2: Indigenous Peoples—October 2016 No. 3: Environmental Assessment—April 2017 No. 4: Consultation, Participation & Disclosure of Information—October 2017 All reports can be found on the publications page of the Inspection Panel website. Insights from the Kalagala biodiversity offset associated with the Bujagali power project in Uganda MAY 2020 EMERGING LESSONS SERIES NO. 5 INT ROD U CT I ON This report on biodiversity offsets is the fifth in a series published by the both positive and negative effects on the livelihoods of project-affected World Bank’s Inspection Panel drawing on the main lessons that have persons, with the Panel finding that active engagement and the consid- emerged from its caseload over 26 years. The Inspection Panel was cre- eration of the wider implications of the offset are key factors in ensuring ated in 1993 by the World Bank’s Board of Executive Directors to receive a successful livelihood restoration plan. The most recent Panel investiga- and investigate complaints submitted by people actually or potentially tion also underlined the need to apply a strong precautionary approach, suffering harm allegedly caused by Bank projects. With these reports, using biodiversity offsets as a last form of mitigation. the Panel aims to contribute to institutional learning at the World Bank Looking to the future, the Bank’s new Environmental and Social and in the larger development community by highlighting areas where Framework, and more specifically Environmental and Social Standard improvements can enhance the social, environmental and overall sus- 6, which focuses on Biodiversity Conservation and Sustainable tainability of Bank-funded operations, further development effective- Management of Living Natural Resources, will more clearly define the ness and enhance transparency. requirements for offsets related to Bank-funded projects. In addition, Although the design and implementation of biodiversity offsets is a there are several guidance documents, including those published by the relatively new concept, almost 13, 000 biodiversity offset projects in Bank, the International Finance Corporation and International Union for 37 countries have already been completed or are in the process of being Conservation of Nature, that provide good reference material in relation implemented by governments or the private sector. There will undoubt- to designing and implementing a successful biodiversity offset. The edly be other lessons to learn as the number and age of offsets increase, lessons identified in this publication are the culmination of three Panel but the design of the Kalagala Offset Area and the Extended Kalagala investigations and are shared to augment the guidance provided in these Offset Area, which are associated with the Bujagali power project in other documents, particularly when an extension or adjustment to an Uganda, provide a unique insight into the pitfalls of attempting to offset is being considered. extend an existing offset area. The Inspection Panel investigations of the The intended audience for this publication are those with an interest in Kalagala Offset Area and the extended offset illustrate the importance development projects and biodiversity conservation, including staff and of the design, implementation and monitoring of biodiversity offsets and consultants for the World Bank Group and other development organiza- the need for the responsible entity to ensure the allocation of appro- tions, government agencies, conservation non-governmental organiza- priate resources for at least as long as the operating life of the original tions and interested civil social organizations. project and ideally longer. The creation of a biodiversity offset can have DEFINING TERMS This publication refers to the Kalagala Falls Site (KFS), the Kalagala Offset Area (KOA), the Extended Kalagala Falls Site (EKFS) and the Extended Kalagala Offset Area (EKOA). A brief explanation of how they relate to one another follows. The protection of the KFS is the main reason for the creation of the Kalagala offset. During the design phase of the offset it was decided to include the Mabira Central Forest Reserve (CFR) as well, and collectively the area became known as the KOA—Map 1 on page 9. The filling of the Isimba Dam's reservoir had an impact on parts of the KFS. Therefore, the KFS was extended to form the EKFS to maintain the offset area set aside for the Bujagali Dam. The Mabira CFR remains part of the management area of the offset, which is now known as EKOA—Map 2 on page 11. H I STO RY O F TH E I N SPEC TI O N UGANDA PAN EL’S I NVE STI G ATI O N S I NTO TH E K AL AGAL A OFFSE T IN UGAN DA The Inspection Panel’s involvement in the Kalagala Offset Area dates construction the Isimba Dam (the reservoir of the Isimba hydropower back to 2002 and 2008 with its first two investigations responding to project) on the Victoria Nile River in Uganda and the consequent concerns about the Bujagali hydropower project and its associated res- flooding of part of the KOA. While the World Bank was not financing ervoir—known as the Bujagali Dam. Establishing and maintaining the the Isimba hydropower project, the complainants alleged that the KOA was a requirement for World Bank support for the construction flooding caused by the filling of its reservoir would undermine of the Bujagali Dam under the Bank’s Natural Habitats Policy since the the management of protected natural resources in the KOA and dam’s reservoir inundated the Bujagali Falls, river islands and pristine adversely affect livelihoods. As a result of the impact on the KOA, natural habitat. In 2002, the Panel found that there was no obligation the Third Amended Indemnity Agreement created an Extended KOA within the December 2001 Indemnity Agreement (IA) between the and denoted the protection and maintenance of the EKOA and the Government of Uganda and the Bank to preserve the KOA in perpetu- mitigation of potential adverse impacts through a management plan ity as an environmental offset. Following the Panel investigation, the and a livelihood restoration plan. Ugandan legislation was also enacted government reasserted its commitment to the KOA. The IA was revised to declare the Extended Kalagala Falls Site a Special Conservation to include a commitment not to develop power generation that could Area under the National Environment Authority. The Panel’s 2019 adversely affect the ability to maintain the protection of the Kalagala investigation, based on the 2016 complaints, concluded that the Bank Falls Site central to the KOA without the prior agreement of the Bank. did not ensure that adequate management, institutional capacity and funding arrangements were in place for effective implementation The project was canceled in 2003 but re-emerged four years later, of the management plan for the KOA and the continued protection prompting a second Request for Inspection that raised concerns similar of the offset area. Further, the Panel found that the creation of the to those in the first complaint. In the 2008 case, the Panel’s investiga- EKOA as a mitigation measure for the flooding of the KOA can create tion found that the KOA was not subject to appropriate conservation new harm—particularly for livelihoods—and found that, despite the and mitigation measures and the capacity to plan and manage the KOA challenges faced by the original offset area, the Bank did not assess had not been developed. The Panel therefore noted that the KOA might the institutional capacity and funding arrangements to implement the not accomplish the purpose for which it had been set aside. In response appropriate conservation measures for the extended offset. to the Panel’s investigation, the Government of Uganda under- took to conserve the KOA through the Kalagala Offset Sustainable The Panel concluded that offsets can be an important mechanism for Management Plan (KOSMP) as reflected in a July 2007 Indemnity achieving biodiversity conservation but need to be well designed and Agreement. Bank Management committed to monitor the implemen- adequately managed and funded to be able to achieve their objectives. tation of the KOSMP and submitted Progress Reports to the Board of The Panel also stated that mitigating the partial loss of one offset by Executive Directors until 2018. creating another erodes the underlying principles of offsetting, while it notes Bank Management’s view that the EKOA might be regarded as a In the summer of 2016, the Panel received two new complaints boundary adjustment to the original KOA, rather than as a new offset. concerning potential social and environmental harm caused by the Inspection Panel KOA Investigations: A Timeline of Findings and Outcomes Indemnity IPN CASE 2002 Agreement 2007— FINDING: No obligation Bujagali II to preserve the KOA project Indemnity Agreement 2001 in perpetuity as an commences Bujagali I project commences environmental offset construction 2001 2002 2003 2007 First attempt to set aside KOA OUTCOME: Government of Bujagali I project canceled KOA established 6 Uganda commitment to not develop power generation that could adversely affect the ability to maintain the protection of the offset without the prior agreement of the World Bank FINDING: KOA lacked adequate management, institutional capacity and funding arrangements for KOSMP implementation; Third “Offsetting the offset” Amended through the creation of Indemnity EKOA as a mitigation Isimba Dam Agreement measure for the flooding IPN CASE 2008 IPN CASE 2019 FINDING: KOA lacked (the reservoir 2018— of the KOA can create appropriate conservation of the Isimba Creation new harm—particularly and mitigation measures, hydropower of EKFS, for livelihoods; challenges and there were weaknesses project) including faced by the original in management and construction management offset still present in financing arrangements commences plan for EKOA extended offset 2008 2012 2015 2018 2019 OUTCOME: Conserve the Bujagali II OUTCOME: Protection KOA through the KOSMP project completed and maintenance of the 7 and budget mutually agreed EKOA, and mitigation of by the Government of Uganda potential adverse impacts, and the Bank through a management plan; preparation of a Livelihood Restoration Plan, designation of EKFS as a Special Conservation Area under the National Environment Authority Isimba Dam completed ORIGINAL KALAGALA OFFSET AREA The Kalagala Falls Site within the KOA was selected to be biologically diverse and ecologically equivalent to the reach of the fast-flowing river, islands and adjacent riverbanks that were inundated by the Bujagali Dam. It extended downstream of the Kalagala Falls and encompassed about 10 kilometers of free-flowing Nile River, along with seven rapids, seven groups of islands and 100 meters of riverbank on both sides of the Nile. This site, comprising the Kalagala Central Forest 8 Reserve and the Nile Bank Central Forest Reserve on the banks of Kalagala Falls, together with the Mabira Central Forest Reserve, was identified in the 2007 Indemnity Agreement between the Bank and the Government of Uganda as the KOA. 33°00'E 33°10'E 33°20'E UGANDA ORIGINAL KALAGALA OFFSET Matuumu AREA (KOA) – 2007 Ntenjeru Mawoito ORIGINAL KALAGALA OFFSET AREA: - KALAGALA FALLS SITE (KFS) INCLUDES: Nvunwa Kalugu NILE BANK CENTRAL FOREST RESERVE (CFR), Buwuma KALAGALA FALLS CENTRAL FOREST RESERVE (CFR) & KALAGALA ITANDA FALLS Nile Budima Kiwagama Vict - MABIRA CENTRAL FOREST RESERVE (CFR) Bank Nakasegete oria N CFR Kisozi OTHER FOREST RESERVES Lubanyi ile Buwala For detail see inset at right. Ngereka Kitengesa Mabira Kiranga 0°40'N CFR N 0°40'N Kalagala– Bubugo Kamira Itanda Falls Kangulumira Lubani Nawampanda CFR Kalagala Namage Bukongo Falls CFR Namavundu CFR Kalagala Falls Site Bukeka Seeta 9 Kabowa Nyize Buyala 0 1 2 Miles Musita 0 1 2 Kilometers Bujagali Dam Wall Bujagali Dam Wall © OpenStreetMap contributors M AY U G E 0°30'N Inundated Bujagali Falls RAILROADS Vic Mabira Central tor MAIN ROADS ia ile Forest Reserve N HIGHWAYS Njeru Jinja IBRD 44242 | APRIL 2019 This map was produced by the Lake Cartography Unit of the World Bank Group. The boundaries, Victoria colors, denominations and any other information shown on this 0 3 6 Miles map do not imply, on the part of Kayanja the World Bank Group, any judgment on the legal status of any Lugazi 33°00'E 33°10'E 0 territory, or any endorsement or © OpenStreetMap contributors 3 6 Kilometers acceptance of such boundaries. EXTENDED KALAGALA OFFSET AREA The EKOA will include the extension of the KFS—a stretch of the Nile River that would be approximately 15 kilometers long and would begin upstream 2.5 kilometers below the Bujagali Dam and terminate downstream at the end of the reservoir of the Isimba Dam. It would include: the whole Nile River aquatic area within these limits; all river islands within these limits; all land within 100 meters of the left and right river banks from the annual maximum high-water line; and the entire area of the Namavundu, 10 Kalagala Falls and Nile Bank Central Forest Reserves except the portions inundated by the Isimba Dam reservoir. The Mabira Central Forest Reserve would also fall within the EKOA. 33°00'E 33°10'E 33°20'E UGANDA EXTENDED KALAGALA OFFSET AREA Matuumu (EKOA) – 2018 Isimba Dam Wall Ntenjeru Mawoito VICTORIA NILE RIVER: ISIMBA RESERVOIR Kalugu Nvunwa EXTENDED KALAGALA OFFSET AREA: Buwuma - EXTENDED KALAGALA FALLS Nile Budima Kiwagama Vict SITE (EKFS) INCLUDES: Bank Nakasegete KALAGALA FALLS CENTRAL FOREST oria N RESERVE (CFR), NILE BANK CENTRAL FOREST CFR Kisozi RESERVE (CFR) (excluding Isimba inundated Lubanyi ile areas) & NAMAVUNDU CENTRAL FOREST Buwala RESERVE (CFR) For detail see - MABIRA CENTRAL FOREST RESERVE (CFR) inset at right. Ngereka Kitengesa Mabira Kiranga OTHER FOREST RESERVES 0°40'N CFR 0°40'N N Kalagala- Bubugo Kamira Itanda Falls Kangulumira Lubani Nawampanda CFR Kalagala Namage Bukongo Falls CFR Extended Kalagala Falls Site (EKFS) Seeta Bukeka Namavundu CFR 11 Kabowa Nyize Buyala 0 1 2 Miles Musita 0 1 2 Kilometers Bujagali Dam Wall Bujagali Dam Wall © OpenStreetMap contributors M AY U G E 0°30'N Vi ct RAILROADS or ia Mabira Central Ni MAIN ROADS le Forest Reserve HIGHWAYS Njeru Jinja IBRD 44243 | APRIL 2019 This map was produced by the Lake Cartography Unit of the World Bank Group. The boundaries, Victoria colors, denominations and any other information shown on this 0 3 6 Miles map do not imply, on the part of Kayanja the World Bank Group, any judgment on the legal status of any Lugazi 33°00'E 33°10'E 0 territory, or any endorsement or © OpenStreetMap contributors 3 6 Kilometers acceptance of such boundaries. 12 INTRODUC TION TO B IODIVER SIT Y OFFSE TS Biodiversity denotes the range of life on Earth and the variability within species, between Biodiversity offsets fit into the last step in this hierarchy as a type of compensation. Such 2 species, and of ecosystems. Development pressures such as resource extraction, agricultural offsets are widely defined as “measurable conservation outcomes resulting from actions practices and human encroachment pose an escalating threat to biodiversity. designed to compensate for significant residual adverse biodiversity impacts arising from project development and persisting after appropriate avoidance, minimization and resto- Significant adverse impacts of a development project can be mitigated either by avoiding ration measures have been taken.” They should be designed and implemented to achieve or preventing them in the first place (e.g., by altering its siting, scale, layout, scheduling or measurable conservation outcomes that can reasonably be expected to result in no net loss design), by minimizing them, and/or remedying the impacts that remain by restoring dam- (the point at which project-related biodiversity losses are balanced by gains) and preferably a aged areas and through compensation or offsets. Together this sequence of steps makes up 1 net gain of biodiversity. the so-called “mitigation hierarchy” as illustrated below : THE MITAGATION HIERARCHY +ve Net Positive Impact 13 Net Impact Offset No Net Loss Biodiversity Residual Residual Impact Impact Impact Restore Restore Minimise Minimise Avoid Avoid Avoid Avoid -ve TH E C A SE FOR B I O D IVER SIT Y O FFSE TS Increasingly governments and the private sector are turning to biodiversity offsets as a way to compensate for the residual, unavoidable impacts on biodiversity caused by development and commercial projects. These offsets are implemented as a last resort form of mitigation to balance the project’s biodiversity losses with new and lasting biodiversity gains. The aim of an offset is to ensure at least a no net loss and, preferably, a net gain of biodiversity. Importantly, some negative impacts are too severe to be compensated by an offset, since they would result in irreversible impacts or loss of irreplaceable biodiversity. Although the words “compensation” and “offset” are often used interchangeably, a biodiver- sity offset is a subset of compensation. An offset is aimed specifically at achieving no net loss or a net gain of biodiversity; a measure of the project’s residual impact is used to determine the amount, nature and scale of gain required to offset that impact. Using a clearly defined frame of reference, gains in biodiversity can be achieved by avoiding imminent loss and pro- tection, restoration and/or improved management, or by reducing the drivers of biodiversity 14 loss (e.g., illegal hunting or unsustainable harvesting). Efforts that are not intended to achieve no net loss or net gain outcomes and do not involve quantitative biodiversity accounting are best referred to as “compensation” or “reduced net loss” measures, not as an “offset.” The adoption of no net loss policies and use of offsets is growing rapidly. According to recent 3 research , almost 13, 000 biodiversity offset projects in 37 countries have been completed or are in the process of implementation, and adoption of the no net loss principle is estimated to be part of public policy in (depending on sources) 69 to 108 countries worldwide. OFFSETS AROUND THE WORLD (2018) Country Number Country Number Country Number Australia 395 Kyrgyzstan 1 Peru 2 Brazil 2,514 Laos 1 Qatar 1 Cameroon 4 Macedonia 3 Russia 1 Canada 473 Madagascar 9 Sierra Leone 2 Colombia 4 Malaysia 1 South Africa 32 Costa Rica 2 Mexico 5,970 Spain 200 France 975 Mongolia 1 Sweden 44 Georgia 1 Netherlands 116 Uganda 1 Germany 478 New Zealand 4 UK 11 Ghana 1 Panama 1 USA 1,729 Guinea 1 Papua New Guinea 1 Uzbekistan 1 Kazakhstan 1 Paraguay 2 Venezuela 1 15 16 WH EN SH O U LD B I O D IVER SIT Y O FFSE TS B E USED? Owing to social, political, institutional, economic and/or ecological constraints, there are • Regarding the selection of the extended offset area, the Panel found limited evi- limits to what can be feasibly offset. Offsets are not an adequate mitigation tool for projects dence that systematic measures of residual impact and expected and additional with predicted loss of unique, irreplaceable or highly threatened biodiversity, or if there is a gains from the EKFS were employed. The Panel noted that without a robust scien- low likelihood of success of the offset. The Panel’s experience with the KOA has revealed the tific basis and comprehensive analysis of alternatives and tradeoffs demonstrating complex factors that need to be taken into consideration when deciding whether to use a that overall project benefits substantially outweigh environmental costs, there had biodiversity offset in a particular context. Three factors stand out: not been adherence to the mitigation hierarchy. I. HAS THERE BEEN ADHERENCE TO THE II. CAN THE IMPACT BE FULLY COMPENSATED OR WILL IT LEAD TO MITIGATION HIERARCHY? IRREVERSIBLE OR IRREPLACEABLE LOSS OF BIODIVERSITY? • In its 2002 Investigation Report the Panel, in line with legal advice from the • Limited biodiversity surveys and measurements in and around the KOA and EKOA Bank’s General Counsel, noted that there was no obligation in the 2001 Indemnity on the EKOA’s benefit to biodiversity included two National Fisheries Resources Agreement to preserve the Kalagala Falls Site in perpetuity as an environmental Research Institute-led fish biodiversity surveys, ESIA studies of the Bujagali and offset. The appropriate use of an offset as a mitigation measure of “last resort” for Isimba projects, and measurements of the aquatic and terrestrial surface area the impact of the Bujagali project was analyzed in the 2008 Panel Investigation and the length of river within the protected offset area. Nonetheless, the Isimba Report, which found that the consideration of alternative project configurations ESIA addendum found that the Isimba Dam will have several large, negative and was unduly narrow and failed to explore all technically feasible options, including irreversible impacts on biodiversity values and there will be a net loss of rapids and those that would not involve flooding the Bujagali Falls, with a full understanding of falls in the EKFS compared with the KOA. tradeoffs. As with the use of an offset for the Bujagali project, a key issue in the 2019 17 Panel investigation was whether the extension of the KOA was considered as a “last III. IS THERE SUFFICIENT ASSURANCE OF EFFECTIVE resort” form of mitigation, and if alternative project designs could have avoided or PROTECTION AND IMPROVED MANAGEMENT IN THE prevented the impact. Although the Bank was not involved in the Isimba project, the LONG TERM? KOA was an integral part of the long-standing Indemnity Agreement between the • The Panel’s 2019 Investigation Report highlighted numerous KOA implementa- Bank and the Government of Uganda. tion challenges from an institutional and management perspective, such as lack of • An offset is expected to protect biodiversity in the long term. In its 2019 explicit and measurable management goals, competing objectives in regard to use Investigation Report, the Panel stated that mitigating the partial loss of one off- (tourism development and conservation), the inappropriately wide scope of the set by creating another erodes the underlying principles of offsetting and levels a management plan, and insufficient capacity and inadequate funds to implement serious blow to the credibility of the offset concept. Although there was no World management and monitoring effectively. Drawing on experience with the KOA, the Bank Group support for the planning or construction of Isimba, the Bank-supported effectiveness of the EKOA and the risks of implementation failure depend on the Isimba ESIA addendum provided baseline data on the biodiversity of the KOA to be guaranteed provision of sufficient funds, institutional capacity to manage the offset inundated by the Isimba Dam and an analysis of alternatives for the height of the and rigorous monitoring. To address the need for long-term protection of the offset dam wall. The Panel found that the alternative with the most severe impact on the area, the Government of Uganda proposed amendments to the country’s National KOA was adopted. Environment Act. That led to the declaration of a Special Conservation Area providing stronger legal protection for the free-flowing river and adjacent land parcels within the EKFS boundaries. 18 FR AM E WORK FOR WO RLD BANK B IODIVER SIT Y OFFSE TS 4 It is important to note that the World Bank’s Environmental and Social Framework (ESF) iii. adhering to the “like-for-like or better principle,” where the offset targets the same bio- and Environmental and Social Standard (ESS)6—Biodiversity Conservation and Sustainable diversity values as that affected or, in specific cases, biodiversity of higher priority than Management of Living Natural Resources—did not apply to any of the Panel’s KOA cases that affected by a project, following Good International Industry Practice; in Uganda since the Bank’s Policy on Natural Habitats was applicable at the time. For iv. involving stakeholders and qualified experts in the design and implementation planning this reason, both the KOA and EKOA are best described as compensation or reduced net for an offset; loss measures, rather than strictly offsets in terms of more recent definitions. However, provision was made in the policy for mitigation to include “establishing and maintaining v. demonstrating long-term technical and financial feasibility of the offset; and an ecologically similar protected area” where there would be significant conversion or vi. redesigning projects that have adverse residual impacts that cannot be offset because of degradation of natural habitats, suggesting that the underlying intentions were broadly the uniqueness and/or irreplaceability of the affected biodiversity. comparable to those in the Bank’s ESS6. As mentioned, the World Bank’s Policy on Natural Habitats states that if the environmental The ESF supports the use of biodiversity offsets specifically in ESS6. Echoing Performance assessment indicates that a project would significantly convert or degrade natural habitats, Standard 6 implemented by the International Finance Corporation, points 15 to 18 of ESS6 the project should include mitigation measures acceptable to the Bank, including establish- directly address Bank requirements for biodiversity offsets. These requirements, simply ment and maintenance of an ecologically similar protected area. The policy, however, does stated, include: not include more detailed guidance on this mitigation measure. i. using offsets as a last resort form of mitigation; 5 In 2016, shortly after the Bank’s Board of Executive Directors approved the ESF, but before it ii. achieving at least no net loss of biodiversity through measurable, additional and long- 6 took effect in 2018, the Bank published its own user guide on biodiversity offsets. This guide term conservation outcomes in situ (i.e., on the ground) and at an appropriate scale; 19 describes three core principles: additionality, equivalence and permanence. Additionality—For any offset to be real, it must be Equivalence—In general, biodiversity offsets should Permanence—Biodiversity offsets are normally additional. In other words, biodiversity offsets must conserve the same biodiversity values (species, habitats, expected to persist for at least as long as the adverse deliver conservation gains beyond those that would be ecosystems or ecological functions) as those lost to biodiversity impacts from the original project; in achieved by ongoing or planned activities that are not the original project, following a principle known as practical terms, this often means in perpetuity. Like other part of the offset. like-for-like. conservation projects, biodiversity offsets are ideally designed to last over the very long term. TH E PANEL’S 2019 INVE STIGATION AN D WORLD BANK OFFSE T GU I DANCE—ADD ITIONALIT Y As mentioned on the previous page, the World Bank’s guide on biodiversity offsets highlights three core principles: additionality, equivalence and permanence. The Panel's 2019 investigation into the KOA and EKOA considered these three principles as described below and on the next two pages. CORE PRINCIPLE 1: ADDITIONALITY THE KALAGALA OFFSET Additionality: It means that the offset must achieve In the Uganda case, the original KOA gave protection to conservation outcomes over and above results that the river, its islands and the riverbed. It was also intended would have occurred without it. This principle is especially to improve the management of the existing Central Forest important for offsets that plan to strengthen protection and Reserves and restore the degraded areas that formed part management of an existing protected area. of the KOA. Placing these measures within the Indemnity Agreement aided in protecting the Kalagala-Itanda Falls from hydropower development and commercial sector sugar cane cultivation in the Mabira CFR. However, given the limited extent to which management of the KOA has 20 been implemented, additional conservation outcomes within existing CFRs are likely to be insubstantial. Declaration of the EKFS as a Special Conservation Area under Ugandan law could similarly deliver additionality, given the added protection to the stretch of Nile River and provided that there is improved management and restoration to the natural habitat of the existing protected areas in the EKOA. TH E PANEL’S 2019 INVE STIGATION AN D WORLD BANK OFFSE T GU I DANCE—EQU IVALENCE CORE PRINCIPLE 2: EQUIVALENCE THE KALAGALA OFFSET Equivalence: The offset must provide gains in the same The KFS and the EKFS were deemed “ecologically similar” type of biodiversity that was negatively affected by the to the affected project sites through broad comparisons of development project. Satisfying equivalence necessitates biophysical features and species. However, it was uncertain having reliable baseline data both on the affected biodiversity if the selected offset areas would provide equivalent and the biodiversity in the offset area. biodiversity given shortcomings in baseline data and in the methodology used to compare the impact and offset sites. 21 TH E PANEL’S 2019 INVE STIGATION AN D WORLD BANK OFFSE T GU I DANCE—PERMAN ENCE CORE PRINCIPLE 3: PERMANENCE THE KALAGALA OFFSET Permanence: Biodiversity offsets are intended to last Maintaining the KOA in perpetuity was problematic, given at least as long as the project’s adverse impacts endure, that the Indemnity Agreement applied only until 2023, and preferably be permanent, in order to achieve lasting after which discussions were to be held regarding a possible conservation outcomes required by ESS6 and to satisfy the extension to the protection of the offset area. The decision requirements of Bank Policy on Natural Habitats to establish to build the Isimba Dam and flood part of the KOA reduced and maintain an ecologically similar protected area. the duration of the offset. A decision was made to mitigate the partial flooding of the KOA by creating another offset through an extension to this area and the creation of the EKOA as an offset for Bujagali. Although grounded in the 22 intention to compensate for loss, this decision erodes the underlying principles of an offset. The declaration of the EKFS as a Special Conservation Area in terms of Section 50 of the Ugandan National Environment Act provides a legal basis for this offset area to endure in the long term. KE Y PAN EL I N SIG HTS I NTO TH E USE O F O FFSE TS The Panel investigations into the KOA in Uganda offer insights into the long-term commit- extra income; the river provides freshwater and is a source of employment for sand miners, ments and complexities inherent in the implementation of an offset. The KOA was set aside fisher folk and adventure tourism. Both the hydropower developments and the offset will as an offset to compensate for negative impacts of the Bujagali Dam. The decision to “offset affect local lives and livelihoods. The Panel observed that although a biodiversity offset the offset” in response to the partial flooding of the KOA by the Isimba Dam has led to the must first and foremost conserve biodiversity, crucial to its success and sustainability is extension of the KOA. Both the KOA and EKOA are best described as compensation mea- stakeholder engagement and participation to explore how—and if—the different interests, sures, rather than offsets, since their intention was not to achieve no net loss of biodiversity. needs and activities of stakeholders can be balanced, and to identify the likely ramifications However, in accordance with the Indemnity Agreement and applicable Bank policy, they were of setting aside and managing an area as an offset. to be established and maintained to protect biodiversity and spiritual values. The Panel’s experience shows how important it is to assess all mitigation options and alterna- The Panel believes offsets are going to be increasingly important as World Bank lending tives in a given context and determine if offsetting is feasible and appropriate. While both the transitions from the application of the institution’s safeguard policies to the new ESF. No KOA and EKOA give some added protection to the offset area, the Panel draws the following net loss policies and the need for offsets are proliferating globally. While biodiversity off- conclusions: setting is intended to deliver environmental benefits, substandard offsets could have a 1. Offsets should be the last mitigation option and used with precaution detrimental effect on both the environment and local communities. Insights from the Panel investigations in 2002, 2008 and 2019 can serve as a learning opportunity in the future 2. The design of an offset must be systematic and defensible design, implementation and management of biodiversity offsets. 3. Measures of biodiversity losses and gains must be transparent and reliable Biodiversity offsets must recognize the interdependence of people and ecosystems, and the 4. Resources and capacity need to be well planned to implement the offset necessity to reconcile different biodiversity, societal and local community values, land use 23 and resource demands, and livelihood needs. The importance of this approach became clear 5. The offset should preferably be secured before the project impacts occur to the Panel in both the KOA and EKOA, given the range of stakeholders, conservation pri- 6. Effects of offsets on local lives and livelihoods must be assessed orities and development opportunities in the landscape. Affected communities use the fer- tile land of the riverbanks and islands in the Victoria Nile to grow crops for subsistence and 24 KEY PANEL INSIGHT NO. 1—OFFSETS SHOULD BE THE LAST MITIGATION OPTION AND USED WITH PRECAUTION • Offsets should be used strictly as a last resort form • A strong precautionary approach to using offsets • Improving the protection status of an area under of mitigation, with clear evidence that all feasible and should be taken when there are risks of irreversible loss threat of imminent or projected loss and improving reasonable options to avoid and minimize potentially of biodiversity and associated values, and/or high risks the condition of affected biodiversity relative to a significant harm to biodiversity have been exhausted. of failure to implement the offset successfully, and “without-the-offset” situation through conservation A defensible rationale should be provided for any where other mitigation options appear feasible. management actions—such as restoration, threat tradeoffs involving significant loss of biodiversity. reduction or arrested degradation—are some of the main ways to offset residual negative impact on biodiversity. 25 KEY PANEL INSIGHT NO. 2—THE DESIGN OF AN OFFSET MUST BE SYSTEMATIC AND DEFENSIBLE • The choice of geographic location and design of an • The Panel observed that conferring protected status • The design of an offset is informed by explicitly defined offset must take into consideration its context— alone does not necessarily reduce the probability objectives and its intended scope. Offsets need to ecological, geographical and social—and threats to its of biodiversity loss. However, it is an important step consider species composition, habitat structure, status and condition. It must also factor in political and towards achieving this objective. In the future under ecosystem function and/or people’s use and cultural economic risks and uncertainties likely to affect the ESS6 the use of offsets will need to satisfy more values associated with biodiversity. Both the KOA success of the offset, as well as any delays in achieving stringent requirements than was the case under the and the EKOA are best described as compensation the planned biodiversity gains. Bank's Policy on Natural Habitats. Offsets will have measures, rather than offsets, since their intention was to seek assured and measurable gains for biodiversity to achieve no net loss of biodiversity. because of protection and improved management. 26 KEY PANEL INSIGHT NO. 3—MEASURES OF BIODIVERSITY LOSSES AND GAINS MUST BE TRANSPARENT AND RELIABLE • Offsets should be used only where there is a strong expected gains, together with a robust approach to project, if the offset-protected ecosystem is clearly likelihood of counterbalancing losses with gains, at measuring expected gains. acknowledged to be of higher conservation value. This a minimum. A reliable estimate of residual negative • The way in which gains will be achieved, as measured concept, known as “trading-up,” is endorsed in World impact on biodiversity is needed as the basis for against a defined frame of reference, must be clear. As Bank ESS6 and in the World Bank Biodiversity Offsets designing an offset with commensurate gains that with the residual losses, a measure of predicted gains in User Guide. would counterbalance biodiversity losses. biodiversity must be provided. • The conservation outcomes must exceed what would • Reliable baseline data on the biodiversity in the • An offset must be designed to deliver gains in the have happened without the project or offset— project’s area of influence and potential offset sites same biodiversity as that negatively affected by the i.e., be additional. are crucial to demonstrate their equivalence, and to project—i.e., be a “like-for-like” exchange. In special • An offset should be designed to last at least as long as provide defensible measures of biodiversity loss and cases, an offset could protect an ecosystem different the project’s residual negative impact on biodiversity, from the one damaged by the original development and preferably in perpetuity. 27 KEY PANEL INSIGHT NO. 4—RESOURCES AND CAPACITY NEED TO BE WELL PLANNED TO IMPLEMENT THE OFFSET • Offsets should only be used where there is assurance • Implementation must comply with all applicable legal the offset on track. To this end, measurable indicators that the responsible entity has sufficient capacity, and policy requirements. The institutional, budget and of performance must be identified, and timelines given 7 resources and funds to implement and monitor the funding sources and mechanisms must be deter- for monitoring. offset effectively over the long term. mined to ensure that the offset achieves its intended • Both implementation performance (i.e., use of funds, • The implementation of an offset requires careful outcomes. staffing, reporting, number of patrols or visits to the planning and the preparation of an “offset manage- • The roles and responsibilities of different parties must site, etc.) and impact performance (i.e., a measure of ment plan” that sets out the specific activities needed be clearly defined in the offset management plan. gains in those key biodiversity components that must to deliver biodiversity gains—the “what,” “where,” • Provision must be made for checking the progress be tracked to demonstrate that the offset is suc- “how” and “when.” of offset implementation over time and enabling cessful) must be monitored. Independent audits and corrective or adaptive management changes to keep verification of the offset’s performance are important for credibility and transparency. 28 KEY PANEL INSIGHT NO. 5—THE OFFSET SHOULD PREFERABLY BE SECURED BEFORE THE PROJECT IMPACTS OCCUR • A project's impacts are certain and offset gains • Gains in biodiversity to balance residual impacts may • The partial flooding of the KOA by Isimba has occurred uncertain, so gains in biodiversity ideally should be take many years to achieve and fulfill their purpose. and, while the EKOA is to be set aside as a Special achieved before the negative impacts of the project In this case, Bujagali II commenced in 2007 with the Conservation Area, measures to compensate harm to, begin in order to avoid both time lags between the Indemnity Agreement establishing the KOA intended or restore livelihoods of, affected parties have yet to biodiversity losses and gains, and the risks associated to compensate for the project’s impact. The KOSMP be finalized. The effectiveness of revised management with offset implementation. prescribing its management only came into effect plans for the EKOA and EKFS area is uncertain, and time • The long-term security of an offset site must be three years later in 2010. The flooding of the KOA lags in the compensation for impact appear inevitable, assured before impacts occur, and a clear management compounds the loss of biodiversity due to the compromising the effectiveness of the offset. plan must be in place covering activities needed to Bujagali project and leads to the effective "loss" deliver gains in biodiversity and remedy any impacts on of a decade of protection and management of the affected parties who rely on services provided by the offset area, increasing the time lag between impact impacted ecosystems. and offset accordingly. 29 KEY PANEL INSIGHT NO. 6—EFFECTS OF OFFSETS ON LOCAL LIVES AND LIVELIHOODS MUST BE ASSESSED • Offsets should only be used where their wider restricted, an offset for a project may amplify the tion measures, the negative impacts will be displaced, 8 10 implications for people’s lives and livelihoods negative impact on people adversely affected by the preventing the achievement of no net loss. 9 have been assessed, and provision can be made to project that would need be to mitigated. Where • Active engagement with affected communities in implement measures to remedy all adverse impacts, socioeconomic and cultural uses of biodiversity can- the planning of an offset, and their involvement in its preferably before the offset is implemented. These not be compensated adequately by improvement to implementation, is important. Payment to affected measures include livelihood restoration initiatives, and biodiversity, additional compensation packages that people to deliver specific conservation outcomes other forms of compensation. give access to affordable and acceptable substitute needed to achieve the offset (e.g., restoring degraded • In some cases, an offset may deliver gains in biodi- resources are required. areas or helping with monitoring) and support for versity that also benefit people affected by a proj- • People rely on services provided by ecosystems. Where local enterprises that would boost conservation and ect—e.g., restoration of degraded wetlands can these services—or access to them—are reduced, peo- local livelihoods (e.g., nature-based tourism) can improve water supply and quality. In other cases, ple are likely to move to other areas, in turn potentially help compensate for negative impact and ensure where access to—and use of—natural resources is affecting biodiversity. Without adequate compensa- local benefits. REF ERENCES AND SOURCES OF INFORMATION ON BIODIVERSITY OFFSETS Bull JW & Strange N. 2018. The global extent of biodiversity offset implementation under no net loss policies. Nature Sustainability. s41893-018-0176-z loss. Bull JW, Baker J, Griffiths V, Jones JPG & Milner-Gulland EJ. 2018. Ensuring no net loss for people as well as biodiversity: good practice principles. Oxford, UK. https://www.iucn.org/news/business-and-biodiversity/201903/no-net-loss-ensuring-best-possible-outcomes-people-and-biodiversity. Business and Biodiversity Offsets Programme (BBOP). 2012. Standard on biodiversity offsets. BBOP, Washington, D.C. https://www.forest-trends.org/publications/standard-on-biodiversity-offsets/ Business and Biodiversity Offsets Programme (BBOP). 2012. Biodiversity Offset Design Handbook-Updated. BBOP, Washington, D.C. https://www.forest-trends.org/wp-content/uploads/imported/biodiversity-offset-design-handbook-pdf.pdf Business and Biodiversity Offsets Programme (BBOP). 2009. Biodiversity Offset Implementation Handbook. BBOP, Washington, D.C. https://www.forest-trends.org/publications/biodiversity-offset-implementation-handbook/ Inspection Panel Report. Uganda: Third Power Project (Credit No. 2268-UG), Fourth Power Project (Credit No. 3545-UG) and Bujagali Hydropower Project (PRG No. B 003-UG). Report No. 23998. May 23, 2002. Inspection Panel Report. Uganda: Private Power Generation (Bujagali) Project (Guarantee No. B0130-UG). Report No. 44977-UG. August 29, 2008. Inspection Panel Report. Uganda: Water Management and Development Project (123204) and the Energy for Rural Transformation Phase III Project (133312), May 2, 2019. International Finance Corporation (IFC). 2012. Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources (as part of the IFC Sustainability Framework: Policy and Performance Standards on Environmental and Social Sustainability). IFC, Washington. https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/sustainability-at-ifc/policies-standards/performance-standards/ps6. 30 International Union for Conservation of Nature (IUCN). 2016. IUCN Policy on Biodiversity Offsets. World Conservation Congress Resolution WCC-2016-Res-059-EN. https://www.iucn.org/theme/business-and-biodiversity/our-work/business-approaches-and-tools/biodiversity-offsets. 29 January 2016. IUCN, The Biodiversity Consultancy and the Durrell Institute of Conservation & Ecology. Global Inventory of Biodiversity Offset Policies (GIBOP), online portal. https://portals.iucn.org/offsetpolicy/. Maron M, Brownlie S, Bull JW, Evans MC, Von Hase A, Quétier F, Watson JEM & Gordon A. 2018. The many meanings of No Net Loss in environmental policy. Nature Sustainability. Volume 1: January 2018: 19–27. Sonter, LJ, Gourevitch J, Koh I, Nicholson CC, Richardson LL. et al. 2018. Biodiversity offsets may miss opportunities to mitigate impacts on ecosystem services, Front Ecol Environ, 16(3). DOI: 10.1002/fee.1781. World Bank. 2018. Environmental and Social Framework (includes Environmental and Social Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources, with supporting Guidance Notes). Washington: The World Bank. https://www.worldbank.org/en/projects-operations/environmental-and-social-framework/brief/environmental-and-social-standards. World Bank Group (WBG) and ProFor. 2016. Biodiversity Offsets: A User Guide. http://documents.worldbank.org/curated/en/344901481176051661/Biodiversity-offsets-a-user-guide. zuErmgassen SOSE, Baker J, Griffiths RA, Strange N, Struebig MJ & JW Bull. 2019. The ecological outcomes of biodiversity offsets under “no net loss” policies: A global review. Conservation Letters.e12664. https://onlinelibrary.wiley.com/doi/full/10.1111/conl.12664. ENDNOTES 1 https://www.thebiodiversityconsultancy.com/approaches/mitigation-hierarchy/ 2 E.g., World Bank’s Environmental and Social Standard 6, the International Finance Corporation (IFC)’s Performance Standard 6, the Business and Biodiversity Offset Program’ Standard on biodiversity offsets. 3 Data from Bull & Strange, 2018 4 http://pubdocs.worldbank.org/en/837721522762050108/Environmental-and-Social-Framework.pdf 5 No net loss is required for natural habitats, and net gain for critical habitats, as defined in these standards. 6 Biodiversity Offsets: A User Guide, WBG 2016 . Note that, over and above these principles, international principles (BBOP 2012) include achieving no net loss or net gain, adhering to the mitigation hierarchy, respecting limits to what can be offset, transparency, use of science and traditional knowledge, equity and stakeholder participation, and landscape context. 7 BBOP, Biodiversity Offset Implementation Handbook, 2009. 8 Bull et al 2018. 9 World Bank and ProFor, Biodiversity Offsets: A User Guide, 2016, p. 20. 10 Bull, et al 2018 ACKNOWLEDGEMENTS The Panel offers its appreciation to all the stakeholders involved during its KOA investigations in 2002, 2008 and 2019. In particular, the Panel thanks the Requesters and other affected com- munity members for approaching the Panel with their concerns, and for sharing their time and information remotely and in the field. The Panel is obliged to the Government of Uganda at all levels—including national ministries and district offices—for meeting with the Panel teams and providing information during the investigations. The Panel expresses its sincere thanks to Bank management, staff and consultants for their continued involvement in support of the Panel process. Finally, the Panel expresses its appreciation to all the Panel members, Secretariat staff and expert consultants who were involved in the investigations and provided input for this advisory publi- 31 cation. In particular, the Panel is indebted to its expert consultant, Susie Brownlie, for her review and contributions. RIGHTS AND PERMISSIONS Third-party content—The World Bank does not necessarily own each component of © 2020 International Bank for Reconstruction and Development / The World Bank the content contained within the work. 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