Document of The World Bank FOR OFFICIAL USE ONLY Report No: 33029-KZ PROJECT APPRAISAL DOCUMENT ON A PROPOSEDLOAN IN THE AMOUNT OF US$30.0 MILLION AND A GLOBAL ENVIRONMENTFACILITY GRANT IN THE AMOUNT OF US$5.0 MILLION TO THE REPUBLIC OF KAZAKHSTAN FOR A FOREST PROTECTION AND REFORESTATION PROJECT October 24,2005 Environmentally and Socially Sustainable Development Unit Central Asia Country Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipient only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (ExchangeRate Effective September 23, 2005) CurrencyUnit = Tenge (KZT) KZT 134 = US$1 FISCAL YEAR January 1 - December31 ABBREVIATIONSAND ACRONYMS ARPF Access Restriction Process Framework MTR Mid term Review ADB Asia DevelopmentBank NCB National CompetitiveBidding BP Bank Procedure NAP National ActionPlan CAS Country Assistance Strategy NEAP National EnvironmentalAction Plan CBD Convention on Biological Diversity NGO Non governmentalOrganization CIS Commonwealthof Independent States NRM Natural Resource Management (former Soviet Union) OMS Operational Manual Statement CPS Country Partnership Strategy OP Operational Policy COP Conference of Parties Orman Kazakh for "forest"; a state-administered CQ Selection Based on Consultant's forest area Qualifications Ormandar Plural of orman DAS Dry Aral Seabed PAC Project Advisory Committee EA EnvironmentalAssessment PAD Project AppraisalDocument ECA Europe and Central Asia PCD Project ConceptDocument EMP EnvironmentalManagement Plan PCU Project CoordinationUnit EU- European Union TechnicalAssistance PHRD Policy and Human Resources Development TACIS Cooperation (Japanese) FA0 Food and Agriculture Organization PIC Project InformationCenter FEF Front end fee PID Project InformationDocument FHC Forest and Hunting Committee PIP Project ImplementationPlan FM Financial Management QCBS Quality and Cost Based Selection FMIS Forest Management InformationSystem ROK Republic of Kazakhstan FMR Financial Monitoring Report RPO Regional Project Office GEF Global Environment Facility SA Special Account GIs GeographicInformation Systems SBD Standard Bidding Documents GP Good Practice SFE State Forest Entity GP GeneralPolicies SOE Statement of Expenditure GTZ GermanTechnicalCooperation TBD To be determined Ha Hectare TOR Terms of Reference UNCCD United Nations Conventionto Combat IBRD InternationalBank for Reconstructionand Desertification Development UNDP United Nations DevelopmentProgramme ICB InternationalCompetitive Bidding UNFCCC United Nations FrameworkConventionon ICR Implementation CompletionReport Climate Change ISA InternationalStandardson Accounting us United States ISDS Integrated SafeguardData Sheet USAID United States Agency for International M Million Development Vice President: Shigeo Katsu CountryManager: Dennis de Tray SectorDirector: Laura Tuck Task TeamLeader: Jessica Mott FOR OFFICIAL USE ONLY KAZAKHSTAN Forest Protection and Reforestation Project CONTENTS Page A. STRATEGICCONTEXT AND RATIONALE .................................................................1 1. Countryand sector issues....................................................................................................1 2. Rationale for Bank involvement......................................................................................... 2 3. Higher level objectives to which the project contributes.................................................... 3 B. PROJECT DESCRIPTION .................................................................................................4 1. Lending instrument........................................................................................................... 4 2. Program objective and Phases .......................................................................................... 4 3. Project development objective and key indicators............................................................. 4 4. Project components............................................................................................................ 5 5. Lessons learned and reflected in the project design............................................................ 6 6. Alternativesconsidered and reasons for rejection ............................................................. 7 .... ....... C. IMPLEMENTATION .......................................................................................................7 1. Partnership arrangements (if applicable).......................................................................... 7 2. Institutionaland implementation arrangements..................................................................8 3. Monitoring and evaluation of outcomes/results..................................................................9 4. Sustainability.......................................................................................................................9 5. Critical risks and possible controversial aspects..........................................................9 6. Loadcredit conditions and covenants.......................................................................... 10 D. APPRAISAL SUMMARY ...............................................................................................11 1. Economic and financial analyses......................................................................................11 2. Technical..........................................................................................................................13 3. Fiduciary ......................................................................................................................... 13 4. Social....:............................................................................................................................14 . 5. Environment.................................................................................................................. 15 6. Safeguardpolicies ............................................................................................................ 16 7. Policy Exceptions and Readiness......................................................................................17 Annex 1: Country and Sector or Program Background ........................................................18 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................22 l ~ h idocument has a restricted distribution and may be used by recipients only in s the performance of their official duties .Its contents may not be othekwise disclosed without World Bank authorization. Annex 3: Results Framework and Monitoring ........................................................................ 23 Annex 4: Detailed Project Description ...................................................................................... 29 Annex 5: Project Costs.............................................................................................................. 41 Annex 6: Implementation Arrangements ...............................................................................42 Annex 7: Financial Management and Disbursement Arrangements .....................................47 Annex 8: Procurement ................................................................................................................53 Annex 9: Economic and Financial Analysis .............................................................................58 Annex 10: Safeguard Policy Issues ......................................................................63 Annex 11: Project Preparation and Supervision .....................................................................69 Annex 12: Documents in the Project File .................................................................................70 Annex 13: Statement of Loans and Credits ..............................................................................72 Annex 14: Country at a Glance .................................................................................................73 Annex 15: Incremental Cost Analysis .......................................................................................75 Annex 16: STAP Roster Review ................................................................................................85 MAPS IBRD 34185 IBRD 34186 IBRD 34187 KAZAKHSTAN FOREST PROTECTIONAND REFORESTATION PROJECT PROJECT DOCUMENT EUROPE AND CENTRALASIA ECSSD Date: October 24,2005 Team Leader: JessicaMott CountryDirector: Dennis N. de Tray Sectors: Forestry(80%); General public SectorManager: Juergen Voegele administration sector (15%); Animal Project ID: PO78301 production (5%) Lending Instrument: SpecificInvestment Loan Themes: Other rural development (P); Other environment and natural resources management (P); Environmental policies and institutions(S); Participationand civic engagement (S); Environmental screening category: Partial Assessment Safeguard screeningcategory: Limited impact Global Supplemental ID: PO87485 Team Leader: JessicaMott Lending Instrument: SpecificInvestment Loan Sectors: Forestry(80%); Generalpublic Focal Area: L-Land degradation administration sector (15%); Animal SupplementFully Blended?: Yes production (5%) Other rural development (P);Other environment and natural resources management (P);Environmentalpolicies and institutions(S);Participation and civic engagement (S) Project Financing Data [XI Loan [ ] Credit [XI Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 30.00 Proposed terms: VSL on standard countryterms of 17years maturityincluding 5 years grace with level repayment of principal; front end fee 1%and commitment fee of .75% - less waivers. Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 22.30 6.50 28.80 INTERNATIONAL BANK FOR 13.70 16.30 30.00 RECONSTRUCTION AND DEVELOPMENT GLOBAL ENVIRONMENT FACILITY 0.60 4.40 5.OO Total: 36.60 27.20 63.80 ----. The co-financing sources for GE supplemental are (All the amounts are in US$ million): GLOBAL ENVIRONMENT - ASSOCIATED IBRD FUND=0.6; These amounts are not additionalto the amounts shown in the Financial Plan table above Borrower: Republic of Kazakhstan Kazakhstan ResponsibleAgency: Forest and Hunting Committee Abay Avenue 49 Astana Kazakhstan 47300 Tel: 7-3172-397797 Fax: 7-3172-396749 saty-solutions@kepter.kz Project implementationperiod: Start June 1,2006 End: May 31,2012 Expected effectivenessdate: May 31,2006 Expected closingdate: November 30,2012 Does the project depart from the CAS in content or other significantrespects? [ ]Yes [XI No Re$ PAD A.3 Does the project require any exceptions from Bank policies? Ref: PAD D.7 [ ]Yes [XINo Have these been approvedby Bank management? [ ]Yes [XI No Is approval for any policy exception sought from the Board? [ ]Yes [XI No Does the project include any critical risks rated "substantial" or "high"? [XIYes [ 1No Ref:PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ] No Ref: PAD D.7 Project development objective Ref: PAD B.2,TechnicalAnnex 3 The project objectiveis to develop cost effective and sustainableenvironmentalrehabilitation and management of forest lands and associated rangelands, with a focus on the Irtysh pine forest, the dry Aral Seabed, and saxaul rangelands. Global Environment objective Ref: PAD B.2,TechnicalAnnex 3 The development objectiveis both local and global in nature. IProject description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 The project will include: (a) rehabilitation and effective management of 650,000 ha of damaged Irtysh pine forest in the northeast (Pavlodar and East-Kazakhstan Oblasts), including support for replanting about 41,000 ha, fire management, and a small social forestry pilot; and (b) accelerating the spread of vegetative cover by planting of up to 79,000 ha of dry Aral seabed, and pilot rehabilitation of 6,000 ha of saxaul rangelands and support for 150,000ha of adjoining rangelands (Kyzylorda Oblast); and (c) capacity building of the Forest and Hunting Committee and associated organizations (e.g., policy analysis, information systems including mapping, human resource development, and a competitive grant program). The project is intended to reduce, prevent, or ameliorate land degradation with a focus on restoring and maintaining tree and other vegetative cover. Benefits will include increased amenity values, increased recreation values, preservation of pasture and arable land, increased biodiversity, improved sheltering from wind, improved air quality, as well as the wood and fodder products themselves. The project will not only address land degradation, but also establish revised arrangements for flexible, performancebased budgeting and contracting for forestryworks. Which safeguardpolicies are triggered, if any? Re$ PAD 0.6, TechnicalAnnex 10 Environmental assessment, Pest Management, and Forests safeguardpolicies are triggered. An environmental assessment has been made. No significant adverse environmentalimpacts are foreseen. Environmental benefits are fundamental to the project development objective and outcomes. Temporary minor impact (dust, minor soil loss) can be expected from planting activities, building construction and other works. Within the Irtysh forests roads radiating from each main fire fighting base within the forest are envisaged, but these would not increase external access. Improvement of shelter and access to water in the woodlands that could increase livestock movement and lead to trampling and some loss of topsoil will be carefully managed with necessary safeguardsto prevent environmental deterioration. A special study within the EA has reviewed whether fall-out of 1949-1962 nuclear tests on the nearby Semipalatinsk testing grounds has affected the Irtysh pine forest. Preliminary data indicates that the radionuclide levels in the relevant regions are low and that project activities are not likely to pose any significant risk of radiation exposure, The project includes support for additionalmeasurement and analysis of radionuclide levels in the project area. The environmental assessmentincludes a Pest Managementplan as an annex. Under this plan the project will help to develop more environmentallyacceptablepest control strategies. Regarding forestry, the project will support investment in rehabilitation of existing degraded forests and woodlands to restore protective cover and to make these and other forests more productive. The project will not finance plantations that involve any conversion or degradation of critical natural habitats. The project will not finance industry-scale commercial harvesting operations. Any harvesting by local communities or other local entities supported by the project will adhere to a time-bound action plan for achieving a standard of forest management developed with the meaningful participation of locally affected communities, consistent with the principles and criteriaof responsible forest management. I Although there is no encroachment of human settlements in the project area forests and the 1 project itself will not cause involuntary physical displacement of people, the Involuntq Resettlement policy is triggered, since the project may limit access to forest resources which could potentially curtail existing legal or illegal incomes of vulnerable people, at least on a temporary basis. An access restriction framework has been developed. This framework describes the participation processes by which the project was prepared and will be implemented, guidelines for designing the participatory pilots for forests and rangeland management, and institutionalarrangements for the implementationof the framework. Significant,non-standard conditions, if any, for: Re$ PAD C.7 Board presentation: None anticipated Loadcredit effectiveness: The GEF Trust Fund Grant Agreement has been duly executed and delivered, and all conditions related to its effectiveness,or the right of the Borrower to make withdrawals against it, have been fulfilled. Covenants applicableto project implementation: Special accounts. The Borrower will open and properly maintain separatespecial accounts for (i) IBRD Loan; and (ii) GEF Grant. Management. The PCU and RPOs will be maintained, adequately staffed, and provided with performance based incentives acceptable to IBRD. A Project Advisory Committee will be established. Monitoring, Review, and Reporting. Standard reporting covenants will apply; the PCU will report to IBRD on a half-yearlybasis its monitoring and evaluation reports and the status of the agreed key monitorable indicators; and a mid-term project design and implementation review will be undertaken, by the ROK and IBRD jointly in November 2009, to determine the lessons learnt and make appropriatechanges, if needed, in the project objectives,scope and components. Access Restriction Process Framework. No human settlements will be displaced as a result of project activities, and any adverse impacts on vulnerable people of any other restrictions of access to land resulting from project activities will be mitigated in accordance with the agreed Access Restriction Process Framework. Environmental management. The project shall be implemented in accordance with the agreed environmentalmanagement framework and pest managementplan. Participatory Forest Management. A framework for the pilot ParticipatoryForest Management activities in the Irtysh pine forests will be developed by March, 31 2007, and reflected in a draft operational manual, and recommendations for an action program regarding any regulatory or other legal steps that may be required for its implementation. Pilot Improvement of Saxaul Rangeland Management. Appropriate sites for the demonstrationswill be proposed and the initial policy framework for the provision of long term use rights will be developed by December 31,2006. Competitivegrants program. An operational manual acceptable to the Bank (i.e., based on the existing draft) for the competitive grants program will be approved by the Grant Fund Board by November 30, 2006, with any subsequent revisions to the manual subject to Bank agreement, and the competitive grants program will be implemented in accordancewith that manual. Radionuclide analysis. Disbursement of Bank loan funds for forestry and infrastructure works under the Irtysh component will not proceed until completion of an analysis satisfactory to the Bank of radionuclide levels. If levels exceeding national norms are encountered in some part of the project area, the Borrower will take appropriate management measures. A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Kazakhstan's forests and rangelands are important. Kazakhstan possesses a significant forest resource, with 11.5 million (m) hectares (ha) of forested land, of which 5.3 m ha are saxaul woodlands and associated rangelands. Kazakhstan's forests and wooded rangelands play an important role, providing key environmental and economic services. They are a key factor in soil and sand retention in the face of the country's strong winds, protect their watersheds, and reduce siltation of waterways and reservoirs. They also have been a driving force in the country's economy as a source of fodder, food, fuel, medicinal plants, and recreation. About 300,000 people are directly dependent on the forest sector, while an estimated 2.5 million live in or rely on the forests for fuel wood, fodder and other forest products. Legacy of land degradation. Kazakhstan inherited some of the greatest environmental problems of the post-Soviet republics. Unsustainable conversion of fragile rangelands to agricultural use, other ecologically risky land use for rainfed and irrigated crop production, livestockproduction which neglected rangeland carrying capacity, deposits on floodplains of toxic wastes from chemical production, problems in the environmental management of oil drilling and the space program, and nuclear testing have degraded valuable land. As a result of these policies and actions large areas have become wasteland. For example, as of 2004, there were over 4 million ha of dry Aral seabed, of which some 2.6 million ha was within Kazakhstan. Kazakhstan's forest lands and rangelands continue under threat. The generallydry climate of Kazakhstan makes the existing forest and rangeland ecosystemsparticularly susceptibleto various threats, including: fires (natural and anthropogenic,including agriculturalfires) pest infestationsthat often follow fires overgrazing associated with changes in livestockproduction systems over-harvesting through illegal and 'sanitary' cutting,and through increased subsistence cutting for fuel wood habitat degradation from excessivehunting/tourism development desertification In recent years, the political and economic transformationhas increasedthese problems. For example, Kazakhstan's forests suffered dramatic losses from fire in 1997,affecting as much as 2% of the forest area. Tenure of Forest Lands and Industries. Since its inclusion in the Soviet Union, forestlands in Kazakhstan have been, and continue to be, owned by the state. A national debate about land management in 2001 and 2002 more or less reached consensus that private owners can hold arable land, but that forest lands remain in the domain of the State. Saxaul rangelands, however, may be leased. In contrast to forest lands, wood-based processing was privatized and has mostly collapsed. Forestry Agencies. The Forestry and Hunting Committee (FHC) with headquarters in Astana, the Oblast Akimat Forest Divisions in the 14 oblasts and the 138 district-level state forest entities (SFEs) are managing almost all of Kazakhstan's forests and protected areas, as well as the dry Aral Seabed and the saxaul rangelands. Their combined total staff is about 7,000 staff, down from 25,000 staff in 1990.In addition to the Astana headquarters office and its representatives who liaise with the Oblast Akimat Divisions and SFEs, the FHC also includes several technical institutes to address requirements such as inventory and planning, research, genetic stock selection, forest-related aviation, and Astana afforestation. Most afforestation and forest inventory and protection activities came to a virtual standstill by the end of the 1990s. As enforcement of forest regulations and local job opportunities diminished, illegal logging increased. In the late 1990qs,the forest agencies went through several reorganizations that sought separation of management and oversight functions. In 2003 the Forest Code delegated most forest management functions from the central FHC to oblast govenunents, but the decentralized functions are not operating at agreed levels due to a shortage of oblast government funds, and the lower priority that oblasts attach to forest preservation compared to water resource management, and pollution management. With the recent fiscal recovery due to oil revenues and the high priority that the national government gives to restoring forest cover, national public funding for management of forest lands has increased, especially in national reserves where FHC still has direct implementation responsibilities. However the sector suffers from a major human resource drain, and there is a lack of new required skilis (extension, marketing, public participation). Inadequate information facilities and flow, and rigid top-down administrative management styles also limit organizationaleffectiveness. Forest and Rangeland Studies. In 2002, joint World Bank and Kazakhstani studies on forests and rangelands recommended that the government develop and adopt a new strategy to reflect a change of paradigm with more rights and responsibilityto local decision-making, with emphasis on gradually allowingmanagement objectives and systems to differby region. The study suggested that investmentsin improved public forest management should cover the following areas: a Substantialupgrades in the national and local capacity for fire and pest protection a Rapid inventory of forest resource base, using landscape-ecological approach, preparing broad functionalzoning of forest areaswith adequate public participation a Substantialupgrades in the local capacityfor reforestationand afforestation a Training for central and local forestry staff, especially in - economic analysis, marketing policies, extension, and public and communityparticipation. 2. Rationale for Bank involvement ValueAdded of WorldBank. The Bank has been working in forest management in transition countries since 1992, with activities underway in eleven countries. Based on work in these countries and elsewhere, the Bank has gained considerable experience in forest governance and forest management reform issues, and is using this experience in the dialogue with Government and in helping them to develop the concept for this intervention. Within Kazakhstan, the Bank has collaborated on technical studies of forest policies and investment programs and also helped the Government to review the forest code. The project takes into account and builds upon the experience of other Bank-financed projects including the Syr Darya Control and the Northern Aral Sea Phase I, as well as several Global Environment , Facility (GEF) projects for which the Bank is responsible. During project implementation, the Bank will be able to further transfer up-to-date practical experience. The Bank is also in a position to ensure that improved technology and other knowledge could be made available in a timely manner, through its linkages with international forestry research organizations and its network with other donors funding forestry operations. 3. Higher level objectivesto which the project contributes Borrower's Plans and Strategies. The Government has been revisitingits environmental and natural resource management policies. It initiated the preparation of the National Environmental Action Plan (NEAP) for the republic in 1997, with assistance of the World Bank, UNDP, and EU-TACIS. The NEAP has identified seven key priority problems that include, among others, degradation of pastures and arable lands (most acutely manifested in the south) and lack of forests and protected areas as natural habitats (particularlyimportant in the northeast). On the topic of sustainable land management, Kazakhstan developed a National Action Plan (NAP) in 1997 under the United Nations Convention to Combat Desertification (UNCCD), which emphasizes environmental zoning, monitoring, improvement of nature protection, and rationalization of the natural resource use. It has refined and updated that plan in the form of an updated draft NAP which is under discussion by government agencies. This updated NAP specifies main zones of ecological stress and land degradation (including in and around the dry Aral seabed and the Irtysh River) and the main types of degradation (including windblown soil erosion, soil salinization, and forest destruction). The project is also consistent with the action plan for conservation and sustainable use of forest ecosystems in the national Strategy and Action Plan on Conservation and Sustainable Use of Biodiversity Conservation (1999). Bank Country Partnership Strategy. The project is consistent with and specifically highlighted by the Bank's 2004 Country Partnership Strategy (CPS). It is most relevant to the fourth CPS pillar: ensuring that future growth will not harm the environment and that past liabilities are mitigated. It is also relevant to other pillars in that it will address increased public efficiency, build a supportive role of the state for private sector development, and strengthen human resources. The CPS includes the project as part of the planned work program. Relevance to Global Environment Facility Priorities. The project is highly relevant to the GEF focal area of land degradation, and also has some relevance to other GEF focal areas. The project will not address Kazakhstan's entire land degradation agenda; rather it will focus on addressing key land degradation issues in forest lands under the jurisdiction of the FHC and its subsidiaryorganizations. In the Kazakhstan context, addressing land degradation and maintaining and/or restoring associated ecosystem integrity and services is the priority forest management agenda, although timber, other economic products, and carbon sequestrationare important, albeit secondary considerations. Other GEF focal areas relevant to the project development objective include climate change, and ecosystem biodiversity in forests and semi-aridzones. The Government has explicitlyrequested GEF support in writing. Sustainable Land Management. Kazakhstan ratified the UNCCD on July 7, 1997. The Project is consistent with the Operational Program on Sustainable Land Management (OP#15).The biological and climatic impacts would be globally significant. The project will address deforestation, with a focus on two indigenous tree species which are uniquely adapted to Kazakhstan's harsh climatic conditions and are vital to Kazakhstan's desertification control: Irtysh pine and saxaul. It also will address underlying causes of future land degradation through strategic interventions (e.g., changes in incentives, new technologies, planning systems etc.) that integrate economic, environmental and social considerations. . In some areas, it will also help to shelter lands from wind erosion and thereby improve air quality and dune control. B. PROJECT DESCRIPTION 1. Lendinginstrument The specific investment project will be financed by an IBRD loan of US$ 30 million, a GEF grant of US$ 5 million, and government counterpartfinancing of about US$29 million. 2. Program objective and Phases The program objective is to have a significant portion of forest lands and associated rangelands rehabilitated and well managed by 2025. Land degradation (specifically, deterioration or lack of tree cover or other vegetative cover) will be prevented, reduced or ameliorated. More specificallyby 2025 180,000 ha burned or deforested area of Irtysh pine forests will be replanted and all 650,000 ha will demonstrate good condition 800,000 ha of the dry Aral seabed will be covered with vegetation (through planting and natural spread), out of the currenttotal 2.6 m ha mostly bare area. Effective interventions are underway to maintain public saxaul rangelands in good condition Organizational and procedural arrangements facilitatingsustainableand cost-effectiveresults will also be applied to the management of other forest lands and other public expenditure investment programs. 3. Project development objective and key indicators Project objective. The project objective is to develop cost effective and sustainable environmental rehabilitation and management of forest lands and associatedrangelands, with a focus on the Irtysh pine forest, the dry Aral Seabed, and saxaul rangelands. The development objective is both local and global in nature. Outcome indicators. The key outcome indicators will comprise: Land degradation (specifically, deterioration or lack of tree cover or other vegetative cover) prevented, reduced or ameliorated in Irtysh pine forest, including 41,000 ha of rehabilitated forest and reversal of fire and other degradationtrends on the entire 642,000 ha area Dry Aral Seabed, with more than 150,000 ha of current total 2.6 mln ha dry seabed area within Kazakhstan covered by vegetation (from pre-project coverage, project planting, and natural spread) Demonstration sites of saxaul and adjoining rangelands covering more than 156,000ha with sustainableresource-led' grazing management. Capacity and decisions to upscale investment programs for forest lands based on improved agency performance, reduced unit costs, and improved understanding of impacts, as demonstrated by decisions to scale up post project investment programs in Irtysh pine forests and in Kyzylorda, and to apply experience from competitive grant subprojects, as reflected in a replication plan that will be developed during the project period. Number of people benefiting through employment. ' As opposed to rangeland use which maximizes short and medium-term livestock production and income. Improved knowledge of modem planting and fire management technologies and of natural resource dynamics and management, as well as increased capacity for cost effective and results oriented public expenditure on forest lands. Project reputation for integrity, and public support for improved forest and associated rangeland management,as reflected in public opinion surveys. 4. Project components Project costs total about US$63.8 m over six years, including a GEF grant of US$5 m. Project activities comprise: Component I: Irtysh Pine Forest (US$41.2 m including contingencies, with a GEF increment of US$0.4 m) Component LA: Reforestation (US$ 24.2 m). Improved reforestation of 41,000 ha (20,000 ha with seedlings and if feasible, 21,000 ha directly seeded) through re- establishment of seed production areas to ensure quality, and applied research on cost- effective nursery, planting and direct seeding technologies (e.g., greenhouses, containers, seed pelleting). Flexible, performance based budgeting and contractingwill be used. The combination of new technologies and other practices aims to reduce the current $240/ha marginal costs of replantingby at least 20%, increase the survivalrate from 60% to 85%, and establishnational capacity in using modern planting technologies. Component IB Improved Fire Management and Other Forestry Support (US$15.6 m). Development and implementationof improved forest fire management of the 642,000 ha through: (i) information, consultation, and training support to further strengthen the fire management strategy, (ii) improved facilities for fire prevention and detection, including lookout towers, communications equipment and rejuvenation of the firebreak network, and (iii) improved facilities for fire suppression including road rehabilitation, fire station equipment, and fast-attack vehicles. This subcomponentwill also provide other forestry support including a program of thinning and cleaning that will overcome a 15-year backlog, vehicles for more effective patrolling to reduce illegal activities, and capacity building in integratedpest management Component IC Forest Partnership Development (US$1.4 m): This small subcomponent will explore the feasibility of forest partnershipsbenefiting local people by analyzing the potential for environmentallysustainableforest-based enterprises utilizing thinnings, and also by preliminary testing of participatoryforest management (PFM) in up to 16villages. Through PFM local people could obtain rights to a share of forest products in exchange for undertaking specific protection andlor management responsibilities, and receive support for the developmentof forest-related or alternativelivelihoods. Component 11: Environmental Amelioration in Kyzylorda (US$10.7 m including contingencies,with a GEF increment of USs3.2 million) Component IIA Planting on the Dry Aral Seabed (US$8.1 m). Accelerating the expansion of vegetative cover by planting 79,000 ha (44,000 with seedlings and if feasible, 35,000 directly seeded) using cost-effective nursery and planting technologies and developing cost-effective direct seeding techniques. Like the Irtysh plantations, flexible,performance based budgeting and contracting will be used, and the combination of new technologies and other practices aims to reduce the costs of planting by at least 20%. Component IIB Improvement of Management of SaxauE Rangelands (US$2.6 m). Thirty pilot demonstrations of a participatory saxaul rangelands program with each demonstration rehabilitating approximately 200 ha, and increasing access to water for grazing animals on an additional area of about 7500 ha. This will include herder agreements to enable restoration and development of degraded saxaul rangelands, community management of grazing pressure, and provision of water resources for associated rangelands. Component 111: Capacity Building of National Institutions (USS11.9 m including contingencies,with a GEF increment of USS1.4 m) a Component IIIA Improvements in Policy, Information, and Human Resource Capacity (US$6.5 m). Improvements in policy and public expenditure analysis, information facilities, human resource development, and organizational management leading to improved policy and budget decisions, public consultation, inventory, planning, monitoring, staff knowledge and skills, and organizational effectiveness. This subcomponentalso includespreparation supportfor follow-on projects. a Component IIIB Competitive Grant Program (US$2.6 m). Competitive grant fund for innovative forest development subprojects(e.g. timber usufruct sharing or other measures to address illegal logging incentives, ecotourism, value addition processing of birch, involvement of local people in reforestation or environmental education, private plantations, tungai floodplainprotection, etc.) a Component IIIC. Project Coordination and Management (US$2.8 m). Project administrationand management. The US$ 5 m in GEF financing enables the project to increase the scope of international cooperation, capacity development, and monitoring across all of the above components. Further, it will permit the project to adapt participatory natural resource management approaches to steppe forest areas in Kazakhstan, significantly accelerate vegetation of the DAS, expand the scope of sustainable management demonstrations on the saxaul rangelands and undertake additional subprojectsfor innovative forest management activities through the competitivegrants program. 5. Lessons learned and reflected in the project design Lessons learned and reflected in project design include: (a) Institutional reform. Based on world-wide experience, the transition from a hierarchical command and control forest management system to a decentralized system based on public expenditureaccountabilityis facilitatedby: o a flexible legal and institutional framework with space for interactive reform based on operational experienceand evolvingcapacities. o carefully designed, extensive human resource development and reform of human resource management systems in role realignment, and new attitudes, behaviors, and skills which will supporta learning culture and new forms of collaboration o an incentive structure which promotes decision making based on maximizing marginal returns, taking into considerationenvironmental and social externalities o learning by doing with a phase where mainly pilots are implemented in order to learn lessonsthat are mainstreamedinto a second phase of the project, and o inclusion of the scaling up phase within the same project to ensure adequate government commitment and attention fiom the onset. (b) Project scope. Experience in Kazakhstan and other Former Soviet Union countries shows that projects should be focused on a few main components, taking into consideration existing capacity levels for new institutional approaches, and deterioration in skill levels of governmentstaff due to underfunding. (c) Social issues. Carefully designed and well functioning strategies are needed for communicatingwith stakeholders,managing stakeholder involvement, ensuring social inclusion, improving conflict management, monitoring social impacts, and adjusting methodologies based on feedback in order to ensure strong ownership and sustained support. 6. Alternatives considered and reasons for rejection Several alternativeswere considered: a nation-wide project covering field-level activities in all the forests of Kazakhstan. This was rejected because (a) the capacity constraintsto undertake nationwide field activities under a reformed paradigm would raise risks to unacceptable levels, (b) the intensive learning in two project sites should provide lessons applicable to other areas at a later date, (c) the two main project areas are high priority, facing urgent issues where projects could provide significant potential benefits and they are not supported under other donor- funded projects (e.g., GEF project in Tien Shan), (d) the two sites reflect Kazakhstan's two main ethnic groups -- with ethnic Russians predominating in the northeast and ethnic Kazakhs predominating in the south, (e) addressing illegal logging would have higher prospects for success in the Irtysh pine forest areas,yet still provide useful experienceand lessons for the more challenging situation in East Kazakhstan's Altai Mountains, where the stakes are higher, and (f)the area focus was responsive to Governmentviews. Separating the components into two or three separate, simplerprojects. This was rejected because the Government felt dividing the project would complicate project processing, increase costs, and risk further delays. A project focused primarily on replication of existing methodologies,with little attention to finding improved ways to address the scope of the overall land degradation situation, or to institutionalreforms. This was rejected because it would be expensive and slow, and thus not be readily replicable on a large scale in a way that could make a significant contribution to an efficient and sustainable resolution of Kazakhstan's land degradation problems over the long-term. C. IMPLEMENTATION 1. Partnership arrangements(if applicable) The project is sustainablebased on its financing from Bank, GEF, and Government sources., and no additional formal cofinancing is required. However, opportunities for technical and "in-kind" collaboration with other donors will be welcomed. For example, where feasible, the project will continue to collaborate with German Technical Cooperation (GTZ) on the vegetation of the dry Aral seabed, with a focus on information exchange. GTZ is supporting technical cooperation activities of vegetation of the dry Aral Seabed in both Uzbekistan and the southern border of Kazakhstan in 2005 and 2006. The project also will continue to take into account ongoing work supported by FA0 on the regulatory framework and on the long- term strategy for forestry. The Bank-financed project will also continue to liaise with the Kazakhstan working group on the UNCCD, which is the main coordinating entity at the national level for the Central Asia Countries Initiative on Land Management (CACILM). This arrangementcreates a strong link with this regional program effort supported by GEF to promote sustainable land management in five Central Asian countries, and will help foster ongoing interchange with other donors involved in land management projects, such as the United Nations Development Program (UNDP), the Asian Development Bank (ADB), and G'l'Z. 2. Institutional and implementation arrangements Implementation. Some of the project activities will be implemented directly by the FHC itself. The Semey and Irtysh special reserves (Ormandar), which are direct subsidiariesof the FHC, would undertake most of the Irtysh pine component. FHC will undertake others through non-competitive contracts with State Forest Entities (SFEs, or in other words, the former leskhozy), research institutes, or through competitive contracts, depending on the specific activity. The participatory pilots in forest and rangeland management will require speciallynegotiated arrangements with local people. A Project Coordination Unit (PCU) and three Regional Project Offices (one in Semey Ormandar, one in Irtysh Ormandar, and one in Kyzylorda) will provide administrativesupport for all project activities. A Project Advisory Committee (PAC) will assist FHC in strategicplanning and review. The FHC special reserves will manage most of the Irtysh component. There will be increasing emphasis on the use of external contractors for reforestation and fire management works, with oversight provided by the reserves. The reserves will also directly acquire improved firefighting and fire prevention facilities. The Irtysh component will also include contracted technical studies, and contracted teams and specialists supporting the forest-based industry feasibility study and pilot PFM activities. On the dry Aral seabed, the initial nursery and field establishment program will be implemented by two SFEs,under contracts with FHC. As the program develops,other SFEs are expected to become involved on a contract basis. Government research institutes will carry out the research and development program as well as the monitoringprogram. On the saxaul rangelands,local herders (mobilizedby Rangeland Support Teams) will be responsible for implementation, with support from the contracted support teams, specialists, SFEs, and research institutes. The national institutional development activities will be implemented partly by FHC in Astana and partly by associated forest institutes, with contractual assistance for studies and specialistswhere necessary. A Grant Program Board will govern the competitive grant program with the PCU serving as the secretariat, specialists on short term contracts providing expert review, a financial agency contracted to disburse funds, and grant recipients implementing approved activities. An operational manual satisfactory to the Bank has been drafted. Although these implementation arrangements are diverse, which will increase the management challenge, a more uniform set of arrangements is not feasible due to the current jurisdictional situation,and the implementation requirements of the various components. The project encompasses significant, yet incremental experiential institutional reform. This reform will involve Increased attention to cost-effectivenessand other accountabilities (with new approaches in assessing alternative options, monitoring coefficients on quality, using performance evaluation results to inform investment decisions, and increased organizationalefficiency associated with streamliningof roles and functions); improved flows of information, analyses, and decision-making both within forestry agencies, and to and from external stakeholders, and the promotion of a learning culture throughout FHC and associated forest agencies with new staff attitudes, behavior and skills; and a more effective incentive framework (with interactive exchanges between strengthened policy analysis at the central level, participatory natural resource management approaches and other local feedback at the field level). 3. Monitoring and evaluation of outcomeslresults The Results Framework is in Annex 3. Monitoring and evaluationwill make use of existing data sources, supplemented by data collection within the project and special survey and assessment updates undertaken by contracted specialists. The Project Implementation Plan includes an annex with detailed guidelines. 4. Sustainability Experience from earlier Bank involvement in forestry in the Europe and Central Asia (ECA) region strongly supports the expectation of sustainable impact. Institutional sustainability will be addressed by training and increased hands-on experience to develop long-term management skills in project management, communication, policy analysis. The Project is relying on existing administrative and organizational structures especially at the local levels to implement activities. Financial sustainability will be partially addressed through the overall fiscal structure including taxes and established contractual payments (in the case of environmental services which affect overall economic growth and living standards), and in some cases through returns to local communities arising from participatory natural resource management activities (in the case of participatory saxaul management demonstrations, the piloting of PFM in the Irtysh pine forest, and some of the activities funded by the competitive grants fund). The intention of continued expansion of the government investment program (possibly with donor support) will enable the continuation of incremental field activities beyond the life of the project. Staff and routine operating expenses are already and will continue to be provided by the Government. Environmental sustainabilitywill be addressed through the introduction of environmentally sound forest management plans and detailed environmental protection and monitoring guidelines for the afforestation and management activities. Social and cultural sustainabilityat the village level will be addressed by ensuring representation of key groups in developing the participatory natural resource management plans. 5. Critical risks and possible controversialaspects Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Key stakeholders are not willing to participate S Preparation has identified issues related to the incentive and support environmental management and legal frameworks and the need to adjust and clarify measures due to problems in policy rights and responsibilities of local people, and these framework, or the inability of FHC to find the issues will be further addressed during the project legal "space" to test new approaches period through the interactive development of analytical capacity and field level implementation experience Opposition from vested interests or others is M Preparation supported a stakeholder and institutional significant and obstructs implementation, or analysis which has increased the understanding of this limits the sustainability of outcomes (e.g., risk, and informed project design decisions on strategic relationship of illegal logging to problems of approaches, and implementation and consultation governance and unemployment) arrangements Replication not appropriate (e.g., modem S Technological innovations will be tested and adapted to technologies of planting cannot be adapted to local conditions on a small scale and then evaluated 1 local. , so11conditions conditions due to climatic extremes, during the mid-tern review, with subsequent expansion . . or other physical factors; dependent on proven success under lo~alfield Risk I Risk RatingI Risk Mitigation Measure expansion of rangeland activities curtailed 1 I conditions. The rangeland subcomponent is due to evolving livestock policy or social intentionally kept at a small, demonstration scale so that aspirations that affects rangeland use broader trends can be considered during decisions on whether to replicate in the post project period. Government officials unable to adopt new M Realistic plans taking into account learning by doing, approaches to natural resource management and carefully designed and phased human resource development and human resource management reforms From Components to Outputs Arrangements to channel funds to reserves, S Detailed budget and fund flow arrangements have been lezhozes, and communities and to handle carefully assessed and addressed during preparation, procurement on their behalf do not hnction and include clear accountability measures. The in a timely and transparent manner procurement plan includes timeline standardsthat will be monitored. Operational arrangements and detailed procurement plans for the first 18months of the project are agreed. I capacity is not sufficient; project The Project will provide training, technical assistance, staff do not have required technical expertise and other capacity building activities to the extent required. Much of the capacity development will be learning by doing. Environmental risks not managed adequately N The management of environmental risks is (for example, limiting soil disturbance to mainstreamed into the detailed project design. Several avoid wind erosion or radionuclide subcomponents are included as part of the project contamination, managing planting stock because they directly address these risks and threats improvement to take into account (e.g. Irtysh pine forest fire management, saxaul biddiversity and natural habitat rangeland improvement). Others are addressed through considerations, use of integrated pest detailed operational guidelines (e.g., planting management, handling of burned debris to guidelines, provisions in construction contracts), conserve organic matter, managing forest training (e.g. integrated pest management), and fires, reducing illegal logging, managing improved strategic approaches and policies (e.g. illegal access road rehabilitation and use, prevention logging). Many of the operational procedures are based of overgrazing) on many years of extensive research (e.g. DAS planting), and will be modified as necessary during the I project to reflect additional research findings. Environmental risk management will be further I I I reinforced by extensive information and monitoring I 6. Loanlcredit conditions and covenants Conditions of Project Effectiveness comprise: The GEF Trust Fund Grant Agreement has been duly executed and delivered, and all conditions related to its effectiveness, or the right of the Borrower to make withdrawals against it, have been fulfilled. Conditions of disbursement comprise: Disbursement of Bank loan funds for forestry works and infrastructure works under the Irtysh componentwill not proceed until completion of an analysis satisfactory to the Bank of radionuclide levels. Terms of reference for this study have been drafted and the output will be subjectto review by an international specialist. Other Conditionsin the Legal Agreements: Special account. The Borrower will open and properly maintain separate special accountsfor the (i) IBRD Loan; and (ii) GEF Grant. Management. The PCU and RPOs will be maintained, adequately staffed, and provided with performance based incentives acceptableto IBRD. Monitoring, Review, and Reporting. Standard reporting covenants will apply; the PCU will send to IBRD on a half-yearly basis its monitoring and evaluation reports and the status of the agreed key monitorable indicators; and a mid-term project design and implementation review will be undertaken, by the Government and IBRD in November 2009, to determine the lessons learnt and make appropriate changes, if needed, in the project objectives, scope and components. Access Restriction Process Framework. No human settlements will be displaced as a result of project activities, and any adverse impacts on vulnerable people of any other restrictions of access to land resulting from project activities will be mitigated in accordancewith the agreed Access RestrictionProcess Framework. Environmental management. The project shall be implemented in accordance with the agreed environmentalmanagementplan, approved by the Borrower and pest management plan. Participatory Forest Management. A framework for the pilot Participatory Forest Management activities in the Irtysh pine forests will be developed by March 31, 2007, and reflected in an operational manual, and in a recommended action program regarding any regulatory or other legal steps that may be required for its implementation. Pilot Improvement of Saxaul Rangeland Management. Appropriate sites for the demonstrations will be proposed and the initial policy framework for the provision of long term use rights will be developed by December 31, 2006. A detailed analysis of saxaul harvesting policy and associated stakeholder consultations in Kyzylorda will be used to develop the policy framework including a recommended action program. This work will build on the analysis and consultationsundertaken during project preparation. Competitive grants program. An operational manual acceptable to the Bank for the competitive grants program will be approved by the Grant Fund Board by December 31, 2006, with any subsequent revisions to the manual subject to Bank agreement, and the competitive grants program will be implemented in accordance with that manual. A draft operationalmanual has been developed during project preparation. Radionuclide analysis. If the study on the radionuclide levels indicates that additional testing and data is necessary the Government shall prepare and provide to the Bank one or more similar additionalreports in the future. If levels of radionuclides exceeding national norms are encountered in some part of the project area, the Borrower will inform the Bank and take appropriate management measures. D. APPRAISAL SUMMARY 1. Economic and financial analyses Environmental benejits. From the Government's perspective, the main justification for the project involves environmental benefits whose value cannot be readily quantified. The national Government attaches significant priority to retaining and restoring the country's limited areas of dense forests such as the Irtysh pine forests. It also wants to accelerate the process of transforming wasteland areas of the Dry Aral Seabed into areas covered with vegetation with growing biodiversity. For saxaul rangelands, it wants to test and demonstrate new approachesto sustainable, resource-led rangeland management systems that can function effectively in a post-transition context. Another factor driving the government's support for the project is its desire to develop government capacity in improving the cost-effectivenessof government investments for public goods through improved analyses, performance accountability,incentive frameworks, and organizationalmanagement. Cost-benefit analysis. Although quantified cost-benefit analysis is not driving project investment decisions, it has been undertaken and does provide some useful insights. Based on this analysis the economicrate of return of the overall project is estimated at 9 percent, not taking into account additional environmental benefits which cannot be readily quantified. The economicrate of return is about 10%for the Irtysh pine. This assumes that 100%of the forest area will be subject to harvesting over the long-term. Given the high intrinsic and recreationalvalue the Kazakhstan government places on these forests,the prospect of hture harvesting is uncertain, and the economic analysis is helping clarify the opportunity costs of a sustained logging ban. On an even more disaggregatedbasis, the quantifiable economic rate of return is about 5 percent for reforestation and for fire management is about 37 percent. The low return on reforestation highlights the intrinsic value that the Governmentattaches to restoring this relic forest. The quantifiable economic rate of return is about 4 percent for the planting of the Dry Aral Seabed, based on a hypothetical sustainable harvest of saxaul wood. This finding highlights the recognition that the most significantbenefits of this interventionwill be the increasedbiodiversity and other intrinsic environmental values, assuming that the impact of the project is consistent with past patterns experienced where the Dry Aral Seabed has been coveredby vegetation. An economic rate of return of 11% for the saxaul rangelands component stemming mostly from increased income from livestock production but also from saxaul wood harvest. This rate of return is lower than it would likely be if later replicated because the costs include the start-up expenses associated with overcoming the constraints of weak local organizational capacity and the inadequate incentive framework of the current usufruct tenure policy. Employment and poverty impact. The project will generate significant employment and thereby help alleviatepoverty: an estimated 1.2million person days of seasonal employment during the project period, and 630,000 days per year of employment after project completion, in areas of the country which are currently experiencing high levels of unemployment. During the project about 6,000 persons might be employed for an average of three months each year in the Irtysh pine areas, mostly in thinning operations. The project could potentially benefit about 60% of the 10,000 households below the poverty line in the Irtysh project area if this employment is directed toward households most in need. For those households the seasonal employment will increase their incomes by over 20 percent. In the Dry Aral Seabed area, about 4,500 persons might be employed for three weeks each year. The project could potentially benefit up to 40% of the 10,300 poor households in the DAS project area if this employmentis directed toward households most in need, but the increased income per household would not be significantunless several members of any one household participated. The saxaul rangeland managementactivities are expected to increase the annual incomes of herd ownersby about US$ 2800. If on average six households own equal shares of a herd, the increment in annual income per household would amount to about US$ 470, which for a household at the poverty line would represent an increase in annual income of over 20 percent. Annex 9 contains furtherdetails on the Economic and Financial analysis. Carbon sequestration. Although the metabolism of the vegetation established or rehabilitated under the project is low, the project will increase carbon sequestration. Reforestation in the Irtysh areas will result in an estimated total incremental accumulation of about 3.9 million tons of carbon during the project period. Improved fire management will prevent the release into the atmosphere of about 71,500 tons of carbon. Planting on the DAS will move forward by decades the sequestration of about 3.6 million more tons of carbon. Additional carbon sequestration will result from the replication and scaling up of investments afterproject completion. Incremental Cost Analysis for GEF. Under the baseline scenario, the Government and the Bank would undertake as a matter of national priority, the planting, fire management and thinning activities in the Irtysh pine forests; as well as a portion of the planting and other works in Kyzylorda; a portion of the national level policy development, human resource development, and information support; as well as two thirds of the competitive grants. The provision of GEF support enables the project to increase the scope of international cooperation, capacity development, and monitoring across all components, adapt participatory natural resource management approaches to steppe forest areas in the context of a former Soviet Union country, accelerate vegetation of the DAS, expand the scope of the saxaul rangelands demonstrations,and undertake additional competitive grant subprojectsfor innovative forest management activities including some that would cover some of Kazakhstan's other globally unique forest areas. Annex 15 provides the full incrementalcost analysis. 2. Technical FHC staff possess good fire management skills but have inadequate facilities to implement necessary fire prevention and fire suppressionactivities. Forest establishmentprocedures are outdated and will benefit from local adaptation of new techniques introduced from Scandinavia, combined with study tours to provide access to international knowledge and experience. A research and development program will extend the current planting season and provide reliable methods of direct seeding for more economical forest establishment. There is good awareness of techniques for improved seed production but the FHC has not had the resources to efficiently produce and process the seed. The capacity for landscape planning and biodiversity managementwill benefit from internationalcontact. There is also good local expertise in range management and saline land rehabilitation,but the techniques need further development. Locally suitable approaches to participatory land management need to be developed in both the rangelands and the Irtysh pine forests. This is a new concept for Kazakhstan and will require careful nurturing. Forest inventory techniques also need updating and integration with spatial (GIs) information management systems. Current resource data are out of date and there is a backlog of forest management planning. Most forestry staff, especially those in the field, do not have direct email or internet access, and many do not even have access to any form of computer. 3. Fiduciary Procurement. The Kazakh National Law on Public Procurementis not fully compatiblewith the Bank's Procurement Guidelines. This should, however, not be a problem for the project implementation phase as it will be governed by the Loan Agreement that is an international agreement ratified by the Parliament and therefore supersedes the national law. A procurement capacity assessmenthas been prepared. Based on this assessment, measures will be taken as needed to ensure appropriate allocation of responsibilities and procurement capacity for project implementation. Procurement review requirements have been agreed based on the procurement risk assessment. A draft procurement plan covering the initial 18 month period has been prepared and agreed. See Annex 8. Financial Management. A financial management capacity assessment was carried out in January and July 2005 to determine if the financial management arrangements are acceptable to the Bank. 'These financial management arrangements include systems of accounting, financial reporting, auditing, internal controls, budgeting and staff capacity. Several measures have been taken to establish a financial management system that meets Bank requirements. A manual of financial procedures has been drafted and reviewed by the Bank, and is satisfactory. The FHC is now in the process of designing a computerized accounting system, using appropriate accounting software that meets accounting and reporting requirements of the project, in accordance with terms of reference reviewedby the Bank. However, the FHC still does not have financial management staff to implement the system. A time-bound financial management action plan has been discussed and agreed with the FHC for establishment of financing management arrangements that, when fully developed, will be capable of recording all transactions and balances, supporting the preparation of regular financial statements, including Financial Monitoring Reports (FMR), and safeguarding the assets and resources of the project. SeeAnnex 7. 4. Social Social and Institutional Issues. The social and institutional analysis and the analysis on community involvement, which were both based on stakeholder analysis and field surveys, have identifiedthe followingkey issues: Issues in local social capacity in the context of the past FSU legacy of government dependency, mistrust, requirements of involuntary labor, and inexperience in participatorydecision-making Organizational culture legacies from the Soviet period comprising rigid top-down administrative management styles within forestry agencies, and poor communication within and among forest agencies as well as with external stakeholders. Illegal pine logging and saxaul fuel wood harvesting due to strong vested interests, inadequate incentives for local people to take responsibility for forest protection, widespread unemployment,and market pressures. Desires by foresters and local inhabitants to return to the former Soviet-style system of forest management with a huge number of jobs, no timber market (and thus no illegal felling), a public awareness campaign on valuing and caring for the forest, and a high level of public financing for forest management. Participation measures. To address these issues,project preparation included: a summary analysis of community involvement issues and opportunities,including social inclusion(e.g., gender) plans for increased consultation and transparency in forest policy, planning, and financial management activities under the national component a draft communicationsstrategy plans for activities to support livelihood interventions in the Irtysh Pine Forest area that are linked to improved forest management and protection participatory arrangements for the saxaul rangelands component, analysis regardingthe access restriction framework. Institutional analysis. An institutional analysis undertaken during project preparation describes the roles and organizational structure of national and oblast forest agencies. It analyzes issues related to information access and distribution, organizational management styles, external relations and linkages, the negative impact of frequent recent organizational restructuring, the poor state of forestry agency facilities, the deterioration in staff capacity associated with poor pay and training, and potential implications of international trends in the organizationalmanagement of forest agencies. Access Restriction Framework. The project will not involve physical involuntary resettlement. There is no encroachment of human settlements in the project area forests and the project itself will not cause involuntary physical displacement of people. Overall, the project is likely to actually increase the access of local people to natural resources, and would impose increased restrictions for only limited areas, as part of participatory resource management schemes. However, existing restrictions applicable to the project areas may also affect the reputation of the project. An Access Restriction Process Framework (ARPF) has therefore been prepared which describes: the project components potentially associated with restrictions of access, the people likely to be affected, and the participatory processes by which the project was prepared and will be implemented. 5. Environment Environmental benepts. The environmental screening categoryis B. No significant adverse environmental impacts are foreseen. The project will have beneficial environmental impacts including reforestation of degraded lands, improved conservation and sustainable use of biodiversity in selected ecosystems, improved sheltering from wind and associated better air quality, and reduced use of potentially harmfbl pesticides. Environmental considerations are mainstreamed into the project objectivesand components,and will be integrated in planning, implementation, and monitoring at both the local and national levels. The reforestation is expected to utilize native species of pine, saxaul, tamarix, herbaceous plants and grasses for the main components and also include native species of poplar, willow, aspen, etc. for the competitive grant fund. The forest planning and management activities (including fire management strategies) will address natural habitat considerations in both the site-specific and landscape context. Where possible the project will include the development of knowledge and monitoring of good environmental practice. Minor adverse impacts. Temporary minor impact (dust, minor soil loss) can be expected from planting activities, building construction and other works. Within the Irtysh forests roads radiating from main fire fighting bases within the forest are envisaged, but these will not increase external access. Improvement of shelter and access to water in the woodlands that could increaselivestock movement and lead to trampling and some loss of topsoil will be carefullymanaged with necessary safeguardsto prevent environmentaldeterioration. Pest management. The project will help develop more environmentally acceptable pest management strategies. There is a possibility of using a limited amount of pesticides in preparing planting stock in nurseries and in major pest outbreaks, but overall pesticide use is likely to be reduced in favor of biological controls. Consideration of Radiation Issue. The Irtysh Forest may have been affected by fall-out of 1949-1962 nuclear tests on the nearby Semipalatinsk testing grounds. Preliminary data indicate that the radionuclide levels in the relevant regions are low and that the project activities are not likely to pose any risk of radiation exposure. The risks associated with this radioactive fallout and the implications for forest management and related aspects such as soil erosion, fire management, and use of forest products have been assessed in an analysis carried out by a multi disciplinary team. This analysis has been peer reviewed by an international specialist and has been publicly disseminated along with the EA report, The project includes support for additionalmeasurement and analysis of radionuclide levels in the project area. Disbursement of Bank loan fbnds for forestry and infrastructure works in the Irtysh component is subject to completion of a study satisfactory to the Bank involving field sampling, lab analysis of radionuclide levels, and interpretation. If levels exceeding national norms are encountered in some part of the project area, the Borrower will take appropriate management measures. Stakeholders. Key stakeholderswill include the rural people living in and around the forests, livestock-herderfamilies, forest users, forestry staff, as well as environmentalNGOs. Project preparation included a series of stakeholder consultations, including a consultation focused on the draft environmental assessment report and the overall project design on May 21, 2005 in Kyzylorda. Once the radionuclide report was completed, a similar consultation took place in Semey on September 2, 2005. Stakeholders have responded positively to the proposed project. A Russian version of the EA report has been disclosed within Kazakhstan, and Russian and Englishversionshave been made available in the Bank's Infoshop. 6. Safeguard policies Safeguard PoliciesTriggered by the Project Yes No EnvironmentalAssessment (OPIBPIGP 4.01) [XI [ 1 Natural Habitats (OPIBP 4.04) [ 1 [XI Pest Management (OP 4.09) Ex] [ 1 Cultural Property (OPN 11.03,being revised as OP 4.11) [ 1 [XI InvoluntaryResettlement (OPIBP4.12) [XI [ 1 Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ 1 [XI Forests (OPIBP4.36) [XI [ 1 Safety of Dams (OPIBP 4.37) [ 1 [XI Projectsin Disputed Areas (OPIBPIGP7.60)* [ 1 Ex] Projects on International Waterways (OPIBPIGP 7.50) [ 1 [XI The project is not expected to carry significant safeguardrisks. Environmental Assessment is triggered as explained above under Section D 5. The Involuntary Resettlement policy is triggered as explained under D 4. In view of possible minor risks, the safeguards on forest and pest management are also triggered. (i) The forests policy is triggered because the project is intended to affect forested areas. It will be implemented in accordance with the Bank's operational policy. It will support investment in rehabilitation of existing degraded forests and woodlands to restore protective cover and to make these and other forests more productive. The project will not finance plantations that involve any conversion or degradation of critical natural habitats. The project will not finance industry-scale commercial harvesting operations. Any harvesting by local communities or other local entities supported by the project will be within a standard of forest management developed with the meaningful participation of locally affected communities, consistent with the principles and criteria of responsible forest management. (ii) Pest management is triggered because the project will help to develop more environmentally acceptable pest control strategies. There is a possibility of using a limited amount of pesticides in preparing planting stock in nurseries, and in major pest outbreaks. The environmental assessment includes an evaluation of current pest management and pesticide use practices, issues, and capacity. The project supports * BJJ~uppcrtingtheproposed project, the Bank does not intend to prejudice thefinal determination of theparties'rloim on the disputed areas monitoring and research on pest management, including the further development of integrated pest management and demonstrationsof biological control applications. 7. Policy Exceptions and Readiness No policy exceptions are anticipated. The project meets Bank readiness norms. Annex 1: Country and Sectoror Program Background KAZAKHSTAN: Forest Protectionand ReforestationProject Kazakhstan has an extensive area of rangelands and forests. It possesses a significant forest resource, with 11.5 million hectares of forested land, of which 5.3 m ha are saxaul woodlands and associated rangelands. In absolute terms, it has the third largest forest area in the Eastern Europe and Central Asia Region, in spite of the fact that forested areas account for a mere 4% of its territory. In the traditional measure of forest abundance - total growing stock of timber - Kazakhstan with its 383.7 million m3 of standing timber ranks low compared to forest-rich ECA countries, although in the same league with South Africa, Vietnam or the Philippines. Its limited forest production is partly a result of low temperatures and low precipitation. Kazakhstan is also the sixth largest country worldwide in terms of the size of its grasslands,which cover more than 170million ha, 60% of its land area. Kazakhstan's forests and rangelands play an important role, providing key environmental and economic services. They are a key factor in soil and sand retention, help against the country's strong winds, protect watersheds, and reduce siltation of waterways and reservoirs. They also have been a driving force in the country's economy as a source of fodder, food, fuel, medicinal plants, and recreation. The economic outputs of forest lands and rangelands provide important incentives for sustainable management of these ecosystems, and also constitute significant economic and social costs when deforestation,desertificationand other severe degradation of these lands does occur. About 300,000 people are directly dependent on the forest sector,while an estimated 2.5 million live in or rely on the forests for fuel wood, fodder and other forest products. An estimated 4-5 million people (40% of the population), many of them living in poverty, depend directly or indirectly on rangelands for their livelihood. Most rangelands are drylands with an average rainfall between 100 and 300 mm and a wide temperature-range from over 30' C in summer to less than minus 25' C in winter. Some of these lands, such as the southern saxaul woodlands, the Betpak Dala and Moyin Kum deserts in south Central Kazakhstan contain unique landscapes and ecosystems, which provide natural habitat for numerous species of important flora and fauna. Kazakh rangelands and forests also contribute to the global carbon balance by storing substantial amounts of carbon. Legacy of land degradation. Kazakhstan inherited some of the greatest environmental problems of the post-Soviet republics. The Virgin Land Scheme ploughed up fragile rangelands for short-lasting agriculturalproduction in the late 1950's. This was followed by the promotion of irrigated agriculture with unsustainable water use leading to changes in water tables and land salinization. This type of poor water management forced the livestock out to the less productive grasslands and most likely contributed significantlyto the drying of the Aral Sea. As of 2004, there were over 4 million ha of dry Aral seabed, of which some 2.6 million ha was within Kazakhstan. In the 1970s the Soviet Government created large livestock farms on the rangelands, which inevitably resulted in overgrazing and deterioration of rangeland resources with significant negative consequences. Ecologically risky land use for oil drilling, the space program, and nuclear testing also degraded land. Overall, large areas of the country's ecologicallyproductive land have become wasteland. Kazakhstan's forest lands and rangelands continue under threat. The generally arid, extra- continental climate of Kazakhstan makes the existing forest and rangeland ecosystems particularly susceptibleto various natural and man-made threats, including: fires (both natural and anthropogenic,including agricultural fires) pest infestationsthat often follow fires overgrazingof livestock over-harvesting through illegal and poorly managed 'sanitary' cutting, and through increased subsistencecutting for fuel wood habitat degradation from excessive hunting/tourism development desertification Almost 10% of all forests in Kazakhstan are plantations established in the Soviet period for wind erosion and sand control on agricultural lands. However, forest lands and rangelands have been subject to increased threats of deforestation and other degradation in the recent years of political and economic transformation since 1991. For forests, the main results have been increases in uncontrolled wildfires, unauthorized cutting, overgrazing, changes in water tables, and development of agricultural land, desiccation of riparian forests, as well as pests and diseases. Kazakhstan's forests suffered dramatic losses from fire in 1997, affecting as much as 2% of the forest area. For rangelands the transition led to reduced mobility of livestock herds, and thus increasing pressure on and deterioration of village pastures. Much of the rangeland in the country is abandoned because of lack of access, degradation of vegetative cover, lack of availablewater, and absence of basic amenities. It is now estimated that less than 50% of the country's rangelands are usable and that only one third (about 60-70 millionha) is currentlyused. The significance of each of these threats varies by region. Different regions - different issues: Kazakhstan has a number of very distinct forest and rangeland domains that are separated geographically by the vast treeless space of the central and western deserts and semi-deserts. Major ecological zones include: the Altay Mountains (home to unique Siberian biodiversity and also a concentration of 75% of the commercial-grade spruce and fir timber in Kazakhstan). the northern forest-steppe (with birch, aspen and pine forest islands including the relic Irtysh pine belts fragmented amidst farmland - an important source of local construction material and fuel wood, as well as a critical natural habitat for wildlife and area for recreation). This area has been especiallydamaged by fires in recent years. The adjoining lowland grass steppe, with rangelands characterizedby shrubby vegetation, especiallyfeather grass, fescues,and wild oats. the Tien-Shan and Ile-Alatau Mountains (a globally unique habitat in terms of ago biodiversity, wild nut and h i t production, a critical water source for the Aral Sea and Lake Balkhash, and an internationallyimportant tourist destination). the central semi-desert, with shrubbyvegetation dominatedby wormwood. the saxaul scrub woodlands and associated rangelands of the southern desert (a sourceof high-quality fuel wood and a critical habitat for livestock grazing and sand dune control near the Aral seabed). This area has been especiallythreatenedby over-harvestingof fuel wood. In addition, there are riparianforests along major rivers. These forests play an important water-regulating role in the southern floodplains (tugay forest) and constitute almost the only type of forest in the oil-richbut treeless desert of western Kazakhstan. Tenure of Forest Lands. Since Kazakhstan's inclusion in the Soviet Union, forestlands of the country have been, and continue to be, owned by the state. Because the local wood-based industry was dependent on subsidized imports of timber from other parts of the SovietUnion, the forests in most of Kazakhstan (except for the forest-richareas in the East) were primarily managed for protection and hunting. Collective and state farms were in charge of managing agricultural forests and shelterbelts as well as saxaul woodlands and other rangelands. Since independence, a number of laws and regulations have been enacted to regulate land use and ownership, but these have been targeted at arable land with little attention given to the peculiarities of the saxaul rangelands and agricultural woodlands. A national debate about land management in 2001 and 2002 has more or less reached consensus that private owners can hold arable land but that forest lands (including most existing saxaul rangelands) remain the domain of the State. Saxaul rangelands, however, may be leased from the State for livestock grazing and otherpurposes. Forest Institutions. Kazakhstan's institutional framework for forest management, a complex system of state, regional and local institutions, has undergone substantial changes in recent years. The Forestry and Hunting Committee is responsible for managing almost all Kazakh forests, woodlands and protected areas, including the dry Aral Seabed and the saxaul rangelands. The FHC consists of a small central staff of 32 headquartered in Astana, Forest and Hunting Committee Departments for each of the 14 oblasts (with a staff of some 232 inspectors) based in the regions, a number of forest and nature reserves, and severaltechnical institutions (e.g. seed production, field studies, and fire protection) based in various parts of the country that provide technical support to the sector. The institutionalrestructuringin 2003 established Akimat Forestry and Hunting Divisions in the 14 oblasts and transferred the 124 former leskhozy which are now known as State Forest Entities (SFEs) ,with their staff of about 5,000 (down from 25,000 in 1990) to Oblast Akimat administrations. In December 2004, the Oblast Akimat Forestry and Hunting Divisions were consolidated with water resource management and environment functions into Oblast Akimat Natural Resource Management Divisions. Government Support for Forestry. Following independence and as part of the economic transition in the forest sector, the wood-based industry was privatized and has mostly collapsed. With the demise of most collective and state farms, the management of most saxaul rangelands and agricultural forests has been transferred back to SFE management. Furthermore,the transfer of the 124 SFEs to the oblast level, even on condition of preserving their organizational and legal form, functions and authority, has resulted in a vacuum. The Oblast Akimats have failed to provide either the political leadershipor the financialresources necessary for the SFEs to perform their forest and wildlife protection functions effectively. In general, public funding for forest management and environmental protection in Kazakhstan declined dramatically in the 1990s and remained among the lowest levels in the ECA countries, averaging US$0.5 per capita per year. As a result, there was little investment in maintaining forest management institutions, including forestry staff, equipment and machinery; most afforestation, forest inventory and protection activities came to a virtual standstill by the end of the 1990s, and there was also a drastic reduction in the resources availablefor forest fire management. Organizational Issues. The legacy of the recent institutional restructuring of forest institutions in Kazakhstan has resulted in a number of unresolved organizational and functional issues; it has also produced a high level of confusion and "restructuring fatigue" among forestry staff. As noted above, in the late 1990's, the forest agencies went through several reorganizations that principally sought to separate management and oversight functions. The results of these reorganizations were not clearly satisfactory. In 2003, the new Forest Code delegated most forest management functions from the central FHC to the oblast governments (i.e. the Oblast Akimat Forestry and Hunting Divisions and SFEs), but there is still confusion over the division of roles between state and local institutions and dissatisfaction with the level of oblast financing provided. With the recent fiscal recovery due to oil revenues, public funding for management of forest lands and saxaul rangelands is gradually increasing. This will relieve some of the financial resource constraints, but a number of fundamental organizational issues remain. For example, the management culture within forest institutionsremains top-down and bureaucratic, thus effectively stifling the free flow of communications/information necessary for flexible, effective management. The multiple changes in the institutional setup have resulted in gaps and overlaps in key forest management functions, and the poor communications attendingthese changes have often left forestry staff confused (even resentful) about their purpose. Forest and associated rangeland resource information and analysis are substantially outdated, so no proper resource management can be planned. In fact, access to and dissemination of forest information in general remains poor, whether for forestry staff within the institutions or for the public at large. Fortunately, there is no evidence of conflict with local populations in or around forest lands, except, of course, with those involved with illegal timber harvesting. Human Resource Constraints. The forest sector suffers from major human resource constraints. There is currently a lack of adequatelytrained foresters for positions in the forest institutions, and fewer individuals with the range of new skills required (e.g. extension, marketing, public participation) for effective, modem forest management. Furthermore, the forest staff is aging and facing difficulties in recruiting qualified foresters because of low salaries, limited career opportunities and low motivation. Part of the problem is that universities and institutes in Kazakhstan are not offering the courses or degrees required for modem forestry. Other Issues. Finally, some aspects of the 2003 Forest Code are controversial and will require re-examination in the next few years. For example, there is a need for additional measures to prevent corruption and other governance problems and additional options for improving economic incentives. Strategic decision-making suffers from a lack of public involvement; it is clear that forest institutions will have to adapt to more participatory approaches for forestmanagement in the future. Forest and Rangeland Studies. In 2002, joint studies on forests and rangelands undertaken by the Government of Kazakhstan and the World Bank recommended that the government develop and adopt a new strategy to reflect a change of paradigm in forest and rangeland management, with more rights and responsibilities delegated to local decision-making, with emphasis on phased implementation, and with allowances for management objectives and systems to differ by region. The study suggested that investments in improved public forest management should cover the followingareas: Substantial upgrades in the national and local capacity for fire and pest protection Rapid inventory of the forest resource base, using landscape-ecological approach, preparing broad functional zoning of forest areas with adequatepublic participation Substantial upgrades in the local capacity for reforestationand afforestation,and Training for central and local forestry staff, especially in - economic analysis, marketing policies, extension, and public and communityparticipation. The present project is a direct result of this collaborativeeffort. Annex 2: Major Related Projects Financed by the Bank and/or other Agencies KAZAKHSTAN: Forest Protectionand Reforestation Project Project Name ~ S mSlbnstitution !!.ApprovalDate -I/- Agricultural CompetitivenessProiect 24 IBRD pril 2005 griculturePost-Primtization Assistance Project I1 35 IBRD ecember 2004 gationand Drainage Proiect IS IP Svr D a ~ and Northern Aral Sea Proiect a 64.5 IBRD 5 IBRD 10.15 BRD Small GrantsProgram II kater Resources Management and Land Improvementproject I1 begiod Rural Developmentstdy and planned projeci I1)I l~entralAsia Counties Land ManagementImprovement Initiative Developmentof strategy to im~lernentConvention on Biological diversity In-situ Conservationof Kazakhstan's Mountain Amobiodiversity Integratedconservationoforioritv globallv significantmigratory bird wetland habitat:a demonstration on three sites GEF Small Grants Proeram pril 2002 ,Conservationand SustainableUse of the Altav Savan Biodiversity (Kazakhstanpart) Conservationand Rehabilitation of the Wild Apple Forests in the Foothillsof Ili Alatau Conservationand Rehabilitation of the Biodiversity of Saksaul and TamariskEco Svstems ugust 1998 Rehabilitationof Biodiversityin the Bush /Grass Eco Systemsin Degraded Lands SustainableManagement of Grasslands(Mongolia) Convention on CombatingDesertificationProject a1Sea Project (Uzbekistan) IFpe1 iosphereReserve Issyk-Kul (Kyrgyzstan) une 2002 to Agricultural Producers to Establisha Vertical Market Aid tegration 1.9 TACIS) September 1995 entral Asia Microfinance Component 11 I I 11.0 ~ ~ J S A I D /Iseptember2002 Implementation Progress (IP)/DevelopmentObjective(DO) ratings: HS (Highly Satisfactory),S (Satisfactory),U (Unsatisfactory), HU (HighlyUnsatisfactory Annex 3: Results Framework and Monitoring KAZAKHSTAN: Forest Protection and ReforestationProject Results Framework 2025 visionZ 2025 Outcome Indicators Use of Outcome Information Forest lands and associated Land degradation(specifically,detenoration or Set project outcomesin contextof rangelandsrehabilitated and lack of tree or other vegetative cover)prevented, long-termvision well managed reduced, or ameliolated~n Irtysh pine forest forests: 180,000ha burned or deforested area replanted and 650,000 ha good condition Dry Aral Seabed: 800,000 ha covered with vegetation(through planting and natural spread) Effective interventionsunderway to maintain public saxaul rangelandsin good condition Organizational and procedural arrangements facilitatingsustainable and cost-effectlveresults applied to the management other forest lands and other public expenditu~investment programs Project Development 2012 Outcome Indicators Use of Outcome Information Objective Development and initiation Land degladation(specifically,deteriorationor Gauge of cost effectiveand lack of tree or other vegetative cover)prevented, scale of coverage and extent sustainableways of reduced, ,or amelioratedin of changesin land environmental rehabilitation Irtysh pine forest including48,000 ha degradationand associated and managementof forest of rehabilitated forest and reversal of environmentaland economic lands and associated firedegradationtrends on 650,000 ha impacts, in relationshipto rangelands,with a focus on Dry Aral Seabed: more than 100,000 overall magnitudeof land the Irtyshpine forest, dry ha of currenttotal 2.2 mln ha dry degradationproblem and in Aral Seabed,and saxaul seabed area covered by vegetation comparisontoprojections of rangelands (frompre-project coverage,project what would happen in planting, and natural spread) absenceof project; 156,000ha of saxaul and adjoining realism of projections and rangelands with sustainableresource- adjust project design or led grazing management expectationsif necessary; success of new incentive frameworkswhich will help prevent future degradation and thus make mitigation worthwhile; and inform decision-makingon kture public investmentprogramsin project areas 2 The 2025 vision is indicative only and does not represent a formal view of the Government. It will be further considered and refined under the policy subcomponent of the project. Project Development 2012 Outcome Indicators Use of Outcome Information Objective Capacity and decisionsto upscale Investment Gauge success of new operational programs for forest landsbased improved arrangementsand analyticcapacities knowledge ofperformance,costs, and Impacts as which promoteongoing research and demonstratedby. learningculture,responsive adaptation, Decisionsto scale up Irtysh pine and improved accountability. reforestationprograms Decisionsto scale up vegetativeplanting of dry Aral Seabed, and Replication of saxaul rangeland restoration program with non-project funds Application of lessons learned fromcompetitive grant subprojectsand reflected in replication plan. Number ofpeople employed under the project, or Gaugemagnitude of social and poverty otherwise benefited as a result of the project impacts of project Irtysh pine: 6,000 employed Dry Aral Seabed: 4500 employed Saxaul rangelands: TBD Improved knowledgeof modem planting and fire Gauge extent of institutionalimpact management technologiesand of natural resource dynamics and management,as well as capacity for cost effective and results oriented public expenditureon forest lands. Project reputation for integrityand public Gauge reputation for integrityand support for improved forest and associated effectiveness rangeland management as reflected in public opinionsurveys. Intermediate Results Results Indicators for Each Component Use of Results Monitoring Component IA: Component IA : Component IA: Irtyshpine forest: Improved 20,000ha replanted and 21,000 ha direct YRl-YR6: Low levels may flag reforestationthrough re- seeded during poject period, and by year 6 constraintsin contracting establishmentof seed production unit costs of replanting reduced from arrangements, fund flow, capacity, areas to ensure quality, applied US$240 per ha to less than US$190 per ha operational arrangemen&, research on cost-effectivenursery with survival rate increasedfrom 60% to methodologies,orunrealistic and planting technologies (e.g., 85%; knowledge of productivity expectations greenhouses,containers,seeding), parameters acquired; and revised and expansion of program to enable arrangementsfor flexible,performance completionof reforestationof based budgeting and contracting 180,000ha by 2025. Component IB: Component IB: Component IB: Irtyshpine forest: Development 650,000ha under improved fire YR1-YR6: Low levels may flag and implementationof improved management comprising: (i) effectivefire constraints in fund flow, capacity, or forest fire management through preventionsystem with bare earth fire operationalarrangements, improved fue prevention,improved breaks and fuel reduced buffer zones methodologies,orunrealistic fire detection,and fue suppression accompaniedby public education expectations to reverse long-term trends in campaigns;(ii) more effective fire degradation of forest lands from detectionsystemwith obsolete towers fire. replaced and new towers where needed; (iii) improved fire suppressioncapability throughbetter equipmen6 fast-attack vehicles,replacement of obsolete fire trucks and improvement of key forest roads and (iv) Annual program of thinning and cleaning where necessary ,integrated pest management support provided ComponentIC: Component IC: ComponentIC: Irtysh pine forest: Forest PFM frameworkdesigned and reflected in YRl-YR6: Low levels may flag PartnershipDevelopment operationalmanual, and then under constraints in fund flow, capacity, or implementation,initially in 4 villages and operationalarrangements, then in 12additional villages. methodologies, orunrealistic I expectations IntermediateResults ResultsIndicators for Each Component Use of Results Monitoring Component IIA ComponentIIA Component IIA Dry Aral Seabed: Vegetative 44,000 ha planted and 35,000 ha direct YRl-YR6: Low levels may flag planting: Increased afforestation seededduring project period,with year 6 constraintsin fund flow, capacity,or through upgraded facilities, unit costs reduced tiom US$207 to less operational arrangemens, improved contracting than US$175 per ha with sunival rate no methodologies,orunrealistic arrangements, applied research on less than 55% and a natural spread expectations. improved planting methods, and consistentwith doubling in ten years, using expansion of program to achieve revised arrangements for flexible, plantingrates of at least 31,000ha performance based budgeting and per year by 2011. contracting Component IIB ComponentIIB Component IIB Participato~ysaxaul rangelands 30 demonstrationscovering a total YRI-YR6: YR1-YR6: Low levels rehabilitation: Herder agreements approximately 6000 ha coveredby planting may flag constraints in fund flow, to enablerestoration of degraded with seedlingsand seeds with s u ~ v a l capacity,or operational arrangements, saxaulrangelands, and provision of ratesno less than 55% and at least 150,000 methodologies,orunrealistic water resourcesfor compensatory ha rangelandsprovided with increased expectations. rangelands. accessto water for grazing animals. Component IIIA: ComponentIA: Component IA: Improvements in policy, (i) analyticalstudies on policy and public YRl-YR6: Low levels may flag information,and human resource expenditure, (ii) expansionof information constraintsor unrealistic expectations capacity facilitiesand developmentof information system (iii) HRD plan and in-service training program Component IIIB: Component IIIB : ComponentIIIB: Competitive grant fund for pilot Operational manual approved, and # of YRl-YR6 Numbers indicate that this demonstrationinvestments(e.g. grants approvedand then implemented componentis functioning timber usufruct sharing, with well monitored resul~ ecotourism, value addition processingof birch, involvement of local people in reforestationor environmental education,private plantations,tungai floodplain protection,etc.) Component IIIC Component IIC ComponentIIIC Project administrationis Bank supenision ratings YRl-YR6: Flags administrativeor satisfactory communicationproblems Target Values Data Collection and Reporting Outcome Indicators Baseline 2009 2012 IFrequency I Data Collection I Responsibility for t I I and I Instruments I Data Collection ( Improved knowledge of natural resource Little information Studies FHC through dynam~csand management,active policy and analysisof undertaken and specialists specialistas part of development,and capaclty for cost effective dynamics,policy systems socioeconom~cstudy and results oriented pubhc expenditureon development,or established forest lands results oriented public expenditure I I I I Project rcputation for integrityand public Original reputat~on Further improvement Baseline, Public opinion survey FHC through support for improved forest and associated assessed in reputation for in trend mid-term and analysis of public specialistteam as rangeland management as reflected in public integrityand and investmenttrends part of op~nionsurveys public support completion socioeconomicstudy assessments Target Values Data Collection and Reporting Results Indicators for IBaseline I YRl 1 YR2 I YR3 I YR4 I YR5 I YR6 Frequency Data Collection Responsibility for Each Component and Reports Instruments Data Collection ComvonentIA: 0 0 1 1 4 7 1 12 1 20 Quarterly Project records FHC I ~umb~ativearea of ~rtysh I I I I I I I reports pine replanted under project ('000 ha) Survivalrate 60% Costha (US$) $240 Cumulativearea of Irtysh pine direct seeded ('000 ha) 0 0 0 1 ComponentIB: 0 mostly fully fully fully Quarterly Project records FHC %fire management reports investmentsimplemented in accordancewith annual workplan I I I I Component lC: *4 * 5 *6 Quarterly Project records FHC Forest Partnership reports Development program designed and piloted -- Forest product use feasibility study completed and PFM framework designed Initial training completed and study recommendations and PFM operational. PFM program expanded to additional villages. - Target Values Data Collection and Reporting Results Indicators for Baseline YRl YR2 YR3 YR4 YR5 YR6 Frequency Data Collection Responsibility for Each Component and Reports Instruments Data Collection ComponentIIA 0 0 5.5 11 22 33 44 Quarterly Project records FHC Cumulativearea of dry Aral reports Seabed planted ('000 ha) Surv~valrate 55% >70% Costha (US$) $207 4 1 7 5 Cumulativearea direct seeded ('000 ha) 0 0 0 0 5 15 35 ComponentIIB 0 2 4 G Quarterly Project records FHC Cumulat~vearea of reports partinpatory saxaul rangeland restoration demonstrationsinitiated ('000 ha) 0 50 100 150 Cumulativenumber of ha wlth Improved access to water for livestock ('000) ComponentIIIA mostly Fully fully fully fully Fully Quarterly Project records FHC Improvements Implemented reports In accordancew~thannual workplan * * Component IllB *7 *a Quarterly Project records FHC # of grants approved and reports under ~mplementation L ComponentIllC S S S S S Semi-annual Bank supervision Bank Bank supervlsionratings reports report 'Grant program design finalized and arrangements established 8 Grants issued. No specific target set but numbers indicate grants program is functioning Annex 4: Detailed Project Description KAZAKHSTAN: Forest Protection and Reforestation Project This project will be implemented by the Forest and Hunting Committee of the Ministry of Agriculture with headquarters in Astana. The Project Director will be the Deputy Chairman of the FHC. The principal objective of the project is to develop and initiate ways of achieving cost effective and sustainable environmental rehabilitation and management of forest lands and associated rangelands, with a focus on the Irtysh pine forest, the dry Aral Seabed, and saxaul rangelands. The development objective is both local and global in nature. The project will support field operations, provision of new technology and equipment, as well as staff capacity building. The field operations will take place partly in forests directly managed by the FHC along the Irtysh River, and partly on rangeland and the dry bed of the former Aral Sea in the Kyzylorda Oblast. In addition, innovative forest development projects outside these main areas will be funded under a competitivegrants scheme. The design of the project is based on two World Bank sector studies in Kazakhstan: Forests in Transition (2004) and Rangelands in Transition (2004), combined with extensive field inspections and discussions with FHC staff, specialists in academic institutions and community groups. Component 1: Rehabilitationof the Irtysh Pine Forests Rationale: There is a backlog of some 180,000 ha of the relict Irtysh pine forests (Scots pine, Pinus sylvestris) that were destroyed by wildfires since 1997 and have not yet been replanted, or have not regenerated naturally in a satisfactorymanner. Exact figures for the backlog are expected to be available fkom satellite imagery by mid 2005. Current resources and technologies available to the FHC are inadequate to address this major reforestation task and there is a shortage of local pine seed. In addition to increased resources, the project will provide new technologies that will assist in acceleratingthe rate of reforestation. The wildfire disasters of the past few years have a variety of causes, some of which can be alleviated by activities planned in the project. Hand in hand with faster reforestation, it is necessary to improve the capacity of forest managers to prevent and control forest fires. Some improvementsin the approach to forest management will reduce fire hazards and make the forest less vulnerableto insect attack. Some of the wildfires have been attributedto arson, and linked to illegal logging, which has been a major problem in this area. The root cause of this problem is believed to be the continuinghigh level of unemployment in the region. The project will seek to alleviate unemployment through job creation in forest management activities, promotion of contractualreforestation activities and promotion of alternativeforms of economic activity in the immediate vicinity of the forest estate. Proposed Project Activities Sub-component 1.a: Reforestation offire-damagedpine forest The first step in improving the reforestation capacity in the two Special Purpose Natural Reserves that make up the Irtysh pine forest, Ertis Ormany and Semey Ormany, will be the establishment of 10 50-hectare seed production areas. These areas are to be located in forests of high quality so that the seed produced will be of higher genetic quality than in the general forest area. They will be dispersed across the forest area to minimize the risk of loss from any future wildfires. The seed production areas will be thinned from the present 1200+stems per hectare to about 500 per hectare of the best-formed and healthiest trees. The trees that are removed will be sold to local industries. To complement the increased production of quality seed, new seed processing, testing and storage facilities will be provided to enable a carryover of seed supplies for use during seasons of poor seed production in Scotspine and to support a possible expansion of natural regenerationusing direct sown pine seed. As local pine seed is in short supply due to past insect attack and other factors such as overstocking, it may be necessary to import seed from adjacent forest types in Russia to enable an increase in the level of reforestation in the early years of the project. As the Russian forests are the same species from the same ecological zone, this should pose no difficulty from the genetic conservationviewpoint. This has also been done in past occasions of seed shortage. The next sub-component will be the upgrading of the nursery system. Currently only bare-root planting stock is produced, using a low-inputnursery system that is far less efficient than modem bare root systems, such as those used in Scandinavia. Modem nursery bed management and precision seeding equipment will be introduced to one nursery at Semey Ormany and one nursery at Ertis Ormany in the first year of the project, and expandedto three additionalnurseries after the MTR. The upgraded nursery facilities will be backed up by a modem seed processing and storage unit. It is anticipatedthat this new nursery technologywill provide nursery stock that is cheaper to produce and of better quality than current stock. This should be reflected in improved survival when planted out in the field from the present 60% to about 85%. Table 4.1 below lays out the planned increase in the rate of reforestation usin planted seedlings, $ over the 6-year period of the project (note that seedlings grown in the 6t year are actually planted in the 7th year). Table 4.1 Expected Annual Area of Pine Planted in the Irtysh Forest Year 2007 2008 2009 2010 2011 2012 2013 Current level of 2,000 2,000 2,000 2,000 2,000 2,000 2,000 planting (ha) Project level of - 1,000 3,000 3,000 5,000 8,000 10,000 planting (ha) Project direct 0 0 0 1,000 5,000" 15,000 15,000 seeding(ha) Note* at this point it is expected that as a result of successful research on direct sowing and increased seed supplies from the seed production areas, additional large areas of burnt forest will be regenerated each year using broadcast pelleted seed. The climatic conditions in the Irtysh region are difficult for planting bare-root stock and currently,the planting is confined to an intensive effort in a two-week period in early spring. To test the potential for widening this planting window, the project will install a complete nursery system to produce container-grown seedlings. Such systems are widely used in northern Europe and permit planting over a wider span of conditions. Container-grown seedlings are much more drought resistant than bare root seedlings and can be grown in one year instead of two years. While the difficulties of the extreme continental climate of Kazakhstan are appreciated, careful hardening off of the container-grown seedlings is expected to enable them to cope with the harsh conditions. If this technique proves to be successful, another container nursery will be established at Ertis Ormany in 2010. There is an additional sub-component that will be activated after the MTR, if still considered necessary. This is the improvement of the site preparation process. Currentlythe debris left after salvage harvesting of the burnt forest is heaped by bulldozers, either into heaps and burnt away or pushed into windrows and left to rot. The project provides for the testing of rolling chopper units that shatter the debris and incorporate it into the surface soil, thus facilitating the operation of planting machines and also hastening breakdown of the debris and release of nutrients into the soil. Conservation of the slender nutrient capital of sandy soils in this way is essential to maintainproductivity in the longterm. The project will also support a research and developmentprogram, including the appointment of an additional forest research officer at Semey, aimed at improving the survival of planted seedlings, so that the initial planting stocking can be reduced from the current 6000 per hectare, allowingmore hectares can be planted with the same quantity of seedlings and helping to reduce the cost of reforestation. Overall, the various improvements in the various aspects of the reforestationprogram are expected to reduce the cost from the present marginal cost of U$240/ha to around U$190/ha. The research and development program will also explore ways of improving the success of direct sowing pine seed, for example, by encasing seed in pellets that, carry mycorrhizal inoculum, fertilizer and an absorbent substance that will attract water to the vicinity of the seed and so aid germination. Once the seed production areas are fully established, and the seed supply position has improved, it is hoped that a regular program of direct sowing will commence, greatly increasing the annual rate of reforestation in the region, and also greatly reducing the cost to about $100/ha. By a combinationof improved technologyfor planted seedlings and direct sowing, the aim of the project is to develop the tools that will enable the FHC to reforest the entire burnt area in 10 years, rather than the 70 years that the current program will require. The project will also include capacity-buildingactivities such as short-term specialist advisers, training courses (for example, in contract management), study tours and workshops. The efficiencyof forest administrationwill be improved by adoption of a flexible,performance-based budgeting system and by greater use of contractors. Sub-component 1.b: Improveforest fire management andprovide otherforestry support in pine forest A major activity in the project will be improving the fire prevention and fire suppression capacity of the two Ormandar. Direct fire prevention measures will include replacement of some old wooden lookout towers with new steel ones, and the addition of several more new towers to extend the fire detection network. Radio and patrol systems will be improved and extended and the firebreak network will be rejuvenated and regularly maintained. An expert review of radio It-tysh communication systems will be carried out. Some fire stations in the forest will be rehabilitated and additional hand tools, protective clothing and patrol vehicles provided. A GIs- linked forest fire management information system will enable better analysis of values at risk, provide up to datemaps and a "live" inventoryof facilities,personnel and equipment. The project will also support several indirect fire prevention measures by providing much- needed employment in the forest to people in surroundingdistricts, as well as exploring avenues for creating new economic activities that will assist in relieving poverty. Alleviating poverty will be a key factor in reducing arson and illegal timber harvesting. The project will also fund a fresh approach to education of local people on fire prevention, involving awareness-building, stakeholder consultation and better coordination with local communities and other Government agencies, including cross-border agencies in Russia. Fire suppression capacity will be improved by provision of funds for rehabilitation of 200 km of strategicroadwork to reduce the time for fire fighting equipment to reach forest fires. Equipment will be improved by the progressive replacement of obsolete fire trucks, the provision of more effective hand tools, better radio communications and the testing of a new approach to fire suppression, the use of light, high speed fast attack four wheel drive units. Fire management policies and procedures will be reviewed. International consultancies will assist in the development to "live" information systems and an Incident Control System to improve fire suppression capability. Staff fire management training will also be revised and updated, and the lack of young firefighters addressed through a training program. Capacity building will involve short courses, short term specialist advisers, workshops and study tours. Greater use will be made of prescribed burning, which serves the dual purpose of reducing fire hazards and providing training in fire behavior for new employees. Limited support will be provided for fire research and publication of research results. Forest Thinning. This sub-componentwill also include a program of thinning overstocked forest on strategically sited buffer zones through the forest. The intention of this activity is twofold. Firstly the buffer zones will provide zones where the fire hazard is reduced, and especially the "fuel ladder" between the ground litter and the tree crowns is removed. In such areas it will be possible to fight a major fire, as a fire will either not rise into the crowns, or, if it already in the crowns, it will tend to come down to the ground again. Once a fire moves from the litter into the crowns, the continuous fuel ladders formed from many small trees in a mixed age stand make controlvirtually impossible. The second objective in the thinning program is to improve forest health. These forests have suffered extensive damage form a defoliating moth in recent years, and the damage has been exacerbated because the forest is generally overstocked. Overstocked forests, especially in a low rainfall area such as this, mean that the trees are under a high degree of moisture stress and this results in poor tree health, at which time that are more attractive to insects and more vulnerable to insect attack. A by-product of the thinning program will be a continuous flow of wood products to the local timber market, which will help to stabilize local sawmills and other timber processing plants. This will be beneficial to the local economy and to local employment.The extent of the thinning program supported by the project is planned to be 1000 ha a year. The level of harvest from the operation is an order of magnitude less than the sustainable yield from that part of the forest estatezoned for productive uses. A more precise estimate of the proportion will be possible when the current forest inventory for the two Ormandarhas been completed. Pest and disease management in the Irtysh pine forest. A review has been carried out of the literature on past experience in the management of pests and diseases in the Irtysh pine forest. The main pests and diseases have been identified and appear well known in Kazakhstan and in adjoining parts of Russia. There appears to be no current urgent pest or disease issue in the region. It is evident that severe pest and disease events are natural to the species across its vast range and they tend to be cyclic in occurrence. In Kazakhstan, the recent pest and disease events have been exacerbated by the recent bad history of wildfires and poor forest health due to overstocking. There are thus no outstanding basic research issues to be addressed, although further development of field control measures, especially for defoliating insects, is required in the context of integrated pest management. The issue of improvement in methods of direct control of pest and disease outbreaks will be addressed in severalways: A consultancywill be arranged to evaluate the opportunities for integrated pest management in the Irtysh pines, provide training to local forestry staff in IPM, assist them to develop an integrated pest management plan for the two Ormandar, and support the implementation of this plan. The project will support the development of a consultative mechanism with Russian forest managers in the region to promote an integrated regional approach to pest and disease management. Support will be provided for a suitable consultant to plan and implement a pilot demonstration of biological control of the pine defoliating moth using the natural control agentBacillus thuringiensis. The project will therefore support activities that will place the forest in a better condition to with stand periodic pest and disease events, improve the capacity of Ormany staff to practice integrated pest management, provide a better pest management planning environment and provide a demonstration of biological control of an insect that should reduce the future use of insecticidein the Irtysh forest. Radionuclide monitoring and mitigation. In addition, the project will support monitoring and any necessary mitigation activities to minimize the risk of radionuclide contamination resulting from project activities. Sub-component 1.c: Forest Partnership Development The project will explore the feasibility fostering of incentives for local people to reduce illegal logging and supporting improved livelihoods for people around the periphery of the two Ormanys, in ways that link poverty reduction to improved forest management. This may include the devolution of the responsibility for management of certain areas of the Irtysh forest to communities,under some form of participatory forest management. In return for certain usufruct rights, yet to be determined, and the right to be employed for specified tasks in the nominated forest area, local people would assumeresponsibility for the protection and ongoingmanagement of the area under some sort of lease agreement. The ownership of the land, as well as the management directionof the forest, would always remain with the FHC. This approach is seen as one possible avenue by which involvement of local people in forest management could reduce FHC management costs, fire risks and illegal activities, while gaining assured employment and rights for the associated community. The Forest Partnership Development sub-component will establish two Social Forestry Support Teams to promote the participatory management concept, which will obtain input from international specialists to adapt the concept to Kazakhstan conditions and provide training for core local staff. The specific framework for PFM will be developed during the first year of the project and then implemented, initially in 4 villages, and subject to confirmationduring the mid term review, subsequently in 12 additional villages. As part of the PFM activities, the Support Teamswill also assist local communitiesto explore and pilot alternativehousehold livelihoods. This sub-componentwill also include a feasibility study of forest processing industries utilizing reserve thinning in combination with production from oblast forests, and of other enterprise development opportunities in the processing and marketing of other forest products. The study will include a preliminary assessment of availableresources and an evaluation of ways in which the resource might be made available to local processors. The feasibility study will help to determine specific requirementsfor follow-up technical assistanceand training support Component2: Environmental Ameliorationin Kyzylorda Oblast Rationale: The Kyzylorda Oblast, in the south western region of Kazakhstan, contains large areas of arid steppe vegetation used for pastoralism, and a major ecological disaster area, the drylng Aral Sea. The rangelands are currently in good condition, apart from localized areas of degradation around settlements.Over the period 1990to 2002, livestocknumbers in Kazakhstan declined drastically, and this reduction in grazing pressure allowed the region to recover from a situation where the grazing pressure and resources were in a fine balance. With the changed political situation, and relief of pressure on the pastoral resources, the challenge is to work out resource-based, sustainable,approachesto rangeland management that are appropriateto the changing social and economic situation. It is important to do this before livestock numbers once again grow to the point where they could have a seriousadverseimpact on rangeland condition. The rangelands are also the source of saxaul, which is a valued he1 wood. While traditionally used as hel, it has been in increased demand over the past 14 years for fuel wood due to shortages of other energy sources, and has been over-harvested over considerable areas. These energy shortages are now being progressively eliminated, but saxaul retains a strong attraction for cooking the traditional shashlik of the region. Consequently, there is a need for management interventionto ensureits sustainablemanagement in the rangelands. The Dry Aral Seabed is a very large area, estimated to be some 4 million ha, of exposed former seabed that is currently a source of dust and salt transport to neighboringregions. Currently, the average annual total of particulate matter carried by wind from the Kazakhstan portion of the Aral coastal area is over 75 thousand tons per year, and there is satellite evidence of this dust blowing far beyond Kazakhstan's borders. However, the preparation team was unable to find evidence of adverseimpacts of the dust, salt, and pesticide deposition on human health that could be used to justify the project. The poverty of the region, and associated deterioration of sanitation systems and water quality, complicates the interpretation of health data. Furthermore, the main sources of this dust appear to be from abandoned agricultural fields along the former coastline, and from the salt covered refractory (solonchak) soils of the DAS. To date, vegetation of the DAS at significant scales has not been feasible on the refractory soils, which cover at least 20% of the DAS. This topic requires furtherresearch. Natural and human-assisted vegetation is feasible on the portions of the DAS with sandy soils, but these are not a major source of the salt and dust. However, it appears that vegetated areas on sandy DAS soils do help reduce wind erosion on a more localized scale. There are good prospects, on the evidenceof past research and more recent observations,that the DAS does have potential for hture use, either as rangeland (with very carefully controlled livestock grazing) or as a biological diversity reserve, as flora and fauna diversity is steadily increasing with natural spread of existing vegetation in the area. Observation over the past few years suggests that, in the absence of any human intervention, the DAS will eventually cover itself with vegetation. However, the rate of expansion of the natural vegetation is slow and the problematic solonchak soils would require effective intervention if the whole area is to be covered with vegetation. The role of this project on the DAS will be to acceleratethe rate of development of a diverse and sustainable flora, to support a research and development effort that is expected to reduce the cost of these vegetation activities, and provide techniques that will address the solonchak soil problem. Project activities will be located mainly in the southern part of the former Aral Sea. They will not conflict with current activities aimed at partial recovery of the (now separate) northernpart of the Sea. Proposed Project Activities Sub-component 2.a: Planting on the Dry Aral Seabed Some vegetation establishment has taken place before 1990,with several former leskhozes being engaged in raising seedlings of the salt-tolerant shrub/small tree Black Saxaul (Haloxylon aphyllum) in nurseries established for the purpose. Other species, such as Tamarix (Tamarix sp) and Sarasasan (Halocnenum sp) were also used on certain soil types. These nurseries have fallen into disuse and require refurbishing and expansion. A wider range of shrub and herbaceous species will be used in the new project to hasten the formation of new and more diverse flora ecosystem on the DAS. The sub-component will commence with a two-stage mapping phase, the first stage using satellite imagery to map the vegetation cover on the entire DAS on the Kazakhstan side of the border with Uzbekistan. This process will identify areas that are already satisfactorily covered with vegetation; areas of bare land newly emerged from the Sea and the area in between where active intervention is required. It is anticipatedthat the areas selected for project activitieswill be closer to Kasalinsk and Aralsk than the southern border of the country, in order to facilitate logistics. The mapping will also provide a process for periodic monitoring of vegetative cover and permit an objective evaluation of the progress being made by the project. The second phase of the mapping will involve a detailed soil survey of areas selected from phase one for field operations. It is anticipated that the information from the first phase of broad-scale mapping will be shared with an adjacent GTZ Aral Seabed vegetation project in Kazakhstan, and that the second phase detailed soil mapping will utilize a similar soil classification to that used previously by GTZ in its work on the DAS in Uzbekistan. If GTZ support continues beyond 2006, a mechanism for ongoing coordinationof field activities between this project and GTZ could be set up on project commencement. The project will support the necessary seed collection activities, the rehrbishment and upgrading of two nurseries in the Kazalinsk and Aralsk districts, and will employ staff of the SFEs to manage them. It will provide new equipment,based on that developed by GTZ in Uzbekistan for site preparation on the DAS, support the development of a field station to facilitate field operations on the DAS and fund a new planting program. It will also provide the necessary nursery facilitiesto support a research and development program aimed at testing the practicality of using container-grown seedlings to widen the range of conditions under which planting operations can be conducted under the severe conditions encountered on the DAS, as well as exploring the potential for using pelleted seed for direct sowing of a range of species. The research program will support the appointment of an additional forest research officer at Kyzylorda to supplement research input from the Shchuchinskresearch center. Table4.2. below, sets out the expected level of planting that the project will achieve on the DAS. Note that while the roject extends for 6 years, the seedlingsraised in the 6thyear are actually ,R planted out in the 7 year. Table 4.2 Expected Annual Area planted on the DAS (ha) Year 2007 2008 2009 2010 2011 2012 2013 Area planted on - 5,500 5,500 11,000 11,000 11,000 16,000 the DAS (ha) Area direct 0 0 0 5,000 10,000 20,000 20,000 I seeded (ha) As with the R&D program in the Irtysh pine forests, the R&D program will attempt to develop new technologies that will reduce the cost and enable a great increase in the rate of afforestation. Direct sowing of pelleted seed offers that prospect. The research and development program will also address the problems associated with establishment of vegetation on the highly saline solonchak soilswith the objective of achievingmore rapid plant cover on those soil types. Sub-component 2.b: Improvement of saxaul rangeland management During the last fourteen years the saxaul lands have been over-exploited for fuel wood and, as a consequence, will benefit from rehabilitation and the implementation of sustainable management and harvesting programs. During the same period, the rangelands have been subject to lower grazingpressures because of the reduction in livestock numbers that occurred during the early to mid-1990s. However, there are recent increases in livestock numbers indicating that the relief of pressure on the rangelands is only short-term and that the opportunity must be taken to demonstrateand implementresource-led and sustainablegrazingmanagement practices. The key to successhl implementation of sustainable rangeland management systems is the cooperation of local herding communities. Sustainable saxaul and rangeland management is therefore a social as much as a technical problem. Herder agreements will be used to enable restoration and development of degraded saxaul rangelands, community management of grazing pressure and maintenance of water resources. Two Rangeland Support Teams will be formed to identify participating herder groups, then facilitate the planning, organization, implementation, and monitoring of the activities in this sub-component by these groups. The Teams will use input from national and international specialists and will provide training to local management staff through workshops and study tours. The Support Teams will also assist with limited research activities on selectionof valuable local ecotypesof fodderplants. The project will demonstrate several options for achieving better management of the saxaul and pastoral resources of the rangelands. Thirty demonstration sites, each of about 200ha, will be set up where it will be possible to engage herder communities in the rehabilitation planting of saxaul, the development of improved pastoral resources and the implementation of sustainable management of the resources. Each of these demonstration sites will be associated with an additional area of rangeland (from 2,500 to 7,500 ha) where sustainable resource-led grazing management practices will be implemented. Many of these grazing areas will be provided with wells to improve the spatial distribution of grazing. The total area covered by this component will be over 156,000 ha. Eight demonstration sites will be established in year two, ten in year three, and twelve in four. The main activities required for this component are saxaul rehabilitation, range reseeding, grazingmanagement, planning and supervision,participatinguser group organizationand impact monitoring and analysis. Preliminary consultations with herders have established that there is local support for the project. This sub-componentraises issues relating to saxaul and rangeland usufkuct rights that will have to be resolved at the outset of the project, and there is a legal covenant to this effect. Component 3: Capacity Building of National Institutions Rationale: During the Soviet period, the FHC received much of its direction from Moscow, and as a result it has not yet developed much capacity to formulatepolicy and strategy. Since 1990,the FHC has suffered a drastic decline in staffing, as well as profound changes in its responsibilities.Much of the management responsibility for the Forest Fund has been transferred to Oblast forestry agencies. However, FHC retains the responsibility for direct management of national parks and other protected areas, as well as for forest inventory and planning, and supervision of standards in Oblast agencies. As a consequence of these changes, both the FHC agencies and State Forest Entities under the Oblasts (e.g. former leskhozy)have suffered a severe decline in staff skills and institutionalcapacity. Many experienced specialist staff members are nearing retirement and few young people are being recruited. While one reason for the poor recruitment rate may be that current salary levels for Government employees (which is outside the control of the FHC) are less than those offered in the private sector, the agency needs to adopt a positive approach to acquiring the skills it needs. Basic information facilities are also lacking, and the flow of information both within agencies and with external stakeholders is extremely limited. The lack of digitized data (both geographic data and other data essential for management such as equipment inventory) curtails the ability of FHC and other forestry agencies to make sound forest management decisions. FHC is in a rebuilding phase, in a still-evolving political environment where the project can provide vital assistance in capacity building for both FHC and Oblast agencies meet the new challenges. Proposed Project Activities Sub-component 3.a: Improvements inpolicy, information, and human resource capacity The approach in this sub-componentis to assist capacity building by carefully selectedupgrading of technology, or investments in new technology, where this is an appropriate action, by bolstering staff number in critical areas, and by targeted staff training to enhance needed technical skills. Activity 1: Policy andpublic expenditure analysis. A new group within FHC Astana, comprising two economists, a forestry specialist, and a facilitationldisseminationspecialist, will undertake a range of policy, public expenditure and strategic studies throughout the six year project. They will receive advice and guidance from an internationaland a national specialist in organizational management throughout the project period, and will also receive advice from an international forest and land resource economist. They will undertake studies and consultation exercises on issues such as further articulation of a long-term vision (building on FAO's Forest Outlook Study for West and Central Asia), the organizational capacity required to fulfill this vision (including considerationof the potential for stimulatingprivate sectorinvestment in forests, staff succession issues, and of how roles should be allocated between staff, contracts, and other private undertakings), options in funding arrangements (e.g., national funding from oil revenue, forest product revenue, oblast revenue), and norms for flows of information both within the forestry agencies and with external stakeholders. This group will also undertake analyses on how budget and time service norms could be optimized to improve cost effectiveness, the saxaul harvesting policy, the policy implicationsof the participatory forest management being piloted in the Irtysh pine forest, and the economic valuation of forest resources (building on improved forest inventory data supported under the information facilities support described below). It will identify the need for amendments to the Forest Code. The group will pioneer the institution of public consultation processes in the development of some of these policies. This activity will also include participation in international workshops and conferences, as well as support for distance learning on issues such as illegal logging. Toward the end of the project the group will integratekey elementsof the various pieces of analysesinto National Forest Policy and Strategy. Activity 2: Improve informationfacilities. The project builds a Geographic Information System (GIs), and graduallybegins to develop a Forest Management Information System. In addition it will equip FHC and other forest agencies with basic computer facilities. More specifically, it will fund a consultancy on forest inventory and planning, a GIs design consultancy, improvement in field data collection procedures, provision of training, support additional specialist staff recruitment, provision of hardware and software for the GIS, and support temporary staff engaged on contract to carry out data capture. The project also provides support for remote sensing data, mapping, and field survey of forest areas. For project areas in Irtysh pine forests and in Kyzylorda, this will facilitate the monitoring of results framework indicators (see Annex 3). Comparable support in remote sensing data, mapping, and field surveys will also improve the monitoring and evaluation of forest conditions in the Altai spruce forests and in other forest areas of Kazakhstan. The Kazleproekt group will also need to develop the necessary systems to ensure that all forest inventory data are spatially referenced, and integrated with the GIS. This will enable the powerful analytical capabilities of the system to be utilized, in areas both within and outside the immediate project, such as the Altay spruce and fire forests. The project also' includes support in year three for the design of a larger agency-wide Forest Management Information System, and follow-up support for gradual FMIS data entry. In addition some 40 forestry offices will be provided with basic computer workstations, emaiyinternet connections, and training, to improve the flow of information among forestry staff and with external stakeholders, and to enable the use of existing information for monitoring and decision making. Activity 3: Human Resources Development. The project will support a consultancy on in-service training needs analysis for FHC and other forest-related agencies, including units under the Oblast administrations; and in coordination with the Ministry of Education, a consultancy to review forestry education strategy and requirements. These will serve as first steps towards the preparation of a human resources development (HRD) plan. The project provides follow-up support for the implementation of this plan and even during the initial year or two of the project includes support for urgent training requirements. A hll time training coordinatorwill help FHC to management training program logistics. The international and national specialists in organizationalmanagement (see policy support described above) will help supervise the training needs assessment and the forestry education review consultancies, as well as the HRD plan consultancy. In year three they will also help to design and initiate a training of trainer program aimed at developing staff leadership skills and establishing a learning culture within forestry agencies, which will be essential for the implementation of the strategic changes arising from the policy support described above. Activity 4. Theproject also includes supportfor detailedpreparation offollow-on projects. Sub-component 3.b: Competitivegrant fund for forestry development The project will also provide h d s for grants, to be allocated on a competitive basis in years 2, 3, 4, and 5, for innovative forestry development subprojects in rural communities. The subprojects need not be confined to the areas where the other project activities are taking place, but can be anywhere in Kazakhstan. Possible areas that might be considered are establishmentof model private plantations for timber production, community-based management of birch "islands" in the north of the country and a program to develop small scale cottage industries based on sustainable forest resources. Grant applicants may include non-government organizations, private businesses, leskhozes, research institutes, registered community organizations, etc. Most grants will vary in size from US$20,000 to over $100,000, although grants over $100,000 will be subject to additionalreview and approval procedures. The reason for the minimum size of US$ 20,000 is that the two grant program staff based in Astana would not be able to provide adequate oversight of large numbers of grants of less than $20,000. However, any given grant proposal may entail a program of mini-grants plus the associated administrative costs for organizing and monitoring that specific program. Using locally based NGOs, state forest entities,research institutes, or other organizations to administer subprojectsof mini-grants, and incorporatingthe costs of this administrationinto the grant subprojectproposals and allocations, will help to ensure that the mini-grants receive attention and oversight appropriate to the site-specific circumstances, and will also help to develop the institutional capacity of the organizations administering the mini-grant programs. A detailed operational manual, which is already available in draft form and will be approved during the first year of project implementation, will guide the governing structure of the Grant Board; the solicitation, submission, review, and decisions on grant proposals; and the monitoring of grant implementation,outputs, and outcomes. Sub-component 3.c: Project administration and management While the Project Director has overall responsibility for the management of the project, this will be in addition to the normal duties of his position. A small Project Coordination Unit, located in the FHC headquarters in Astana, will assume responsibility for day-to-day management and report to the Project Director. The PCU will arrange the design, production and distribution of dissemination materials, including a website. It will also plan and implement regional review workshops to review project progress. The PCU will arrange socio-economic studies at MTR and project completion, covering an assessment of the benefits of the project, impact on poverty reduction, impact on capacity-building and a re-assessment of project costs and benefits. The PCU will comprise a group of suitably qualified and experienced personnel contracted for the period of the project. A Project Advisory Committee will review project implementation and provide advice. The staff of the PCU will work closely with the Directors of Ertis and Semey Ormandar to implement component 1, with administrative support of a three person Regional Project Office for each Ormany. For Kyzylorda, an additional three person Regional Project Office under the regional Forest and Hunting Committee office will work closely with contacted leskhozes and the Rangeland Support Teams and to implement component 2, in coordination with staff of the Kyzylorda Oblast Natural Resource Department. The PCU will administer component 3 directly. The two Regional Working Groups, one for the Irtysh component and one for Kyzylorda, which were established during project preparation to facilitate stakeholder communication, will continue to meet at least twice a year during project implementation. Details of the implementationarrangementsare set out in Annex 6. Annex 5: Project Costs KAZAKHSTAN: Forest Protection and Reforestation Project % Total ComponentsProject Cost Summary (USD Million) Base Local Foreign Total Costs A. Rehabilitationof lrtysh PineForests Reforestation Fire Managementand Other ForestrySupport Forest PartnershipDevelopment Subtotal Rehabilitation of lrtysh Pine Forests B. EnvironmentalAmelioration in Kyryl Orda Oblast Plantingon the Dry Aral Sea Bed 3.63 2.55 6.18 12 Improvementof Managementof Saxaul Rangelands 1.11 0.96 2.07 4 Subtotal EnvironmentalAmelioration in Kyzyl Orda Oblast 4.74 3.51 8.25 16 C. Capacity Building of National Institutions Improvementsin Policy,Legal,Organisational and Information Capacity 2.37 2.82 5.19 10 Competitive Grant Fundfor Forestry Innovations 1.32 1.20 2.52 5 ProjectManagement Subtotal CapacityBuilding of NationalInstitutions Total BASELINECOSTS PhysicalContingencies 2.15 1.62 3.77 7 ~ r i &contingencies Total PROJECTCOSTS '~dentifiabletaxes and duties are US$m 12.2 and the total project cost, net of taxes, is US$ 51.6 m. Therefore,the share of project cost net of taxes is 19%. Annex 6: ImplementationArrangements KAZAKHSTAN: Forest Protection and ReforestationProject Overview The Forest Protection and Rehabilitation project will be implemented by the Ministry of Agriculture,through its ~ e ~ u b l iFHC. The project will operate in three distinct modes; firstly, c k as a direct line management operation to improve the capacity of the FHC to fulfill its role as the national forestry agency, and to upgrade its management of the Irtysh pine forests; secondly, as a delegated range management and environmental amelioration operation through the Kyzylorda SFEs; and thirdly, as a series of activities involving local people. Some activities will also be fimded by a competitive grants scheme. The implementation arrangements will therefore vary between project components. Some of the proposed project activities are intended as pilots to test the applicability of some community based approaches to forest and range management under Kazakhstan conditions. These activities will require the formation of and ongoing support for resource user groups for the whole period of the project. Administrative Roles and Responsibilities The FHC will establish a Project Coordination Unit at its Astana Headquarters to provide the central direction of the project. The Project Director will be the First Deputy Chairman of the FHC, who will provide general oversight of the PCU, in addition to his normal duties. The Project Director will be assisted by a Project Advisory Committee, comprising representativesof the principal stakeholdersin the project and relevant internationalagencies. The severe shortage of experienced staff in the FHC will make it very difficult for the agency to second its own staff to the PCU, so it will be necessary to contract a group of suitably experienced people to carry out this essential function for the duration of the project. Day to day operation of the PCU will be carried out by a full time Project Manager, assisted by a Technical Advisor, 2 Procurement Managers, and a Financial Management Specialist, an Office Administrator/Accountant, an Information Technology engineer and a Translator. Other specialists,for example, for workshop facilitation and for web site design and maintenance,will be recruited on contract for shorter periods as required. A Grant Program Manager and a Grant Program Officer for the Competitive GrantsProgram will also be based within the PCU but work only on the grantsprogram. The PCU will be responsible for: preparation of annual activity plans for each component that will carry out the provisions of the Project ImplementationPlan monitoring all project activities and ensuring that all activities are carried out efficiently and on schedule coordination of the preparation of periodic activity and financial reports as required by the World Bank, the Global EnvironmentFacility and the Republic of Kazakhstan (ROK) all project financial management activities and arrange for auditingas necessary preparation of all tender documentation and ensure that procurement activities are in line with the provisions of the Project Implementation Plan and the various operational manuals attached to it operational level liaison with other ROK agencies that have an interest in various aspects of the project, and, in particular, with the German aid agency GTZ, which has a similar project in operation on the Dry Aral Seabed providing secretariat services for the PAC providing support for Bank supervision missions and liaison with Astana-based Bank staff The PCU Project Manager and several of the other PCU staff will need to travel extensively within Kazakhstan to maintain effective liaison with those responsible for implementing on- ground project activities. Three Regional Project Offices (RPOs), one in Semey Ormany, one in Irtysh Ormany, and on Kyzylorda will provide additional administrative support in the field. Each RPO will be staffed by a Regional Manager, an Administrative Assistant/Translator,a FinanceProcurement Analyst, and a ResearchMonitoring Analyst. RPO duties will include local administrative and logistical support for the project, local procurement, financial management, monitoring and analysis of project activities, local communications and coordinationwith relevant agencies and the public. A Project Advisory Committee established by ministerial decree, comprising representatives of key governmentministries, project area implementingagencies, private non-profit organizations, private commercial companies involved in forestry activities, and other donors involved forest- related activities in Kazakhstanwill meet every six months to review project implementation and provide feedback and advice. The regional workshops, one for the Irtysh component and one for Kyzylorda,,involving a wide range of stakeholders, will take place every six months as well. Arrangements for Project Implementation Component 1: Rehabilitation of the Irtysh Pine Forest in Pavlodar and East Kazakhstan Oblasts The management of the Ertis and Semey Ormandar,which are FHC subsidiaries, will implement the Irtysh component with administrative support from the PCU and the two Oman RPOs. The Project Manager and regional managers will work in close cooperation with the two Oman Directors to develop an annual work program for the orderly performance of all the activities listed in the Project ImplementationPlan. Oman Directors will be responsible for ensuring that all on-ground operations are carried out efficiently and within budget. The upgrading of the nursery system and the development of the container nursery will be carried out under a turnkey contract. Orman Directors will also arrange for appropriate planning studies to determine the locations of new and replacement fire lookout towers and determine local priorities for tower constructiodreplacement. They will also determine the priorities for road improvements and firebreak constructiodmaintenance on the basis of a wildfire threat analysis and an assessment of values at risk. They will implement local fire prevention educational activities and arrange for improved fire training for Orman staff. Orman Directors must ensure that new radio equipment supplied under the project is fully compatible with existing systems and meets their operational requirements. The PCU, in consultation with Oman Directors, will arrange for consultancies outlined in the PIP. The PCU will also arrange for the establishment of a Social Forestry Support teams for each Omany, each staffed with a forester seconded from the respective Ormany, a community mobilization specialist,and a business development specialist. Component 2: EnvironmentalAmelioration and SustainableRangeland Management in Kyzylorda Oblast On the dry Aral seabed, the initial nursery and field establishment program will be implemented by two SFEs contracted by the FHC. As the program develops, other SFEs are expected to become involved on a contract basis. Government research institutes will carry out the research and development program as well as the monitoring program. The PCU will arrange for the contracts, with administrative support from the RPO. The RPO will be housed within the FHC Kyzylorda Department. The FHC Department Head in Kyzylorda and the RPO will coordinate with the Oblast Natural Resource Division and the SFEs involved with the project (the Director of Aralsk and Kasalinsk SFEs). For the saxaul rangelands,two Rangeland Support Teams (each with a rangeland specialist and a community mobilization specialist) will mobilize local herders groups. The local herders will take the lead in implementation, with support from the contracted support teams, specialists, SFEs, and research institutes. Applied Research and Development Both the Irtysh pine reforestation and DAS revegetation sub-components have provision for support for research and development programs. These will be carried out by staff of the Institute for the Rehabilitation of Forestry at Shchuchinsk, in cooperation with other research institutes where appropriate. In consultation with the Director of the research centre and his senior staff, the PCU Project Manager will draw up an overall researchplan for both regions, setting out: a the testable hypotheses to be tested, a the main lines of research to be carried out, and a a scheduleof activitiesover the period of the project. The individualresearch officers involved will then draft detailedresearch working plans for each line of work and prepare annual work programs for the project investments in new research facilities at Kazalinsk and the Irtysh pine region, hire of local labor and equipment, etc. Local activities, such as hire of labor, will be carried out through the local forestry administration (Ormandar in the Irtysh pine region and the SFEs in Kyzylorda). The research staff will carry out the agreed research programs according to international best practice procedures and will report annually on the progress of their work, with the reports being translated into English for the annual supervisionmission. Component 3: Capacity Building of National Institutions This component will be directly administered by the FHC headquarters in Astana. The yearly work program of the policy unit will be determined by priorities set by the FHC, although the PCU will provide job descriptions and terms of reference to ensure that the range of staff skills and study topics envisaged by the Project Implementation Plan is achieved. Due to ceilings on staff recruitment, the members of the policy unit will be contracted during the initial period of the project, but it is hoped that by the end of the project arrangements can be made for them to become permanent line positions. The PCU Project Manager will consult with the Director of Kazleproekt to draft a work plan and schedule to implement the desired improvements in forest inventory field procedures, database management, GIs software and hardware acquisition and staff training, as well as the recruitment of temporary staff for digital data capture. The work plan will set out an orderly series of activities that will cover all these aspects so that each step is correctly timed to build on past achievements. A full time GIs coordinator will oversee the implementation of the plan. Kazleproekt will undertake the recruitment of temporary staff for the data capture activity. The PCU will arrange contracts for the remote sensing/mapping/surveywork, but the data from these contractswill be housed within Kazleproekt. An informationtechnology specialist based in FHC Astana will coordinate and oversee the implementation basic information technology support (e.g. basic workstations,email connections, and training). The PCU will let a contract, through a tender process, for a training needs assessment for the entire FHC agency. It will use the outcomes from this assessment as the basis for a subsequent activity to prepare a HRD plan for the agency, to be carried out by specialized consultants. A contracted training coordinatorwill administerthe implementation of the HRD plan. Contracted international and national specialists in organizational management will provide additional support. Competitive Grants Scheme A Grant Program Manager and a Grant Program Officer based within the PCU will administer the Competitive Grants Scheme in accordance with the provisions of an operations manual approved by a Grant Fund Board and the Project Director. The PCU will advertise for proposals in each of the years 2-5 of the project, receive proposals and arrange for a technical review by three specialists (one from a forestry agency, one fiom outside the government, and one international). The Grant Fund Board (comprising the Project Director, FHC as chair, a representative of the Ministry of Finance, a representative of a Research or other Technical Institute,two representatives of national NGOs, and a representative of a private enterprise,with a representative, UNDP (to ensure coordinationwith GEF small grants program), and the Project Manager and rant Program Manager, PCU as non-voting members,) will review the proposals and the comments of technical reviewers, and award grants within the yearly allocation of grant funds. The final awards will be subject to no objectionby the World Bank. All changesto grants during the course of implementation will also require the approval of the Grant Board and subject to Bank no objection. The PCU staff will disburse the funds through a contracted financial agency in accordance with the agreed performanceparameters and schedule outlined in the grant agreements, oversee compliance with fiduciary (procurement and financial management) requirements and safeguard frameworks (environmental and access restriction) where applicable, review progress reports submissions and undertake field visits to monitor implementation,and consolidate their findingsinto regular reports to the Board. Monitoring and Evaluation At one level, there will be monitoring of the results achieved through the semi-annual reports prepared for the supervisionmission and field inspections carried out by mission members. At a more broad-scale level, the vegetation cover and condition for the whole of the Dry Aral Seabed within Kazakhstan will be assessed during 2005, using satellite imagery. This assessment will provide maps and area statements that will serve as a baseline against which to judge the success of the project on the ground. This assessment will be repeated mid-term and completion of the project, using the same methodology, so that progressive evaluations of progress can be made. A similar exercise will be carried out for the Irtysh pine forests and the Kyzylorda rangeland components of the project. Where necessary these assessmentswill be accompaniedby ground surveys. In addition to this mapping, a socioeconomicevaluationwill be undertaken at mid term and completion. SeeAnnex 3. Annex 7: Financial Management and Disbursement Arrangements KAZAKHSTAN: Forest Protection and Reforestation Project Summary An assessment of the financial management arrangements proposed by the Forest and Hunting Committee of the Ministry of Agriculture was undertaken in January, and July 2005, to determine if the financialmanagement arrangementsare acceptable to the Bank. These financial management arrangements include systems of budgeting, accounting, financial reporting, auditing, and internal controls. Several measures have been taken to establish a financial management that meets Bank requirements. A manual of financial procedures has been drafted and reviewed by the Bank, and is satisfactory. The FHC is in the process of designing a computerized accounting system, using appropriate accounting software that meets the requirements of the World Bank and Government financial regulations. Terms of Reference for the design of a computerized accounting system have also been developed and reviewed by the Bank. The FHC is not expected to hire financial management staff before loan signing, and such staff therefore will not be able to participate in the development of that system. However, transitional arrangements have been agreed for the existing Project Coordination Unit to coordinate the development of the accounting system and eventual transfer of skills to staff who will be hired to management the system during implementation. Conclusion. Although significant progress has been made to establish financial management arrangements for the project, further actions are needed for the financial management arrangementsto meet the requirements of the World Bank. A financial management action plan has been developed, and has been agreed with the Borrower for establishment of a financial management system that when fully implemented, will be capable of satisfactorily recording all transactions and balances, supportingthe preparation of regular and reliable financial statements, safeguardingthe entities' assets, and are subjectto auditingarrangementsacceptable to the Bank. Implementation Arrangements. On a day to day basis, project activities will be implemented by the Forest and Hunting Committee of the Ministry of Agriculture, through a Project Coordination Unit consisting of dedicated, full time staff under the leadership of a Project Manager. Other staff will include specialists in Procurement, Financial Management, Information Technology and researchlstatistics ,as well as administrative staff. The vegetation of the Dry Aral Seabed and rangeland management sub-components will be administered by a smaller Regional Project Office located in Kyzylorda, which will work in close cooperation with the Oblast Forestry Department and local SFEs. The FHC will be responsible for developing and updating the consolidated Project Implementation Plan, ensuring that project activities are implemented according to the legal documents, procurement plan and operations manual, reporting on project progress to the Project Advisory Committee, and the World Bank, ensuring that procurement of goods and services is done in a timely manner and in accordancewith World Bank guidelines,managing project funds, maintaining accounts, getting the accounts audited, ensuring adequate budget provisions for the project in the national budgets, facilitating the work of consultants, and reviewing consultant outputs. Strengthsand Weaknesses. A project coordination unit within the FHC has been implementing the project preparation phase of the project with funding from a PHRD grant, and these PCU staff have gained some experience with the World Bank's procedures for disbursement and procurement. However, the life of the current PCU will come to an end before loan effectiveness. The FHC plans to hire staff for a new PCU (also operating within the FHC) prior to effectiveness and to have the original PCU then transfer its knowledge, data, and equipment to the new PCU. The FHC does not have experiencewith implementation of Bank-financed projects, and will require considerable training, guidance, and administrative support during the initial phase of project implementation. The full-time financial management staff will not be hired until project inception,but the PCU currently contracted for project preparation will provide essential support in the interim, including the processing of PCU staff contracts short of contract signing, and involvement in the software selection and installation. Successful implementation of the financial management action plan will ensure establishment of financial management arrangementsthat satisfy Bank requirements. Staffing of the AccountinglFinanceFunction After loan signing, FHC will hire an adequate complement of project staff, including the Project Manager, and financial manager, an accountant/disbursementofficer (who will also serve as the office manager), and two procurement staff, as well as other technical and support staff. The current PCU contract will be kept open to enable the transfer of knowledge, data, and equipment to the new PCU. The FHC finance unit will have a financial manager and accountant /disbursement officer. The financial manager will be responsible for all aspects of the financial management and accounting, includingmanagingthe special account. S(h)e will be assisted by a suitably qualified accountant/disbursement officer who will be responsible for disbursement functions, as well as project accounting - maintaining books of accounts, reporting day-to-day transactions and preparing accounting reports and financial statements, as well as monitoring financial flows to the project. The financial manager will be involved in the budget preparation for the project and have primary responsibility for the quarterly financial reports, and prepare annual financial statements for audit. The financial manager will also manage an effective system of internal control, ensuring adherence to established financial procedures, and safeguarding the resources and assets of the project. It is envisaged that staff will need training on World Bank financial management and disbursement requirements, to equip them with skills for effectiveproject financialmanagement. Accounting and Internal Control Systems The PCU has developed and documented in a manual of financial procedures key internal control mechanisms to be followed by the FHC in the application and use of funds. The manual, which has been developed for the project by the financial management consultant, reflects the FHC structure as well as the flow of funds to supportproject activities. Accounts and records for the project will be maintained by the FHC which will operate and maintain a financial management system capable of generating Financial Monitoring Reports in accordance with formats that have been agreed with the World Bank. Books of accounts for the project will be maintained by the FHC based on generally accepted accounting principles. The financial manager will be responsible for overall project financialmanagement, maintenance of books and accounts for the project, preparation and dissemination of financial statements and FMR, and timely audits of the project. The FHC will generate and maintain accounting vouchers and supporting documentation for expenditures on all activitiesof the project, and will document the accounting transaction information flow. Funds will be transferred fiom the Special Account to pay for eligible expendituresin accordancewith guidelinesin the DisbursementHandbook. FinancialMonitoring and Reporting. Quarterly Financial Monitoring Reports, including Financial Statements, Physical Progress Reports and Procurement Reports, in formats acceptable to the World Bank, will be generated fiom the financial management system within 45 days of the end of each quarter. The first quarterly FMR will be submitted after the end of the first full quarter after disbursements commence. Formats of the annual financial statements and the FMR have been incorporated in the financial procedures manual. The FMR include: (a) Project Sources and Uses of Funds, (b) Uses of Funds by Project Activity, (c) Output MonitoringReports (includingwritten summary of project progress, and explanations for significant variances), and (d) Procurement Reports. The project accounting software will generate FMR, incorporating all components, categories and performance indicators which are acceptable to the World Bank. A chart of accounts for the project has been designed to allow reporting accordingto harmonized requirements of the World Bank and the Government of Kazakhstan. Planning and Budgeting. The FHC will prepare annual budgets in line with the Procurement Plans, and these budgets will form the basis for spending and requesting h d s for counterpart contributions. These budgets, prepared in accordance with the FMR format (disbursement categories, components and activities, financial sources, account codes, and by quarter), will establish physical targets to ensure linkage between expenditures and physical progress, and proper comparison between actual and budgeted performance. Review of actual results against the budget will be a key managerial tool for monitoring financial performance of the project. The financial procedures manual will prescribe the appropriate manner for preparing budgets to satisfythe government and World Bank requirements. A detailed budget for the first full year of project implementation, broken down by quarter, will be prepared before the loan becomes effective. Audit Arrangements There will be annual audits of the project financial statements, covering all aspects of the project. The audits will be performed by independent private sector auditors acceptable to the World Bank, and in accordance with International Standards on Auditing (ISA), and the World Bank's guidelines on auditing as stated in the guidelines: Annual Financial Reporting and Auditing for World Bank-financed Activities (June 2003), and other guidance that might be provided by the World Bank from time to time. The auditors' terms of reference (TORS)will be prepared by the FHC and cleared by the Bank before the engagement of the auditor. They will include both the audit of financial transactions and an assessment of the operation of the financialmanagement system, includinga review of the internal control mechanisms. The annual audit reports will consist of a single opinion on the financial statements of the project, incorporating the project accounts, including Special Account Reconciliation, and SOE Withdrawal Schedule; as well as a Management Letter. The audit reports will be submitted to the Bank not later than six months after the end of the fiscal year to which they relate. The cost of the audits will be eligible for financing from the loan, unless otherwise agreed with the Borrower. The FHC will provide the auditor with full access to project-related documents and records and with the information required for the purpose of the audit. Sample TORSfor project audit have been included in the Financial ProceduresManual. Disbursement/Flow of Funds Arrangements The proceeds of the loan will be disbursed over a period of six years, or for such longer period as will be agreed with IBRD. Loan and GEF funds will initially flow to the project via disbursements to the Special Account (SA) opened by the Borrower. Disbursements will follow the transaction-based method, i.e., the traditional Bank procedures (reimbursements with full documentation, Statements of Expenditure, direct payments and special commitments). Withdrawals from the Loan Account and GEF Grant Accounts will be requested in accordance with the guidance to be in the Disbursement Letter. The authorized allocation for Special Account for the loan will be $3 m dollars but will be limited to $1.5 m until total disbursements reach $15 m. Likewise, for the grant the authorized allocation will be $500,000 but limited to $250,000 until total disbursement under the grant reaches $2,500,000. Disbursement under categories 2(a) and 3(a) of the loan and category 4 of the grant agreement will commence after effectiveness and after the Bank has been notified that the respective conditions relating to the field testing on radionuclide contamination and the establishment of the CGPB have been met. Withdrawal applications may be signed by an authorized representative of the Borrower, or the Project Director, with written delegated authority. The Financial Manager will ensure completeness and accuracy of all withdrawal applications and will append herhis signature as part of the internal control procedures. SOEs would be used for contracts for goods less than US$100,000, contracts for works less than US$300,000, services for consulting firms less than US$100,000 and for individualsless than US$25,000. FM Action Plan to be agreed with FHC Given that the financial management arrangements are currently not fully satisfactory to the Bank, a time-bound action plan has been developed and discussed with FHC. The action plan was agreed with the Borrower during negotiations. Successful implementation of the action plan will ensure the establishment of a financial management system that meets requirements of the World Bank. ACTION PLAN FINANCIAL MANAGEMENT SYSTEM Date: September28,2005 Action Responsibility Due Date Remarks Financial ManagementProceduresdescribed Revised Manual shouldbe The draft manual has been in FM Manual: ready by Negotiations. reviewed by the Bank and has Fully documenting the following been revised, taking- into account procedures: budgeting, accountingand Bank comments. . internal control, including descriptionof the accounting system and books of accounts, disbursement and flow of funds (including chart), financial reporting, includingFMR, annual reports and audit. Present the final draft Manual to the Bank for review. Finalize the Manual incorporatingBank comments. Establish ProjectAccounting and Financial Contract to develop software Draft TORs for the financial Reporting System signed. management system have been Develop project accounting system, developed, and will form the basis including design of Chart of Accounts, Software installed and of installation of an accounting capable of generating FMR. operating on PCU computers, software. Contract for software Provide appropriate training to the FHC with current PCU staff has been signed. The system is financial manager, accountant/disbursement trained by December 15, expected to be up and running specialist and procurement specialist on 2005. Testing to include project inception. application and maintenance of the installed generating FMR based on system. Test the accounting and financial date from the PHRD grant. reporting system. Sample FM reports have been Produce Draft FMR, based on PHRD grant, developed and reviewed by the for submission to the Bank for review and Bank and are satisfactory. FRMs comments. to be generated by software as NB: Financial Monitoring Reports to be part of testing. generated by the automated accounting system. Staffing of the FM Unit Recruitment of Financial Manager and Accountant/Disbursement Specialist signing TORSfor all PCU staff. Project preparation PCU to complete transfer of project data, equipment, and skills to new PCU staff within two weeks of new PCU staff mobilization. Financial Management Supervision Plan. The Bank will conduct risk-based financial management supervision, at appropriate intervals, to monitor progress of project implementation. The financial management supervision will pay particular attention to: (i) project accountingand internal control systems; (ii) budgeting and financial planning arrangements; (ii) review of project's financial monitoring reports; (iii) review of audit reports, including financial statements and remedial actions recommended in the auditor's Management Letters; (v) review of implementation of progress; and (iv) disbursement management and financial flows, including counterpart finds, etc. DisbursementAccounts by Financiers The Government IBRD GEF Total Amount % Amount % Amount % Amount 1. Goods for lrtyshand Kyzyl Orda Component 2. Infrastructureworks irtysh 3. InfrastructureWorks &yl Orda 4. ForestryWorks lrtysh 5. ForestryWorks KzylOrda 6. Training & Meetings 7. TechnicalAssistance and Studies 8. Remotesensingand mapping 9. CompetitiveGrants 10. Non-Bank Financed Total PROJECT COSTS Annex 8: Procurement KAZAKHSTAN: Forest Protection and ReforestationProject A. General Procurement for the proposed project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure category are generally described below. For each contract to be finahced by the Grant, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvementsin institutional capacity. Procurement of Goods. Goods identified for procurement at the time of appraisal includenursery equipment,seed processing machinery, vehicles and fire fighting equipment,IT hardware and software,radios, and tractors. The procurement will be done using Bank's StandardBidding Documents (SBD) for all ICB . Procurement of Works: Procurement of civil works under this project will be done using the Bank's SBD for all ICB and appropriate standard bidding documents for NCB, which shall contain draft contract and conditions of contract acceptable to the Bank. Selection of Consultants: Consultant services to be procured under the Project include: technical assistancefor updating the forest inventory system, database design, nursery operation, feasibility of timber processing developments, development of pilots for participatory forest management, training needs assessment, human resources development, exploration of alternative employment in the vicinity of the Irtysh forests and training in a number of technical areas. Short lists of consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Single Source and Direct Contracting: Direct Contracting and Single Source Selection can be utilized in the rare circumstance envisaged under the WB procurement rules and consultancy guidelines and with prior agreement of the IBRD. Procurement of non-consulting services: Technical services under the project will be procured in accordance with the appropriate bidding documents, which shall contain draft contract and conditions of contract acceptable to the Bank. Others: The Implementing Agency will delegate the execution of local procurement activities within the Dry Aral Seabed and Rangeland sub-component to the proposed Regional Project Office in Kyzylorda, and the execution of local procurement activities within the Irtysh component to Regional Project Offices in Semey Onnany and in Irtysh Onnany. Procurement for livelihood investments under the Forest Partnership Subcomponent totaling about $5,000per village, and for subprojects implementedunder the CompetitiveGrants Scheme, will be based on Community Participation Procurement (CPP) as described under para. 3.17 of the Procurement Guidelines (May 2004). The exact scope of works and goods to be financed will depend on the results of the livelihood investment and subproject grant identification process. Livelihood investments will be implemented initially in four villages and subsequently in 12 additional villages, in accordance with a participatory forest management frameworkthat will be developed during the first year of the project. Subprojects implemented under the Competitive Grants Scheme will follow procedures detailed in the Operations Manual. Operational Costs: The project will finance the following for the Project Coordination Unit and the Regional Project Offices: office supplies, office rent, utilities and communications, travel and subsistence, and vehicle fuel and maintenance costs. The PCU and the RPOs will prepare an annualbudget to be agreed with the Bank. Traininglstudy Tours: Training and study tours will be carried out according to the project trainingplan which shall be prepared by the PCU annually and submitted to the Bank for no objection prior to implementation. The institutions for training and for study tours will be selected on the basis of an analysis of the most suitable program of training offered by the institutions,availabilityof service,period of training, and reasonableness of the cost. B. Assessment of the agency's capacityto implementprocurement An assessment of the capacity of the Implementing Agency to implement procurement actions for the project has been carried out by Mr. Naushad Khan, Lead Procurement Specialist and . Nurbek Kurmanaliev, Procurement Analyst on January 5, 2005. Procurement under the project will be conducted by the Forestry and Hunting Committee of the Ministry of Agriculture in accordance with the Bank procurement guidelines. The Committee will have overall responsibility for procurement under the project. The assessment reviewed the organizational structure for implementing the project and the interaction between the project's staff responsible for procurement. The assessment found that the Implementing Agency has not enough capacity to conduct procurement for the purposes of project implementation. Most of the issues1risks concerning the procurementcomponent for implementationof the project have been identified and include: (i) Government officials, who will be involved in project procurement through Tender Committeesmay not be familiarwith procurement procedures; (ii) The bureaucratic system creates opportunities for informal interference in procurement process by senior officials; (iii) The above mentioned risks couldbe a basis for delays of the procurement processes. The corrective measures which have been agreed are: The Bank should organize a one day project procurement launch workshop for the PCU, RPOs, members of the Tender Committees, and senior officials to make them aware of Bank procurement requirements For all procurement, at the central and local levels, a simple but detailed operational manual should be prepared. The manual should include procurement methods to be used in the project along with their step by step explanations as well as the standard or sample documentsto be used for each method. a The Bank will review the efficiency of procurement under the project under the project, especially in remote areas, after one year of credit effectiveness. The overall risk for procurement is high Thresholds for ProcurementMethods. It is recommended that the following thresholds be applied under this project: ProcurementMethod Threshold ICB: Goods >US$lOO,OOO Shopping: Goods US$100,000per contract (QCBS) for Consultant Services (International shortlist)