Document of The World Bank FOR OFFICIAL USE ONLY Report No: 75632-LA PROJECT APPRAISAL DOCUMENT ON A PROPOSED IDA GRANT IN THE AMOUNT OF SDR 12.7 MILLION (USD 19.00 MILLION EQUIVALENT) AND STRATEGIC CLIMATE FUND-FOREST INVESTMENT PROGRAM GRANT IN THE AMOUNT OF USD12.83 MILLION TO THE LAO PEOPLE'S DEMOCRATIC REPUBLIC FOR A SCALING -UP PARTICIPATORY SUSTAINABLE FOREST MANAGEMENT PROJECT April 24, 2013 Sustainable Development Department Southeast Asia Country Management Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective as of March 31, 2013) Currency Unit = Lao KIP 7898 Lao KIP = USD 1 USD 1.4992 = SDR 1 FISCAL YEAR October 1 - September 30 1 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CAP Community Action Plan CEF Community Engagement Framework CIF Climate Investment Funds CoC Chain of Custody CPS Country Partnership Strategy CSO Civil Society Organization CTA Chief Technical Adviser DAEC Department of Agriculture Extension and Cooperatives DAFO District Agriculture and Forestry Office DESIA Department of Environmental and Social Impact Assessment DFA Designated Forest Area DFRM Department of Forest Resources Management DGM Dedicated Grant Mechanism DIMEX Department of Import and Export DoF Department of Forestry- DoFI Department of Forest Inspection DPMO District Project Management Office DPSC District Project Steering Committee EMP Environmental Management Plan EGPF Ethnic Group Planning Framework ESIA Environmental and Social Impact Assessment EU European Union FCPF Forest Carbon Partnership Facility FDI Foreign Direct Investment FIP Forest Investment Program FLEG/T Forest Law Enforcement, Governance/ and Trade FLM Forest Landscape Management FSSWG Forestry Sub Sector Working Group FSC Forest Stewardship Council FCU Forest Certification Unit FMA Forest Management Area GEF Global Environment Facility GIZ Deutsche Gesselschaft fur Internationale Zusammenarbeit GoL Government of Lao PDR HCVF High Conservation Value Forest IBRD International Bank of Reconstruction and Development IDA International Development Association IFC International Finance Corporation IPPF Indigenous Peoples Planning Framework KfW Kreditanstalt fur Wiederaufbau, Germany LSB Lao Statistics Bureau LFNC Lao Front for National Construction 11 LWU Lao Women's Union MAF Ministry of Agriculture and Forestry MEM Ministry of Energy and Mines MoF Ministry of Finance MoHA Ministry of Home Affairs MoIC Ministry of Industry and Commerce MoNRE Ministry of Natural Resources and Environment MoU Memorandum of Understanding MPI Ministry of Planning and Investment MRV Measurement, Reporting, and Verification NEC National Environmental Committee NERI National Economic Research Institution NAFRI National Agriculture and Forestry Research Institute NPA Non-Profit Association NPM National Project Manager NPMO National Project Management Office NPSC National Project Steering Committee NRESWG Natural Resource and Environment Sector Working Group NSEDP National Socio-Economic Development Plan NTFP Non Timber Forest Product PAFO Provincial Agriculture and Forestry Office PES Payment for Environmental Services PFA Production Forest Area PLUP Participatory Land-Use Planning PPMO Province Project Management Office PPSC Provincial Project Steering Committee PSFM Participatory Sustainable Forest Management REDD+ Reducing Emissions from Deforestation and Forest Degradation REL Reference Emission Level R-PP Readiness-Preparation Proposal SCF Strategic Climate Fund SUFORD Sustainable Forestry for Rural Development Project SUPSFM Scaling Up Participatory Sustainable Forest Management TSC Technical Service Center VFLC Village Forestry and Livelihood Committee VLD Village Livelihood Development VMU Village Mediation Unit VPA Voluntary Partnership Agreement Vice President: Axel van Trotsenburg Country Director: Annette Dixon Sector Director: John Roome Sector Manager Julia M. Fraser Task Team Leader: Peter Jipp iii LAO PEOPLE'S DEMOCRATIC REPUBLIC Scaling-Up Participatory Sustainable Forest Management TABLE OF CONTENTS Page I. STRATEGIC CONTEXT ................................................................................................1 A. Country Context ......................1.......................... B. Sectoral and Institutional Context......................................... 2 II. PROJECT DEVELOPMENT OBJECTIVES ...........................................................3 A. Project Development Objective ..................3..... .............3 B. Project Beneficiaries ................................................. 3 C. PDO Level Results Indicators......................4.... ............4 III. PROJECT DESCRIPTION ......................................................................................... 4 A. Project Components ..................................... ........ 4 B. Project Financing .......................................... ..... 6 C. Lessons Learned and Reflected in the Project Design. ......... ............. 7 IV. IM PLEM ENTATION .................................................................................................. 7 A. Institutional and Implementation Arrangements ..................... ..... 7 B. Results Monitoring and Evaluation . .......................... ......... 8 C. Sustainability............................... ................... 8 V. KEY RISKS AND MITIGATION MEASURES...................................................... 9 A. Risk Ratings Summary Table ................................... 9 B. Overall Risk Rating Explanation .............................. ...... 9 VI. APPRAISAL SUMMARY .........................................................................................10 A. Economic and Financial Analyses .......................... ......... 10 B. Technical .............................................. ......... 11 C. Financial Management...................... ................ 12 D. Procurement ......................................... ......... 12 E. Social Safeguards................................................ 12 F. Environment................................................ 14 G. Other Safeguards Policies Triggered ................................. 15 iv Annex 1: Results Framework And Monitoring.....................................................................16 Annex 2: Detailed Project Description .................................................................................. 21 Annex 3: Implementation Arrangements .............................................................................. 32 Annex 4: Operational Risk Assessment Framework............................................................66 Annex 5: Implementation Support Plan ................................................................................72 Annex 6: Financial And Economic Analysis .........................................................................75 Annex 7: Lessons Learned .......................................................................................................79 Annex 8: Estimates of C02 Emission Reductions ............................................................... 82 Annex 9: Lao PDR at a Glance .............................................................................................. 86 Annex 10: Map ............................................................................................................................ 87 V PAD DATA SHEET Lao People's Democratic Republic Scaling- Up Participatory Sustainable Forest Management Project PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC REGION SOUTHEAST ASIA SUSTAINABLE DEVELOPMENT UNIT Basic Information Date: 24 April, 2013 Sectors: Forestry (80%), Public Administration - Agriculture, Fishing and forestry (20%) Country Director: Annette Dixon Themes: Climate change (50%), Environmental policies and Institutions (50%) Sector Manager/Director: Julia M. Fraser/John A. Roome EA Category: A - Full Assessment Project ID: P130222 Lending Instrument: Investment Project Financing Team Leader(s): Peter Jipp Joint IFC: Borrower: Ministry of Finance, 23 Singha Road, PO Box 46, Vientiane, Lao PDR Responsible Agency: Ministry of Agriculture and Forestry Contact: Mr. Khamphay Manivong Title: Deputy Director General, Department of Forestry Telephone No.:+85621219561 Email: khamphay.dof@gmail.com Project Implementation Period: Start Date: July 1, 2013 End Date: August 31, 2018 Expected Effectiveness Date: August 1, 2013 Expected Closing Date: August 31, 2018 Project Financing Data(USD M) Loan [X] Grant [X ] Other: [] Credit [ ] Guarantee SCF-FIP Grant For Loans/Credits/Others Total Project Cost : 39.39 Total Bank Financing : 19.00 Total Cofinancing : 20.39 Financing Gap Financing Source Amount(USD M) BORROWER/RECIPIENT 7.56 IDA: New 19.00 Forest Investment Program 12.83 Total 39.39 Vi Expected Disbursements (in USD Million) Fiscal Year 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019 Total IDA 4.82 5.38 3.95 3.19 1.75 0.00 19.00 FIP 3.21 3.59 2.64 2.12 1.17 0.00 12.83 Cumulative 8.03 17.01 23.60 28.91 31.83 31.83 Project Development Objective(s) The project development objective (PDO) is to execute REDD+ activities through participatory sustainable forest management in priority areas and to pilot forest landscape management in four provinces. Components Component Name Cost (USD million) Component 1: Strengthening and Expanding PSFM in PFAs 20.97 Component 2: Piloting Forest Landscape Management 2.00 Component 3: Enabling Legal and Regulatory Environment 3.38 Component 4: Project Management 5.47 Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X] Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes[] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X Legal Covenants Name Recurrent Due Date Frequency Remedies of the Association x ongoing Description of Covenant vii If the Forest Law or the Land Law have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of the Recipient to perform any of its obligations under the Project, the Association reserves the right to suspend the project. Name Recurrent Due Date Frequency Project Arrangements 3 months after effectiveness Description of Covenant The Recipient shall within three (3) months of the Effective Date upgrade the ACCPACC accounting system and establish and maintain throughout implementation of the Project with a mandate, terms of reference, composition and resources satisfactory to the Association, (i) NPSC, (ii) NPMO at the national and province level, (iii) PPMO, (iv) DPMO, and (v) PPSC & DPSC. Name Recurrent Due Date Frequency Project Management 3 months after effectiveness Description of Covenant The Recipient shall within three (3) months of the Effective Date, (i) recruit five (5) financial management consultants and an external auditor under TORs acceptable to the Association, and (ii) adopt Financial Management, VLD and PSFM Operations Manuals acceptable to the Association and henceforth carry out its operations in accordance with these Manuals. Name Recurrent Due Date Frequency Project Management x Description of Covenant The Recipient shall also prepare and furnish to the Association for its review and comments; (i) draft regulations and administrative instruments on forest sector policy reform, principles of PSFM and REDD +, FLM Framework agreements, and (ii) a time bound action plan to implement a market-oriented log sales and pricing system and conduct log sales pursuant to an open and competitive log sales system in accordance with relevant management plans. The Recipient shall also; (iii) prohibit timber sales and harvest activities in areas under the Project unless said activities are carried out pursuant to a Village forest management agreement between the Recipient and the relevant Village or the relevant Project province governor has approved such activities in a designated infrastructure area, complying fully with applicable timber harvesting regulations; and (iv) ensure that CAP financed activities are technically, financially, socially and environmentally viable, and economically justified by the number of people projected to benefit from it. Name Recurrent Due Date Frequency Safeguards x Annual Description of Covenant The Recipient shall ensure that procedures and safeguards described in the Environmental Management Framework and the Community Engagement Framework including Ethnic Group Planning Framework, access restriction Process Framework, and Resettlement Policy Framework are applied. Name Recurrent Due Date Frequency Financial Reports and Audits x Annual Description of Covenant The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year. The audited Financial Statements for each such period shall be furnished to the Association not later than six months after the end of such period. Name Recurrent Due Date Frequency Withdrawal of Proceeds x Annual Description of Covenant The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of Article II of the General Viii Conditions, Sch. 2, Section IV of the Financing Agreement and such additional instructions as the Association shall specify by notice to the Recipient to finance Eligible Expenditures. Team Composition Bank Staff Name Title Specialization Unit UPI Peter Jipp Sr. Natural Resource Task Team Leader EASTS 157997 Management Specialist Roch Leveque Senior Counsel Legal Counsel LEGAM 228588 Khamlar Phonsavat Climate Change Specialist REDD+, DGM EASTS 279003 Satoshi Ishihara Sr. Social Development Specialist Social Safeguard and Ethnic EASTS 233666 group Sybounheuang Phandanouvong Social Safeguard Specialist DGM, Livelihood EASTS 267586 Development Grant Siriphone Vanitsaveth Financial Management Officer Financial Management EASFM 355177 Souphanthachack Sisaleumsak Procurement Specialist Procurement Management EASR2 298822 Malarak Souksavath Financial Management Analyst Financial Management EASFM 157956 Konesawang Nghardsaysone Trade Analyst Timber Sales and Trade EASPT 345018 Rawong Rojwanit Operations Officer Governance, Results EACTF 228730 Viengsamay Srithirath Communication Associate Communication Strategy, EAPXT 297865 Political Economy Analysis Luc Lecuit Sr. Operations Officer M&E, Portfolio Coordination EACTF 172393 Diji Chandrasekharan Behr Natural Resources Economist Economic Benefit Analysis ARD 277499 Frederic Edmund Brusberg Safeguard Advisor (consultant) Environment and Social ECSUW 100419 Safeguards Chau-Ching Shen Senior Finance Officer Disbursement CTRLN 323838 Carmench Austriaco Finance Analyst Disbursement CTRLN 186455 Manoly Sisavanh Program Assistant Project Coordinator, Logistic EACLF 424867 Supports Ngozi Blessing Obi Malife Program Assistant Operational/Admin Support EASER 246355 Non Bank Staff Name Title Office Phone City Anupam Bhatia NRM and Environmental Bangkok, Thailand Safeguard Advisor Elizabeth Mann Land Management Advisor Vientiane, Lao PDR Tony Zola Livelihood and Marketing Bangkok, Thailand Advisor Locations 1x Country First Administrative Location (District) Planned Actu Comments Division al Lao PDR Phouvong Attapeu Sanamxai Sanxai Xaysetha Houayxai Bokeo Meung Phaoudom Tonpheung Bolikham Bolikhamxai Pakkading Paksan Vienthong Bachiang Mounlapamok Champasack Pathoumphone Soukhouma Xanasomboun Boualapha Khammouane Mahaxay Xaybouathong Xebangfai Long Louangnamtha Nalae Viengphoukha Beng Houn La Oudomxai Namor Nga Phakbeng Xay Khongxedon Laongam Salavan Salavan Taoy Tumlane Vapi Palanxay Phin Savannakhet Songkhone Thapangthong Xonlabouli Vientiane Feuang Hom x Kasi Met Meune Sanakham Vangvieng Xaysomboun Boten Khop Ngeun Xaiyabouly Paklai Phieng Xbouli Xienghone Dakcheung Kaleum XekongLa m Lamam Xienglouang xi I. STRATEGIC CONTEXT A. Country Context 1. Lao PDR is a small landlocked country with a total land area of 23.68 million ha. It shares borders with China and Myanmar in the north, Vietnam in the east, Thailand in the west and Cambodia in the south. Approximately 70% of the country land area is classified as sloping hillsides and mountains. The population growth rate is 1.8% annum (World Development Indicators). By 2010, the total population reached 6.25 million people. The most concentrated areas are towns located along the Mekong River and main tributaries including the capital city of Vientiane. 2. Surrounded by some of the fastest growing economies in the world including China, Thailand and Vietnam, the country has benefited from external demand and foreign direct investment (FDI) inflows from these neighboring countries over the past decade. This has resulted in steady economic growth of 6.5 percent per annum on average between 1990 and 2009 despite the regional and global financial crisis. Gross Domestic Product (GDP) per capita has risen from USD 818 in 2007-2008, to USD 906 in 2008-2009 and USD 1018 in 2009-2010. 3. The Government of Lao PDR's (GoL) Seventh National Socio-Economic Development Plan (7th NSEDP) for 2011-2015 was approved by its National Assembly in June 2011. The Plan highlights the government's intentions to attract significant FDI and to increase forest cover from 40% in 2010 to 70% by 2020. The GoL has also signaled their expectation to exit Least Developed Country status by 2020. 4. The impact on poverty reduction in Lao PDR has been impressive and the headcount has declined from almost half the population to below one quarter within a decade. In 1992-93, basic needs were not met for 46 percent of the population, but this number fell to 39 percent in 1997- 78, to 33 percent by 2002-2003, and to 28 percent by 2007-2008. The share of poverty was reduced by 30 percent in one decade lifting one eighth of the total population out of poverty. Despite these advances, the poverty rate in Lao PDR remains higher than in neighboring countries. 5. Since 1998 GoL has approved 4,470 investment projects valued at USD 24.4 billion with the biggest investment in the mining sector at USD 5.5 billion, followed by hydropower and agriculture sectors at USD 5 billion and USD 2.6 billion, respectively. Future growth is projected to be driven largely by natural resources, and the sector's contribution to GDP growth increased from about 2.6 percent in 2009 to 4.8 percent in 2010 and is projected to average 4.0 percent between 2011 and 2015, and 3.5 percent between 2016 and 2020. 6. These developments have also exposed risks related to unsustainable management of natural resources and deepened inequality, especially between rural and urban areas in Lao PDR. The country's non-resource sector which can contribute to broad based growth is in decline and the continued reliance on natural resources as drivers of high growth could exacerbate pressure on natural resources and increase environmental degradation. 1 B. Sectoral and Institutional Context 7. The Government of Lao PDR recognizes its international obligation to reduce emissions from deforestation and forest degradation, as well as to conserve biodiversity and other resources in its forests, sustainably manage its forests, and enhance carbon stocks, thereby contributing to global efforts to mitigate climate change. Lao PDR has approximately 9.5 million ha of forest cover that constitutes 40% of the total land area. Data suggest that during the 1990s the annual loss of forest cover was around 1.4%, giving an average forest cover loss of about 134,000 ha per year. Loss of species diversity and carbon due to selective logging is not well known. 8. The forestry and agriculture sectors together contributed 30% of Gross Domestic Product in 2008-2010 and provided 75% of total employment. Domestic consumption of wood and non- timber forest products (NTFPs) is valued at around USD 31.4 million, while exports are valued at around USD 74.4 million. In rural areas, it is estimated that NTFPs contribute between 30- 70% of income for forest-dependent households. 9. The Government's Forestry Strategy 2020 aims to improve quality of existing forested areas to about 70% of the total land area, to generate a sustainable stream of forest products, to preserve unique and threatened habitats, and promote environmental conservation and protection. A 2011 study on deforestation and forest degradation in Lao PDR revealed nine sources, namely: fire, unsustainable wood extraction, pioneering shifting cultivation, agricultural expansion, industrial tree plantation, mining, hydropower, infrastructure development, and urban expansion. Deforestation results from: (i) expansion of agricultural and industrial tree plantation development, (ii) inundation by hydropower projects, and (iii) clearing of the sites of mining, infrastructure development, and urban expansion. Forest degradation is mainly the result of unsustainable wood extraction and shifting cultivation. 10. The policy and legal framework for critical resources of land and forestry are both currently under review and revision. The National Assembly is leading a process that expects to finalize a new land policy, and a land law in 2013. The ongoing forest law revision will be done concurrently with the land law and improvements are to be based on the approved land policy. Responding to increasing concerns from its National Assembly, the GoL has recently placed a moratorium on grant of new concessions in mining, and rubber plantations until December 2015. In June 2011, the National Assembly approved the establishment of a new ministry called the Ministry of Natural Resources and Environment (MoNRE). The management responsibility for the state forests categories was bifurcated - while production forests remained with the Ministry of Agriculture and Forests (MAF) and its Department of Forestry (DoF); responsibility for Protection and Conservation forest was transferred to MoNRE and its Department of Forest Resources Management (DFRM). 11. A National REDD+ Task Force has been established with inter-ministerial representation. A national REDD+ Readiness-Preparation Proposal (R-PP) grant is being prepared in parallel and is expected to be operational by mid-2013. The Scaling-Up Participatory Sustainable Forestry Project (SUPSFM) and the REDD+ R-PP implementation will share programmatic and institutional linkages. In addition consultations have been held to prepare for the implementation of the Dedicated Grant Mechanism (DGM) for ethnic groups in Lao PDR, which will contribute 2 substantially to building understanding of REDD+ in general, and the SUPSFM Project in particular. 12. Bilateral agencies have committed approximately USD 70 million over the next few years to the NRM sector in Lao PDR focusing on forestry, climate resilience, and REDD+ related investments. The World Bank portfolio of environment, poverty reduction, biodiversity, and forestry has committed USD 60 million; and Asian Development Bank (ADB) and the International Finance Corporation (IFC) will support investments through the Forest Investment Program (FIP) that support the present project with important opportunities to learn and share experience. The Government of Finland and the World Bank have provided coordinated investment support for natural resources management and participatory approaches in the forest sector for several years under SUFORD. 13. Donor coordination in Lao PDR is done through the Natural Resource and Environment Sector Working Group (NRESWG) that is chaired by the Minister of MoNRE and co-chaired by the Ambassador of Germany and the Country Manager of the World Bank. Higher Level Objectives to which the Project Contributes 14. The proposed project will contribute to achievement of Country Partnership Strategy (CPS) 2012-2016 Strategic Objective 2 Sustainable Natural Resource Management in general and to Outcome (2.3) sustainable management and protection of forests and biodiversity in particular. II. PROJECT DEVELOPMENT OBJECTIVES A. Project Development Objective 15. The Project Development Objective is to execute REDD+ activities through participatory sustainable forest management in priority areas and to pilot forest landscape management in four provinces. B. Project Beneficiaries 16. The main project beneficiaries will be communities involved in field implementation of project activities, and the Government through improved quality of forest management and revenue collection. Other direct beneficiaries will include district, province and national forestry, and other government institutions and staff, who will receive support and training. All villages within project PFAs, those adjacent to them, and those located in protection and conservation forest areas from landscape pilot initiatives will benefit from a diversity of expanded livelihood opportunities. Villages located within PFAs that have significant forest stock will receive direct and tangible benefits from their share of timber revenue. Vulnerable communities, ethnic groups, and women will receive priority in project design and activities through the project's enhanced consultation and participatory processes. The total number of beneficiaries from PSFM provinces will be about 424,000, of which 198,000 are women and 237,000 belong to ethnic groups. Beneficiaries from Forest Landscape Management (FLM) will be determined during project planning. 3 C. PDO Level Results Indicators 17. The PDO level results indicators will include: * Forest area brought under management plans * Forest area brought under forest landscape management * People in forest and adjacent community with monetary/non-monetary benefit from forest * Rate of forest cover loss/gain in target areas compared to untreated areas * Enhanced carbon storage from improved forest protection and restoration in selected PSFM areas * Reduced emissions from deforestation and forest degradation in selected PSFM areas. III. PROJECT DESCRIPTION A. Project Components 18. The SUPSFM project will build and expand on progress achieved by Government of Lao PDR in implementing participatory approaches to sustainable forest management under the Sustainable Forestry for Rural Development Project (SUFORD, IDA-H4460 and IDA-3802). SUPSFM will go beyond the SUFORD models in several important respects by: (a) explicitly incorporating and monitoring forest carbon emission reductions, (b) introducing performance payments for forest carbon sequestration, (c) focusing additional efforts on developing sustainable livelihood options, and (d) fostering inter-agency coordination at the landscape scale. The following components have been designed to deliver the key results outlined above. Participatory sustainable forest management will be implemented in PFAs, while Forest Landscape Management (FLM) will be implemented in PFAs, and adjacent conservation, protection, and village forests that will all form a target landscape area. Through SUPSFM linkages will be developed with the REDD+ Readiness process and the FIP DGM especially with regard to aspects related to forest dependent communities, access restriction to natural resources, land tenure, customary rights, benefit sharing, and conflict resolution mechanisms. Collaboration would include analytical work, capacity building, and strengthening the policy and regulatory framework for forest dependent communities. Component 1: Strengthening and Expanding PSFM in Production Forest Areas (IDA USD 12.22 million, FIP USD 8.15 million and Government USD 4.98 million) 19. Subcomponent IA: Developing Partnerships to Increase Implementation Capacity. During the first year of implementation this subcomponent will finance a capacity assessment and develop a plan to build the skills required to implement all project activities. Enhanced capacity building and skills development will include technical forest management, facilitation and communication skills, improved financial management, gender equity, and monitoring and evaluation. This subcomponent will also support development of strategic partnerships and collaborative arrangements with National Institutions and Non-Profit Associations (NPAs; used to describe CSOs in Lao PDR). Regional and international agencies will also be contracted to augment strategic skills as needed. To enhance capacity for consolidation and expansion of forest areas under independent certification, this subcomponent will finance the creation of a Forest Certification Unit (FCU) within DoF. 4 20. Subcomponent IB: Community Engagement in PSFM and Village Livelihood Development. Under this subcomponent participating villages, following the Community Engagement Framework (CEF), will produce and implement site-specific Community Action Plans (CAPs) that identify local social, natural and institutional capital and identify options for generating sustainable livelihoods (including forest-based livelihoods). CEF will identify needs of vulnerable people, women and ethnic groups and issues related to tenure, access and resource utilization. This subcomponent will finance Village Livelihood Grants to implement CAPs and finance the review, and revision of key social, institutional and technical guidelines for implementation of PSFM and VLD. Financing will also be provided for drafting forest management plans including but not limited to field inventory, data collection and analysis, and mapping actual and proposed land use options. Component 2: Piloting Forest Landscape Management (IDA USD 1.17 million. FIP USD 0.78 million and Government USD 0.48 million) 21. Subcomponent 2A: Developing Methodologies and Frameworks for Forest Landscape Management. This sub component will support the development and adoption of a landscape approach for forest and biodiversity resources management in four northern provinces in Lao PDR. Support will be provided to convene stakeholder discussions and consultations at district, provincial and national levels to produce key components of a forest landscape framework, including but not limited to, definition of roles and responsibilities, inter-agency coordination mechanisms, revenue generating opportunities and conflict resolution mechanisms. Benefit sharing arrangements for restoration of degraded areas and carbon will be developed. Activities financed under this subcomponent will include support for coordinated management planning, elaboration of methods for REDD+ related Measurement, Reporting, and Verification (MRV) and Reference Emission Levels (REL) at the landscape scale, and improved coordination on forest law enforcement. Processes used during development of the forest landscape framework agreements will be documented and disseminated so that methodologies can be used to support replication in other landscape areas. This subcomponent will be implemented in close collaboration with the ongoing Finland supported project on strengthening national spatial planning capacity in Lao PDR for sustainable natural resource management. 22. Subcomponent 2B: Establishing Forest Landscape Pilots. Support will be provided under this subcomponent for to plan and implement CEF and PSFM in selected village forests. Support will also be provided for designing provincial pilots based on the mechanisms and frameworks developed under subcomponent 2A. These provincial pilots will include strengthening coordination among agencies responsible for forest protection and law enforcement and identifying overlapping and adjacent development activities, minimizing and mitigating impacts of such activities on selected forest landscape areas. Component 3: Enabling Legal and Regulatory Environment (IDA USD 1.97 million, FIP USD 1.31 million and Government USD 0.80 million) 23. Subcomponent 3A: Strengthening Legal and Regulatory Frameworks. This subcomponent will support development of legal and regulatory frameworks for implementation of PSFM and frameworks for FLM. Support will be provided for strengthening and 5 implementing regulatory frameworks for communal forest tenure and for improved monitoring and reporting on timber revenue benefit sharing, domestic timber processing and sales, international timber trade, and tracking the share of timber coming from certified sources. 24. Subcomponent 3B: Strengthening Forest Law Enforcement and Governance. The subcomponent will strengthen forest law enforcement and governance through Department of Forest Inspection (DoFI) implementation of the National Forest Law Enforcement Strategy 2020. Targeted support will be provided for priority issues such as monitoring salvage logging and improving capacity for assessing environmental compliance. Support will also be provided for implementation of REDD+ requirements relating to control of timber leakage, chain of custody, and related forest certification requirements. This subcomponent will be implemented in collaboration with the GIZ-EU initiative on FLEGT which aims to establish a Voluntary Partnership Agreement (VPA) with Lao PDR. 25. Subcomponent 3C: Creating Public Awareness for Climate Change and REDD+. This subcomponent will support GoL efforts to create public awareness for climate change and REDD+ by designing a national communication strategy and a public awareness campaign. A program of public awareness and education will be developed with active participation from MAF, MoNRE, National Assembly, NPAs and other DPs active in REDD+ in Lao PDR. The strategy and design of this activity will be developed and implemented in concert with the FCPF and DGM. The strategy will use of diverse media and products to reach all ethnic groups in Lao PDR. Component 4: Project Management (IDA USD 3.19 million, FIP USD 2.13 million and Government USD 1.3 million) 26. This component will cover project management at the national and sub-national level, Technical Assistance (TA), and Monitoring and Evaluation. Finland TA will provide national and international consultants, and capacity building and training to support expansion of SUPSFM in PFAs, strengthen forest law enforcement and governance, support forest sector policy reform, build capacity for participatory land use planning and tenure strengthening, support development of sustainable livelihoods, and undertake analytical work as required to meet the overall objectives of the SUPSFM project. B. Project Financing 27. The lending instruments for the project include Investment Project Financing (IPF) with an IDA grant in the amount of USD 19.00 million equivalent and a grant from the Forest Investment Program (FIP) under the Strategic Climate Fund (SCF) in the amount of USD 12.83 million. The total project cost including GoL contribution of USD 7.56 million is USD 39.39 million. The Government of Finland is providing parallel financing for technical assistance in the amount of USD 14.5 million. Project Cost and Financing 28. The table below summarizes the project cost and financing plan. 6 Table 1: Project Cost and Financing Plan (USD million) Total IDA FIP o Project Components Project Go Financing Cost Contriutio Financing Financing (IDA+ FIP) 1.Strengthening and Expanding PSFM in Production Forest 25.35 4.98 12.22 8.15 80% Areas 2. Piloting Forest Landscape 2.42 0.48 1.17 0.78 80% 3.Enabling Legal and 3.nalig egl nd4.09 0.80 1.97 1.31 80% Regulatory Environment 4. Project Management 6.62 1.30 3.19 2.13 80% Project Costs 38.47 7.56 18.55 12.36 80% Price contingencies 0.92 0.45 0.47 3% (unallocated) Total Project Costs 39.39 7.56 19.0 12.83 81% 1 C. Lessons Learned and Reflected in the Project Design 29. SUPSFM will incorporate the several key lessons from the SUFORD project into its design including: (a) Community engagement especially in ethnic villages requires additional analysis, resources, and institutional coordination; (b) Capacity constraints will be identified and addressed early in the project cycle; (c) Financial management and procurement procedures are clear and capacity constraints (especially at sub-national levels) are identified and addressed; (d) Equity aspects are mainstreamed in project design with adequate capacity and monitoring mechanisms; (e) evaluation focuses on results indicators and monitoring includes independent and participatory mechanisms; (f) gender is mainstreamed throughout project design, staff training and outreach and (g) community investments have been shown to stabilize forest cover. Please see also Table 4, Annex 7. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 30. The Department of Forestry (DoF), MAF will be the implementing agency for the project. DoF is responsible for managing PFAs, village forests and non-timber forest products; designating areas for forest regeneration and commercial plantation and contributing to the monitoring of forest cover. DoF has responsibility for implementation of production related forest-sector policies and manages most of the forest sector technical data and expertise. The department has a good track record of working with the Bank in the implementation of the SUFORD Project. Given this mandate and background, DoF is the most appropriate implementing agency and provides a sound basis for expanding activities to additional PFAs. 31. A National Project Steering Committee (NPSC) chaired by Vice Minister MAF will be established to provide policy guidance and enhance inter-ministerial coordination. Ministries represented on this committee will include MoNRE, MoF, MPI, MoIC, and MoHA. Provincial 7 and District level Project Steering Committees (PPSC and DPSC) will be chaired by the provincial Vice Governor, and District Governor respectively, with membership from local level departments and divisions.. 32. The National Project Management Office (NPMO) will be established at DoF and will be responsible for overall project coordination and management, at the national and province level including financial management, procurement, monitoring and reporting. The NPMO will also be responsible for implementation of national level project components related to policy, legal issues, and forest sector monitoring. The NPMO will have a National Project Manager (NPM), and adequate finance and procurement staff. Finland-Technical Assistance will provide a long- term Chief Technical Adviser (CTA) who will support the NPMO. Figure 1, Annex 3 provides the organization structure of the SUPSFM project. 33. A Province Project Management Office (PPMO) under the PAFO Chief will be established at the provincial level. The PAFO Chief will be the Provincial Project Manager (PPM). The PPMO will be responsible for management and implementation of project work plans, organizing capacity building activities, financial arrangements, coordination, and monitoring. DAFO will manage project implementation at the grassroots level. A District Project Management Office (DPMO) will be established in each district with the DAFO Chief as the District Project Officer. The DPMO will be responsible for coordinating and managing forestry and livelihoods related extension services to VLFCs. 34. The project teams supporting forest management and livelihood development will facilitate establishment of Village Forestry and Livelihood Committees (VFLC) in participating villages which will become the key institutional mechanism for all project activities. The VFLC will be led by the Village Head as Chairperson and will include a Deputy Chairperson, Secretary, Treasurer, and representatives of women, elders, youth, and other village sub-sectors as members. Self-selected groups will be organized as required and agreed through the CEF process and their planned livelihood activities will be integrated within the CAP. B. Results Monitoring and Evaluation 35. The M&E system for this project builds on the systems for reporting; monitoring and evaluation in the forest sector that were developed under SUFORD. Monitoring indicators incorporated in the Results Framework are well aligned with the GoL Forestry Strategy 2020, World Bank core indicators for the forestry sector, and the FIP Results Framework. The project will finance targeted annual and periodic studies to assess project performance, and joint implementation support missions with Finland will evaluate performance against a wider range of indicators that will be incorporated into the Project Implementation Plan. Communities will also play a direct role in monitoring and evaluating project performance. A full-time monitoring and evaluation adviser is part of the technical assistance team. C. Sustainability 36. SUFORD has introduced several approaches and models which have gained acceptance with key ministries and departments in Lao PDR, including MAF, MoIC and MoNRE. 8 Participatory approaches in land use planning and mapping, forest inventory, sustainable harvesting, are now widely practiced in the forestry sector. The PSFM Operations Manual used by the project constitutes the Lao National Code for Forest Management. 37. Investments under this project are expected to make contributions to sustainability by fostering reinvestment in forests through improved monitoring and dissemination on timber revenue benefit sharing. In the medium-term support for PSFM implementation is expected to come from the hydro and mining sectors. The hydro sector will contribute increased revenue through the Forest and Forest Restoration Development Fund financed in part by a 1% levy on hydro revenues and PES from watershed protection services. In the mining sector improved planning, monitoring and oversight of associated logging will ensure increased revenue from salvage logging operations. Improved systems for monitoring and reporting on international timber flows and domestic timber sales will allow more efficient capture of associated tax revenues. Onoing legal framework revisions are expected to expand scope of participatory sustainable management of natural resources. V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Rating Stakeholder Risk Substantial Implementing Agency Risk Capacity Substantial Govemance Substantial Project Risk Design Substantial Social and Environmental Substantial Program and Donor Moderate Delivery Monitoring and Sustainability Substantial Overall Implementation Risk Substantial B. Overall Risk Rating Explanation 38. During implementation, SUFORD confronted many of the risks highlighted in the summary table above. The Department of Forestry with support from the SUFORD project was largely effective in managing and minimizing risks from grant of concessions and unauthorized logging in PFAs although notable exceptions occurred with the issuance of a salvage logging contract in Xekong Province and the resettlement of Hmong returnees in Bolikhamxai Province. The presence and impact of these risks was verified through missions, discussions with GoL counterpart agencies and follow up with the Implementing Agency and with the Prime Minister's Office as appropriate. Improved understanding of Lao PDR's political economy issues, linkages with the National Assembly, and engagement with review of land and forestry law processes, and, monitoring through remote sensing will continue to be used to anticipate and manage risks. 39. Selection of additional forest areas has been undertaken with due diligence and reference to proposed development plans such as hydro power, mining, and, infrastructure. GoL policy on promoting the adoption of sedentary agriculture in lieu of shifting cultivation, and Government 9 policy of consolidating villages to improve service delivery could also pose risks to achieving the PDO. The project preparation process has held consultations with selected project province administration to create awareness about the project, the development objectives, and the roles and responsibilities of Provincial Authorities. During start up these roles will be clarified further and formalized as required. Some key areas will be for the Project Province Governors to exercise oversight, prohibit illegal harvesting and timber sales, and avoid or minimize impacts on forests whether within PFAs or in other designated forest areas or village forests. 40. Lessons from the forest landscape level pilot to establish a coordinated information mechanism will be used to consider and advance discussion on establishing a similar mechanism at the national level. This effort will lead to creation of a transparent and coordinated institutionalized mechanism that would identify and resolve development overlaps through an enhanced information system, and linkages with key GoL institutions. 41. During preparation, the project carried out an Environmental and Social Impact Assessment (ESIA) in areas selected for interventions. The CEF was developed based on the ESIA which provides general principles, procedures and participatory processes that will be used under the project in the identification of appropriate incentives and needed technical assistance. CEF helps ensure that free, prior and informed consultation process is conducted with project communities, without regard to their ethnic background, establishes their broad community support to the CAPs that the project will support. 42. Integrated procurement and financial supervision has been effective and will be continued. Assessment of other risks and mitigation measures are based on past experience with implementing agencies, improved capacity, and continued reform in land, and forestry sector. The Operational Risk Assessment Framework (ORAF) will be updated as needed and close supervision will be applied to key issues during project implementation. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 43. The project will generate a wide range of monetary and non-monetary benefits, making the estimation of net benefits a challenge. Some of the non-monetary benefits are notable. They include greater security over rights to land, regulating and supporting services from forests, conservation of biodiversity, reduced emissions from forest degradation, carbon sequestration, and improved institutional relationships between villages and local government land related matters, and capacity building. 44. The economic analysis estimates the minimum level of benefits required to generate an economic rate of return of 12 percent, using a discount rate of 10 percent over a 25 year time period. To achieve this return on investment, the present value of the benefits needs to equal USD 52.2 million. Using the same discount rate and time period, the present value of net benefits from participatory sustainable forest management in the 41 PFAs, and benefits NTFP collection, forest restoration (including provision of fuel wood, fodder, and carbon sequestration) and village activities are examined. The present value of these benefits is approximately USD 91.8 million. The economic soundness of the project is fairly robust as the current calculations are 10 based on very conservative assumptions (see Annex 6). If prices for carbon and timber are further depreciated, the present value of benefits still justifies the project. 45. It should be noted that the economic analysis briefly described above does not account for the potential carbon revenue from reducing emissions resulting from illegal activities, or benefits from the subsistence use of NTFPs and the ecosystem services provided by forests (e.g., reduction of soil erosion). A financial analysis was carried out to assess whether the targeted beneficiaries would get sufficient monetary benefits to justify their adherence to and participation in the project. The returns were estimated based on the projected share of benefits from revenues from timber production, net returns to forest restoration activities, cash returns to NTFP collection, and net returns from select activities that could be financed by the village grant. 46. The net present value of the return is 73.2 million. This is well in excess of what is required to generate a 12 percent return (using a discount rate of 10 percent over 25 years). This financial return is, however, sensitive to changes in volume of timber extracted and price of timber. If both were to decrease significantly, the conservatively estimated financial returns would not justify the investment. B. Technical 47. SUPSFM will build and expand on progress achieved by the SUFORD project, and strengthen several aspects related to community engagement, alternative livelihoods and REDD+ implementation. The project will bring additional PFAs under sustainable forest management, pilot a forest landscape management approach and contribute to improving the enabling legal and regulatory framework in the forestry sector in Lao PDR. 48. As noted above the implementation period of the project overlaps with both the FCPF REDD+ Readiness Preparation and the FIP Dedicated Grant Mechanism so emphasis has been placed during design on collaboration and information exchange among implementing agencies and donor partners. The combined impact of these projects is expected to make an important contribution to addressing drivers of deforestation and forest degradation, including efforts to secure improved tenure and sustainable livelihoods for ethnic groups in Lao PDR. The National REDD+ Strategy for Lao PDR will be informed by implementation experience gained under SUPSFM. 49. The project will also contribute to forest law enforcement and governance efforts of the GoL and those under financing by development partners by consolidating the largest area of certified forests in Asia, bringing new areas under certification, financing capacity building and collaboration among agencies involved in forest law enforcement and international timber trade. Collaborative arrangements are being developed with the Forest Law Enforcement Governance and Trade (FLEGT) initiative funded by EU and led in Lao PDR by GIZ. 50. Technical Assistance to SUPSFM will be mainly provided by Finland, and supplemented by the Bank. Finland-TA will allow for adequate provision of quality technical assistance and provide a strong focus on monitoring and evaluation and sustainability (see Annex 2). 11 C. Financial Management 51. The Financial Management risk rating of the project is high before mitigating measures are implemented, due to inherent financial management risks, and substantial after the measures. The high-risk rating arises from the weak control environment in the country and low capacity. This is exacerbated by the fact that the Project operates at provincial and district level where capacity is low. 52. The mitigating measures include implementation of reforms under the Public Financial Management Strengthening Program. Additional measures (beyond those already being implemented in the SUFORD Project) include recruitment of a senior Financial Management consultant to be based at central level, and five local FM consultants to be based at the provincial level to provide close supervision of the financial staff, additional training in the project's financial management system, and close supervision by Bank missions. 53. The financial assessment has built upon earlier Financial Management assessments, findings of existing internal and external reviews, and earlier supervision reports of the SUFORD FM capacity and performance. The Finance and Administration Manual has been reviewed during appraisal to enhance effective Financial Management. SUPSFM will be subject to the new Bank policy on access to information. D. Procurement 54. The procurement risk rating of the project is high before mitigating measures are implemented and substantial after the measures. The high-risk rating arises from the weak regulatory framework, a shortage of qualified and experienced staff and by frequent rotation of Government staff. The SUFORD Procurement Manual has been reviewed, to further improve understanding of agreed procedures and facilitate project implementation. The manual has been cleared by the Bank and adopted, annexed to the Project Operation Manual, translated into Lao language and distributed to all staff working at the national, provincial, and district levels. 55. To strengthen transparency and accountability in procurement processes, an action plan for the project has been agreed and adopted. The NPMO will organize a procurement training workshop for the project implementing staff at start up, and periodically during the life of the project as required. 56. A Procurement Plan has been prepared and will be updated in agreement with the Task Team at least annually or as required to reflect the actual project implementation needs and improvements. Ex-post reviews. The scope of ex-post reviews by the Bank will be expanded to include checks for collusion and verification of end-use delivery. E. Social Safeguards 57. A Safeguard assessment was carried out to review the performance of the predecessor project, SUFORD, and to identify any outstanding issues and lessons learned. Overall, the audit did not find major non-compliance issues or significant negative impacts on ethnic groups or other local populations. No land acquisition or physical relocation of households had occurred, 12 and where ethnic groups were present, consultation meetings were conducted. Nonetheless, several weaknesses were identified with regard to the consultation process and the participation of ethnic minorities in key project activities. These included limited consultations and participation of target beneficiaries, inadequate capacity of project staff, weak linkages between safeguard processes and technical processes, and weak monitoring and evaluation mechanisms. Safeguard measures under the new project incorporate these lessons and build on improvements in Safeguard performance in the final years of SUFORD (see para 59). 58. SUPSFM project impacts include potential loss of livelihood due to restriction of livelihood activities or access to forest resources. The impacts, however, are expected to be minor because the Project would preserve the current land and resource use patterns to the extent that is technically possible and environmentally sustainable, based on participatory land use planning processes and will provide alternative livelihoods when necessary. The project will also seek to introduce more sustainable resource use and expand livelihoods options whether or not villagers are economically displaced. Land acquisition is expected to be minor, if any, because most civil works would be carried out on un-encroached public land. 59. The project's core activity is to work with communities that are reliant to varying degrees on forest resources for their livelihoods. In order to address potential negative impacts described above, and enhance positive impacts and also to ensure target populations are sufficiently informed of and meaningfully participate in project implementation processes, a CEF has been prepared in accordance with World Bank policies, OP 4.10 on Indigenous Peoples and OP 4.12, on Involuntary Resettlement. OP4.12 is triggered to ensure that natural resource access do not disproportionately affect any group within the community and are offset with viable alternative options to ensure that the households livelihood in project villages are maintained or enhanced. All project communities, be they ethnic groups or Lao, will be engaged in a culturally appropriate way to ensure broad community support. The CEF includes an Ethnic Group Planning Framework, access restriction Process Framework and a Resettlement Policy Framework that have been disclosed both locally and through the World Bank Infoshop. 60. Building on the SUFORD experience gender has been mainstreamed in project design and steps have been taken to ensure gender issues and the special needs of women receive adequate attention. A gender and ethnic group advisor will be part of the TA team and responsible for gender issues. Women facilitators with local language skills will be part of project extension and livelihood teams, especially in minority ethnic group communities. CEF consultations, endorsement of CAPs, and PLUP agreements will ensure that women are active participants, and receive due representation in all decisions. All data collected for baseline, livelihoods, forest resources, surveys, and subsequent analyses and assessments will be disaggregated by gender. An annual gender assessment will be conducted and results will be used during implementation to evaluate and improve CAPs. 61. Grievances that result from the implementation of project activities will be resolved through a grievance mechanism. The grievance mechanism will be based on key principles that ensure that project participants concerns and grievances are addressed in a prompt and timely manner, and that measures or livelihood support is provided in accordance with GoL and World Bank safeguard policies. The grievance mechanism will be in line with existing policies, 13 strategies, and regulations on redressing village grievances as defined by GoL and will be institutionalized in each village by a selected group of people, involving ethnic minorities, women, and representatives of other vulnerable groups in the village. 62. The project grievance redress mechanism will consist of four steps with guidelines outlined for each step. Grievances will be addressed at the village, district, province, and national level. A Complainant also retains the right to bypass this procedure and can address a grievance directly to the NPSC or the National Assembly, as provided for by law in Lao PDR. At each level grievance details, discussions, and outcomes will be recorded in a Grievance Logbook. 63. In order to address risks associated with the government's ongoing program of village consolidations, the project will not work in villages that will be consolidated within the life of the project. In villages that have already been consolidated project finance can be used only if land and resource tenure issues associated with the consolidation have been resolved to the satisfaction of villagers, and there is sufficient agricultural land for improving, or at least maintaining, their livelihoods. 64. Regarding overlapping concessions, an inventory of concessions in project provinces will be periodically updated and discussions will be held and actions agreed upon when necessary with participating provincial governments and sponsoring ministries to avoid or minimize impacts in project financed areas. F. Environment 65. No significant long-term or large-scale negative environmental impacts are anticipated, and medium and longer term positive impacts are expected from carbon sequestration and avoided deforestation. Estimates of the quantity of carbon stored as a result of this project are detailed in Annex 8. Nevertheless, the project has been rated category "A" in recognition of the number of safeguard policies triggered (7) and the dual nature of the project objective: to both utilize forest resources for poverty alleviation while managing them in a sustainable manner. The category "A" classification is also justified in light of a complex implementation context with shifting institutional roles, weak counter-part implementation capacity and a dynamic policy and regulatory environment. Based on FAO's definition of primary forests, there are no plans for any logging of any sort by the project which will affect Laos' small remaining area of primary tropical forests. 66. Environmental Assessment OP/BP 4.01 - An ESIA has been conducted and a Community Engagement Framework (CEF) has been prepared by the implementing agency. Specific social and environmental safeguard issues will be screened for and identified through the Environmental Management Plan (EMP) and the CEF process and further validated through PLUP, and integrated into CAPs and forest management plans. Guidance on OP/BP 4.01 implementation will be included in the program level Operations Manual. 67. SUPSFM includes parallel financing from Finland for Technical Assistance that will be managed through joint implementation support missions and will follow WB Safeguard Policies. Parallel financing proposed by KfW in forest landscape areas is expected to follow the same 14 access restriction policies outlined by GoL in the CEF and to be consistent with the World Bank Safeguards policies. G. Other Safeguards Policies Triggered 68. Natural Habitats OP/BP 4.04 - Project areas include designated forests in three categories: Production, Protection and Conservation. Identification and mapping of sloping lands, riparian zones, and High Conservation Value Forest (HCVF) and appropriate management in designated project areas will be identified during the forest management planning process. 69. Forests OP/BP 4.36 - Bank-supported projects in Lao PDR have contributed to the development of the legal and regulatory frameworks, financial incentives and capacity to undertake sustainable forest management planning at national, provincial and local levels. The achievement and renewal of Forest Stewardship Council certification for a growing area of production forest in Lao PDR indicates sustained progress. Increasing the area of managed forest and strengthening FLEG will diminish the scope for unplanned, unsustainable logging. 70. Pest Management OP 4.09 - Pesticides use during project implementation in connection with forest restoration and alternative livelihoods activities is anticipated. The EMP recommends approaches to minimize pesticide use, and alternatives, including integrated pest management. 71. Physical Cultural Resources OP/BP 4.11 - The environmental screening process will assess and confirm whether selected project areas are located in or near to known areas with physical cultural resources. A "chance find" procedure for confirming and protecting physical cultural resources identified during project implementation is included in the EMP. 72. Indigenous Peoples OP/BP 4.10 applies because the project will engage with indigenous communities, known locally as Ethnic Groups who meet the criteria characterizing indigenous peoples as set out in OP 4.10. An Ethnic Group Planning Framework (EGPF; locally equivalent to the IPPF) has been developed and is included in the CEF. Areas with ethnic populations that will be included in the program will be identified during project implementation. In the selected sites Social Assessments and free, prior and informed consultation process will be conducted. The CEF will be used to develop a site-specific CAP that will be prepared on the basis of community participation. CAPs will serve to provide for culturally appropriate project benefits to indigenous peoples, addressing project impacts, if any, as well as substantiating and sustaining community support. 73. Involuntary Resettlement OP/BP 4.12 - A PF and RPF have been developed and included in the CEF. Communities will choose whether or not they wish to engage in participatory management of the forests. The participatory processes provided under CEF will apply to all participating villages without regard to ethnic background. No significant physical relocation is anticipated; however a resettlement policy framework has been prepared for use in the unlikely event that it is needed in specific localized instances. 15 ANNEX 1: RESULTS FRAMEWORK AND MONITORING Country: Lao People's Democratic Republic Project Name: LA-Scaling-Up Participatory Sustainable Forest Management (P130222) Results Framework Project Development Objectives PDO Statement The project development objective is to execute REDD+ activities through participatory sustainable forest management in priority areas and to pilot forest landscape management in four provinces. Project Development Objective Indicators Cumulative Target Values Responsibility Unit of Data Source! Indicator Name Core Measure Baseline Frequency for Data YR1 YR2 YR3 YR4 End Target Methodology Collection 1.Forest area brought under management plans Hectare 1.283 m 1.283 m 1.283 m 2.301 m 2.301 m 2.301 m Annual Annual Report Department (Ha) of Forestry Department of 2. Forest area brought under forest landscape Hectare 0 0 1.080 m 1.080 m 2.682 m 2.682 m Annual Annual Report Forestry; management plans (Ha) Provincial Governors 3. People in forest & adjacent community with Number 0.309 m 0.309 m 0.309 m 0.367 m 0.424 m 0.424 m Annual Annual Report Department monetary/non-monetary benefit from forest of Forestry 3a. People in targeted forest & adjacent community with increased benefits from Number 0.145 m 0.145 m 0.145 m 0.172 m 0.198 m 0.198 m Annual Annual Report Deparet forest-female of Forestry 3b. People in targeted forest & adjacent Number 0.157 m 0.157m 0.157m 0.197m 0.237 m 0.237 m Annual Annual Report Department community with increased benefit from N of Forestry 16 forest-Ethnic minority/ indigenous 4. Rate of forest cover loss/gain in target areas Number 8,694 6,836 4,814 Annual MRV Report National REDD+ compared to untreated areas (0.28%) (0.22%) (0.15%) Office 5. Enhanced carbon storage from improved National REDD forest protection and restoration in selected Number 0 1,445 3,312 6,421 8,555 14,227 Annual MRV Report Office PSFM areas Annual 6. Reduced emissions from deforestation and Report; Department Number 0 24,282 48,563 72,845 97,125 121,407 Annual Reference forest degradation in selected PSFM areas Emissof Forestry Levels Intermediate Results Indicators Unit of Cumulative Target Values Data Source/ Responsibility Indicator Name Core Measure Baseline Frequency Methodology for Data YR1 YR2 YR3 YR4 TEnd Target Collection 1. Strengthening and Expanding PSFM in PFAs 1.1 Percentage of beneficiaries who receive Percentage NA 50 50 60 70 80 Annual Technical Department technical services of adequate quality Audit of Forestry 1.1 a Percentage of VFLC who receive Technical Department services of adequate quality in Forest Percentage NA 50 50 60 70 80 Annual Audit of Forestry Management 1.1 b Percentage of production groups who Technical Department receive services of adequate quality in Percentage NA 50 50 60 70 80 Annual Audit of Forestry Livelihood Support AF 1.2 Percentage of participants who perceive Mid-term Beneficiary Department Percentage 0 60 80 perception the CEF process is adequate [n and Closing pe of Forestry survey Department of Square Forestry; 1.3 Aggregate forest area brought under kilometer 12,830 12,830 12,830 23,360 23,710 23,866 Annual Annual Report Department of strengthened tenure (km2) Land Management 17 1.3a Forest area brought under Square Department kilometer 12,830 12,830 12,830 23,010 23,010 23,010 Annual Annual Report Deparet strengthened tenure (MoU) Li (km2) of Forest 1 .3b Forest area brought under Square Dprmn 13lret are rgt nde ometer 0 0 0 200 400 400 Annual Annual Report Department strengthened tenure (Forest Lease) Li (km2) of Forest 1.3c Forest area brought under Square Department of strengthened tenure (Community Land kilometer 0 0 0 150 300 456 Annual Annual Report Land Title) O (km2) Management 1.4 Percentage of CAPs and Village Deatmn Developentge PAs nd iplen Percentage 68 68 80 90 100 100 Annual Annual Report Department Development Plans under implementation of Forestry Square Department 1.5 Aggregate forest area under certification L kilometer 3,378 3,378 3,378 4,750 6,500 6,500 Annual FSC Report (kilmete of Forest (km2) 1.5a Forest area under certification (FSC Square Department Forest Management Standard) kilometer 806 806 806 1,250 1,500 1,500 Annual FSC Report of Forest (km2) 1.5b Forest area under certification (FSC Square Department Controlled Wood Standard) kilometer 2,572 2,572 2,572 3,500 5,000 5,000 Annual FSC Report of Forestry (km2) 2. Piloting -Forest Landscape Management Department of 2.1 Number of FLM Frameworks developed 0 2 2 4 4 Anual Suey Forestry; under the project that are assessed as complete Provincial Governors Department of 2.2 Areas with FLM Annual Plans under Hectare Forestry; 2.2lreatith FeHear 0 0 0 1,080 m 1,080 m 1,080 m Annual Annual Report Department of implementation LJ (Ha) Frs eore Forest Resources Management 3. Enabling Legal and Regulatory Environment 3.1 Reforms in forest policy, legislation or Yes/No No Yes Yes Yes Yes Yes Annual Annual Report Department other regulations supported X of Forestry 18 Regulation 3.2 Regulations required to support national Regulation complete sustainable sector financing and sub-national wihation w h partial; not Department implementation of PSFM and REDD+ are Text regularly implementa Annual Annual Report of Forestry identified, drafted and submitted for monitored tion government review monitored regularly Department of 3.3 Number of breaches of forest law detected Number 900 1080 970 860 750 650 Annual Annual Report Foret on I I I I II IForest Inspection 3.4 Percentage of investigations of breaches of 70 75 80 80 Annual Annual Reportof r. Percentage 60 65 70e5p0a8rAnuleAnultRpotf forest law initiated and successfully concluded Forest Inspection Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Forest area brought under management plans This indicator measures the forestland area, which, as a result of Bank investments, has been brought under a management plan. This includes Production and Protection forests as well as other forests under sustainable management. The baseline value will be 1.283 million ha forest areas under existing SUFORD management plans. Forest area brought under Forest Landscape and agreed by relevant stakeholders This indicator measures the area of forest included in the Forest Landscape from designated forest areas and village forests. People in forest and adjacent community with monetary/non-monetary benefit from forest This indicator measures the extent to which local people have seen improved livelihood as a result of the intervention. This may cover both monetary income and non-monetary benefits like improved and easier access to fuel wood as well as cultural and spiritual services. People in forest and adjacent community with benefits from forest - female Breakdown People in forest and adjacent community with benefit from forest - Ethnic minority/indigenous Breakdown Rate of forest cover loss in target areas Hectare (Ha) Enhanced carbon storage from improved forest protection and restoration in selected PSFM areas tCO2e Reduced emissions from deforestation and forest degradation in selected PSFM areas tCO2e Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Percentage of beneficiaries who receive technical services of adequate quality Number Percentage of VFLCs who receive services of adequate quality in Forest Management Number Percentage of production groups who receive services of adequate quality in Livelihood Support Number 19 Percentage of participants who perceive the CEF process is adequate Number Aggregate forest area under strengthened tenure Square kilometer (km2) Forest area brought under strengthened tenure (MoU) Square kilometer (km2) Forest area brought under strengthened tenure (Forest Lease) Square kilometer (km2) Forest area brought under strengthened tenure (Community Land Title) Square kilometer (km2) Percentage of CAPs and Village Development Plans under implementation Percentage Aggregate forest area under certification Total forest area under certification at end of project Forest area under certification (FSC Forest Management Standard) As defined by prevailing Forest Stewardship Council (FSC) Principles and Criteria Forest area under certification (FSC Controlled Wood Standard) As defined by prevailing Forest Stewardship Council (FSC) Principles and Criteria Number of FLM Frameworks developed under the project that are assessed as complete FLM Frameworks approved as per completeness criteria Areas with FLM Annual Plans under implementation FLM target landscape areas with approved annual plans Reforms in forest policy, legislation or other regulations supported Description of reforms in forest policy, legislation or other regulations supported by the project Regulations required to support national sustainable sector financing and sub-national Description and number of regulations submitted to government for review implementation of PSFM and REDD+ are identified, drafted and submitted for government review Number of breaches of forest law detected Number of breaches of forest law detected and registered as per DoFI criteria and procedures Percentage of investigations of breaches of forest law initiated and successfully concluded Percentage of investigations of breaches successfully concluded as per DoFI criteria and procedures 20 ANNEX 2: DETAILED PROJECT DESCRIPTION 1. The SUPSFM project has programmatic linkages with two other projects under FIP; Protecting Forests for Ecosystem Services co-financed by ADB with a strong focus on Protection and Conservation forests; and the Smallholder Forestry Project co-financed by IFC that focuses on smallholder farmer woodlots. Coordination among FIP MDBs is led by the World Bank and includes efforts to promote an enabling policy environment; participation in annual program review forums; and joint planning at the field level for effective implementation. Component 1: Strengthening and Expanding PSFM in PFAs 2. This component supports strengthening and expanding Participatory Sustainable Forest Management (PSFM) to cover a total of 41 PFAs and implementation of Village Livelihoods Development (VLD) to support forest based livelihoods in target communities. Component 1 includes two subcomponents: (a) Developing partnerships to increase implementation capacity, and (b) Community engagement in PSFM and VLD. Subcomponent ]A: Developing Partnerships to Increase Implementation Capacity 3. This subcomponent will strengthen and expand capacity for project implementation. Capacity assessment and capacity building efforts will support both the implementing agency DoF and implementing partners. Partnerships will be strengthened to support PSFM and VLD implementation in key areas described below. 4. During the first year of implementation this subcomponent will finance a capacity assessment of project requirements and develop a plan to build the skills required to implement all project activities. Enhanced capacity building and skills development will include technical forest management, facilitation and communication skills, improved financial management, gender equity, training of trainers, emerging methodologies for REDD+ requirements, fair valuation of environmental services, options for equitable distribution of benefits, community mediation, alternative dispute resolution methods, and monitoring and evaluation. This subcomponent will also support development of strategic partnerships by signing of collaborative arrangements with National Institutions and Non-Profit Associations (NPAs; used to describe CSOs in Lao PDR). PSFM and VLD Teams, composed of members from various institutions, will be trained in participatory methodologies including; facilitation and communication skills, entrepreneurship, grievance redress, and methods to ensure that vulnerable, women, and forest-dependent communities are included in all project activities. Regional and international agencies will also be contracted to provide strategic skills as needed. To enhance capacity for consolidation and expansion of forest areas under independent certification, this subcomponent will finance the creation of a Forest Certification Unit (FCU) within DoF. 5. PSFM systems (regulations, guidelines, training programs and monitoring tools) were developed during SUFORD. To enhance this work, support for developing or improving existing systems related to REDD+, MRV, PES, and community engagement will be developed under this subcomponent through investments and modular training programs supported by Technical 21 Assistance from Finland. Key social, institutional, and technical guidelines for implementation of PSFM and VLD will be reviewed and revised. 6. Implementation partners from line agencies, academia, and civil society will be engaged to support delivery of PSFM and VLD activities under this subcomponent through workshops, stakeholder fora, training events, etc. The Lao network of national and provincial universities will be engaged in supporting monitoring and evaluation of project support for livelihoods, gender equity, ethnic group participation, watershed management, biodiversity values, and related issues, through MOUs and project-financed training events. Universities will also be engaged to support the establishment and re-measurement of permanent sample plots to determine forest stand growth and mortality. The project will finance operating costs, technical assistance consultancies and the purchase of inventory equipment, while the universities would be expected to provide the technical staff. Monitoring efforts will be extended to determine carbon content in above- and below-ground biomass for REDD+ purposes. Student internships financed by this subcomponent will involve students and faculty in field research in project sites in NTFP, gender, equity, watershed management, biodiversity values, and related issues. 7. The National Agriculture and Forestry Research Institute (NAFRI), as well as universities, will be engaged through MoUs to conduct value chain analysis of selected NTFPs and agroforestry products. The project will finance operating costs, technical assistance consultancies and the purchase of inventory equipment, while the universities would be expected to provide the technical staff. Value chain studies will be conducted early in the project cycle (first 6 months) to provide location specific information to VLD Teams, who in turn will use this information to support communities' assessment of alternative livelihoods. 8. Furthermore the project will finance consultancy fees, travel and related costs for regional and international professional resources. Such resources will be used to provide strategic skills such as training of trainers, emerging methodologies for REDD+ requirements, fair valuation of environmental services, options for equitable distribution of benefits, gender budgeting and social audits, and community mediation and alternative dispute resolution methods. 9. In most cases after each training event, the participants would be expected to return to a demonstration village to take part in a practicum under the supervision of a national consultant, financed by the project The practicum will provide an opportunity for project-financed PSFM and VLD team members to experience first-hand how the modular PSFM or VLD operations are to be conducted. After the practicum, each team will return to their assigned villages to complete the given set of village work modules covered in the preceding training. Seven villages or less will be assigned to each PSFM or VLD Team to facilitate the development of a close working relationship between the teams and the villagers. Subcomponent JB: Community Engagement in PSFM and VLD 10. Community engagement will be undertaken through implementation of a Community Engagement Framework (CEF) and an Environmental Management Plan (EMP), then further validated through participatory land use planning (PLUP) and integrated into community action plans (CAPs) at the village level and forest management plans at the sub-FMA level. The Community Engagement 22 Framework (CEF) will guide both planning and implementation of site-specific Community Action Plans (CAPs) that identify local social, natural and institutional capital and identify options to finance village livelihood grants for sustainable livelihoods (including forest-based livelihoods). CEF will also identify needs of vulnerable people, women and ethnic groups and issues related to tenure, access and resource utilization. Tenure, access and resource rights in PFAs will be strengthened by signing a MOU with the communities on forest management and rights and responsibilities therein; by providing collective leases to Villages involved in forest restoration; and by providing a community land title in village-use forest outside PFAs. 11. Financing will be provided for drafting forest management plans including but not limited to field inventory design, data collection and analysis procedures, and mapping actual and proposed land use options. 12. The CEF will be implemented in stages, as follows: * Stage 1: Selection of participating villages and team formation. This stage will cover the selection of participating villages following a set of eligibility criteria, PSFM and VLD team formation and orientation, and preparatory studies, such as value chain analysis, related to livelihood options, their requirements, markets, and viability. * Stage 2: Community awareness and resources diagnostics. This stage will cover project disclosure and community consultation on project plans, initiating free, prior and informed consultation process, and community resource profiling. * Stage 3: Participatory planning: consultations, consensus, and agreement. This stage will cover participatory land use planning (PLUP) and agreement on components of PSFM plans and Community Action Plans for livelihoods development. It will also include PSFM planning that will be undertaken after community engagement, with the resulting PSFM plans presented in a validation and approval process that will include stakeholders' consultation workshops at different levels including at village level. * Stage 4: Implementation of Community Action Plans. This stage will cover the implementation of PSFM plans and CAP, and implementation of grievance mechanism, and monitoring and evaluation consisting of village self-monitoring (participatory monitoring) and project monitoring, in addition to monitoring by the PIU. 13. Community engagement events for PSFM and VLD will be modular and based on two linked modules that will each lead to the preparation and implementation by participating villages of PSFM plans or CAP for livelihoods development. CAPs will be implemented by the VFLCs with support from the teams, government line agencies, mass organizations, and NPAs through Technical Service Centers (TSCs). A graphic flow model of each PSFM/VLD sequence will be discussed and agreed with each village. Once agreed, the flow model will be followed in the conduct of community engagement events related to PSFM or VLD in the village. The villagers will then be able to trace the development in PSFM and VLD as they and their development partners go through each event and subsequent operations in the sequence. Considering that the 41 target PFAs are under different stages of PSFM implementation, the community engagement process and EMP application will have different starting points 23 depending on the implementation stage. The approach will be reviewed and revised as needed during joint implementation support missions, to incorporate experience and lessons learned. 14. This subcomponent will finance the implementation and monitoring of activities identified in CAPs and PSFM management plans and will provide continuing implementation support to PFAs with existing PSFM management plans (developed during SUFORD and SUFORD AF). This will include review, revision and establishment of mechanisms for updating existing PSFM plans including profitability calculations. The project will prepare proposals for innovative financing including pilots on PES/PWS, eco-tourism, carbon payments etc. which will serve as inputs for determining improved approaches to securing sustainability and self- financing in the forestry sector. This subcomponent will finance participation of District Agriculture and Forestry Office (DAFO), Department of Agriculture Extension and Cooperatives (DAEC), DFRM and other implementation partners including their support for training and assisting with REDD+ related monitoring and benefit sharing. It will also finance operating costs for TSCs at district level that house the livelihood and forest management teams. In districts where TSCs have not yet been established the project will establish new TSCs. The Provincial Agriculture and Forestry Office (PAFO) will be responsible for monitoring and reporting on the share of timber revenue returning to communities and measurement of project impacts on community livelihoods. Project implementation and M&E will be supported by Project Assistants assigned two per district in areas with new PFAs and one per district in areas with PFAs that were financed by SUFORD and SUFORD AF. Component 2: Piloting Forest Landscape Management 15. The importance of managing large forest landscapes is now recognized both domestically and internationally. A forest landscape is an area which is largely forested, and includes inter alia other landscape elements such as settlements, agricultural and other production areas. Forest Landscape Management (FLM) offers a cross-sectoral and integrated approach to manage natural resources use and conservation, anticipate and mitigate environmental impacts from overlapping development activities, plan and monitor climate change mitigation/adaptation efforts, and identify opportunities to reduce poverty. Landscape level planning can help to organize and optimize a wide array of land uses, while simultaneously providing for the protection and sustainable use of forests -- an important intermediate step toward national adoption and implementation of REDD+. Subcomponent 2A: Developing Methodologies and Frameworks for Forest Landscape Management 16. With support from this subcomponent FLM approaches will be developed in large forest landscapes in four northern provinces, namely Bokeo, Louangnamtha, Oudomxai and Xaiyabouly. Perspectives from other agencies working in the area will be incorporated into the development of the approaches, through inter alia, workshops, training events and bilateral meetings. 17. Effective planning of FLM will include (a) participation of stakeholders and creation of a platform for dialogue among interested parties; (b) ) process and criteria for selection and delineation of targeted forest landscapes; (c) participatory formulation of integrated spatial plans 24 to facilitate discussion and coordination among stakeholders; (d) REDD+ related measurement and reporting at forest landscape scale and (e) drafting of framework agreements. 18. This sub component will support the development and adoption of a landscape management approach for forest and biodiversity resources in four northern provinces. Support will be provided to convene stakeholder discussions and consultations at district, provincial and national levels to produce key components of a FLM framework agreement, including but not limited to, definition of roles and responsibilities, inter-agency coordination mechanisms including information sharing protocols, revenue generating opportunities, benefit sharing arrangements and conflict resolution mechanisms. Benefit sharing arrangements for restoration of degraded areas and carbon will be developed. Activities financed under this subcomponent will include support for coordinated management planning, elaboration of methods for REDD+ related Measurement, Reporting, and Verification (MRV) and Reference Emission Levels (REL) at the landscape scale, and improved coordination on forest law enforcement. Processes used during development of the FLM framework agreements will be documented so that methodologies can be used to support replication in other landscape areas. This subcomponent will be implemented in close collaboration with the ongoing Finland supported project on strengthening national spatial capacity in Lao PDR for sustainable natural resource management. Subcomponent 2B: Establishing Forest Landscape Pilots 19. Management plans for forest landscapes developed under subcomponent 2A will be implemented by using participatory approaches with communities and stakeholders. The objectives and outcomes of these plans will be consistent with management plans that have been formally endorsed for designated forest areas and plans for village forests outside designated forest areas will also be incorporated. Support will be provided under this subcomponent for implementation of CEF and PSFM planning in village-use forests outside of designated forests. 20. Support will also be provided for designing of provincial pilots based on the mechanisms and frameworks developed under subcomponent 2A These provincial pilots will cover activities, coordination and information sharing between Protection and Conservation forests adjoining financed PFAs in Louangnamtha and Bokeo Provinces. 21. The project expects to liaise closely with other national, multi-lateral and bilateral efforts related to landscape management to help harmonize approaches and increase implementation synergies on the ground. For example, ADB and KfW have both agreed to invest in landscape scale biodiversity conservation areas and conservation corridors using participatory approaches. SUPSFM expects to collaborate closely with the ADB financed Biodiversity Conservation Corridors Project currently under implementation in three southern provinces (Champasack, Xekong, and Attapeu. ADB support for managing biodiversity in Southern Laos is already under implementation and GoL expects to co-finance this effort with FIP resources. KfW has signed an agreement with GoL to support the development of a biodiversity corridor approach in Northern Laos. The KfW program, which is currently under development, will be implemented in Protection and Conservation forest areas adjoining SUPSFM financed PFAs in Louangnamtha and Bokeo Provinces. KfW is expected to follow the same access restriction policies outlined by GoL in the CEF and to be consistent with the World Bank Safeguards policies. Outcomes of this 25 subcomponent will provide inputs for the preparation of the REDD+ strategy under the REDD+ Readiness implementation being financed by FCPF. Component 3: Enabling Legal and Regulatory Environment 22. This component aims to support and strengthen the legal and regulatory frameworks for implementation of the PSFM and REDD+ at the national level and at the subnational level including land use planning at the community level that is critical to the management of forest resources. The activities in this component will focus on (a) providing advice for strengthening the legal and regulatory frameworks for FLM, for enhanced monitoring of timber management and salvage logging, and for providing secure communal tenure to participating villages; (b) strengthening forest law enforcement and governance by enhancing capacity, and augmenting resources; and (c) creating public awareness for climate change and REDD+. 23. The activities under Component 3 will have crucial and direct effects on the successful implementation of field-based activities particularly those of Component 1, as well as in shaping the forest landscape management plans that will be formulated as part of Component 2. Subcomponent 3A: Strengthening Legal and Regulatory Frameworks 24. This subcomponent will support development of legal and regulatory frameworks for implementation of PSFM and frameworks for FLM. At the national level this subcomponent aims to provide advice and recommendations to strengthen implementation and monitoring of ongoing efforts to establish sustainable sector financing. This subcomponent will also contribute to strengthening the monitoring of timber management and salvage logging at the national and sub-national level by improving monitoring and reporting on domestic timber processing and sales, and tracking the share coming from certified sources and on international timber trade (finished, semi-finished and unfinished products); and at the national level by supporting the improvement of the regulatory mechanisms for planning and monitoring salvage logging. 25. This subcomponent will provide technical assistance to assist MoIC, in collaboration with MAF and MoNRE, to advise on regulatory restructuring and policy reviews for ensuring inter- linkages between timber processing and trade-related legislations and sustainable management of forest resources, especially for the timber portion from certified sources of PFAs. 26. Salvage logging is currently governed exclusively by the terms of concessional agreements for infrastructure development projects. This portion of timber harvesting and trade falls outside of the legal and regulatory framework for sustainable use and management of the forestry resources in the country. To achieve the overarching objective of sustainable forest management, it is critical that salvage-logging operations are brought under more formal monitoring and regulatory control. This would ensure transparency, traceability and control in monitoring these extractions. Decisions on salvage and concessional logging need to be harmonized and aligned with the existing governance framework. Thus, this subcomponent also finances technical assistance to review the current practice of salvage and concessional logging with the introduction of international best practices and proposals for the associated regulatory reforms 26 27. In addition, support will be provided for strengthening and implementing regulatory frameworks for communal forest tenure at the sub-national level. The activities will finance training, dissemination and use of the new regulations, and ongoing improvements of the legal and regulatory framework to ensure effectiveness and efficiency of legal instruments and procedures. The current Forest Law allows for designation and allocation of land as Village Forest following a defined process of PLUP Land is being allocated for this purpose under SUFORD in PFAs through the existing forest and land use planning process however the durability and legal resilience of these agreements remains untested. Both MAF and MoNRE have signaled their intention to work together to implement expedited land use planning and titling during the current plan period, and mechanisms will be established for this collaboration to enhance land use planning and titling. Work on the legal and regulatory framework for communal tenure of forestland will build on the experience of the DPs, and recently granted community titles in the Nakai district, Khammouane province, in conjunction with the Nam Theun 2 Project, as these provide precedent and case studies to inform the 2013 revision of the land and forest regulatory framework. Support will also be provided to propose improved legal and regulatory frameworks to enable implementation of REL and MRV systems at sub-national level. REL and MRV systems will be developed by the REDD+ Readiness process under FCPF. Subcomponent 3B: Strengthening Forest Law Enforcement and Governance 28. The subcomponent will contribute to strengthening forest law enforcement and governance by supporting environmental compliance and sustainability aspects of the National Forest Law Enforcement Strategy 2020. For example targeted support will be provided for priority issues such as monitoring salvage logging, REDD+ requirements, and improved capacity for environmental compliance. GoL capacity to comply with REDD+ requirements of timber leakage, chain of custody, certification standard requirements, transparent monitoring and reporting, REL and MRV requirements, are all emerging issues for DoFI which will receive project support. At the national level this subcomponent will support improved monitoring and controls in relation to salvage logging. 29. To achieve the intermediate objective of this subcomponent, the project will finance a technical expert to assist DoFI and other enforcement agencies of GoL on operational planning, formulating and operationalizing protocols, guidance and standard operating procedures subsidiary to the forestry law and related legislations, and to provide advisory support for effective application of existing measures and techniques in law enforcement. Support will also be provided for acquisition of remote sensing imagery and analysis to evaluate changes in forest cover over time. This will ensure that DoFI has adequate capacity in planning and managing of law enforcement operations at the national level as required by the National Forest Law Enforcement Strategy 2020. Operational support for DOFI STEPP, information systems development, capacity building for investigation (basic and advanced) for establishment of a Rapid Response team; support to organisational development and revision of the legal and policy framework. Operations be supported at provincial level (including investments in transportation) to make DOFI visible and effective.Training and dissemination efforts will also be financed at the subnational level through this subcomponent. Technical assistance to provide advice on how to incorporate key requirements under REDD+ for timber leakage, chain of custody, REL and MRV for compliance and enforcement in the National Law Enforcement Strategy. 27 30. DoFI will collaborate with related enforcement agencies to conduct compliance check and monitoring extractions, transportation and cross-border trade of timber originating from salvage logging. In particular, to review and confirm the correlation between salvage logging operations, environmental compliance certifications and clearing required for infrastructure development the project would support purchase and analysis of satellite imagery for selected sites. High-resolution aerial photography available from the National Geographic Department will also be used as required in this effort. This aims to ensure that salvage and concessional logging will not be ad hoc but better managed to ensure sustainable use of forest resources. 31. This subcomponent will be implemented in parallel with the GIZ-EU initiative on FLEGT which aims to establish a VPA with Lao PDR. A grant agreement to support the FLEGT readiness process has already been signed by GIZ-EU with GoL. A formal agreement will be discussed with GIZ-EU once the project becomes operational in 2013. Subcomponent 3C: Creating Public Awareness for Climate Change and REDD+ 32. This subcomponent will support GoL efforts to create public awareness for climate change and REDD+ by designing a national communication strategy and a public awareness campaign, in close coordination with the parallel FCPF, and DGM programs. Successful implementation of the program will require active and sustained support from the citizens of Lao PDR. To achieve this support a program of public awareness and education will be developed along with MAF, MoNRE, the National Assembly, NPAs and other DPs active in REDD+ in Lao PDR. Key constituencies include (but are not limited to) the Provincial and District Authorities and Provincial and District Line Agency Staff as well as legislators from the Provinces engaged in project implementation. The overarching strategy and design of this activity will be developed and implemented in concert with the FCPF and DGM. The strategy will give due consideration to use of diverse media and products to reach all ethnic groups in Lao PDR. 33. National and sub national public awareness campaigns will be conducted, based on the communications strategy. Mass media such as radio, television, and print will be used and diversity of products produced for different audiences. Design and broadcast of media products will ensure these are culturally relevant and visually and linguistically accessible to ethnic groups in Lao PDR. Progress and lessons on REDD+ will also be shared with a regional and global audience. Component 4: Project Management 34. Component 4 will operate at all levels: national, provincial, district, and village. It will be concerned with (a) efficient project implementation and collaboration among various institutions at each level, (b) provision of technical assistance, and (c) project monitoring and evaluation. 35. This component will cover project management at the national and sub-national level, Technical Assistance (TA), and Monitoring and Evaluation. Finland TA will provide national and international consultants, and capacity building and training to support expansion of 28 SUPSFM in PFAs, strengthen forest law enforcement and governance, support forest sector policy reform, build capacity for participatory land use planning and tenure strengthening, support development of sustainable livelihoods, and undertake analytical work as required to meet the overall objectives of the SUPSFM project. 36. National and sub-national project management will be undertaken through Project Management Offices (PMOs) that will be established at national (NPMO), provincial (PPMO), and district (DPMO) levels. Each PMO will be headed by a Project Manager at that level. The PMOs will act as the Secretariat of their respective Project Steering Committees (PSCs) and will organize the annual and non-regular meetings of the PSCs. The composition of the PSCs is provided in the section on institutional arrangement. 37. The annual report and annual work plan at each level will be presented for approval by the respective PSC during annual meetings. The PMOs will then implement the approved annual work plan and other decisions of the PSCs. To ensure collaboration and coordination, a Project Coordinator will be appointed in each participating agency at each level. The Project Manager will work with the Project Coordinator to ensure that project activities that are the responsibility of the given agency is properly and timely implemented. Project Coverage of Field Implementation 38. The Project will continue to provide incremental support for monitoring and implementation of village development and forest management activities in the 16 PFAs that have management plans prepared during SUFORD, but will expand PSFM planning and implementation to cover and additional 35 PFAs, including 7 PFAs located in three northern provinces (Bokeo, Louangnamtha and Oudomsay). The Project will thus support the implementation of PSFM in a total of 41 PFAs with an aggregate area of 2.30 million ha. Table 2 lists the 41 PFAs and provides some relevant information about them. Table 2: PFAs supported by SUPSFM Area Mgmt Districts Sub- Villages Province PFA name (ha) Plan (#) FMAs (#) Prepared (#) SUFORD PFAs (2003-08) Champasack Pathoumphone 27,043 2007 1 4 36 Champasack Silivangveun 37,590 2007 2 4 43 Khammouane Dong Phouxoi' 147,406 2007 3 12 91 Khammouane Nakathing-Nongkapat2 105,416 2007 3 11 71 Salavan Lao Ngam2 74,580 2007 4 10 66 Salavan Phou Talava' 61,772 2007 3 7 27 1 With FSC-certified sub-FMAs, total of 5 sub-FMAs in 3 PFAs located in Kharnmouane and Savannakhet 2 With FSC controlled wood certification, total of 25 sub-FMAs located in Salavan and Savannakhet 29 Savannakhet Dong Kapho3 51,650 2007 3 4 24 Savannakhet Dong Sithouane2' 150,900 2007 2 13 54 SUFORD-AF PFAs (2009-12) Attapeu Ban Bengvilay 37,862 2012 1 2 10 Attapeu Nam Pa Huayvy 75,037 2012 1 3 31 Bolikhamxai Phak Beuak 112,756 2012 4 6 22 Bolikhamxai Phou Pasang-Punghok 47,657 2012 1 2 20 Vientiane Nongpet-Naseng 68,725 2012 4 5 29 Vientiane Phou Gneuy 100,228 2012 4 10 73 Xaiyabouly Phou Phadam 95,224 2012 3 10 74 Xekong Huaypen 89,532 2012 1 4 70 Entering PFAs under SUPSFM (2013-2015) Attapeu Nam Kong 88,559 2015 3 3 19 Bokeo Phouviengxai 44,894 2015 1 6 26 Bokeo Sammuang 78,699 2014 2 8 32 Bolikhamxai Huay Sup-Namtek 8,590 2015 2 2 2 Bolikhamxai Phou Tum 12,179 2015 2 2 7 Champasack Nongtangok 58,000 2014 2 5 16 Louangnamtha Nam Fa 24,649 2013 1 4 24 Louangnamtha Phou Led Longmoun 20,150 2014 2 4 10 Oudomxai Namnga 98,786 2013 3 13 91 Oudomxai Namphak 52,118 2014 1 4 45 Oudomxai Saikhong 69,791 2015 3 8 47 Vientiane Houay Siat 36,479 2014 2 2 13 Vientiane Phou Phaphiang 36,107 2014 2 2 7 Vientiane Phou Samliam 44,780 2014 2 4 15 Xaiyabouly Huay Gnang 36,717 2014 1 2 12 Xaiyabouly Kengchok-Nam Ngim 114,943 2015 2 2 38 Xaiyabouly Pha Nang ngoi 29,144 2015 2 7 36 Xaiyabouly Pha Nangnuane 48,174 2014 1 4 28 Xaiyabouly Phou Phadeng 16,393 2014 1 1 9 Xekong Dakchang 38,461 2015 2 2 16 Xekong Dakmong 5,028 2015 1 2 11 Xekong Namdee 11,760 2015 2 2 11 Xekong Phoukateum 21,338 2015 1 2 13 Xekong Prong 16,990 2015 1 1 9 Xekong Xienglouang 5,396 2015 1 1 6 12 provinces 41 PFAs 2.30 M <2015 83 200 1,284 Technical Assistance 39. Technical assistance will be provided through financing from the Government of Finland, as well as SUPSFM. The technical assistance will be supervised jointly by the Bank and Finland, which will conduct Implementation Support Missions at least once each year. Table 3 shows the technical skills that will be provided to the project as part of Finland and SUPSFM technical assistance. 30 Table 3: Technical Assistance (in person months by year) International (Finland) 2013-14 2014-15 2015-16 2016-17 2017-18 Total Chief Technical Adviser 10.5 10.5 10.5 10.5 10.5 52.5 Forest Remote Sensing Adviser 10.5 10.5 21.0 Forest Management Adviser 10.5 10.5 10.5 6.0 37.5 Village Forestry Adviser 10.5 10.5 10.5 6.0 37.5 Regional PLUP-LA Adviser 10.5 10.5 3.0 3.0 3.0 30.0 PES Development Adviser 10.5 10.5 REDD Adviser 10.5 10.5 21.0 Law Enforcement Adviser 10.5 10.5 10.5 31.5 Gender & Ethnic Participation Adviser 10.5 10.5 10.5 6.0 37.5 Timber Trade/Certification Adviser 10.5 10.5 21.0 Livelihoods/Agroforestry Adviser 10.5 10.5 10.5 6.0 37.5 Monitoring and Evaluation Adviser 12.0 12.0 12.0 12.0 12.0 60.0 Financial Adviser 10.5 10.5 10.5 10.5 10.5 52.5 Communications Adviser 10.5 10.5 5.25 26.25 Junior Professional Officer 10.5 10.5 10.5 10.5 10.5 52.5 Short-term international 6.0 6.0 6.0 6.0 6.0 36.0 National (Finland) 2013-14 2014-15 2015-16 2016-17 2017-18 Forestry Specialists (3) 31.5 31.5 31.5 31.5 31.5 157.5 Livelihoods/Extension Specialists(3) 31.5 31.5 31.5 31.5 31.5 157.5 GIS Specialist 10.5 10.5 10.5 31.5 ICT Specialist 10.5 10.5 10.5 10.5 10.5 52.5 Communications Specialist 10.5 10.5 10.5 10.5 10.5 52.5 Short-term national 6.0 6.0 6.0 6.0 24.0 International (FIP-IDA) 2013-14 2014-15 2015-16 2016-17 2017-18 Procurement Specialist 12.0 12.0 12.0 36.0 Short-term International 2.0 2.0 2.0 2.0 2.0 10.0 National (FIP-IDA) 2013-14 2014-15 2015-16 2016-17 2017-18 PSFM/VLD Project Assistants 79 948.0 948.0 948.0 948.0 948.0 4740.0 Financial Management Specialist 12.0 12.0 12.0 12.0 12.0 60.0 Financial Assistants (4) 48.0 48.0 48.0 48.0 48.0 240.0 Engineer 3.0 3.0 Audit 1.0 1.0 1.0 1.0 1.0 5.0 Short-term National 3.0 3.0 3.0 3.0 3.0 15.0 Total International 179 168.5 124.25 78.5 54.5 610.75 Total National 1115.5 1112.5 1112.5 1102 1096 5538.5 31 ANNEX 3: IMPLEMENTATION ARRANGEMENTS L. Project Institutional and Implementation Arrangements Muld-level Setting 1 The Project operates in a multi-level setting (Figure 1). At national level, the project will focus mainly at the National System of Production Forest Areas and their participatory, sustainable management following the PSFM system that has been applied over a period of 9 years in 16 PFAs and will be expanded to cover 41 PFAs. Other developments, such as notably REDD+ and village livelihoods, which extend beyond the confines of the PFA, will be addressed by enhancements of PSFM following a landscape approach that encompasses other categories of state and village forest areas. Na tiumit tSteeril}gCu lte Natial Nalional Leve4 mitiaymDprmtflD s, vke agmn I aliK lq t SteerliC.miltte Ita l pro4nca ~{vice Gunc( duk) mlNisIrit I,qt N-isa LWonsi ti e iF,twuasem rs oft DititoivsfWtrictrojetstering Mmnit- D ro t L,eel{ltct u me{ ai)w sM ................................... ... ..... ,gencq urat Heads LFc Lwu) {DWtrkFrajEctManage- DA FOdan ProjetA slnt for P5FM TIllise r ftLI Village Ouster Leve4 2 {zFuetmgr {z} Enansaaet Vlage Wia Tre I Wia Tre 2 Wia Tre 3 Glammillea1 SUPSMila Orgaimmilnla Stucureenl lu il i } u u II is } l lGl } Figure 1: SUPSFM Organizational Structutre 32 2. At sub-national level, the project will focus on PFA partitions for PSFM purposes, but will include partitions of other categories of forest areas for forest landscape purposes. Provincial project management will be concerned mainly with the PFAs and associated landscapes that are located in the province. District project management will be concerned with the FMAs of different categories of state and village forest areas that are located in the district, e.g. FMAs and their sub-FMAs in the case of PFAs. At grassroots level, the project operates in villages although state forest areas will generally be defined to comprise a cluster of villages, rather than single villages, to keep the total number of FMAs at a manageable number. Basic Implementation Framework 3. The SUPSFM organizational structure, shown in Figure 1, illustrates the project institutional framework at three administrative levels (National, Provincial and District). This figure illustrates the multi-level setting under which the project operates and the participating institutions that will oversee, perform their roles and functions, and implement the related project components and activities to attain the Project Development Objective. 4. Project oversight will be provided by Project Steering Committees to be established at each of the three levels. This is to ensure that policy guidance is provided in a timely manner to the participating institutions in the performance of their roles and functions. The initial and most important policy decision of the Project Steering Committees will be to review and endorse the five-year and annual work plans at their level. Project oversight will be applied in conformity with project design and consistent with recent Politburo guidance (Resolution 03/PM/2012), which provides for the formulation of provinces as strategic units, districts as comprehensively strong units, and villages as development units. 5. Participating institutions at each level will appoint Project Coordinators who will take responsibility in organizing their institution's program and activities to implement the policy decisions of the respective Project Steering Committee. The Project Manager, acting as the Secretary of the Project Steering Committee at each level will be responsible for informing the Project Coordinators, who will then initiate the organizing of teams to undertake the related activities to implement the policy decisions. The Project Manager at each level will ensure that resources needed to undertake project activities are provided to the different teams, ensuring through project monitoring that the use of those resources are able to generate the intended outputs. 6. Subsequent sub-sections present the institutions involved at three levels: grassroots, provincial, and national, and how they are organized and linked for project implementation. 33 Implementation Arrangement at District and Village Levels Institutionalframework at grassroots level 7. The grassroots level comprises the district and village levels where PSFM is actually implemented in parts of the PFA and other forest categories that overlap with the district and the villages in the district. Figure 2 illustrates the institutional framework linking the project participants including government and village institutions, and mass organizations for grassroots operations. District Project Steering Committee (District Governor as Chair with Multi- agency Unit Heads, LFNC, LWU, other implementing partners as members) District Project Management Office (District Project Manager and Multi- agency Sub-unit Coordinators) PSFM Teams VLD Teams Village Forestry and Livelihoods Committee (Forest Rangers and Extension workers (Chair and Sector Members) augmented by DONRE/LFNC/LWU staff) Village Teams, Households Figure 2: Institutional framework at grassroots level Project operations at grassroots level 8. SUPSFM operations at district and village levels are related mainly to Component 1: Strengthening and expanding PSFM in PFAs and Component 2: Developing Forest Landscape Management and to a lesser extent to the other project components. Component I specifically has two main concerns: PSFM, to put the 41 target PFAs under participatory, sustainable management, and Village Livelihoods Development (VLD), to support the participating villages in developing livelihoods. Both PSFM and VLD will require project engagement with participating village communities. Government Institutions 9. Mainly the District Agriculture and Forestry Office (DAFO) will undertake project implementation at grassroots level by government institutions. SUPSFM will establish a Project Management Office (PMO) in DAFO of each target district, but will initiate the delivery of project related services to target villages basing these at sub- 34 district level in Technical Service Centers (TSC). DAFO foresters will be assigned in Forest Ranger Stations that will be based at the TSC. DAFO extension agents working with DAEC TSC Units will also be based at the TSC. 10. DAFO foresters assigned, as Forest Rangers will be formed into PSFM Teams to provide training and technical support to villages in putting sub-FMAs and village-use forests under participatory, sustainable management. DAFO extension agents assigned to DAEC TSC Units will be VLD Teams to provide training and technical support to villages in sustainable livelihoods development. 11. Staff from the District Office for Environment and Natural Resources (DONRE), particularly those involved in land management, will support the PSFM Teams specifically in conducting participatory land-use planning (PLUP). Staff from the District Forest Inspection Office (under DOFI) and the District Office of Industry and Commerce (under MOIC) will work with villagers in the implementation of forest law enforcement and timber sales respectively at the district level. Village Institutions 12. Project implementation at grassroots level by village institutions will be undertaken mainly by village communities and households under the leadership of the Village Forestry and Livelihood Committee (VFLC). The VFLC will be headed by the Village Head as the Chairperson and will include a Deputy Chairperson, a Secretary, a Treasurer, and representatives of women, elders, youth, and other village sub-sectors as members. The VFLC will be the contact points of the PSFM and VLD Teams in village work and the action points in the conduct of PSFM and VLD activities, such as in selecting village forestry teams and organizing self-help groups. Mass Organizations 13. Community engagement will be facilitated by augmenting the PSFM and VLD Teams with members of the Lao National Front for Construction (LNFC) and the Lao Women's Union (LWU). LFNC has the mandate to act in the interest of ethnic groups and reduction of poverty, while LWU seeks to enhance women's capacity for self- development and promote women's role in society. Project Management at District Level 14. The PSFM and VLD Teams will be working under the administration of the DAFO Chief who also heads the District Project Management Office (DPMO) as the District Project Manager. A District Project Steering Committee (DPSC) headed by the District Governor with all district heads of line agencies as members will be established to provide oversight and guidance to the grassroots operations. In order to ensure effective coordination and information sharing among REDD+ projects at the district level, the project will develop a proposal to integrate REDD+ coordination through the District Project Steering Committees. 35 Institutional Arrangement at Provincial Level Project Operations at Provincial Level 15. Project operations at provincial level will be formulated and presented in 5-year and annual work plans that will be submitted to the Provincial Project Steering Committee (PPSC) for approval. To take responsibility in implementing the project work plans and coordinate with district offices, a Provincial Project Management Office (PPMO) will be established at each project province to be headed by a Provincial Project Manager who is a head of the Forestry Division under the Provincial Agriculture and Forestry Office (PAFO). A provincial financial management staff and a project assistant will be assigned in each of the PPMO. Project operations at provincial level will provide the needed support to grassroots level operations. These include: * Looking after project operations at provincial level, such as but not limited to communal land titling, preparation of PFA management plans jointly with the DOF Forest Inventory and Planning Division, review and transmittal of sub-FMA plans to DOF, approval of action plans and annual operations plans prepared at grassroots level, preparation of proposals for logging quotas for sub-FMAs in the province, undertaking timber sales with the Provincial Department of Industry and Commerce, contracting and supervising logging operations, timber revenue sharing, and transfer of revenue shares to stakeholders. * Organizing training of PSFM and VLD Teams, including additional team members from DONRE, LFNC, and LWU. The Technical Assistance (TA) Team and Non-Profit Associations (NPA) will undertake training with proficiency in community engagement. * Acting as conduit of financing needed in grassroots operations. It is proposed that a sub-account will be established at each project province to take care of office management expenditures and operations costs of project officers and staff. However, to ensure that funds are available for community engagement of the PSFM and VLD Teams immediately after training in the province, it is proposed that funds for field operations be made available to the province directly by the National Project Management Office. * Providing support to the TA Team and development partners when conducting field operations, such as those concerning Components 2 and 3, and coordinating with the districts to provide support to the visiting teams. * Providing oversight and guidance to grassroots operations through the Provincial Project Steering Committee (PPSC) and the Provincial Project Manager. This Project will utilize existing high level Provincial Project Steering Committees revising their ToR and membership as appropriate. PPSC will be headed by the Deputy Provincial Governor and have District Vice-Governors as vice-chairs; 36 provincial heads of relevant line agencies, and representatives of LNFC and LWU will be included as members. As with DPSCs the project will develop a proposal to coordinate REDD+ project oversight and reporting through the Provincial Project Steering Committees. Monitoring and Evaluation, both of projects inputs and outputs. Institutional Framework at Provincial Level 16. Figure 3 illustrates the institutional framework at provincial level and its link to the district level. Province Project Steering Committee (Vice Governor as Chair, District Vice- Governors as Co-chairs, Multi-agency Division Heads, LNFC, LWU as members) Province Project Management Office (Province Project Manager and Multi- agency Section Coordinators) Province Level Multi-agency Staff and Teams District Project Steering Committee (District Governor as Chair with Multi- agency Unit Heads, LFNC, LWU, other implementing partners as members) Figure 3: Institutional framework at provincial level Institutional Arrangement at National Level Project Operations and Institutional Framework at National Level 17. SUPSFM operations at national level are related to all project components. Several ministries and their line agencies, as well as mass organizations and civil society organizations, will be involved in one or more aspects of SUPSFM operations. However, the Ministry of Agriculture and Forestry (MAF) particularly the Department of Forestry (DOF) will be the implementing agency of the project. 37 18. Figure 4 shows the institutional framework at national level linking the project participants for national level implementation of project operations. National Project Steering Committee Development (MAF Vice Minister Chair and Multi- Partners ministry Department DGs/DDGs, Vice ............. (Finland, Governors, LNFC, LWU as members) Germany, WB) National Project Management Office (National Project Manager, Multi-ministry Department Coordinators, FM Staff and TA) National Level Multi-Ministry Teams Province Project Steering Committee (Vice Governor as Chair, District Vice- Governors as Co-chairs, Multi-agency Division Heads, LNFC, LWU as members) Figure 4. Institutional Framework at National Level National Project Management and Oversight 19. As under SUFORD, a National Project Management Office (NPMO) will be established and based at DOF, which will be responsible for overall project implementation. NPMO will facilitate the constructive participation of the various involved ministries and relevant line departments. It will be responsible for project coordination and overall direction, procurement, financial management, and monitoring and reporting. It will also act as the Secretariat of the National Project Steering Committee (NPSC). 20. Consistent with the Government's policy of decentralization, project implementation will be largely decentralized although the project will be centrally coordinated. At the National Level, an inter-ministerial National Project Steering Committee (NPSC) will be established at MAF to provide overall policy and implementation guidance, and periodically review implementation performance. An inter-ministerial committee is recommended because project implementation activities run across different ministries and require policy reforms and other actions by ministries outside MAF, such as in MONRE and MOIC. The MAF Vice Minister will chair NPSC. Vice-Governors who are Chairpersons of the PPSCs will be Vice-Chairs of NPSC and members will include representatives from MAF line agencies such as DOF, DOFI, and 38 DAEC and participating agencies of other ministries such as MONRE, MOF, MPI and MOIC; and mass organizations particularly LNFC and LWU. 21. Development Partner representatives will also have opportunity to participate in NPSC meetings as observers. The Project will operate in conformity with the Grant Agreement signed between GOL and WB. Annual, Mid-Term and intermediate implementation support missions will be conducted jointly by the WB Task Team and Finland to assess project progress towards attaining the Project Development Objective and outcomes at Component and Sub-component levels as measured by the indicators provided in the Results Framework. Additional indicators agreed with GoL and Finland will be spelled out in a log frame that forms part of the Project Implementation Plan. The joint WB/Finland implementation support missions will give special attention to the application of the safeguards framework and implementation plans. Issues and challenges affecting project performance will be examined and discussed during such missions, and timed actions will be agreed with GoL and project management to resolve or mitigate as necessary. MAF and Relevant Agencies 22. Several agencies of MAF will be involved in the project as shown below. Each agency will appoint their Agency Project Coordinator with responsibility and authority to direct the agency program and activities toward implementing the policy decisions of and tasks assigned by the NPSC, such as those indicated in approved project work plans. * Department of Forestry. DOF is the main national agency looking after the national system of Production Forest Areas and other production forests including village-use forests, forest plantations, and smallholder agroforestry and tree farms. DOF has a lead role in PSFM in various activities including but not limited to providing forest inventory services for the preparation of PSFM plans, providing technical support in the preparation of PSFM plans at provincial and district levels, approving PSFM plans, preparing annual logging quota for each sub-FMA with harvestable forests, managing the forest information system and databases, promoting and supporting forest industries and businesses, and assessing applications for concessions in forest land. * Department of Agricultural Extension and Cooperatives. DAEC will provide strategic and technical support in the implementation of Component 1, specifically in village livelihoods development. Staff stationed at its TSCs will form the VLD Teams to engage with village communities in livelihoods development. * Department of Forest Inspection. DOFI and the Provincial Forest Inspection Services have the responsibility to enforce forest laws and regulations through monitoring and inspection of timber harvesting operations, log transportation activities and timber processing facilities. DOFI responsibilities extend to suppression of wildlife crime. DOFI works closely with police, customs services, 39 the army, state prosecutors and the courts to detect forest crime, make arrests, confiscate illegal materials and help punish violators by issuing fines and facilitating criminal prosecution. * National Agriculture and Forestry Research. NAFRI will be involved in developing technical and livelihood systems, guidelines, and recommendations that will be applied in PSFM and livelihoods development, such as the conduct of value chain studies of non-timber forest products and agroforestry products. Other Ministries and Government Institutions 23. Several other ministries and government institutions are involved in the different project components. Ministries with prominent roles are described below: * Ministry of Natural Resource and Environment. The land agencies under MONRE will support the PSFM Teams in the conduct of Participatory land Use Planning (PLUP) and documentation (application, technical description of boundaries, maps) for communal titling of village forest. A National REDD+ Office is expected to be established under MoNRE that will act as a secretariat of the National REDD+ Taskforce. The Office will play an important role in coordinating REDD+ related activities across MAF and MoNRE and carry out technical research related to REDD+ across the country as proposed in the REDD Readiness Preparation Proposal (R-PP). The REDD+ Division established under DoF will work closely and share information and implementation lessons with the National REDD+ Office. * Ministry of Industry and Commerce. MOIC governs the activities of the commercial forest sector and will be responsible for rationalizing processing capacity with current and long-term sustainable wood supply, including the operation and establishment of wood processing facilities on the basis of confirmation of the level of sustainable wood supply by MAF. MOIC has the responsibility for timber pricing and for establishing and administering the competitive bidding system for logs at the second landing. MOIC is also responsible for certification of Chain of Custody (CoC) from the second landing onward. * Ministry of Finance. MOF will play a key role in facilitating the flow of financing for project operations and the implementation of the Presidential Decree #1 (2012) on Timber revenue benefit sharing. Mass Organizations and Civil Society Organizations 24. The Lao National Front for Construction (LNFC) and the Lao Women Union (LWU) will be involved in implementation of project activities at various levels. LNFC is organized on all administrative levels from national to village level. LNFC includes senior citizens, veterans, and represents different ethnic groups. Its main aim is to 40 promote a sense of solidarity and equality of among the population irrespective of social status, ethnicity and religion, in line with article 8 of the Constitution 2003. LNFC currently has overall charge of the planning and implementation of ethnic minorities programs, and coordinates with the Party, ministries, and relevant committees. The roles of the LWU are to educate women of all ethnic groups on the Constitution, laws, legislations, and international conventions related to the rights and benefits of women and children; to mobilize and advocate women to actively participate in the socio-economic development; and to take part in protection of fine culture and traditions of Lao women of all ethnic groups among others. 25. Civil Society Organizations (CSOs) in the country include the International Non- Governmental Organization (INGOs), local Non-Profit Associations (NPAs), and foundations. More than 180 CSOs now operate in Lao PDR. The Government of Lao PDR, represented by DOF, realizes the importance that the contributions CSOs can make in the project and is willing to explore possible partnerships. The role and terms of engagement of the CSOs in the project will be designed with stakeholders during the implementation of the project. Potential roles for CSOs to be explored include facilitation of free, prior and informed consultation process with communities, entrepreneurship skills development, participatory planning process, and implementation and monitoring of activities. National and Regional Universities 26. The traditional role and functions of universities is in education, research, and extension. The universities could be involved in number of project activities for which they are better suited in view of their traditional functions. These include capacity building; conducting studies related to systems development like value chain studies, REDD+, and PES; and establishing and maintaining permanent sample plots to measure forest stand growth and development. National and regional universities will also have a key role in recruiting TA staff that will serve as project assistants in all target districts to provide support to PSFM and VLD Teams. 27. DoF expects to sign an MoU with the National University of Laos (NUoL) to accept last year Bachelor degree students (30 students per year) as Trainees to work with DoF from October-April, for a total of 4 months, on forest inventory activities and data collection related to their research proposals for the first 3 years of project implementation (up to 2015). On average, about 30 students from NUoL in Luangprabang, Vientiane and Pakse will be sent to work in the project districts (about 2 students per district). Perdiem (food and accommodation allowance as per MoF guideline) will be given to these students (estimated about 200,000 Kip/person ($15/day) x 30 persons x 2 month (20 days/month) = $20,000/year). 28. DoF also expects to hire 79 individuals as Project Assistants (consultants) based on competitive selection based on a TOR to be agreed by IDA. Project Assistants will work closely with district staff in 62 target districts over 5 years project period and will be paid the equivalent of an entry level government salary which is currently about 1.5 41 million Kip/month as well as other small allowances for travelling and working in the field. This is estimated to cost about $400/person/month (assuming that 25 days in the field per month over dry season period and less during wet season). Total of $1.896 million for 5 years. Project Assistants will be hired by DoF and sent to the project targeted districts. Criteria will be included in the ToR to encourage talented volunteers and local people from the province/district to apply. District government will be responsible for managing their contracts including performance evaluation with regular support provided by DoF, the TA and Bank. 2. Financial Management and Disbursements Summary of the Financial Management Assessment 29. A financial management capacity assessment was conducted to determine the adequacy of FM arrangements for the Scaling-Up Participatory Sustainable Forest Management Project. The assessment was carried out during November 2012, and further updated during the recent pre-appraisal and appraisal missions. The assessment was substantially based on previous FM assessment, a review of recent FM performance and discussions with the head of financial section of the Planning Division, Department of Forestry, Ministry of Agriculture and Forestry. This project will be implemented by the Department of Forestry (DoF) through the National Project Management Office (NPMO) who currently implements other World Bank financed and administered projects. Provincial departments will also be involved in the implementation of activities. The project will operate in all SUFORD provinces plus three additional new provinces namely Oudomxay, Louangnamtha and Bokeo. 30. The FM risk rating of the project is high before mitigating measures/actions are implemented and substantial after the measures. To ensure compliance and to enhance the financial management capacity, an action plan has been developed to strengthen the capacity and financial management system of the project including updating the Financial Management Manual (FMM), recruitment of FM consultants, appointment of an external auditor acceptable to the Bank, upgrading of the ACCPACC accounting system, and training of project staff on the Bank's financial management requirements and disbursement arrangements; and on the project's financial management processes and procedures. 31. The financial management arrangements will meet the minimum requirements of OP/BP 10.02 once the actions proposed have been implemented. Staffing 32. NPMO under DoF will be responsible for overall financial management of the project, including planning, budgeting, preparing the annual financial statements to be audited by the auditor, preparing quarterly IFRs and ensuring the smooth flow of funds to the respective project activities. In addition to the existing experienced finance staff at both the central and provincial levels of NPMO, the project will also recruit one senior financial management consultant to be based at the NPMO. The senior FM consultant 42 will be recruited to oversee and provide advice on all financial management matters of this project, including capacity building. Four (4) local financial management consultants will be recruited to provide advice to provincial and district offices as follows: * one covering Xaiyabouly and Oudomxay; * one covering Louangnamtha and Bokeo; * one covering Vientiane Province/Bolikhamxay/Khammouane/Savannakhet; and * one covering Champassack/Sekong/Saravanne/Attapeu. All five consultants will be financed by the project funds. 33. The recruitment of FM consultants shall be completed within three months of project effectiveness with Terms of Reference (ToR) acceptable to the World Bank. Budgeting and planning 34. It is proposed that the annual budget shall be prepared by the relevant departments/provinces and consolidated by finance, discussed and approved/endorsed by the Minister and the Bank. Quarterly plans/budgets will need to be approved by the relevant Departmental Director General. Monthly plans/budgets will need to be approved by the project coordinator or divisional head responsible for implementation of the project. The budget shall be updated together with the work plan at least twice a year. Procedures shall be elaborated in the Financial Management Manual. 35. In budgeting for in and out of country travel, the Minister of Finance Ministerial Decision on Public Administrative Budget Expenditure Norms and any related notifications on the use of ODA issued by the Ministry of Finance (MoF) are to be followed. Accounting Policies, Systems and Procedures 36. The existing SUFORD FM Manual which describes the accounting policies and procedures for budgeting, flow of funds, reporting procedures, responsibilities and delegation of authorities, disbursement procedures, internal controls over petty cash, advances, fixed assets, financial accounting system, and all routine financial management and related administrative activities was last updated in December 2008. The manual is to be reviewed and revised to ensure it is up to date. 37. Specific manuals, including funds flow and financial management arrangements for the Village Livelihood Development (VLD) will need to be reviewed and revised according to past experience. Both manuals are to be submitted to the Bank for review and acceptance within 3 months of project effectiveness. 38. The project will use the cash basis of accounting. The project will continue to use the ACCPAC accounting system for data processing and financial management reporting. However, an upgrade of hardware and additional software licenses will need to be purchased and installed in the new project provinces. The upgrade of the 43 accounting software shall be procured and in place within three months of project effectiveness. 39. The project's financial year shall follow the government's fiscal year being October 1 to September 30. Flow ofFunds Designated Account (DA): 40. Funds will flow from the World Bank to a pooled designated account (DA) denominated in US dollars, which will be opened at the Bank of Lao PDR or any other financial institution acceptable to the World Bank. The DA ceiling will be equivalent to approximately 3 months of projected expenditure. The DA ceiling shall be US$ 2.5 million (USD 1.5 million for IDA portion and USD 1 million for FIP portion), which is equivalent to the estimated quarterly expenditure based on the total funding allocation to the project. The ceiling may be adjusted from time to time upon reasonable request. 41. The DA will be managed by the National Treasury, Ministry of Finance. Account opening procedures and authorization for withdrawals from the grant account and designated account shall follow the current practices of the Ministry of Finance as detailed in the Ministry of Finance regulation 2695/MoF dated November 1, 2010. FUNDS FLOWS Direct payment World Bank Direct paymentV Designated Account at the Suppliers of Bank of Lao goods and (US$2.5 million) services IDA US$ 1.5 million IIP US$ 1 million Operating account and Provincial accounts at commercial bank DOF/NPMO US$ 300,000 PA US$ 100,000 44 Operating Account (OA): 42. Project operating accounts are to be opened at commercial banks with a ceiling of US$ 300,000 for DOF/NPMO and in each province with a ceiling of US$ 100,000 based on the approximate level of quarterly project expenditure. Reporting of expenditure and replenishment for provincial accounts shall be made on a monthly basis. Funds in the operating account shall be used for the day-to-day administrative expenditure and for the smooth implementation of project activities. The authorization and procedures for withdrawals from all bank accounts shall be detailed in the Financial Management Manual. Disbursement Arrangements 43. SUPSFM project will be financed by two sources of funds: IDA Grant of US$ 19million equivalent and FIP Grant of US$ 12.83million equivalent. A DA denominated in US dollars, which will be opened at the Bank of Lao PDR or any other financial institution acceptable to the World Bank. The DA will be a pooled account with an individual fixed ceiling for each source of funds. The DA ceiling is equivalent to the estimated quarterly expenditure based on the total funding allocation to the project less expected direct payments. The ceiling may be adjusted from time to time upon reasonable request. IDA US$ 1.5 million FIP US$ 1.0 million 44. Disbursements from the grant account shall be based on traditional procedure i.e. made against the Statements of Expenditure (SOE). Documentation and replenishment will be on a monthly basis. The ceiling for direct payments and reimbursements shall be at least 20% of the DA balance. Disbursement methods shall include (i) advance, (ii) reimbursement, (iii) direct payment and (iv) special commitment. The Disbursement grace period will be needed and shall be equivalent to 4 months after the project closing date. 45. The proceeds of the proposed Grant will be disbursed against the following disbursement categories: Disbursement IDA FIP Financing Percentage Category Amount in Amount in (inclusive of taxes) US$ US$ 1 Civil works, Goods, IDA 60%/SCF-FIP 40% Consultant Services, 7,212,534 4,808,356 Training and Workshops 2 Village Livelihood IDA 60%/SCF-FIP 40% Grant3,600,000 2,400,000 Grant 3 Incremental IDA 60%/SCF-FIP 40% Operaing osts7,734,154 5,156,102 IA6%SFFP40 Operating Costs 4 Unallocated 453,312 465,542 IDA 60%/SCF-FIP 40% Total 19,000,000 12,830,000 45 46. Government's counterpart funding of $7.56 million will cover staff salaries, offices, and logistical support at national and subnational level in participating districts in 12 project provinces. These expenditures will be 100% financed by the counterpart funds. The project Technical Assistance financed by Finland funds will be 'parallel' and will not be co-financed by IDA/FTIP. 47. The project Technical Assistance financed by Finland funds will be a parallel financing arrangement and will not be co-financed by IDA/FIP. 48. Village Livelihood Development Grant will support the participating communities in implementing the CAPs that identify local social, natural and institutional capital and identify options for generating sustainable livelihoods (including forest-based livelihoods). The project will engage with the participating village communities by signing a MoU that will state the amount and activities to be financed. Funds are expected to flow to the community account once the MoU is signed. Nature of expenditures to be financed under the VLD, including financial management arrangement, will be elaborated in the VLD grants manual. It is expected that the existing VD manual will be reviewed, and a new VLD manual will be produced, acceptable to IDA, within three months of project effectiveness. 49. Villages participating in the 25 SUPSFM Expansion PFAs are eligible to receive up to USD 8000 of Village Livelihood Grants (VLG) to be used to fund forest-based and related livelihood development plus USD 2000 specifically for forest restoration. For villages participating in the 18 SUFORD-AF Additional PFAs, the allotted VLG amounts are USD 4000 for forest-based and related livelihood development and USD 2000 for forest restoration. Villages participating in the 18 SUFORD Original PFAs are allotted only the USD 2000 for forest restoration. A proposal for the use of the village grant will be prepared by the Village Forestry and Livelihood Committee (VFLC) with technical support provided by the Project through the VLD Team (part of the technical assistance team composed of national and international project staff). The VLD grant proposal will include among other items the names of the beneficiaries and how they were selected, the livelihood activities that will be supported, the activities and cost rates for the use of the fund, timetable, and the expected results. 50. The documentation supporting the SOE disbursements will be retained by DoF and at each province during the life of the project. 51. Incremental Operating Costs means reasonable expenditure incurred by the recipient in managing and coordinating the implementation of the Project (and include only expenditure that would not have been incurred in the absence of the Project). Incremental Operating Costs include consumable materials and supplies, communications services (postage, telephone and internet), printing services, translation and interpretation services, office space rental and utilities, maintenance of office equipment, vehicle rental, operation and maintenance of vehicles, bank charges, advertisement fee, Project staff travel, lodging and per diems, (excluding salaries, bonuses, fees, honoraria or equivalent payments to members of the Recipient's civil service). 52. Incremental operating costs are estimated to be 40% of total costs. This is consistent with the relatively high incremental operating costs encountered under the predecessor SUFORD project. This cost category finances field teams who must visit communities frequently 46 throughout the implementation period to provide training and technical support. The task team will monitor expenditures under this component closely and track performance using measures included in the Results Framework (annual audits of the quality of technical services provided). Also, as noted below, controls over soft expenditure will be clearly set out in the FMM. Reporting Arrangements 53. The project's financial statements will be prepared by the Financial Section of DoF. A consolidated Interim Unaudited Financial Report (IFR) shall be prepared on a quarterly basis and be submitted to the Bank no later than 45 days after each quarter end. The IFR format shall be discussed and agreed on or before negotiation. The IFR shall report on the sources and uses of funds, variance analysis or progress report against work plan and budget. It may also include procurement progress report. 54. The financial reporting shall follow the government's fiscal year period i.e. from October 1 to September 30. Internal Controls 55. The systems of internal control should be clearly described in the manual to provide guidance to the project management and financial staff. Appropriate segregation of duties shall be emphasized. The job descriptions and responsibilities for the new FM staff will be reviewed by the Bank to make sure that the segregation of duties are adequate. 56. Management and controls of project assets shall also be detailed in the financial management manual. 57. An advance control book should be prepared and maintained to monitor outstanding advances. Reporting of advances should be done in a timely manner. New advances will be made available only if the previous advances have been properly accounted for. Month end procedures, such as bank reconciliations, cash counts should be noted. The eligible rates of DSA and related travel expenses shall be clearly determined and be consistent with the Minister of Finance Ministerial Decision on Public Administrative Budget Expenditure Norms currently in force and any related notifications on the use of ODA issued by MoF are to be followed. 58. Controls over soft expenditure shall be clearly set out in the FMM as most of the expected activities involve training/workshops. 59. The FM manual should be revised from time to time and is subject to the Government and Bank's approval. The effectiveness of internal controls is to be reviewed annually by the project and will be evaluated as part of the external audit process. External Audit 60. The project will be subject to annual audit by an independent qualified external auditor with terms of reference acceptable to the World Bank. These terms of reference will cover both 47 the annual audit of the project financial statements including their consistency with the quarterly Interim Financial Reports (IFRs), and a review of internal controls and compliance with the Financing Agreement. The audit report and the management letter must be submitted to the Bank within six months after the end of each fiscal year. The cost of the external audit is provided in the project budget and will be paid out of project funds as an eligible expenditure. The appointment of the external auditor shall be completed within three months of project effectiveness. There is no outstanding audit report under Bank projects currently being implemented by DoF. 61. The annual audit will also cover the review of a minimum of 10% of the support provided under VLD activities to ensure that processes have been followed and that funds have been used for the intended purpose. 62. SUPSFM will be subject to the new Bank policy on access to information. This means that the audited financial statements, including the audit report, shall be made available to the public in accordance with the agreed disclosure mechanism. The mechanism for public disclosure has been agreed during the appraisal mission. The project will upload the audit report and audited financial statements on its department (DoF) website within one week of reports submission to the World Bank. Audit and disclosure requirements shall be detailed in the Financial Management Manual. Implementation Support and Supervision requirements 63. As the overall FM risk after the proposed mitigation is assessed as "substantial", financial management implementation support missions will be undertaken twice a year. The missions will review the continued adequacy of the project's financial management arrangements and capacity as well as carrying out integrated fiduciary reviews (procurement and financial management reviews of contracts and transactions). 64. Special attention will be given to the review of soft expenditures to check whether they are spent on eligible activities. Based on the mission results, the FM risk will be reassessed and the frequency of missions adjusted if considered necessary. Financial Management Action Plan Actions Responsibility Completion Date 1 Recruitment of one senior FM consultant to DoF Within three months of be based in NPMO and four local FM project effectiveness consultants to be based in the provinces with terms of reference acceptable to the World Bank 2 Commitment to maintain existing FM staff at DoF Agreed during provincial and central level and appointment preparation of FM staff for new provinces and assessed as qualified 48 3 Review and revise the existing financial DoF Within three months of management manual (FMM) and VLD project effectiveness manual acceptable to the World Bank 4 Upgrade of the ACCPACC accounting DoF Within three months of system and training delivered to all finance project effectiveness staff 5 Agree on the format of IFR DoF/WB Agreed during preparation 6 Agree on mechanism for disclosure of DoF/WB Agreed during project audit report to the public preparation 7 All finance staff to be trained in the revised DoF/WB By project launch FMM and WB FM and Disbursement policies and procedures 8 Appoint external auditors with Terms of DoF Within three months of Reference acceptable to the World Bank project effectiveness 3. Procurement 65. Procurement of goods and works under Scaling-up Participatory Sustainable Forest Management Project (SUPSFMP) and financed in whole or in part by IDA and FIP funds will be carried out in accordance with IDA's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 2011; and procurement of consultant services financed in whole or in part by IDA funds will be carried out in accordance with IDA's "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011, and the provisions stipulated in the legal agreement and the approved procurement plan. The various items under different expenditure categories are described in general below. The different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame will be agreed between the Recipient and IDA in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual program implementation needs and improvements in institutional capacity. 66. Procurement of Works: Works procured under this Project would include: construction of new office building at national, district and village cluster level and office renovation in the district office. Contracts for these works costing US$500,000 or more each would be procured through International Competitive Bidding (ICB). Works estimated to cost less than US$500,000 per contract may be procured through National Competitive Bidding (NCB) method and the procedures, including standard bidding documents, set forth in the Decree 03/PM dated January 9, 2004, and in the Implementing Rules and Regulations (IRR) dated March 12, 2004 as amended on May 5, 2009, including national standard bidding document with IDA's prior concurrence, will be followed subject to the improvements listed in the NCB-Annex to the Legal Agreement. Works estimated to cost less than US$50,000 per contract may be procured through Shopping method and the procedures, including standard bidding documents, set forth in the aforesaid Decree and IRR. 49 67. Procurement of Goods: Goods procured under this project would include: office and IT equipment, office furniture, field equipment, vehicles, and software. Goods estimated to cost USD 300,000 equivalent or more per contract would be procured through International Competitive Bidding (ICB) using IDA's standard bidding documents. Goods estimated to cost less than USD 300,000 per contract may be procured through National Competitive Bidding (NCB) method in accordance with paragraphs 3.3 and 3.4 of IDA's Procurement Guidelines and the procedures, including standard bidding documents, set forth in the Decree 03/PM dated January 9, 2004, and in the Implementing Rules and Regulations (IRR) dated March 12, 2004 as amended on May 5, 2009, including national standard bidding document with IDA's prior concurrence, will be followed subject to the improvements listed in the NCB-Annex to the Legal Agreement. Goods estimated to cost less than USD 50,000 per contract may be procured through Shopping method in accordance with paragraph 3.5 of IDA's Procurement Guidelines and the procedures, including standard bidding documents, set forth in the aforesaid Decree and IRR. 68. Selection of Consultants: Consultant services are expected in the following areas: Project Management, Procurement, Financial Management, M&E, and program staff support. These services will be procured mostly through various selection methods, including Quality and Cost Based Selection (QCBS), Quality Based Selection (QBS), Selection Based on Consultant Qualifications (CQS), Least Cost Selection (LCS) and Selection of Individual Consultants, depending on the value, nature and complexity of the consultant assignments. QCBS will generally be the applicable method for each contract estimated to cost more than USD 100,000 equivalents. However, the use of the Single Source Selection method for specific assignments will be subject to IDA's prior concurrence and inclusion in the approved Procurement Plan. 69. Individual Consultants will be selected in accordance with the provisions of paragraphs 5.1 to 5.4 of the Consultants Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contract may be awarded to individual consultant on a single source basis, subject to IDA's prior concurrence. Shortlists of consultant firms for services estimated to cost less than USD 100,000 equivalent per contract may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Assessment of the Agency's Capacity to Implement Procurement 70. An assessment of the procurement capacity of the Implementing Agencies was carried out by IDA procurement staff of the main project implementing agencies, the National Project Management Office (NPMO), Department of Forestry, Ministry of Agriculture and Forestry and the Provincial Agricultural and Forestry Office (PAFO) in Xaiyabouly and Oudomxay Provinces. 71. The procurement issues and risks for implementation of the proposed project are mainly related to (i) the risks of weak governance in the general procurement environment and apparent external interference in the procurement and contract management process ; (ii) the competence and integrity of the procurement committee; (iii) inadequate procurement knowledge and experience of the project implementing agencies in the provincial, district and village level; (iv) a limited number of suppliers and contractors in the local market. 50 72. Considering and the broader fiduciary risks in Lao People's Democratic Republic in the context of a weak procurement environment in the country, the overall procurement risk in this project is currently substantial. However, the risk will be managed and mitigated through the strengthening measures that are being incorporated in the project design and legal agreements of the SUPSFMP, as summarized in the agreed measures below. Agreed Capacity Strengthening Measures: * Engaging a qualified procurement individual consultant on a full time basis for at least the first year of project implementation. The consultant will also assist in capacity building in the form of formal and informal training session for the assign NPMO's staff. A training plan shall be drafted by the consultant and agreed with the project management. * Assigning a qualified government staff to serve as the focal point for coordination, consultation, follow-up of procurement activities, and receiving procurement training. * Procurement training, including on the use of the standard bidding documents will be provided by the Bank before project effectiveness and periodically during the implementation phase of the project. * Adopting a project procurement record and filing system acceptable to IDA and further improvements in procurement management systems as recommended by the procurement consultant will be adopted as appropriate. Agreed measures for increasing transparency and accountability * The complaints procedures provided in the Government Procurement Implementation Rules and Regulations (dated March 12, 2004 as amended on May 5, 2009), will apply, and will also be included in the model bidding documents for NCB and Shopping to be used under the SUPSFMP. The complaints procedures include a multiple review mechanism. * Provisions for remedies in case of integrity issues are also provided in the government procurement rules and regulations and will apply to NCB and Shopping procurement in addition to the provisions in the Bank's Procurement Guidelines and these will also be included in the model bidding documents for NCB and Shopping to be used under the SUPSFMP. 73. With the incorporation of the capacity strengthening measures, the residual procurement risk under the project is determined to be Moderate. IDA Review Requirements: 74. IDA's review requirement for each procurement package shall be stipulated in the approved procurement plan. Generally, all contracts for procurement of goods estimated to cost USD 300,000 equivalent or more per contract and all works contracts estimated to cost USD 500,000 equivalent or more per contract will be subject to IDA prior review. In addition the first goods and works contract for NCB and Shopping will also be prior review. Consultancy services requiring hiring of firms and estimated to cost USD100,000 equivalent or more per contract, all Single Source Selection of consulting firms regardless of value, selection of individual 51 consultants estimated to cost USD 50,000 equivalent or more per contract, and single source selection of individuals regardless of value will be subject to prior review by IDA. The selection of individual consultants for fiduciary positions (e.g. procurement, financial management, accountants) regardless of the contract value will also be subject to IDA's prior review. All other contracts will be subject to IDA's ex-post review. Procurement Plan 75. For project implementation, NPMO will develop a detailed procurement plan for the first 18 months, which is going to provide the basis for the selected procurement procedures. This plan has to be discussed with IDA and will be submitted to IDA for review before Negotiations. The Plan will be updated with IDA's prior concurrence, annually or as required, to reflect changes in implementation needs and improvements in institutional capacity. Frequency of Procurement Supervision 76. Field procurement supervision will be conducted as a part of the regular implementation support missions which will be fielded at least twice a year. The Association will periodically undertake the ex-post review by a Procurement specialist. The scope of ex-post reviews will be expanded to include checks for collusion and verification of end-use delivery. Details of Procurement Arrangements for Items to be Procured under the Program (ICB) 77. Contracts under the procurement plan for goods and services are summarized in the table below. 1 2 3 4 5 6 7 Ref Contract Procurement Prequalification Domestic Review Expected No. (Description) Method (yes/no) Preference by Bank Bid Opening (yes/no) (Prior/Post) Date 1 Motorbikes ICB No No Prior Jul. 2013 2 Computers and ICB No No Prior Jul. 2013 software 3 Office equipment ICB No No Prior Nov. 2013 4 Pickups Trucks ICB No No Prior Nov. 2013 Consulting Services (requiring international expertise) 1 2 4 5 6 Ref Description of Assignment Selection Review Expected No. Method by Bank Proposals Submission (Prior/Post) Date 1 Project Financial Audit QCBS Prior Nov. 2013 2 M&E Adviser (International) IC Prior Jul. 2013 3 Procurement Consultant IC Prior Jul. 2013 (International) 4 Communication Consultant IC Prior Oct. 2013 (International) 52 4. Environment (including safeguards) 78. No significant long-term or large-scale negative environmental impacts are anticipated, nevertheless, the project has been rated category "A" in recognition of the number of safeguard policies triggered (7) and the dual nature of the project objective: to both utilize forest resources for poverty alleviation while managing them in a sustainable manner. The category "A" classification is also justified in light of a complex implementation context with shifting institutional roles, weak counter-part implementation capacity a dynamic policy and regulatory environment, and an ongoing and accelerating process of decentralization. 79. Environmental Assessment OP/BP 4.01 - An ESIA has been conducted and a Community Engagement Framework (CEF) has been prepared by the implementing agency. Specific social and environmental safeguard issues will be screened for and identified through application of an Environmental Management Plan (EMP) and the CEF and further validated through Participatory Land Use Planning (PLUP), and integrated into Community Action Plans (CAPs) and forest management plans. Guidance on OP/BP 4.01 implementation will be included in the program level Operations Manual. 5. Social (including safeguards) Project components and expected impacts 80. Component I will seek to expand and strengthen PSFM using participatory land use planning to develop future forest and land use agreements. The CEF sets out provisions and procedures to ensure that any negative impact on livelihoods, caused by land acquisition or restrictions in access to resources, will be avoided, or minimized and compensated by means of sustainable solutions as set out in participatory Community Action Plans. Component I will finance implementation of resource management plans developed under SUFORD, and provide incremental support to those villages that have already completed the land use zoning and planning process by undertaking a supplementary round of participatory verification and correction, in local language, to review and confirm broad community support for forest boundaries and land use allocation decisions. 81. The Community Action Plan (CAP) that will result from the CEF will identify needs of vulnerable people, women and ethnic groups including issues related to tenure, access and resource utilization. Tenure, access and resource rights in PFAs will be strengthened by signing a MOU with the communities on forest management and rights and responsibilities therein; by providing collective leases to Villages involved in forest restoration; and by providing a community land title in village-use forest outside PFAs. Component I will also support villages which are located in SUFORD provinces but which have not received project support to initiate the PSFM planning processes. Component 2 will support the expansion of PSFM using the forest landscape approach in four provinces in Northern Lao namely Bokeo, Louangnamtha, Oudomxai, Xaiyabouly. 53 82. Project impacts include potential loss of livelihood due to restriction of livelihood activities or access to forest resources. To ensure identification and mitigation of losses associated with access restriction an access restriction Process Framework (PF) has been prepared and included in the EMP. Impact of access restrictions are expected to be minor because the Project will preserve the current land and resource use patterns to the extent that is technically possible and environmentally sustainable, based on participatory land use planning processes and provide for alternative livelihoods when needed. The project will also seek to introduce more sustainable resource use and expand livelihoods options whether or not villagers are impacted by restrictions of access. Land acquisition is expected to be minor, if any, because most civil works would be carried out on public land. Working with Communities 83. The project's core activity is to work with communities that are reliant to varying degrees on forest resources for their livelihoods. In order to address potential negative impacts described above, and enhance positive impacts and also to ensure target populations are sufficiently informed of and meaningfully participate in project implementation processes, a CEF has been prepared in accordance with World Bank policies, OP 4.10 on Indigenous Peoples and OP 4.12, on Involuntary Resettlement. OP4.12 is triggered to ensure that natural resource access do not disproportionately affect any group within the community and are offset with viable alternative options to ensure that the households livelihood in project villages are maintained or enhanced. All project communities, be they ethnic groups or Lao, will be engaged in a culturally appropriate way to ensure broad community support. The CEF includes an Ethnic Group Planning Framework, access restriction Process Framework and a Resettlement Policy Framework that have been disclosed both locally and through the World Bank Infoshop. 84. Building on the SUFORD experience gender has been mainstreamed in project design and steps taken to ensure gender issues and the special needs of women receive adequate attention. A gender and ethnic group advisor will be part of the Technical Assistance team and responsible for gender issues. Women facilitators with local language skills will be part of project extension and livelihood teams, especially in minority ethnic group communities. CEF consultations, endorsement of CAPs, and PLUP consultations and agreements will ensure women are active participation, and receive due representation in all decisions. All data collected for baseline, livelihoods, forest resources, surveys, and assessments will be disaggregated by gender. An annual gender assessment will be conducted and results will be used during implementation to evaluate and improve CAPs. 85. The CEF and EMP will support production of CAPs for expanded livelihoods in which the forest-linked components in the resource base of current livelihood strategies will be modified or amended to support sustainable regeneration of the country's forests. Regeneration of production forests is a high priority for FIP, as it was for its predecessor SUFORD project. Noteworthy in the project is the use of a forest landscape management approach, which will extend planning and tenure strengthening activities to communities managing village-use forests outside of designated forest areas including those in the vicinity of protected and conservation forests where restrictions are applied on the felling of commercial timber. These restrictions are already in place under current law and policy but community planning, tenure strengthening, and 54 enforcement efforts are likely to increase compliance and therefore limit economic opportunities for some households. Income streams from conservation forests will be limited to the harvesting, processing and marketing of non-timber products, enhanced livelihoods on privately held land within the conservation forest and payment for environmental services. Because restrictions on timber harvest are already in place (and widely observed), the main impact of increased planning and management may be to limit the expansion of agricultural land. This will have to be offset with increased productivity and income from existing lands or from enhanced income from processing sustainably harvested NTFPs. Objectives and Key Principles of the CEF 86. The Community Engagement Framework ensures that all project beneficiaries, will be sufficiently consulted on, and meaningfully participate in, project implementation. Participating communities will play a key role in defining management and mitigation actions which may be needed to address any negative impacts that could arise from project-supported interventions, including changes in forest and related natural resource use. 87. The CEF includes an Ethnic Group Planning Framework (EGPF; consistent with OP4. 10 and locally equivalent to an Indigenous Peoples Planning Framework-IPPF), an access restriction Process Framework (PF; consistent with OP4.12) and a Resettlement Policy Framework (RPF; also consistent with OP4.12). Take together these instruments will ensure that; (i) culturally appropriate measures and benefits are provided to ethnic groups, (ii) free prior and informed consultation is carried out during project preparation and implementation, (iii) impacts on customary land and any access restrictions imposed on the use of natural resources are dealt with appropriately and finally (iv) that any land acquired for civil works is compensated appropriately. 88. The CEF aims to achieve its overarching objective based on the following four core principles: 1. All communities will be approached in the spirit of constructive collaboration, made aware of the project's purpose and potential benefits to participating communities. It will be made clear at the outset that communities have the option to refuse to participate. 2. All project beneficiaries, regardless of their ethnic group or social status, shall be engaged in a culturally relevant way on the basis of a free, prior and informed consultations aimed at establishing broad-based and sustainable community support for the project. 3. The community engagement process will take account of minorities and ethnic differentiation to ensure that dialogue is inclusive and carried out in the appropriate language(s). Communication throughout the project cycle will use appropriate information, education, and communication (IEC) materials to respond to issues of language and ethnicity, literacy / illiteracy, gender, and social vulnerability. 4. All project-affected people will have the opportunity to participate and benefit from the project through participation in the preparation and implementation of Community Action Plans (CAPs). 55 89. Since no land acquisition is anticipated in this project, a Resettlement Policy Framework (RPF) has been developed rather than a resettlement plan. The RPF sets out policies and procedures to be applied if any private land is to be acquired, so that the Project complies with existing regulations of Lao PDR, in particular the Prime Minister Decree 192, and the World Bank Operational Policy 4.12. The policies and procedures provided under this RPF will apply when the project requires the involuntary taking of land resulting in: (i) relocation or loss of shelter; (ii) loss of assets or access to assets; or (iii) loss of income sources or means of livelihood, whether or not the affected persons must move to another location. 90. The CEF will be implemented through the following four stages: Stage 1: Selection ofparticipating villages and team formation Selection criteria based on customary use of forest and land resources will be evolved and project implementation teams for PSFM and VLD will be formed. Orientation workshops for the teams will be organized and a value chain analysis will be conducted to form the baseline data for the project and as inputs to expanding livelihoods for communities. State 2: Community awareness and resource diagnostics Implementation teams will disclose and inform communities of the project, its purpose, and its potential benefits as a first step in establishing free, prior and informed consultation process. During these initial meetings the teams will seek community cooperation and acceptance to carry out household surveys. Vulnerable households will be identified, and demographic, socioeconomic and livelihood related data would be collected. Community agreement to cooperate on data collection will be understood as a significant first step towards community support and participation. These participatory processes and outcomes will provide the basic platform for informed dialogue with the community and discussion of resource management issues. Stage 3: Participatory planning: consultations, consensus, and agreement Participatory land use planning will be conducted as a joint activity with communities by the PSFM and VLD teams to establish an organizational basis for collaboration. A key outcome of these consultations will be a CAP based on more sustainable use of forest and natural resources, and improved access to markets and other opportunities. CAP will be endorsed by vulnerable people, including ethnic women and locally recognized leaders, and will also demonstrate broad community support to the alternatives it proposes. Stage 4: Implementation of Community Action Plan The project will provide financial and technical assistance for the implementation of the CAP. Each village will receive USD 8000 for implementation of the CAP, and, if required, an additional USD 2000 for forest restoration. VLD teams will provide continuous and practical technical advice with regard to livelihood development. The project will use a community-based approach to addressing safeguard requirements, in that it will seek to positively enhance the livelihood of affected communities at large, without regard to the level of impacts that may fall upon individual households. Prior to project completion, an impact assessment will be carried out as part of the general evaluation of project achievements, and any impacts that remain to be addressed will be identified and measures to close the gaps will be explored. The baseline 56 livelihood and welfare data collected under Stage 2 will be used to determine if the project has fully restored the livelihood of project affected people. Grievance Redress Mechanism 91. Grievances that result from project activities will be resolved through a grievance mechanism. The grievance mechanism will be based on key principles that will ensure that project participants concerns and grievances are addressed in a prompt and timely manner, and that entitlements or livelihood support is provided in accordance with GoL and World Bank safeguard policies. 92. The grievance mechanism will be in line with existing policies, strategies, and regulations on redressing village grievances as defined by GoL and will be institutionalized in each village by a selected group of people, involving ethnic minorities, women, and representatives of other vulnerable groups in the village. 93. The project grievance redress mechanism will consist of five steps with guidelines and procedures outlined for each step. The first step will be at the village level with grievances reported to the Village Mediation Unit (VMU) that will document the grievance by using a proforma signed/fingerprinted by the Complainant for processing. Some of the formats will be adapted from those used under the Nam Theun 2 (NT2) project. The VMU will be obliged to investigate the complaint with 14 days, undertake a discussion with the Complainant, and attempt to seek a satisfactory resolution. If the grievance is either a valid SUPSFM grievance that requires investigation and action/compensation or if the Complainant is not satisfied with the response, the issue is transferred within one month to the next level -- the District Grievance Committee, for further action. 94. The District Grievance Committee will follow a similar process for seeking a resolution that is satisfactory to the Complainant within a fixed number of days, and if this is unsuccessful, the grievance will be transferred to the Provincial Grievance Committee. Unresolved grievances at the Provincial level will be referred to the NPSC at the Central level. A Complainant also retains the right to bypass this five-step procedure and can address a grievance directly to the NPSC or the National Assembly, as provided for by law in Lao PDR. At each level grievance details, discussions, and outcomes will be recorded in a Grievance Logbook. Village Consolidation 95. Numerous independent reports have indicated that land and resource tenure has not been adequately addressed in villages that have been consolidated under the government's ongoing consolidation program. For this reason, the WB Financing Agreement will not allow project finance to be used in villages that are slated for consolidation. In villages that have already been consolidated project finance can be used only if land and resource tenure issues associated with the consolidation have been resolved to the satisfaction of villagers, and there is sufficient agricultural land for improving, or at least maintaining, their livelihoods. 57 96. Official lists of, and plans for, village consolidation will be provided to, and discussed with, the World Bank. The Participatory Social Assessment and PLUP procedures (outlined in the CEF) will be used to determine and document the status of consolidated villagers' land and resource tenure on a case by case basis. If the consolidated village meets the criteria for project inclusion, a report will be submitted to the Bank providing information on the village consolidation process, the status of villagers' land and resource tenure, available land for agriculture and natural resource use, and evidence that the villagers' have provided their broad community support to the project. All relevant data, including minutes of meetings with community representatives, will be documented and filed by the VLD team for review by the Bank. CEF will identify communities that have been consolidated administratively and treat hamlets within them as separate communities. 97. If outstanding issues are identified project officials will convey their findings to Provincial Authorities for their follow-up. Communities that are excluded due to unresolved tenure issues may be allowed to enter the program subsequently if Provincial Authorities can demonstrate that the issues have been resolved and communities confirm that the resolution process met standards of free prior informed consultation and that they have provided broad community support. Overlapping Concessions 98. Regarding overlapping concessions, an inventory of concessions in project provinces will be periodically updated and discussions will be held and actions be taken as needed with participating provincial governments and sponsoring ministries to avoid or minimize impacts in project financed areas. This effort will lead to creation of a transparent and coordinated institutionalized mechanism that would identify and resolve development overlaps through an enhanced information system, and linkages with key GoL institutions. 6. Monitoring and Evaluation 99. Progress towards achievement of the project development objectives, outputs, outcomes, and impacts will be measured through a monitoring and evaluation (M&E) system that will be supported under the project. Indicators to be measured are listed in the Results Framework (Annex 1). A full set of indicators, which will include those in the results framework, will be developed as part of a Logical Framework that forms part of the Project Implementation Plan. M&E will be an integral part of the project's management and decision-making processes, e.g. to feed lessons learned quickly into revising systems, guidelines, and procedures, as well as the training program of the project. Participatory M&E tools will be used at the village level. For sustainability, M&E at higher levels will be developed as a routine function of government agencies at those levels, rather than as project-specific M&E. 100. To encourage broad-based participation and to particularly target the poor and vulnerable sectors, participation will be monitored and disaggregated in terms of gender, ethnicity, and household socio-economic status. The following guidelines will be considered when developing a monitoring and evaluation system and for identifying potential indicators: * Disaggregate information by gender, ethnic group, and household socio-economic status. 58 * Involve villagers in designing the monitoring program, collecting data, and drawing conclusions from the data, * Continue feedback meetings after fieldwork and incorporate recommendations into systems development. * Keep disaggregated records of involvement and participation in different activities at village level and also in the databases. * Note successful and unsuccessful strategies for future reference in curriculum development, field implementation, and other project areas. * Identify indicators and tools to measure the project's impacts on women, ethnic groups, and the poor. 101. Monitoring and evaluation will cover both project performance monitoring and effectiveness monitoring. Project performance monitoring will determine the progress in project implementation against established benchmarks and milestones indicated in the project document and work plans. Project performance monitoring and related reporting to financing agencies and GOL will be the responsibility of NPMO, in cooperation with provincial and district PMOs. Effectiveness (impact) monitoring will measure the project's development impacts requiring that baseline conditions are assessed and measurable key indicators are identified. Component 4 will deal with both aspects of monitoring, as well as ensure that safeguard policies and frameworks are implemented. The results framework and the logical framework provided for the Finland Technical Assistance sub-component will be used as tools for monitoring performance. During the first six months of project implementation both matrices will be refined in participatory planning workshops. 102. Various thematic impact studies or case studies will be conducted throughout the project implementation period, e.g. to study environmental aspects or qualitative aspects related to gender, ethnicity, and social sustainability. Several of the results framework indicators will require the periodic conduct of such studies. Household level case studies can be used, e.g. to study possible changes in household welfare and beneficiary satisfaction. Forest growth and regeneration study will look into the impacts of forest harvesting, sustainability of wood production, growth dynamics, and biodiversity. During the final year of the project, a final evaluation, using the socio-economic and environmental baseline studies as benchmarks, will be carried out to assess the achievements of project development objectives and indicators as described in the results framework. 103. Participatory monitoring and evaluation approaches will be developed, so that villagers will be involved in monitoring progress towards their own development objectives. Each village will be assisted to have an annual review of progress with the project activities, and an annual assessment of implementation, and where needed, updating of the community action plan. Another objective is to help the villagers improve their effectiveness by continuously assessing their own progress and periodically evaluating the results so that they can learn from past mistakes and thus increase their self-reliance and strength. This will be a stakeholder-driven process responding to the needs of villagers. The villagers will decide what to monitor and evaluate based on the set objectives. They will collect the data, analyze and use the results for themselves. The data collected will also be used in project performance and impact monitoring. 59 104. A mid-term review will be carried out during the third year of project implementation. The objectives of this review will be to: * Assess progress in implementing project activities and moving towards achieving project objectives. * Assess the relevance of the project and the validity of project design in light of actual implementation experience and existing socio-economic and political conditions. * Agree on necessary revisions to project objectives, scope, activities and budget in order to strengthen the overall development impacts of the project and improve implementation for the remainder of the project. * Recommend the scope, timing, and other necessary details for the preparation process of follow-up activities. 105. Independent external monitoring, including voluntary forest certification as well as forest industry chain of custody operations will be used as complementary tools for "traditional" monitoring. Independent audits carried out, e.g. once a year, to assess the performance of the in- country monitoring and reporting systems can be a cost effective way of improving performance if it is combined with corrective action and with law enforcement measures. Forest certification together with chain of custody operations on the other hand will provide market-based incentives to adopt sustainable forest management practices. Having large forest areas under certification should reduce the burden on public sector monitoring. 7. Role of Partners 106. The Institutional Assessment aims at defining the role of each stakeholder in the program. The assessment analyses immediate winners and losers, and identify key power linkages. The assessment is based on the multi-stakeholder workshop discussions and findings. The assessment identifies capacity development needs for key stakeholder, especially for the direct beneficiaries, and particularly for most disadvantaged groups. 107. In Laos, strongly vertical or political administrative structures frontier investment and natural resource management. In natural resource management, the Prime Minister's Office (PMO) serves as a staff support group and as a close aide to the Prime Minister for various issues related to the collective work of the government related to the administration and state management of Lao PDR. In the forestry sector, the function of the PMO includes overseeing all directive guidelines for the development. 108. Although the Government of Lao PDR has stated its commitment to the sustainable management of the nation's forest ecosystems and the forest communities, which are dependent upon them, many concerns remain regarding the country's forest management and governance situation. On the whole, land and forests in Lao PDR are open to discretionary intervention by powerful actors, and local communities have had very little political recourse to defend their rights (Keith Barney and Kerstin Canby, 2011). The Government of Laos is increasingly aware of the need for a more equitable and sustainable land and forest management framework, which are aimed at improving upon previous policy constraints and shortcomings. 60 Stakeholders at the central level 109. There are many government agencies that are involved in forestry development at the central level. In recent years, members of the National Assembly have been active in relation to land and forest issues, and have examined and received feedback to question of state land lease fees from concession agreements and forest management. The NA has been playing an increasingly central role around the issue of land rights and concession agreements. Ministry of Finance (MoF) is responsible for channeling the revenue from the sales of the timber and forest products into the national treasury. The MoF also controls disbursements of the government budget to various ministries and agencies. Ministry of Planning and Investment (MPI) is responsible for preparing the National Socio-Economic Development Plan (NSEDP) every 5 years and annual work plans based on input from line ministries and provinces. MPI at the central and provincial levels also oversees investment projects including those financed by private sector and development partners as well as playing a key role in screening and prioritization of government's own investments to ensure consistency with the priorities outlined in the NSEDP. Lao Statistics Bureau (LSB) within MPI takes a leading role in coordinating the production and consolidation of national statistics and indicators as well as for the publication and dissemination of data. The World Bank has recently completed a negotiation for a proposed Project on Strengthening the National Statistical System which will be financed by the Statistics for Results Facility Grant in the amount of $8 million in grant. This project will be implemented by the LSB. 110. Ministry of Agriculture and Forestry (MAF) is the highest executing government's institution responsible for enhancing the forestry policy, formulating strategies, programs and plans for forest production, issuing legislation on forestry, and for technical extension and scientific research. MAF is also responsible to direct and oversee the implementation of forest development, and the protection, harvest and management of all jurisdictional forestlands. The MAF governs the management of National Production Forest Areas, while the National Conservation Forest and National Protection Forests are under management of new Ministry called MONRE. The MAF houses a number of key agencies: a. Department of Forestry (DOF) through their line offices at provincial and district levels is responsible for implementation of forest management. DOF is the lead agency in PFA management and assists in enhancing and implementing forestry policy and strategies in the country. DOF has been the principal agency implementing and coordinating SUFORD inputs to the forestry sector. b. Department of Forest Inspection (DoFI) has been given wide-ranging powers to inspect all aspects of the timber trade, including logging, wood processing, and wood export operations. The separation of inspection from management responsibilities in the timber trade is a key policy move by the GoL to address embedded corruption and rent- seeking in the Lao forestry sector. DOFI is created to inspect and investigate suspected violations of the new Forest Law, the Wildlife & Aquatic, the National Penal Code and other subsidiary laws. DOFI's mandate was defined in the Ministry of Agriculture and Forestry (MAF) Agreement No. 0340/MAF dated March 5th, 2008. New responsibilities focused 61 on forest governance systems. DOFI has been actively involved in the development and implementation of law enforcement during SUFORD AF. c. Department of Agriculture Extension and Cooperatives (DAEC) is to implement extension and disseminate agriculture and forestry in accordance with policy and development programs to reach the objectives and goals, which are set by the party and government. DAEC has been responsible for the implementation of village development planning and related grant disbursement, support the work of Provincial and District levels of the Extension Service by developing extension strategies, organizing staff training and providing technical information in accordance with the needs of farmers. DAEC has the status equal to a Department within MAF. d. National Agriculture and Forestry Research Institute (NAFRI) is responsible to carry out natural resources (soil, forests, water resources and climate) and socioeconomic inventories in agriculture and forestry sectors for the specification of the plan for the classification of agriculture and forest lands, up to agriculture and forestry development, in accordance with the available potential of each region. The Forest Research Centre (FRC) is one of eight research centers under the NAFRI. It is the only research center in Lao PDR that takes responsibilities for forestry research. However, NAFRI has provided a limited contribution to SUFORD by providing volume and growth information on Permanent Sample Plots and through NTFP studies. e. Ministry of Industry and Commerce (MoIC) is currently responsible for monitoring the forest industry, its capacity and raw material sourcing and overhauls of the timber trade, in 2008, through a Prime Ministerial Decree (17/PM 2008), governing authority associated with saw- mills, wood processing, and the export timber, was shifted from the Department of Forestry to the Ministry of Industry and Commerce (MoIC). After the second landing, and up to the border export zone, timber control responsibilities are now housed under the MoIC. f. Department of Import and Export (DIMEX) is responsible of timber flow from Log Landing 2 to processing factory and up to export. Provincial Industry and Commerce Division will calculate the log price and prepares a sales contract of logs with wood processing companies/factories that are a member of the national and provincial Wood Processing Industry Association and then issues transport permits for the logs from landing 2 to processing factories or direct export. DIMEX has been the main agency involved in SUFORD developing and coordinating the wood sales. g. Department of Industry is responsible of issuing permission of factory establishment, controlling of factory operation. However, in some cases, the permission to establishment of wood processing factory is not compliant with forest law. Very often the establishment of wood processing factory is permitted in PFAs as in case of Xekong province. 111. Ministry of Natural Resource and Environment (MONRE) merged the former WREA, National Land Management Authority, and some divisions of the Forestry Department (Forest Resource Conservation and Forest Protection). MONRE is responsible to manage and administer 62 the environment, land, forestland, water, air, mineral and biodiversity including disaster, climate change and meteorology, hydrology within the country. The key agencies under MONRE for sustainable forest management include: a. Department of Land Management and Development Participation b. Department of Land Administration c. Department of Forest Resource Management d. Department of National Disaster Management and Climate Change e. Department of Environmental and Social Impact Assessment 112. Faculty of Forestry (FoF), National University of Laos (NUoL) is the highest forestry education center in Laos. The main function is to provide education, research and technical service relating to forestry, land, environment, wood science, REDD+ and etc. 113. Lao Women's Union (LWU). The roles of the LWU are: to educate women of all ethnic groups on the Constitution, Laws, Legislations and International Conventions related to the rights and benefits of women and children and to mobilize and advocate women to actively participate in the socio-economic development; to take part in protection of fine culture and traditions of Lao women of all ethnic groups among others. LWU is currently implementing community forest project in Bokeo and Louangnamtha in the North. The activities include "Buad Bang Pa" - a Buddhist terms and process for ordaining forest. The activities start with village participatory planning process (PPP) involving both men and women. The LWU is an active partner of the PAF and DAF in conducting session on gender issues in forest and in general, awareness raising on forest protection and use and other issues related to poverty reduction (political obligations). In the session, the villagers discuss on how to use forest product in village common forest to balance forest preservation and livelihood. The session also helps the villagers to come up with village rules for forest use, community-based monitoring and control of village forest. Penalty measures and amount of money collected as fine are also set as part of village forest rules. The rules also extend to preservation forest if the village is located in this area. LWU has rich experience in Women In Development Program, which is similar to Village Development Program implemented by MAF. LWU can be a partner to support women of ethnic groups in program areas. 114. Lao National Commission for the Advancement of Women (NCAW). The NCAW supports the promotion of gender equality in Lao PDR. The Sub-Commissions on the Advancement of Women is responsible for coordinating the implementation of national laws, policies and plans for the advancement of women by their respective organizations. MAF Sub-CAW has the Vice- Minister as the Chair. At present MAF engages in a significant step to adopt MAF Resolution on Gender Mainstreaming in Agriculture and Forestry, which will guide their long journey to actualize the goal of gender equality in MAF workforce and women and men in agriculture and forestry population. Capacity building for MAF Sub-CAW is needed in order to carry out gender sensitization within the AF institutions and to monitor gender disaggregated data collection for planning, reporting and assessment purposes. 115. Lao Front for National Construction (LFNC). The Front at village level is the most relevant to forest preservation, especially those ethnic communities. Awareness raising to 63 promote good practice and tradition toward forest preservation. Research and study for evidence- based advocacy through program cycle. 116. Lao National Chamber of Commerce and Industry (LNCCI). Established in 1989, LNCCI is an independent body which represents the business community in Lao PDR. It is the nexus between state and private enterprises and represents employers, groups and joint ventures across all agencies that have been established under the laws of Lao PDR. It currently has more than 1000 members represented through Chambers of Commerce in 13 provinces and business associations and groups. This makes LNCCI the largest and most representative business community in Lao PDR. Stakeholders at the provincial level 117. At the provincial level, the stakeholders involved in forest management include: - Provincial Assembly Office - Provincial Administration Office - PAFO- Provincial Forestry Section and Provincial Forest Inspection Office - Provincial Natural Resource and Environment Office - Provincial Rural Development Office - Provincial Women's Union - Provincial Lao front for nation construction Stakeholders at district and village level 118. At the district level, the project will engage with the District Administration Office which reports directly to the Vice-Govemors and Governors; District Planning and Investment (DPI) for informing on the budgeting, planning and M&E; DAFO (District Agriculture and Forestry Office); District Office of Environment, Resource and Environment (DoNRE) which also hosts the land development division and District Office of Industry and Commerce. 119. At the village level, the Village Forest Organizations will be engaged in the project for forestry related activities. They are established to form villagers working in the forest; however, the number of village foresters in each village is still insufficient. 120. Village Development Committees (VDCs): have been formed with guidance provided by the District Offices to act as a governing and decision making body on issues related to village development activities. Typically, the Committee will consist of a village chief or deputy chief, a few village elders, representatives from Lao Women's Union and Lao Front for Construction as well as representatives from military and security officers. Civil Society Organizations 121. As mentioned above, civil society organizations in Lao PDR include the International Non-Governmental Organizations (INGOs) local Non-Profit Associations (NPAs) and foundations. Approximately 180 Civil Society Organizations exist in Lao PDR including those 64 operating at the central and provincial levels. While INGO participation in development activities in Lao PDR is managed through the Ministry of Foreign Affairs, NPAs participation is overseen by the Division of NPAs Administration of the Ministry of Home Affairs (MoHA) and is guided by the Decree on Non-Profit Associations No. 115/PM (2009). With the passage of this decree the country expects that domestic civil society groups will become increasingly involved in natural resource management. 122. The NPAs working on forestry, environment and development related activities include the Lao Biodiversity Association (LBA), Community Knowledge Support Association (CKSA), and the Gender Development Association (GDA), and the Wildlife Conservation Association (WCA) among others. 123. Research institutes. The National Economic Research Institute (NERI) was established in 1997 as a strategic research institute under the supervision of the Committee for Planning and Investment (CPI). CPI has recently become the Ministry of Planning and Investment (MPI). As a think-tank of the Ministry of Planning and Investment, NERI's main functions are to formulate the long-term provincial, regional, and national socioeconomic development strategy, to research, analyze and monitor the social and economic situation of Laos in micro and macro level, to monitor and forecast economic conditions, to assess and monitor socio-economic policy of the government, and to provide capacity building for staff in related agencies. 124. NERI's research priorities: (i) Macroeconomic monitoring, (ii) Rural development, (iii)Poverty, (iv)Assessment of development policy, (v) Regional and international integration, and other ad hoc socio-economic issues 125. International Civil Society Organizations. The government of Lao PDR has recognized that there is an important role for civil society in Lao PDR, particularly in poverty alleviation. This perspective of civil society can be further strengthened through providing necessary political space to provide feedback and input into government planning processes, to report corruption, and to give local people a voice in their own development. Potential partners include Land Issues Working Group (LIWG), Village Focus International (VFI), Helvetas, CIDSE, Japan Volunteer Centre (JVC), Global Association for the People and the Environment (GAPE), WWF, Rainforest Alliance/Smartwood, IUCN and WCS. 65 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK Operational Risk Assessment Framework (ORAF) Lao People's Democratic Republic: LA-Scaling-Up Participatory Sustainable Forest Management (P130222) Stage: Negotiation 1.1 Stakeholder Rating Substantial Description: Risk Management: Provincial and District authorities Local authorities: Engage with Province and District authorities during preparation and implementation to pursue development activities such identify overlaps with development activities in DFAs through the Provincial and District Project Steering as infrastructure, mining, and Committees. A political economy analysis was completed during preparation to identify issues which could agriculture concessions in agriultre cncesion inimpact project implementation. overlapping Designated Forest Areas (DFAs) that are not Evaluate areas of significant development activities and rank with regard to REDD+ implementation at DFA consistent with forest law and and national level policy. Village forests outside DFAs could Adjust implementation plans based on above assessment also be subject to such overlaps Identify and integrate overlaps for follow up in updated ORAF; DFA management plans; REDD+ Measurement, Reporting and Verification (MRV) reports and Aide Memoires Provide targeted support to monitoring salvage logging Resp: Both Stage: LEN;SPN Recurrent: Due Frequency: Status: Ongoing Yes Date: Annual Risk Management: Private sector: Infrastructure, Private Sector: Promote inter-ministerial exchange of information and dialogue through the National 66 mining or other land concessions Environmental Committee involving key Ministries and National Assembly. implemented without adherence to existing legal and regulatory Raise specific high profile concerns with National REDD+ Taskforce and NEC on case by case basis framework. This may delay or curtail REDD+ activities in Strengthen Department of Forest Inspection (DoFI) and implementation partners ability to enforce affected areas compliance by providing TA and incremental operating funds from Finland, GEF 5 (Global Environment Facility), and Forest Investment Program/International Development Association (FIP/IDA) Resp: Both Stage: LEN; SPN Recurrent: Due Frequency: As Status: Ongoing IPs and CSOs: Unclear tenure, X . Date: required access and rights constrain participation of local communities Risk Management: as forest stewards Indigenous Peoples and Local communities: Assess bundle of rights of communities and negotiate favorable Access to customary forest areas rights to local communities in agreements and resources restricted due to Utilize findings from Participatory Land Use Planning (PLUP) to support secure tenure for communities concessions and REDD+ requirements Encourage the clearance of regulatory guidance on zoning and use guidelines for project design Formalization of community forest Review and identify appropriate modalities for legal incorporation of production and forest management management institutions groups cumbersome and beyond their capacity Ensure active participation of CSOs and two-way communication during project implementation While cooperative during Resp: Bank Stage: LEN;SPN Recurrent: Due Frequency: Status: Ongoing preparation and consultation CSOs X Date: Annual may disagree with GoL approaches 3.1 Capacity Rating Substantial Description: Risk Management: Skills to manage procurement at National Technical Assistance in procurement will provide support in weak offices Provincial and District level are weak. Capacity improvement is Project provides capacity building for government staff at both national and sub-national levels most required at the subnational level. Integrated procurement and financial management supervision provides regular feedback of performance and 67 identifies areas for improvement. The TA team will spend 70% of their time in the field. Project assistants are assigned 2 per district to support implementation by line agency staff and facilitate monitoring. Resp: Bank Stage: LEN;SPN Recurrent: Due Frequency: Status: Ongoing X Date: Annual 3.2 Governance Rating Substantial Description: Risk Management: Capacity to enforce restrictions on Lao PDR Forest Law Enforcement Strategy prepared with PHRD and Finland support unsustainable forest management inadequate Increased financial support for implementation of the strategy from FIP, IDA, GIZ, GEF, Japan and Finland Lao PDR Wildlife Enforcement Network platform approved among cooperating law enforcement agencies DoFI FLEGT dialogue and VPA discussions to highlight leakage issues; EU support confirmed. Lao PDR and Vietnam bilateral agreement supports information sharing on trans-border movement of timber GoL request for World Bank support for monitoring salvage logging received and next steps being discussed Shift of emphasis from leveraging external donors to influencing national checks and balances and increasing transparency, engagement and coordination with provincial authorities. Resp: Both Stage: LEN;SPN Recurrent: x Due Frequency: Status: Ongoing XDate: Annual 4.1 Design Rating Substantial Description: Risk Management: GoL capacity constraints may lead Frequent joint implementation support missions will be undertaken and high level of communication to inadequate allocation of staff, maintained with GoL. and coordination with TA Team. This could delay project design and impact quality of design. 68 Introduction of a forest landscape Direct involvement of Provincial and District Governors and Vice Governors in development and approach increases project area and implementation of the forest landscape framework agreements provides opportunities to develop a shared expands coordination efforts to understanding among all stakeholders. include other Ministries and Sub- national authorities increasing Resp: Client Stage: SPN Recurrent: Due Frequency: Status: Ongoing complexity and coordination X Date: Annual challenges. 4.2 Social and Environmental Rating Substantial Description: Risk Management: There is a limited capacity within Support for improving communication and building capacity to engage communities will come through implementing agencies (DOF, intensive training and expanding partnerships with mass organizations Lao Women's Union and Lao Front DOFI, PoNRE) at present to for National Construction communicate effectively with local communities and especially local ethnic groups on the complex topic of REDD+ Developing new partnerships with CSOs through implementation of the DGM under FIP and implementation Capacity to work with of the CEF communities on defining areas inside PFA that can be managed by Creation and strengthening of dispute resolution mechanisms and options to strengthen tenure communities, benefit communities and enhance carbon stock is limited. CEF identifies communities that have been consolidated administratively and treats them as separate communities. In order to address project risks with regard to village consolidations, the project will make an Government's ongoing program upfront agreement with provincial governors that the project will not work in villages that will be of village consolidation can lead consolidated within the life of the project. Those villages that have been consolidated in previous four years to loss of access to livelihood will not be supported if villagers were resettled under duress or against their will or if land and other means of resources. livelihoods are not available and accessible to consolidated villagers. Resp: Both Stage: LEN; SPN Recurrent: Due Frequency: Status: Ongoing X Date: Annual 4.3 Program and Donor Rating Moderate 69 Description: Risk Management: DoF capacity has been Strengthen communication with key donors in REDD+, and facilitation and participation of the Bank in the significantly enhanced for project Sub Sector Working Group for improved donor coordination. Parallel financing from Germany and Finland is implementation however the expected. SUPSFM parallel financing from Finland for Technical Assistance will be managed through joint REDD+ program is new and implementation support missions and will follow WB Safeguard Policies. KfW is expected to support PSFM requires inter-institutional in Protection and Conservation Forests in Louangnamtha and Bokeo Provinces (Landscape area). Parallel coordination, GoL commitment financing from KfW, which is still in the design phase, is expected to follow the same Process Framework and donor coordination. This adopted by GOL for SUPSFM namely any loss of income resulting from access restrictions will be brings both opportunities and compensated through investments to improve livelihoods of affected persons and to be consistent with World challenges. Bank Safeguards policies. To maximize carbon sequestration Addition of new PFAs will follow a phased approach, with upfront assessment of capacity, technical the number of DFAs included in feasibility and actual/planned overlaps with concessions. the project is large and support for implementation is likely to be Resp: Bank Stage: LEN; SPN Recurrent: Due Frequency: Status: Ongoing uneven from province to province. X Date: Annual 4.4 Delivery Monitoring and Rating Substantial Sustainability Description: Risk Management: DoF will require increased Investment in additional resources and capacity building. Increased staffing for monitoring and adoption of an resources and staffing to establish effective result based monitoring framework. Full time Monitoring and Evaluation Adviser budgeted. and manage delivery monitoring. One of the key donors, Finland, puts strong emphasis on transfer of skills from TA team to government In the medium term over reliance counterparts. TA team will train government staff, community members and CSO partners. Progress and on TA provided by donors could quality of service delivery will be measured with annual audits. threaten project sustainability as Resp: Both Stage: LEN; SPN Recurrent: Due Frequency: Status: Ongoing external assistance could crowd out Date: Annual existing government capacity. X .vrl Implmen t Overall Preparation Risk: Substantial Overall Implementation Substantial Risk: 70 Risk Description: Risk Description: The Decision Meeting confirmed the assessment of preparation risk as The Decision Meeting confirmed the assessment of implementation substantial. risk as substantial. 71 ANNEX 5: IMPLEMENTATION SUPPORT PLAN 1. The implementation support plan (ISP) recognizes the importance of effective and timely support to the client especially during the start-up phase of SUPSFM. The ISP will give priority to the following aspects: i) technical support to the recruitment, orientation, training of field staff responsible for implementation of the CEF and CAP, and to ensure inclusion of vulnerable communities and gender equity, ii) technical support to reviewing and developing methodologies and instruments for baseline surveys and REDD+ benchmarks, iii) enhanced linkages with sector strategies and forest law and governance developments, iv) placement of TA staff for monitoring and evaluation, and the setting up of a sound monitoring and evaluation framework, v) appropriate procurement and financial management procedures, vi) safeguards and fiduciary issues, and vii) risk mitigation measures as outlined in the ORAF. 2. Formal supervision including field visits will be undertaken two times per year during the project. In addition the task team will participate in key project events, and sector and policy dialogue meetings. The task team will also undertake at least one integrated fiduciary and technical supervision mission during each year of the project. Implementation support will be required for the following key areas: 3. Technical: Technical inputs will be provided to ensure methods and processes used for implementation of CEF and development of CAP are in keeping with the objectives related to free, prior and informed consultation process, broad community support, vulnerable communities and women, safeguards, and are of acceptable technical standard. Technical inputs will also be required to review methodologies and instruments for baseline and other surveys especially to ensure quality of data and appropriateness of benchmarks. The task team will share responsibility for enhancing engagement with sector strategy issues, with policy dialogue and developments in related sectors that may have a bearing on the forestry sector, and with forest law governance. Bank staff will also play an important role in coordination of the project with the RPP implementation, REDD+ institutional developments, and linkages with the DGM. 4. Capacity Building: The task team will provide inputs to the design of the capacity assessment for the project, and participate in key milestones of the assessment, especially the adoption of recommendations and integration into project design and implementation. Inputs will also be provided to selection of high quality and relevant regional and/or international individual service providers or institutions for diverse needs of the project. Opportunities for training of field staff will be coordinated with the RPP especially with reference to MRF, REL benchmark training, carbon assessment methodologies, Safeguards, SESA, benefit sharing, and conflict resolution. 5. Safeguards: The CEF has been designed as the key framework to address social safeguards issues in the project. Implementation support will be provided to ensure integration of safeguards aspects in the orientation and training of field staff, and in the setting up of a functional and effective grievance mechanism. The task team will also maintain continued linkages with consolidation and resettlement plans of the GoL and take steps as outlined in the ORAF for mitigation. Environmental safeguards are incorporated into the forest management planning guidelines. The PSFM Operations Manual used by the project constitutes the Lao 72 National Code for Forest Management. Compliance with guidelines is verified through joint implementation support missions conducted with Finland, through review of monthly FLEG monitoring and in selected areas through independent forest certification under FSC standards. 6. Gender: Technical expertise will be made available to ensure compliance with gender aspects of the project. This will include mainstreaming of gender issues in CEF, CAP, survey methodologies and instruments, and to ensure gender disaggregated data is compiled, archived and is rapidly retrievable in a form which can inform project decision making, and appropriate corrections. 7. Monitoring and Evaluation: Bank TA will finance an international monitoring and evaluation professional who will have overall responsibility for establishing a monitoring and evaluation mechanism for the project. Technical inputs will be provided to support this professional, ensure compliance with the results framework, review of terms of reference for key studies and surveys, review of monitoring mechanisms for enhanced benefits from timber sales to communities, and supervision for quality and effectiveness. 8. Procurement: Implementation support will aim to provide training to procurement staff, review of procurement plans and documents, ensure compliance with the Bank's procurement guidelines, and supervision of the annual procurement plans. 9. Financial Management: Bank TA will support a financial adviser at the central level and staff at provincial level. Implementation support will be provided for training, upgrading of accounting software, review of IFRs and external audits, monitoring disbursement progress, and monitoring effectiveness of financial management of the project. 10. Grievance and Complaints Management: Implementation support will consist of supervision and review of the effectiveness of the grievance and complaints management mechanism, and coordination with national capacity building efforts related to conflict resolution under REDD+. 11. Communication Strategy: Bank inputs will include review of implementation progress of the national communication strategy, and coordination with FCPF and DGM programs. 12. Other: Sector specific risks will receive ongoing monitoring as specified in the ORAF and the ORAF will be reviewed periodically and updated to respond to changing circumstances. 13. Required task team skills mix and international implementation partners and their anticipated roles are described in the following tables. 73 Task Team Skills Mix Skills Needed Number of Number of Trips* Staff Weeks Social Safeguards 6 2 per year Specialist Environmental 6 2 per year Safeguards Specialist Financial Management 4 2 per year Procurement 4 2 per year Natural Resources 15 2 per year Management Specialist Climate Change / NRM 10 2 per year Analyst Communications 4 2 per year Specialist I I _I * It is noted that several of the key team members are located in the country or based regionally, and as such, the project will benefit from continuous support. The number of trips listed refers to formal missions. It is also noted that additional formal missions will likely be required during the startup period. International Implementation Partners and Anticipated Roles Institution/Country Role MFAF/Finland Joint Implementation Support Missions - twice yearly ADB Coordination on PES and Landscape approach IFC Coordination on FIP and Smallholder Plantation KfW/ Germany Coordination on Landscape Approach Dev. JICA/Japan Coordination on REL and MRV development 74 ANNEX 6: FINANCIAL AND ECONOMIC ANALYSIS 1. This Annex describes the assumptions and results of the economic and financial analyses of the project. The Annex includes a brief description of the challenges for carrying out the analyses, the assumptions made, and the results of the economic and financial analyses. Challenges in conducting economic and financial analysis 2. Scaling-up Participatory Sustainable Forest Management (PSFM) Project offers both tangible and intangible economic benefits. As a result, a cost benefit analysis of scaling up participatory sustainable forest management presents various challenges. Forest resources generate numerous benefits and services to their immediate resource users, other citizens in the country and more globally. Only some of these goods and services can be valued through market mechanisms. In theory, all direct and indirect use values of natural resources are capable of being measured in monetary terms. In practice, there is limited evidence of these values (Pearce, 2001). Furthermore, it can be difficult to quantify the off-site benefits (stemming from reduced sedimentation, improved water quality due to watershed management, and carbon sequestration unless long-term data and biophysical modeling is undertaken. It also will be difficult to quantify the benefits from supportive policy, legal, governance, incentives and REDD+ framework for participatory sustainable forest management or greater engagement of local communities and improved livelihoods in project areas. 3. The economic analysis for this project, therefore, estimates the minimum annual benefit required for the project to generate a 12 percent return on investment over a period of 25 years using a discount rate of 10 percent. The tangible benefits from the project are estimated for the same discount rate and time period. To achieve this return on investment, the present value of the monetary benefits needs to equal USD 52.2 million. Using the same discount rate and time period, the present value of net benefits from participatory sustainable forest management in the 41 PFAs, and benefits NTFP collection, forest restoration (including provision of fuelwood, fodder, and carbon sequestration) and village activities are examined. Assumptions: 4. The assumptions that underpin the analysis are presented briefly in this section. The assumptions will illustrate the conservative values used to estimate the economic benefits of the project. 5. Assumptions regarding costs include: * Cost associated with project implementation are spread over the life of the project as per the cost information provided by the Government of Lao PDR * Following the life of the project it is assumed that the operational cost specified in the project (covered the IDA/FIP project and Government of Lao PDR) would be required for the remaining years, but the operational cost are assumed to decline by 10% per year following the closure of the project * Cost of restoration activities were estimated at USD 500 per hectare. This cost estimate deviates significantly from the cost of regeneration and restoration indicated in recent 75 reports by the SUFORD TA team (ranging from USD 10 per hectare for natural regeneration and USD 150 for assisted natural regeneration). Nevertheless, it is assumed to be justified given the pressure on natural forests by livestock, and therefore the importance of ensuring appropriate fencing around regeneration areas. It is also assumed that the opportunity cost of production to shifting cultivators would need to be accounted for to ensure that that incentive to reduce encroachment of restoration areas are provided to shifting cultivators not associated with the forest management unit. * Cost of management planning and annual operations associated with participatory sustainable forest management are assumed to be the same as those identified in the PFAs that have been part of SUFORD and SUFORD AF. It could be argued that the unit costs for implementing PSFM should be lower given the capacity built through SUFORD and SUFORD AF and greater specificity in the operational guidelines for implementing PSFM. The new PFAs are, however, going to raise new challenges. The costs for monitoring and enforcement, however, have been increased to reflect projections provided by the technical assistance team to DOFI. 6. The tangible economic benefits from this project stem from the sale of timber, the sale and consumption of NTFPs, income generation opportunities from forest restoration and the village level livelihood activities. There are a range of intangible co-benefits resulting from improved capacity at the community, and subnational and national government level. Improved partnerships with government, greater tenure security, and ecosystem services from forest restoration (including reduction of soil erosion and regulation of water) are examples of additional co-benefits that are not accounted for in this analysis. 7. Assumptions regarding the benefits: * Sustainable harvesting of timber from the 16 PFAs with management plans established under SUFORD and SUFORD AF is initiated in the first year of the project. Sustainable harvesting of timber from the 25 new PFAs is assumed to start in year three of the project * Following the current policy on benefit sharing from timber revenues, communities engaged in PSFM will earn 12% of gross revenues from timber sales * The actual harvest depends on the pre-harvest inventory. In new provinces, however, it is estimated that the harvest in forest management plans is up to a maximum of 75% of the annual allowable cut.3 * Recent work on NTFP estimated that on average the annual NTFP value of SUFORD PFA was approximately USD 57 per hectare. Of this amount the cash income from NTFPs was roughly USD 14 and the non-cash income was estimated to be USD 43.4 These values are estimated based on an assessment of NTFPs collected from a sample of PFAs. The average annual cash value per hectare of NTFPs is used for purposes of the economic analysis, although in the analysis it is assumed that NTFPs are only collected in village forests found within PFAs where the slope does not exceed 30 percent (rather than Dickenson, Chris. 2012. Personal communication 4 Foost, Joppes and D. Samontri. 2010. Technical Report: Assessment of the values of Non-Timber Forest Product in Lao PDR. Sustainable Forestry for Rural Development Project - Additional Financing. Vientiane, Lao PDR. 76 the whole PFA). It is also assumed that availability of NTFPs declines by three percent per year to reflect the unsustainable extraction that could be occurring. * The daily wage for labor hired to assist with regeneration of degraded forest areas is 35000 Kip * Benefits from natural regeneration and assisted natural regeneration of degraded forest areas would result in benefits from fuelwood, fodder, and carbon sequestration. Additional benefits could result from sale of poles and production of charcoal, both of which are in high demand and have an established market and notable price. These values were not included in the analysis due to limited data regarding household production of charcoal and poles. The analysis, therefore, underestimates the benefits that can be derived from regeneration of degraded forests * Benefits from emissions reductions associated with protection are calculated by assuming that there is an annual decline of 1% of the growth stock (as noted based on inventory data). Management of production forests would enable a reduction in the loss of growth stock and, it is assumed that while initially the reduced loss in growth stock is low, it increases with time as enforcement and management becomes more established. It is also assumed that the growth stock that is not lost continues to grow and sequesters carbon which in turn provides a benefit * The price of USD 1 per ton of C02 equivalent is used to approximate the current market price * The net returns from livelihood activities were approximated using information on returns on two livelihood activities that were undertaken as part of SUFORD. One activity involved production of raw material, while the other involved processing. In the project actual livelihood activities will be closely screened for their financial viability prior to providing project support, justifying the use of two activities that generated positive returns as a sample. 8. The economic analysis is carried for a period of 25 years using a discount rate of 10 percent. It is assumed that the project would generate an economic rate of return of 12%. The analysis estimates the returns from sustainable harvesting, NTFP collection, restoration and enterprise development. The returns from these activities (including benefits from carbon sequestration and reduced emissions from carbon) are approximately USD 91.8 million. The present value of these benefits is in excess of the necessary monetary benefits. The economic analysis also indicates that the economic viability of the project requires effective delivery of benefits from NTFP collection, reduced emissions from carbon and carbon sequestration, and labor opportunities for forest landscape restoration. 9. The economic viability of the project is fairly robust as the current calculations are based on very conservative assumptions (discussed above). If the daily wage for labor is reduced to 25000 Kip and the level of timber extracted is reduced to 50 percent of the annual allowable cut and price of timber is reduced to USD 120/cum, the project is still economically sound and the Foost, Joppes and D. Samontri. 2010. Technical Report: Assessment of the values of Non-Timber Forest Product in Lao PDR. Sustainable Forestry for Rural Development Project - Additional Financing. Vientiane, Lao PDR. 77 present values is roughly USD 64.3 million. Under these conditions, if the opportunity cost of the restoration activities to shifting cultivators is also factored in, the present value of the project benefits is approximately USD 57.4 million. The analysis, therefore, finds that the project is viable and resilient to changes in price and production. 10. The economic analysis detailed above does not include many of the intangible and some of the tangible benefits that will result from this project due to limited data. For example, the analysis did not capture the benefits from reduced soil erosion. It also did not capture the benefit of improved governance and law enforcement. An illustrative benefit associated with a stronger DOFI is the impact of the department on illegal logging. A review of DOFI performance revealed that in 2008 roughly 3500cum of illegal logs were confiscated. Once a more structured program for enforcement and capacity building was undertaken, the volume of illegal logs confiscated rose to 180,000cum. The number of illegal logging cases handled in 2008 was roughly 400. In 2011, the number of cases was closer to 2,000 and the Government received USD six million in fines. In the first five months of 2012, the number of cases handled range between 100 and 200 cases. While the numbers from 2012 suggest a decline in cases, they point to improved enforcement. Other intangible benefits from improved law enforcement include: a. Reduction in carbon emissions from deforestation and degradation of forest resources. b. Reduction in loss of biodiversity c. Increased interest in forestry from reputable private sector investors 78 ANNEX 7: LESSONS LEARNED 1. The design of the SUPSFM Project builds on lessons learned from experience globally and in Lao PDR. In particular lessons are incorporated from the implementation the SUFORD Project. The design also incorporates existing and emerging opportunities for collaboration with development partners, integrates lessons from ongoing Bank projects, and aims to adapt project direction and implementation depending on outcomes from ongoing policy discussions in the land and forestry sector, and piloting of decentralization governance in Lao PDR. The project design and budgeting process has also benefitted from timely confirmation of availability of parallel financing for Technical Assistance from the Ministry for Foreign Affairs of Finland. 2. Key lessons that have been factored into project design include mechanisms to increase capacity of DoF and DoFI for effective planning and implementation; improved project management by bringing consistency to deployment of staff in project areas; creating sustainable institutional mechanisms through a rigorous community engagement framework; improved safeguard mechanisms through capacity building, additional staff, partnerships with CSOs, and monitoring; expanding incentive options through sustainable livelihoods, PES and REDD+ benefits; and dedicated staff, integration in project design, capacity building, and monitoring to mainstream equity and gender issues in all project activities. See Table 4 below. 3. Opportunities for collaboration exist with ongoing and planned investments by Development Partners in PFAs, conservation, protection and village forests, and in forest law enforcement. These include planned KfW investments in protection and conservation forest areas in Northern Lao; ADB and IFC in Southern Lao, and with GIZ-EU on forest law enforcement. In addition linkages with ongoing Bank projects in poverty reduction, biodiversity, food security and trade have been integrated. These include the Poverty Reduction Fund (PRF), Lao Environment and Social Project (LEnS), the Lao Uplands Food Security Improvement Project (LUFSIP), and the Lao PDR Trade Investment Facility Project. Also lessons learned and resources through existing Bank investments in Lao PDR associated with the Nam Theun 2 (NT2) hydropower project and its programs on the Nakai Plateau (Nam Theun Social and Environment Project) and in Khammouane (Khammouane Development Project) will continue to be assessed as appropriate. 4. The project development objective recognizes developments in the Lao PDR land and forestry sector especially in the regulatory and institutional environment, and the planned transition to REDD+ Readiness that requires a regulatory framework that ensures transparent, effective, and efficient implementation of REDD+ strategic options. 5. A Safeguard assessment was carried out to review the performance of the predecessor project, SUFORD, and to identify outstanding issues and lessons learned. Overall, the audit did not find major non-compliance issues or significant negative impacts on ethnic groups or other local populations. No land acquisition or physical relocation of households had occurred, and where ethnic groups were present, consultation meetings were conducted. Nonetheless, several weaknesses were identified with regard to the consultation process and the participation of ethnic minorities in key project activities. These were: 79 6. Limited consultations. Consultations were usually carried out in Lao language over a limited time and the project was presented in a very technical manner without sufficient translation or facilitation to help participants clearly understand the project's objectives and activities. As a result, many project beneficiaries, in particular ethnic villagers, did not understand such key project activities as PSFM, and PLUP well enough to understand the potential implications - whether positive or negative - of getting involved with SUFORD. 7. Limited participation of target beneficiaries. Many project beneficiaries from ethnic groups were not given sufficient opportunities or support to meaningfully participate in developing terms of forest use. For instance, they were not given sufficient chance to negotiate on the extent of production forest areas within their village boundaries even though they rely heavily on rotational upland cultivation for livelihood. 8. Capacity of project staff Many foresters who implemented the project at the local level were not experienced in consultations or knowledgeable about issues facing ethnic groups. LWU and the LFNC participated in consultations. Lack of advanced planning, late notification and insufficient budget proved to be significant constraints for their meaningful participation in project implementation. 9. Weak linkages between safeguard processes and other aspects of the project. Safeguard functions and responsibilities were not sufficiently integrated with technical processes carried out by PAFO/DAFO at the local level, which limited the effectiveness of safeguard measures in ensuring full and meaningful participation of target communities. In addition plans which did not take account traditional community land use did not receive the adequate community support. 10. Weak monitoring and evaluation mechanisms. Mechanisms to monitor implementation of safeguard measures were not adequate, and gaps were often left unaddressed for some time. Safeguard assessment concluded that LWU and LFNC should have played a more active role in monitoring and evaluation; that neutral parties such as NGOs should also have participated in project monitoring, and that project monitoring indicators should have included those specific to safeguard compliance including on ethnic women. 11. Safeguard measures are developed under the new project incorporating the lessons learned and building on the improvement in safeguard performance in the final years of SUFORD. 12. Key lessons incorporated into SUPSFM design are listed in the following table. 80 Table 4: Lessons Learned Lessons Learned Integration into SUPSFM Design Community - A four-stage process for community engagement and social, institutional engagement especially and resource assessment, tenure strengthening, are incorporated in the in ethnic villages is Community Engagement Framework and the Community Action Plan challenging and -A gender and ethnic advisor is included in the Technical Assistance Team requires additional -DOF and DFRM Staff will be provided training to strengthen extension and analysis, resources, and communication skills institutional -Sustainable customary use rights to natural resources will be recognized and coordination integrated into project implementation Capacity constraints -Partnerships will be established with national and regional institutions to need to be identified provide specific training for meeting project objectives, particularly across and addressed line agency roles at provincial and district levels -Adequate budget provision will be made for Technical Assistance at national and provincial levels -A capacity assessment will be undertaken and recommendations will be implemented during the project lifecycle Financial management -Requirements for financial management and procurement will be reviewed and procurement during start up to address gaps and to ensure line agencies with different procedures and capacity responsibilities can frilly participate limitations can delay -Consultations with MoF to clarify national thresholds and requirements implementation -Community procurement mechanisms will be established -Supervision will be enhanced through an integrated fiduciary review process Equity aspects should -Improved identification and tracking of vulnerable households and both men be mainstreamed in and women's land and forest use will be undertaken and mainstreamed into project design, with project design, implementation and monitoring adequate capacity and -Adequate human and financial resources and time will be provided during monitoring mechanisms consultations with communities -Opportunities to improve nutrition and food security will be identified and incorporated into livelihoods development -Satisfactory grievance mechanisms will be developed and integrated into the project process A stronger monitoring -In addition to quantitative measures, qualitative assessments are also and evaluation included in the results framework to assess consultation processes, vulnerable mechanism is required, group engagement and equity issues including independent -Community monitoring mechanisms are introduced to assess both livelihood and participatory and forest management activities monitoring -Independent monitoring including forest certification mechanisms will be expanded -Technical Assistance will have a clear role in developing the systems and capacity for monitoring and evaluation during project implementation Mainstream gender in -A gender and ethnic group advisor will be part of Technical Assistance project design, staff -Stakeholder consultations and PLUP processes will hold separate sessions training and outreach to with women and use a rights-based approach women with a focus on -Women facilitators will be provided an enhanced role in project teams and rights reflect language skills required to reach out to different ethnic groups -An annual gender assessment will be conducted and findings mainstreamed in project design -Technical prescriptions will be screened to ensure gender fairness -Gender disaggregated data will be collected and maintained during baseline and other surveys and assessments. Community -Market competitiveness, the building of community assets, and good forest investments can help to management are not limited to large community forest holdings stabilize forest cover - Establishment of community forest enterprises can lead to a stabilization of (Bray, Ostrom, others) forest cover 81 ANNEX 8: ESTIMATES OF C02 EMISSION REDUCTIONS 1. Forest restoration: Total budget allocated to forest restoration: US$ 2,568,000 Area restored @ US$500 per ha: 5,136 ha assumed to be planted over 5 years @ 1,027 ha/an. Assuming a mixture of fast growing pioneer indigenous species and relatively slow growing long lived indigenous species, Carbon sequestration will increase from about 0.4 tC/ha in year 1 to 9 tC/ha by year 10 (based on indigenous pioneer sp/Hopea mixture quoted in "Golden Forest" by SNV). Sequestration of CO2 during the first 10 years would be around 124,000 tCO2eq. Year C seq. Area Accumulated CO2 sequestered tC/ha planted 1 2 3 4 5 TOTAL 1 0.39 1027 1,445 1,445 2 0.88 1027 1,866 1,445 3,312 3 1.71 1027 3,109 1,866 1,445 6,421 4 2.28 1027 2,135 3,109 1,866 1,445 8,555 5 3.79 1027 5,671 2,135 3,109 1,866 1,445 14,226 6 4.76 3,636 5,671 2,135 3,109 1,866 16,417 7 5.89 4,238 3,636 5,671 2,135 3,109 18,789 8 6.53 2,390 4,238 3,636 5,671 2,135 18,071 9 7.20 2,503 2,390 4,238 3,636 5,671 18,439 10 8.69 5,602 2,503 2,390 4,238 3,636 18,370 Total over 10 years 32,597 26,997 24,494 22,105 17,868 124,047 2. Net emission reductions from natural forest in PFAs from protection: Total area of forest in 41 PFAs 2,301,000 ha Distribution of area between forest density classes assumed to be pro rata with national average Growth models for mixed deciduous forest in Savannakhet developed by Pukkala 2005 are used. 82 Area of natural forest >20% crown closure in the PFAs and NBCAs is 1,265,000 ha (see table below). Assuming 4.5 m3/ha of the area has crown density >70%, 31% has crown density 40-70% and 9.5% has crown density 20-40% and the balance is <20% crown closure pro rata with the average distribution nationally, according to Pukkala's tables the annual volume increment is likely to be around 0.5 m3/ha/an, 2.0 m3/ha/an and 2.2 m3/ha/an respectively for the three crown density classes. This gives annual volume increment of about 1,959,000 m3 of bole wood. Assuming an average wood density of 0.7 and a ratio of 1.7 for the BEF and shoot/root ratio combined the total annual biomass increment and the CO2 sequestered is estimated to be around 1.2 million tons CO2eq annually for the whole forest area. This increment appears to be more or less wiped out by the losses due to deforestation and degradation estimated above. Therefore as forest protection increases losses due to deforestation and degradation will decrease and gains due to growth will increase. It is assumed that the growing stock under current conditions is declining at 1% per annum and that this loss in carbon stock is contributing directly to current emissions since the volume harvested is very small in comparison. Therefore current emissions are estimated to be around 2.4 million tons from all 41 PFAs. It is assumed that improved forest protection will gradually reduce these emissions over the next decade with the reduction in emissions being 1% in the first year and increasing by 1% annually to achieve a 10% reduction after 10 years. On this basis annual emission reductions would rise from about 23,000 tCO2eq in the first year to about 238,000 tons in year 10 and total reductions over the decade would be 1.3 million tCO2eq. In addition to the reduction in emissions resulting from conserving growing stock, the conserved growing stock will then grow and sequester more CO2. Using the growth models for natural forest from Pukkala the increment on the conserved growing stock is converted into tons CO2 sequestered and it rises steadily as increasing volumes of growing stock are conserved. It is estimated that the sequestration on the conserved growing stock increases from about 428 tons CO2 in the first year and rises to about 4,275 annually at the end of the decade, so that an additional 23,500 tons CO2eq are sequestered over the decade giving a grand total of net emission reductions over the next decade of 1,335,000 tons CO2eq. More rapid and successful conservation of the growing stock will give higher emission reductions. 83 Factor Total forest Canopy closure % area >70 40-70 20-40 <20% Emission reductions from protection of Growing Stock % of total forest area in 41 PFAs 100% 5% 31% 10% 45% Area (ha) 2,301,503 103,568 713,466 218,643 1,035,676 Growing stock m3 /ha 33 176 71 35 5 Total growing stock (M) 76,536,482 18,227,904 50,656,081 7,652,497 5,178,382 Total carbon stock (tC) 65,056,010 15,493,718 43,057,669 6,504,623 4,401,624 Annual Rate of loss due to DFD (%) 1% 1% 1% 1% 1% Annual reduction in Carbon stock (t/an) 650,560 154,937 430,577 65,046 44,016 Current Annual emissions from C loss (t/an) 2,385,387 568,103 1,578,781 238,503 161,393 Reduced emissions from protection (t/an) % reduction year 1 1% 23,854 5,681 15,788 2,385 1,614 year 2 2% 47,708 11,362 31,576 4,770 3,228 year 3 3% 71,562 17,043 47,363 7,155 4,842 year 4 4% 95,415 22,724 63,151 9,540 6,456 year 5 5% 119,269 28,405 78,939 11,925 8,070 year 6 6% 143,123 34,086 94,727 14,310 9,684 year 7 7% 166,977 39,767 110,515 16,695 11,298 year 8 8% 190,831 45,448 126,302 19,080 12,911 year 9 9% 214,685 51,129 142,090 21,465 14,525 year 10 10% 238,539 56,810 157,878 23,850 16,139 Total emissions avoided over 10 years (tCO2eq) 1,311,963 312,457 868,330 131,177 88,766 84 Emission reductions from growth of conserved Growing Stock MAI (m3 /ha/an) 0.85 0.5 2 2.2 Annual incr. (M) 1,959,730 51,784 1,426,932 481,014 An. carbon incr. (t/an) 1,166,039 30,811 849,024 286,203 Sequestration on Growing stock conserved Year 1 428 11 311 105 Year 2 855 23 623 210 Year 3 1,283 34 934 315 Year 4 1,710 45 1,245 420 Year 5 2,138 56 1,557 525 Year 6 2,565 68 1,868 630 Year 7 2,993 79 2,179 735 Year 8 3,420 90 2,490 840 Year 9 3,848 102 2,802 944 Year 10 4,275 113 3,113 1,049 Total CO2 sequestered (tCO2eq/an) over 10 years 23,515 621 17,122 5,772 Total net reduction in emissions over 10 years (tCO2eq) 1,335,478 313,078 885,452 136,948 85 ANNEX 9: LAO PDR AT A GLANCE East Lower- POVERTY and SOCIAL Lao Asia & middle- Developmentdiamond* PDR Pacific income F2011 Population, mid-year (millions) 6.3 1,974 2,533 GNI per capita (Atlas method, US$) 1,130 4,248 1,772 Life expectancy GNI (Atlas method, US$ billions) 7.1 8,387 4,488 Average annual growth, 2005-11 Population (%) 1.5 0.7 1.6 Labor force (%) 2.7 1.0 1.3 GNI Gross per primary Most recent estimate (latest year available, 2005-11) capita enrollment Poverty (% of population below national poverty line) 28 Urban population (% of total population) 34 49 39 Life expectancy at birth (years) 67 72 66 Infant mortality (per 1,000 live births) 34 17 46 Child malnutrition (% of children under 5) 32 5 24 Access to improved water source Access to an improved water source (% of population) 67 90 87 Literacy (% of population age 15+) 73 94 71 Gross primary enrollment (% of school-age population) 126 111 104 Lao PDR Male 130 110 106 Lower-middle-income group Female 122 112 102 KEY ECONOMIC RATIOS and LONG-TERM TRENDS P' 1991 2001 2010 P' 2011 Economicratios' GDP (US$billions) 1.0 1.8 7.2 8.3 Gross capital formation/GDP .. 14.1 24.3 27.4 Exports of goods and services/GDP 13.0 28.5 35.5 37.7 Trade Gross domestic savings/GDP .. 4.8 22.0 21.2 Gross national savings/GDP .. 5.7 18.9 17.3 T Current account balance/GDP -10.7 -8.3 -5.4 -10.1 Interest payments/GDP 0.3 0.6 1.1 0.9 Do estic Capitalion Total debt/GDP 182.0 141.7 78.7 74.2 Total debt service/exports 6.2 8.7 11.4 8.6 Present value of debt/GDP .. .. .. 52.9 Present value of debt/exports .. .. .. 133.8 Indebtedness 1991-01 2001-11 2010 r 2011 2011-15 (average annual growth) GDP 6.4 7.4 8.5 8.0 .. Lao PDR GDP per capita 4.0 5.8 7.0 6.5 .. - Lower-middb-income group Exports of goods and services .. 9.6 24.9 14.5 .. STRUCTURE of the ECONOMY ' 1991 2001 2010 P' 2011 Growth of capital and GDP (%) (% of GDP) 40 Agriculture 58.2 44.0 32.7 30.8 30 Industry 16.8 17.1 31.8 34.7 20 Manufacturing 12.5 6.2 7.5 7.6 0 Services 25.0 38.9 35.5 34.5 -10 06 07 08 09 10 11 -20 Household final consumption expenditure .. 88.5 68.6 69.0 General gov't final consumption expenditure .. 6.8 9.5 9.8 GCF GDP Imports of goods and services 25.2 37.8 37.9 43.9 (average annual growth) 1991-01 2001-11 2010 r 2011 Growth of exports and imports (%) Agriculture 5.1 3.5 2.8 0.5 40 Industry 10.6 13.4 19.4 16.6 30 Manufacturing 10.8 10.2 3.7 10.4 20 Services 6.7 7.5 5.6 7.4 lo 0 Household final consumption expenditure .. 4.5 9.1 8.7 -10 0 07 T8 lo1 11 General gov't final consumption expenditure .. 12.5 -4.2 11.8 Gross capital formation .. 14.4 -12.8 21.9 Exports mports Imports of goods and services .. 8.2 2.6 25.1 Note: 2011 data are preliminary estimates. This table was produced from the Development Economics LDB database. *The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 86 The original had problem with text extraction. pdftotext Unable to extract text.