Sri Lanka - Forest Sector Development Project (FSDP)

Document of The World Bank FOR OFFICIAL USE ONLY Rep'rt No. 7699-CE STAFF APPRAISAL REPORT SRI LANKA FOREST SECTOR DEVELOPMENT PROJECT MAY 17, 1989 Agriculture Operations Division Country Department I Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their offici;l duties. Its contentn ' v nnt ot -rwi - I' * -it ' It i I 'r' ' - *It  CURRENCY AND EQUIVALENT UNITS Currency unit - Sri Lanka Rupees (SL Rs) US$l.OO - SL Rs 33 SL RS 1 - US$0.0303 WEIGHTS AND MEASURES 1 kilometer (km) - 0.62 miles (mi) 1 meter (m) - 1.09 yards (yd) 1 square kilometer (km2) - 100 hectares (ha) 1 hectare (ha) - 10,000 m2 (0.01 km2) - 2.471 acres (ac) 1 cubic meter (m3) = 35.315 cubic feet (ft3) 1 kilogram (kg) = 2.2 pounds (lb) 1 metric (m tons) = 1,000 kg - 2,205 lb ABBREVIATIONS ADB = Asian Development Bank BFO = Beat Forest Officer CF = Conservator of Fo-est CIDA = Canadian International Development Agency CPC = Ceylon Plywood Corporation DBH = Diameter at Breast Height DCF = Deputy Conservator of Forest DFO = Divisional Forest Officer DWLC = Department of Wildlife Conservation FAO = Food and Agriculture Organization of the United Nations FD = Forest Department FINNIDA = Finnish International Development Agency FMP = Forestry Master Plan FPU = Forestry Planning Unit GOSL = Government of Sri Lanka IUCN = International Union of Conservation of Nature MASL = Mahaweli Auithority of Sri Lanka MLIMD = Ministry of Lands, Irrigation and Mahaweli Development NFC = National Forestry Commission , - = Non Government Organization NPC = National Paper Corporation ODA = Overseas Development Administration of the United Kingdom FRDP - Forestry Resources Development Project RFO = Range Forest Officer Sob = Solid over bark STC = State Timber Corporation UNDP - United Nations Development Program USAID = United States Agency for International Development USJ = University of Sri JTayawardenepura FISCAL YEAR January 1 - December 31  FOR OFCIAL USE ONLY - I SRI LANRA FOREST SECTOR DVVmLOPMZNT PROJ'ECT Table of Contents Page No. CREDIT AND PROJECT SUMhARY ................................. iv-v I. BACKGROUND ................................................. 1 A. Introduction ............................................ 1 B. The Forestry Sector ....................... . 1 C. Forestry Sector Institutions ............................ S D. Development Constraints ................................. 5 E. Ongoing Development Programs and External Assistance .... 6 F. Medium and Long-Term Programs ........................... 7 G. Rationale for IDA Involvement ........................... 9 II. THE PROJECT ................................................ 11 A. Project Area ............................................ 11 B. Project Objectives and Description ...................... 11 C. Project Features ........................................ 12 D. Technical Assistance and Fellowships ....... ............. 18 E. Implementation Schedule ................................. 18 III. COST ESTIMATE AND FINANCING ARRANGEMENTS . . 20 A. Cost Estimate ........................................... 20 B. Financing Plan .......................................... 21 C. Procurement ............................................. 23 D. Disbursements .......... . ............................... 25 E. Accounts and Audits ..................................... 25 IV. ORGANIZATION AND MANAGEEN ................................ 27 A. Project Organization ................... ................ 27 B. Monitoring, Evaluation an. Reporting .................... 29 V. PRODUCTION. MARKETING AND PRICES . . 32 A. Yields and Production ................................... 32 B. Marketing ............................................... 32 C. Prices ar. Revenues ..................................... 35 VI. BENEFITS. JUSTIFICATION AND RISKS .......................... 37 A. Project Benefits ........................................ 37 B. Economic Analysis ....................................... 37 C. Environmental Impact .................................... 39 D. Risks and Remedies ...................................... 40 VII. AGREEMENTS AND RECOMMENDATIONS ............................. 41 This report is based on the findings of an appraisal mission of January/ February 1989, which consisted of Messrs. Orhan Baykal (mission leader), Colin Rees (IDA,' Frank Peacock, Richard McCharty. Roy Henriksen, Chandra Wijesekera, Randal Webb (consultants) assisted by Mr. Horace Darmawi (LEGAS), and Ms. Suzanne Morris (LOAAS). TIHis document has a restricted distribution and may be used by recipients only in the perform.ance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii- Tables in the Text 2.1s Plantation Establishment Program ............................. 14 3.1: Project Cost Summary ......................................... 19 3.2: Project Cost by Category ..................................... 20 3.3: Tentative Financing Plan ..................................... 21 3.4: Procurement .................................................. 22 6.1: Sensitivity Analysis .......... .............................. 38 Annexes 1. Detailed Cost Tables Table 1: Forest Inventory and Management Plans. 42 Table 2: Forest Management .43 Table 3: Environmental anagement .44 Table 4: Plantation Establishment .45 Table 5: Education and Training - University of Sri Jayawardeniepura .47 Table 6: Education mnd Training - Forestry School Nuwara Elia .48 Table 7: Institutional Support - Forest Departmnt .49 Table 8: Institutional Support - Forest Planning Unit .50 Table 9: Institutional Support - Forest Department Information System .51 Table 10: Institutional Support - State Timber Corporation Information System .52 2. Project Cost Summary Table 1: Project Components by Year .53 Table 2: Summary Accounts by Project Components .54 Table 3: Summary Accounts by Year .55 3. Financing Plan Table 1: Proposed Credit Allocation .56 Table 2: Financing Plan by Project Components .57 Table 3: Estimated Schedule of Disbursements. 58 4. Financial and Economic Analysis Table 2: Economic Analysis - Output and Revenues .59 Table 3: Economic Analysis - ERR Calculation .60 5. Details of Technical Assistance and Overseas Training Requirements .......... .................... 67 6. Details of Forestry Sector Institutions . . 68 Charts 1. Organization Chart--Forest Department .................... 71  xiii- 1. IBRD 21471: Forest Sector Development Project (Forestry II) Technical Annexes (Available on request) 1. Plantation Establishment 2. FinancJal Aspects Pertaining to State Timber Corporation 3. Information System 4. Education and Trainingl/ 5. Environmental Management Component 2/ 1/ Prepared for FINNIDA by FINNIDA Consultants. 2/ Prepared by IUCN for ID/  - iv - SRI LANKA FOREST SECTOR DEVELOPMENT PROJECT Credit and Project Summary Borrower: Democratic Soc:ialist Republic of Sri Lanka (GOSL) Beneficiaries: Ministry of Lands, Irrigation and Mahaweli Development (MLIMD), Forest Department (FD), State Timber Corporation (STC), and University of Sri Jayawardenapuira (USJ) Amount: SDR 15.5 million (US$19.9 mill4.on equivalent) Cofinanciers: The Finlaad International Development Agency (FINNIDA) will provide US$2.8 million of grant funding. Terms: Standard, with 40 years' maturity Project Description: The project is designed to: (a) strengthen the management of forests and established plantations, and inventory additional natural forests and young plantations for management purposes; (b) establish an environmental management system to ensure conformity of forestry operations with environmental guidelines; (c) establish and maintain 17,900 ha of new plantations; (d) expand and augment resources for professional and technical education and training facilities; and (e) strengthen the Forestry Planning Unit of the Ministry of Lands, Irrigation and M4ahaweli Development, reorganize the management and strengthen the field organization of the Forestry Department, and upgrade information and data process- ing 6t the State Timber Corporation. The project also includes an applied research program consisting of species trials, as well as technical assistance, civil works, vehicles, equipment, materials, and additional staff to be used for the project. Benefits and Risks: Through the project modern, economically, environ- mentally and scientifically sound forestry practices would be introduced in Sri Lanka. These practices would increase the production of wood, provide greater protection to the environment, and create employment opportunities for the rural population. Altogether they would allow the country to meet most or all of its requirements for wood and wood products over the long run. The investments to be made under the project do not convey any major risk. However, implementation could fall short of expectations if the current political situation does not improve in the near future.  E6timated Proiect Cost: Local Foreign Total -(US$ million) ----- A. Forest Management 1.3 1.2 2.5 B. Environmental Management 0.2 0.8 1.1 C. Educatior and Training 1.2 3.4 4.6 D. Institutional Support 3.8 2.3 6.1 E. Plantation Establishment 6.6 2.9 9.5 Total Baseline Costs 13.2 10.6 23.8 Physical Contingencies 0.7 0.3 1.0 Price Contingencies 5.1 1.5 6.6 Total Project Costs 19.0 12.4 31.4 /a Including taxes and duties of US$2.1 million. Financing Plan: Local Foreign Total ------- USS million ------ IDA 11.3 8.6 19.9 FINNIDA 0.2 2.6 2.8 GOSL 7.J 1.2 8.7 Total 19.0 12.4 31.4 Estimated Disbursements: IDA fiscal year 1990 1991 1992 1993 1994 1995 1996 ---------------- (US$ million) ----------------- Annual 1.7 4.8 3.8 4.1 4.4 1.1 0.1 Cumulative 1.7 6.5 10.3 14.4 18.8 19.8 19.9 Economic Rate of Return: 28Z Staff Appraisal Report: Report No. 7699-CE, dated May 17, 1989. Map: IBRD 21471.  SRI LANKA FOREST SECTOR DEVELOPMENT PROJECT I. BACKGROUND A. Introduction 1.1 The Government of Sri Lanka (GOSL) has requested IDA's assistance in financing a project which will implement part of its five-year forestry investment program. The project consists of forest management, plantation establishment, education and training, and institutional support and environmental management. Under the forest management component, mapping, inventory, and management plans will be prepared for 35,000 ha of young plantations and for 100,000 ha of natural forests in the Dry Zone. An indicative inventory will be taken of about 500,000 ha of forests in the Dry Zone, and about 60,000 ha of established plantations will receive silvicultural treatment. Under the plantatior componcnt, 18.000 ha of new plantations will be established and maintained, 1,200 ha of established young plantations will be maintained, and 22 million of seedlings will be produced. Under education and training, forestry education at the University of Sri Jayawardenepura (USJ) will be strengthened and forestry .raining facilities at the Nuwara Eliya Forestry School will be expanded. Under institutional support, the Forest Department's (FD) management will be reorganized, field organization will be expanded, and both FD's and the State Timber Corporation's (STC) information systems will be upgraded. Under environmental management, all forest operations will be programmed and implemented in accordance with envirormental protection guidelines. 1.2 Community furestry operations and some forest management and planta- tion establishment activities in the upcountry already are being carried out under projects financed by the Asian Development Bank (ADB) and the Overseas Development Adtministration of the Government of the United Kingdom (ODA). Therefore, they are not in:luded under this project. B. The Forestry Sector Forestry in the Economy 1.3 In 1988, the forestry sector contributed about Rs 4.7 billion to the country's economy, or 4.2Z of GDP. Industrial processing of timber and paper products contributes an additional Rs 1.4 billion. Forestry employs about 170,000 people and forestry products are the country's major source of energy, accounting for about 71X of total energy consumption and 94Z of the energy used in households. Forest Cover and Land Area 1.4 The natural vegetation follows the pattern of the country's climatic zones. In the Wet Zone, the tropical rain forest is the original vegetation type. From this area in the soutnwestern lowlands, the vegetation undergoes a gradual change up to the central mountains. Thus, at elevations of 1,000 to  - 2 - 1,800 meters, the original vegetation is classified as tropical highland rain forest. At still higher elevations, with lower temperatures and higher humid- ity, tropical mountain forests occur. The Dry Zone is located along the northwestern and southeastern coasts and is characterized by tUa tropical dry evergreen forest. This forest receives less than 1,200 mm of rainfall within a poriud of three months per year. 1.5 The forest land area of Sri Lanka has been shrinking over the last 25 years, primarily due to the clearing of land for agricultural development. However, illicit felling and shifting cultivation also have contributed to the reduction of forests. According to the Forestry Master Plan CFMP) (para. 1.28). the total forest land area of Sri Lanka is estimated at about 2.5 million ha, including scrub land. This represents 39Z of the country's total land area, down from 46.52 in 1956. The area of natural high forest, particularly in the Dry Zone, fell by almost 42,000 ha a year between 1956 and 1983, from 43Z to 271 of the total land area. The forest land area by forest type and zone is shown in Table 1.1. Table 1.1: FOREST COVER AND FOREST LAND AREA /a Total Protection areas Production Forest type/zone area Under DWLC lb Under FD /c area Natural High Forest Wet zone, upcountry 278,000 63,000 96,000 119,000 Dry zone 1,471,500 478,000 39,500 954,000 Total Natural 1,749,500 541,000 135,500 1,073,000 Other Forests Scrub land 663,800 108,200 22,100 533,500 Forest plantations 104,000 6,000 350 97,650 Mangrove forests 7,900 1,200 6,700 - TOTAL FOREST LAND 2X525,200 656,400 164,650 1.704,150 /a Based on aerial photography of 1981-83 and plantation survey of 1984-85. Lb Including proposed jungle corridor proposed by the Department of Wildlife Conservation (DWLC). /c Forest Department. Natural Forests 1.6 Most of the natural forests in Sri Lanka have been logged over sev- eral times. In the Dry Zone, natural forests have diminished considerably because of the large-scale agricultural development taking place there. In most of the Wet Zone, the growing stock has reached such a low level that sustained yields will only be realized through enrichment planting to rehabi- litate overcut and degraded forest areas.  -3- Forest Plantations 1.7 According to FD reports, about 148,000 ha of forest plantations had been planted by 1984, excluding 20,000 ha of mahogany line plantings to enrich the natural forests. The most comon species planted are Teak (about 70,000 ha), Eucalyptus (about 35,000 ha), and Pine (25,000 ha). Altogether these types account for 88 of the total plantation area. The Forestry Master Plan (FMP) estimates existing forest plantations at about 104,000 ha, of which 6,450 ha are classified as protected forest areas. The difference between the two estimates is explained by the loss of plantations due to c7clone, fire, elephant damage, and neglected maintenance. 1.8 Approximately 59,400 ha had been inventoried by 1984. Of this area, 37? was fully stocked, 35Z was understocked, and 281 had failed or was damaged by cyclone or elephants. The composition of tree species in the productive forest was: Teak 43Z, Pine 192, Eucalyptus (sawlog species) 9Z, other hard- wood species 82, and fuelvood species 212. The age class distribution of the plantations was unbalanced; about 30? of the plantation was inventoried as young trees and 102 was recorded as ove.mature trees in the Upcountry. Nonforest Wood Resources 1.9 Nonforest wood and biomass resources cover 2.9 million ha, or 452 of the total area of Sri Lanka. These resources supply a large amount of the country's timber, fuelwood, and biomass fuel Nonforest wood resources con- sist mainly of the major plantation crops (rubber, coconut and tea), homestead gardens, and areas classified as mixed trees and other perennial crops. Other nonforest wood resources include woody material on sparsely used lands and lands used for crops other than paddy, urban trees, and roadside trees. Bio- mass fuel also is available from the residues of agricultural crops. Forest and Plantation Management 1.10 Management of the forest plantations in Sri Lanka has been far from adequate. Most existing plantations have received no attention after planting and are now in acute need of silvicultural treatments. In addition, there are 7,525 ha of failed plantations which should be cleared and replanted and 11,700 ha of cyclone-damaged Teak plantations wbich require rehabilitation. Certain operations for the forest plantations such as cleaning and precommer- cial thinning cannot be postponed further without risking fire or reduced wood yield. 1.11 The country's forest resources have been managed primarily for timber production. The yield in the Wet Zone was regulated under a selection felling system based on minimum exploitable girth and a specific rotation period for commerrially acceptable species. In the Dry Zone, exploitation has been car- ried out through clear felling due to the low density of commercially accept- able trees in the natural forest. Land released by clear felling has been either planted to exotic species or transferred to agricultural use. 1.12 In the Wet Zone, less than half of the natural forests has been clas- sified for production purposes (119,000 of 278,000 ha) and the balance has been put under protection. Since the implementation of the Forestry Resources  - 4 - Development Project (FRDP) (pare. 1.22), management plans have been prepared for about 40,000 ha of the Wet Zone na.ural forests. These plans entail the selective cutting of trees over 60 cm DBH at 30-year intervals. During the cutting cycle, one improvement cutting is to be carried out on defective trees and inferior species of the overstor7. This cleaning and thinning is designed to promote the growth of young trees. In addition, the plans call for enrichment planting to be made in areas lacking natural regeneration. Implementation of these plans began on a limited scale this year. After the 30-year period, the whole 119,000 ha should be ready for sustained yield management. 1.13 In the Dry Zone forests, more than one-third of the area (5i7,000 ha) has been reserved by the FD or the Department of Wildlife Conservation (DWLC) for the purpose of wildlife preservation. The remaining forests, amounting to 959,000 ha, are designated for production and are being exploited. Dense forests can be exploited under a rotational management system. Open scrub- type forests are not suitable for long-term management and therefore will have to be converted into forest plantations or agricultural land. At present, management of the Dry Zone forests is limited to protecting trees and scheduling conversions to agriculture and foreat plantations. The future development of Dry Zone forests will depend on how the government responds to the competing needs for new agricultural land, conservation of forests to protect the environment, and supplies of timber and fuelwood to meet the growing demand. 1.14 Erosion already is taking place in the poorly managed or abandoned tea lands in the Upcountry and on cultivated land where slopes exceea 20?. During the past 25 years, the areas exposed to erosion have rapidly increased due to the abandonment or poor management of tea areas. About 181,000 ha in the Upcountry are considered vulnerable, not counting permanent cropping areas. This area represents 282 of the total area of the region. Vegetative cover is needed to protect most of it. 1.15 On the positive side. Sri Lanka has put under protection a large area representative of the main ecological zores. The protected areas under the Fauna and Flora Protection Ordinance of 1937 consist of national reserves and sanctuaries covering 795,400 ha. Of this area, a41,000 ha are natural high forests, 1,200 ha are mangrove forests, 6,000 ha are forest plantations, and 108,000 ha are scrub forests. This means that 262 of the forest land and 312 of the natural high forests in Sri Lanka are under the supervision of DWLC. The present pclicy governing natural reserves and sanctuaries allows no form of forest utilization in the protected areas. Forestry Environment 1.16 The soils and climatic conditions of Sri Lanka ensure a dense natural forest cover over much of the land. The different ecological zones host a large numbar of plant and animal species. However, because of conversion to agriculture, the area of natural forest has been markedly reduced. This situ- ation may continue, especially in the Dry Zone, if rational land use decisions for the remaining forest areas are not taken.  - 5 - 1.17 The FD also has preserved forest communities representative of each climatic zone under the International Man and 3iosphere Program. The goal of this program is to preserve genetic resources. Under it, abouc 164,600 ha have been protected. So far, the FD has prepared conservation plans for the Sinharaja and Knuclea forests and aims to do the same for the other protected forests. C. Forestry Sector Institutions 1.18 Five ministries are involved in the forestry sector in Sri Lanka: the Ministry of Lands, Irrigation, and Mahaveli Development (MLIMD); the Ministry of Industries and Scientific Affairs; Ministry of Public Administration; the Ministry of Education; and the Ministry of Fisheries. 1.19 The MLIMD is the mAin agency involved in the sector through the FD, the STC, the Land CommisLioner's Department, the Mahaweli Department and DWLC. The latter oversees settlement projects in the Dry Zone forests under the Mahaweli Authority of Sri Lanka. The Ministry of Industries and Scientific Affairs is involved by virtue of controlling the Ceylon Plywood Corporation and the National Paper Corporation. The Ministry of Public Administration uses its government agents in the districts to administer small forest areas and to allocate government land for reafforestation. The Ministry of Education provides for forest education at the USJ. The Ministry of Fisheries is involved through its work in the Coast Conservation District. In addition to the six primary ministries and their attached entities, four other bodies are involved in wood production: tle Ministry of Coconut Industries, the Plantation Industry, the Janatha Estates Development Board, and the State Plantations Corporation.l/ D. Development Constraints 1.20 The many agencies involved in the forestry sector make planning and coordinationt difficult and have constrained the development of the sector. Some of the major constraints are noted below: (a) Lack of Data. Proper inventories and a limited number of forest maps are only available for 119,000 ha of natural forests and about 60,000 ha of plantations. The basic data required to manage the remaining 600,000 ha of natural forests and 35,000 ha of young plantations are not available. (b) Limited Management Capability. A large portion of the FD staff lack the technical training needed to implement and update existing management plans; only 40Z of the 800 technical staff have received basic training. (c) Lack of Functional Organization. The headquarlers of the FD is not structured in line with its main functions and it has an inadequate number of trained staff. Thus it is unable to prepare comprehensive development plans, detailed annual programs, or to provide guidance or effective control cver field operations. 1/ Details or forestry sector institutions are provided in Annex 6.  (d) Weak Management. The weak management of the FD makes it difficult to formulate medium-term plans and programs to integrate its operations with the STC. This reduces the efficiency of operations and results in irregular wood supply. The latter discourages investment in developing the forest industries. (e) Lack of Interministerial Coordination. There is no formal forum for securing cocrdination between the agencies responsible for managing forest resources. As a result, land use decisions usually are based on short-term political preferences rather than long-term economic and social considerations. E. Ongoing Development Programs and External Assistance 1.21 Until the late 1970s, development activities in the forestry sector were limited primarily to plantation establishment by the FD using government funds. Since 1977, however, several new forestry development projects have been started which contain a broader scope. Most of them have been externally financed. The Forest Resource Development Project (FRDP--Credit 1317-CE) 1.22 IDA has financed tree planting components under three agricultural and integrated rural development projects in Sri Lanka. However, the most comprehensive forestry project is the Forest Resources Development Project, conceived after a forestry sector review conducted by IDA in 1979. The FRDP, which became effective in 1983, was designed to address the main problems identified in the sector review, particularly the nonavailability of basic data and the lack of trained staff which limited the scope of forest management activities. The project's objectives were to formulate a master plan and a five-year investment program for the forestry sector; strengthen forestry education and training; establish 8,000 ha of industrial plantations; and introduce silvicultural treatment for over 25,000 ha of established plantations. The project cost was estimated at US$15 million, US$9 million of which was provided by IDA. 1.23 The FRDP has achieved most of its key objectives. It has prepared a Forestry Master Plan for the sector (para. 1.28-1.33), a Five-Year Investment Program, and management plans for the natural forests in the Wet Zone. It also has generated information for managing forest plantations, started scientific thinning and felling programs, and stepped up forest education and training. Furthermore, it has generated information and experience on successful techniques for preparing iand and establishing and maintaining plantations on difficult sites of the Dry Zone. The project is scheduled to close on December 31, 1989. Other Proiects 1.24 The Community Forestry Project, financed by ADB, was designed to establish block fuelwood plantations, raise fuelwood on farmers' woodlots, and establish village community woodlots for demonstration purposes. The project has established about 5,000 ha of block fuelwood plantations and 450 ha of farmers' woodlots. In addition, ADB recently fielded an identification  mission to formulate a social/community forestry project, as a follow-up to its ongoing Community Forestry Project. 1.25 USAID has provided financing for the forestry sector in at least four ways: (a) by establishing 9,700 ha of plantations for land and water conservation in the Upper Mahaveli Catchment Area (1980-67); (b) by establishing 14,150 ha of fuelvood plantations within and adjacent to the Mahaweli development area (1980-87); (c) by developing national forestry extension services; and (d) by supporting forestry research and the establishment of the Forestry Institute in Nuwara Eliya. 1.26 Other development activities have included plantations under the Integrated Rural Development Project, financed with assistance from IDA, the Netherlands, Finland, Norway, and Sweden. 1.27 Recently the Government and ODA signed an agreement to implement a five-year forestry project. The project is designed to establish about 4,000 ha of pine plantations, undertake inventories, and prepare and implement management plans in the upper watersheds of the Mahaweli River Basin. The project also has a research component related to the establishment and management of pine plantations. It also includes a pilot social forestry component. F. Medium and Long-Term Programs Forestry Master Plan 1.28 Although a national forest policy has not been officially defined for Sri Lanka, the objectives for the forest sector are spelled out in the Fores- try Master Plan prepared under the Forest Resources Development Project (Cr. 1317-CE) by the Forestry Planning Unit (FPU) of ?ILIMD assisted by local and foreign consultants be-ween 1983 and 1986. The main objective of the plan is to make Sri Lanka self-sufficient in wood and wood products while maintaining an ecological balance. The plan compares alternatives for future development and recommends a development perspective calling for intensive management of all productive forests, especially plantations. 1.29 The data base for the plan was developed through forest inventories, an inventory of nonforest wood sources, market and demand studies, industry surveys, and technical studies covering all aspects of forestry operations from silviculture to logging. The draft plan has been reviewed widely and now has been provisionally adopted by the MLIMD with the endorsement of the Central Environment Authority of Sri Lanka. 1.30 In its present form, the Forestry Master Plan has five major objec- tives: (a) to create, maintain, and conserve forests in order to: preserve and repair the environment, conserve soil and water resources, and protect local flora and fauna for aesthetic, scientific, historical and socioeconomic purposes;  (b) to protect and augment the supply of small wood for agricultural requirements and fuelvood for domestic consumption; (c) to maintain, as far as possible, a sustainable yield o' timber and other forest products to meet the country's needs for general housing, industrial, communication, and defense facilities; (d) to exploit forest resources for maximum economic benefit without sacrificing environmental, aesthetic, and scientific objectives; and (e) to institute a program of social forestry which involves the local community in developing private woodlots and forestry farms. 1.31 The long-term development strategy outlined in the plan emphasizes the establishment of plantations on public and private lands in order to expand the productive forest base. The plantation program recommended by the plan includes the regeneration of J5,000 ha of existing mature and failed plantations and the establishment of 45,000 ha of new pl&ntations by the State and about 63,000 ha of new plantations by the private and commercial sectors before the year 2000. It also targets 10,000 ha of plantations for protection. The plan sets targets and development strategies for forest management, forest protection, wood production, industrial development, and organizational and manpower development. It also emphasizes the need for forest research. 1.32 The proposed devel3pment program carries an estimated rate of return on investment of 172 using financial prices and 26Z using economic prices. Expansion of nonforest wood resources and intensive management of existing plantations would be the most profitable operations. However, reasonable returns also would be obtained from investment for new plantations and rehabi- litation and expansion of forest industries as demand grows. The plan links the protection of forest resources with the availability of wood and wood products at reasonable prices. 1.33 The Forestry Master Plan represents a first sitisfactory and comprehensive effort at formulating a development perspective for the sector. When put into practice, it should go a long way towards institutionalizing rational management of Sri Lanka's forest resources. As a first step in implementing the plan's objectives, a five-year investment program for the sector has been developed. The Five-Year Investment Program 1.34 The Five-Year Investment Program has been developed as a follow-up to the Forestry Master Plan. The cost of the program in 1986 prices was estimated to be Rs 2,483 million (US$83 million), 40X of which would be in foreign exchange. The program consists of: (a) reforestation efforts whicri involve: departmental plantation on 26,100 ha, block fuelwood plantation on 8,100 ha, and private plantation on 5,450 ha of farmers' woodlots; (b) scientific management of 119,000 ha of natural forests;  (c) strengthening of extension activities to promote nonforest planting at a rate of 13,670 ha a year; (d) conservation of 127,000 ha of declared Man of Biosphere Reserves; (e) protection of forests from fire and illicit cutting of timber; (f) strengthening of education and training facilities; and (g) improving technology for wood harvesting and the construction of roads and wood industries. 1.35 At the request of the Government, an FAO/CP team visited Sri Lanka in February/March 1988 and prepared :he forestry project described in this report to implement the Five-Year Investment Program. However, the investment program actually included in the proposed project is smaller than the one proposed by the Five-Year Investment Program in three ways. First, the proposed project does not include private sector investment, especially in forest industries. Second, community forestry programs are deliberately excluded because of the ADB-supported community forestry project and an Jnvestment commitment of about US$6 million For this purpose made by the Government for the next three years. Third, some of the upcountry pine plantation establishment and silvicultural treatment programs are excluded since these operations are included in the ODA-supported forestry project for 1988 to 1994. G. Rationale for IDA Involvement 1.36 IDA has been deeply involved in the sector. As indicated before (para. 1.28) it conducted a Forestry Sector Review and identified a development course for the forestry sector of Sri Lanka. It initiated the first phase of development by providing support through the Forest Resources Development Project (Cr. 1317-CE) in 1983. Under this project, the Forestry Master Plan was prepared, the Five-Year Investment Program formulated, the education of professional foresters started, and initial steps taken to introduce modern forest management practices. 1.37 As a result of the ongoing IDA-led support, Sri Lanka is now the first country in South Asia with an up-to-date resource data base, a compre- hensive sector development plan, and an integrated sector investment program. IDA is in the best position to continue to lead the external support efforts needed to translate these plans into action. Furthermore, Sri Lanka's experi- ence has already been used to formulate forestry projects in Nepal, Bangladesh, and Korea. Further IDA assistance to Sri Lanka would help in guiding establishment of this development pattern elsewhere in the region. 1.38 Forestry Master Plan Projections show the wood balance for industrial wood deteriorating after 1990, making Sri Lanka a net importer of industrial wood and wood products. Unless a forestry development program in line with the national needs is embarked upon soon, the country will remain a net importer indefinitely. The supply of fuelwood, which is adequate at present, also will fall short of demand after the year 2000 if plantation programs are not begun now.  - 10 - 1.39 The ongoing ADB-supported Community Forestry Project and the proposed ODA-supported upcountry pine plantations project are in line with the develop- ment perspective identified by the Forestry Master Plan. However, the proj- ects are location-specific and do not address all the development needs of the sector. Therefore, the Forest Sector Development Project is proposed in order to close the gaps and to integrate isolated efforts under one unified develop- ment scheme. The Government also needs further financial and technical sup- port to realize this development program. Therefore, continuation of IDA support to the forestry sector in a follow-up project would help to channel assistance from other donors and aid agencies into the sector more effec- tively. 1.40 Finally, IDA's involvement would help to ensure that the development undertaken is consistent with strict environmental protection principles.  - 11 - II. THE PROJECT A. Pro'ect Area 2.1 The project will be implemented country-wide. Sri Lanka has a land area of about 6.5 million ha. Topographically, the country is characterized by two divisions, a highland area in the interior which rises above 2,500 m, and the lowland plains surrounding it. The climate is tropical and maritime. The rainfall is characterized by the southwest monsoon during May/September and the rortheast monsoon during October/January. Three major ecological zones may be distingitished, based on rainfall patterns: the Wet Zone (over 2,500 mm/year), the Intermediate Zone (2,000-2,5000 mm/year), and the Dry Zone (less than 2.000 mm/year). In the driest areas along the northwestern and southeastern coasts, rainfall, which is received within a three-month period, may be slightly less than 1,000 mm/year. Mean annual temperatures vary from about 280 C in the lowlands to 180 C at an altitude of 2,000 m. At elevations of over 2,000 m, night temperatures may drop to as low as 20 C. 2.2 Sri Lanka is well served by roads. All project operation sites are accessible throughout th-e year by motor transport. Similarly, electricity is available at all locations for household as well as industrial uses. In most of che project operation sites labor is available, except in certain locations in the Dry Zone labor shortages are expected for large scale labor-intensive operations where human settlements are sparsely distributed. 2.3 Maps for general use, Landsat, and Spot imageries taken at various times during the last five years are available. Most of the island is covered by aerial photos taken at a scale of 1/50,000 in 1981. Limited new aerial photos are available, and the Survey Department has the capability of obtaining new photos on request. B. Proiect Obiectives and Description 2.4 The main objective of the project is to assist the Government to improve the performance of the forestry sector in line with the economic, social, and environmental requirements of Sri Lanka by implementing part of a five-year time slice (1990-94) of the Forestry Master Plan. To attain this objective, all plantations and selected natural forests, will be brought under intensive management, the resource base will be expanded by establishing new plantations, forestry education and technical training will be intensiried, and the institutional base will be strengthened. 2.5 Current forestry programs, especially those formulated and imple- mented with external financirg, have been taken into consideration in designing the project. C. Project Features 2.6 The project includes five main components: (a) forest management; (b) environmental management; (c) plantation establishment; (d) education and training; and (e) institutional support. The project also provides for a technical assistance program to support the institutions involved in  - 12 - implementing the project. It contains financing for a civil works program to establish inErastructure for office space and staff accommodations, and to expand training and education facilities. Equipment and vehicles required for project implementation also are provided for. Forest Management 2.7 This component includes silvicultural treatment for about 60,000 ha of established plantations and 40,000 ha of natural forests; and mapping, inventory, and preparation of management plans for about 35,000 ha of plantations and 100,000 ha of natural forest in the Dry Zone. It also includes mapping and an indicative inventory of about 500,000 ha of degraded forests in the Dry Zone. The latter especially will generate valuavle information to assist decision makers in the formulation of a balanced land- use policy and programs in the Dry Zone, where forest lands have been constantly subjected to conversion under several past development programs. The base cost of the forest management component is US$2.5 million. 2.8 The FD will carry out silvicultural treatment on about 10,000 ha of existing plantations each year, in accordance with the forest management plans. The silvicultural treatment progran. financed under the project consists of about 3,000 ha of precommercial thinnings and 7,000 ha of commercial thinnings annually. The FD will be responsible for marking trees for thinning and carrying out some of the precommercial fellings. STC will be responsible for carrying out all commercial thinnings and final fellings. 2.9 About 40,000 ha of natural forests in the Wet Zone will be managed under a 30-year selection felling cycle, as prescribed in the existing forest management plans. The FD will allocate the felling areAs and trees, review and approve logging plans, and supervlce the logging and extraction operations executed by STC. The Department will pay special attention to ensure that STC logging, roading and extraction operations are consistent with conservation principles. At negotiations agreement was reached with the Government that by January 1, 1992 all forestry operations will be undertaken according to forest management plans (para. 7.1( )) 2.10 The FD will be assisted by an internationally recruited Forest Management specialist (24 months) to prepare forest management plans, improve growth and yield data, and train staff in forest management. An internationally recruited Cartography specialist (12 months) will assist FD in establishing a Cartography Unit and training staff. In addition, FD will maintain a locally recruited cartography specialist for a duration of five years for the preparation of forest maps. 2.11 The project will finance the cost of vehicles, labor used for inventory, equipment, office furniture, technical assistance, and incremental staff costs. Environmental Management 2.12 This component was prepared in collaboration with the International Union for Conservation of Nature (IUCN), a Switzerland-based international non-governmental organization (NGO). Following the preappraisal of the  - 13 - project in June 1989, IDA developed a program with IUCN to prepare the Environmental Management Component cf the project. As a first step T.UCN carried out a reconnaissance mission in Sri Lanka in line with the terms of reference drawn up jointly with IDA and submitted a study proposal to IDA. Following the review of the program, IDA obtained grant funding from the Government of the Netherlands to finance the study. A three-person IUCN team was fielded during the appraisal of the project, which collaborated closely with the IDA appraisal mission, government agencies, and the local NGOs. IUCN has completed and submitted its draft report to IDA for comments before finalizing it. The scope, extent, key inputs, and estimated cost of the component included in this report are based on information gathered during the appraisal and that provided by the IUCN report. 2.13 The MLIMD will reorient and strengthen its existing Forest and Environment Division. Furthermore, the FD will establish an Environmental Management Division within its headquarters. The division will be headed by a Deputy Conservator of Forest. The division will, initially, develop environmental guidelines and relevant procedures to be followed during the preparation and implementation of all forestry programs. It will also be responsible for enhancing the standard forest inventory of the .'D in order to expand the scope of the existing resource data base and to generate information to monitor the environmental impact of forestry operations. The first operational task of the new division will be to carry out a reconnaissance survey to identify the envir3nmentally critical forest areas and locations. These selected areas later will be surveyed in detail to determine their management objectives. Special forest management plans will be prepared for those forests found to be important for the protection of the environment and/or the biodiversity of the country. Commercial utilization or any other disturbance of the habitat in some of these forests would be severely restricted or completely banned. The Division will also initiate and maintain research to enhance existing knowledge about the biodiversity of the country and how it is affected by the activities of man. Finally, it will assist and monitor programs for wildlife management within the forests managed by the FD to complement the work of the DWLC. The project will finance vehicles, equipment, and a technical assictance program consisting of 32 months of international and 40 months of local consultancies to assist the FD in institutionalizing this new operation. The base cost of the environmental management component is US$1.1 million. Plantation Establishment and Maintenance 2.14 This component includes establishment and maintenance of 17,900 ha of new plantations, and maintenance of 1,200 ha of young plantations over the five-year project period. The base cost of this component