China - Guangxi Integrated Forestry Development and Conservation Project

Documentof The World Bank FOR OFFICIAL USEONLY ReportNo:35238-CN PROJECT APPRAISAL DOCUMENT ON A PROPOSEDLOAN INTHEAMOUNTOFUS$lOOMILLION AND A GRANT FROMTHE GLOBAL ENVIRONMENTFACILITY TRUST FUND INTHEAMOUNTOFUS$5.25 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A GUANGXIINTEGRATEDFORESTRYDEVELOPMENTAND CONSERVATIONPROJECT November 10,2006 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region This document has arestricteddistribution and may be usedby recipientsonly inthe performance o ftheir official duties.Its contents may not otherwise be disclosedwithout World Bankauthorization.  CURRENCYEQUIVALENTS (Exchange Rate Effective June 7,2006) CurrencyUnit = Renminbi (RMB)Yuan (Y) Y 1.0 = US$0.12 US$ 1.0 = Y 8.07 FISCALYEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ABC Agricultural Bank of China AIR AfforestatiodReforestation ASEAN Associationof SouthEastAsianNations BCF BioCarbonFund BO Biodiversity Office BRAT Biodiversity RapidAssessment Team CAS CountryAssistance Strategy CBD ConventiononBiologicalDiversity CBIMS China Biodiversity InformationMonitoring System CDB China DevelopmentBank CDM CleanDevelopment Mechanism CIFOR Center for InternationalForestryResearch CQ ConsultantQualification DA DesignatedAccount DNR DivisionofNatureReserves(national) EA EnvironmentalAssessment EFC IncreasingEcologicalForestCover Component (ofthe GIFDCP) EMDP Ethnic MinorityDevelopment Plan EMMP EnvironmentManagementandMonitoringPlan ERR Economic Rateof Return FFs ForestFarms FMR FinancialManagementReport FRR FinancialRateofReturn GEF Global EnvironmentFacility GEFSEC GEF Secretariat GEPRI GuangxiEnvironmentalProtectionResearchInstitute GFB GuangxiForestry Bureau GIFDCP GuangxiIntegratedForestryDevelopment andConservationProject GPFB GuangxiProvincialFinanceBureau GPDRC GuangxiProvincialDevelopment andReformCommittee GZAR GuangxiZhuangAutonomous Region GoC GovernmentofChina HHs Households IA ImplementingAgency IBRD InternationalBankfor ReconstructionandDevelopment ICB InternationalCompetitiveBidding ILP IntegratedLanduse Plan IMC EnhancingInstitutionalandManagementCapacity Component(of the GIFDCP) IPM IntegratedPestManagement WCN World ConservationUnion  km kilometer LOC LineofCredit m2 square meters m3 cubic meters M&E Monitoring and Evaluation MAB Manand Biosphere METT Management EffectivenessTracking Tool MNRC ImprovingManagement of Nature Reserves Component (of the GIFDCP) M O F MinistryofFinance NCB NationalCompetitive Bidding NDRC NationalDevelopment andReform Commission NFPP NationalForest ProtectionProgram NGO Non-government organization NR Nature Reserve NRMP Nature Reserves Management Project NTFP Non-timber Forest Products PCG Project Coordination Group PDF Project Development Facility PIP Project ImplementationPlan PLG Project Leading Group PMO Project Management Office PMG Project Management Group PPMO Provincial Project Management Office PRA Participatory Rural Appraisal QBS Quality Based Selection QCBS Quality & Cost Based Selection RCC Regional Credit Cooperative SA Social Assessment SBD Standard Bidding Document SEPA State Environment Protection Agency SFA State Forestry Administration SFDP Sustainable Forest Development Project SFE State Forest Enterprise SIL Sector Investment Loan SOE Statement o fExpenditure STAP Scientific and Technical Advisory Panel TPC Extending Timber Plantations Component (of the GIFDCP) TSP Technical Support Panel WB World Bank WHO World HealthOrganization WMD Wildlife ManagementDivision WCNRDP Wildlife ConservationandNature Reserves Development Program WMD Wildlife Management Division W N R M S Wildlife andNature Reserve Management Station WWF World Wide Fundfor Nature Vice President: James W. Adams Country Managermirector: DavidDollar, EACCF Acting Sector Director: Christian Delvoie, EASRD (Acting) Task Team Leaders: LiuJin& MohamedNoureddineBenali, EASRD  CHINA GuangxiIntegratedForestryDevelopmentandConservationProject CONTENTS A. STRATEGIC CONTEXT AND RATIONALE ............................................................... 1 1. Country and sector issues ........................................................................................... 1 2. Rationale for Bank involvement................................................................................. 2 3. Higher level objectives to which the project contributes ........................................... 3 B . PROJECTDESCRIPTION ............................................................................................... 5 1 Lendinginstrument..................................................................................................... . 5 2. Project development objective andkey indicators ..................................................... 5 3. Project components .................................................................................................... 5 4. Lessons learned andreflected inthe project design ................................................... 8 5. Alternatives considered andreasons for rejection...................................................... 8 C. IMPLEMENTATION ........................................................................................................ 9 1. Partnership arrangements ........................................................................................... 9 2. Institutional and implementation arrangements ......................................................... 9 3. Monitoringand evaluation o f outcomes/results ....................................................... 11 4. Sustainability and Replicability................................................................................ . . . 11 5. Critical risks and possible controversial aspects ...................................................... 12 6. Loadcredit conditions and covenants ...................................................................... 13 D APPRAISAL SUMMARY . ............................................................................................... 15 1. Economic and financial analyses.............................................................................. 15 2. Technical .................................................................................................................. 16 3. Fiduciary................................................................................................................... 17 4. Social ........................................................................................................................ 17 5. Environment ............................................................................................................. 19 6. Safeguard Policies .................................................................................................... 21 7. Policy Exception andReadiness............................................................................... 23  Annexes 24 Annex 2: Major RelatedProjects Financedbythe Bank and/or other Agencies ....................... Annex 1: Country and Sector Background................................................................................. 28 Annex 3: Results Framework andMonitoring ........................................................................... 31 Annex 4: Detailed Project Description....................................................................................... ............................................................................................................... 36 Annex 6: Implementation Arrangements .................................................................................. Annex 5: Project Costs 62 Annex 7: Financial Management andDisbursement Arrangements .......................................... 64 66 Annex 8: Procurement Arrangements ........................................................................................ 75 Annex 9: Economic andFinancial Analysis .............................................................................. 79 Annex 10: Safeguard Policy Issues ............................................................................................ 90 Annex 11:Project Preparationand Supervision......................................................................... 96 Annex 12:Documents inthe Project File................................................................................... 97 98 Annex 14: Country at a Glance ................................................................................................ Annex 13: Statement o f Loans and Credits................................................................................ Annex 15: Incremental Cost Analysis ...................................................................................... 104 106 Annex 16: Scientific & Technical Advisory Panel Roster Review .......................................... 114 Annex 17: Line o f Credit Arrangements .................................................................................. 128 Annex 18: Operations Arrangement Models for PlantationEstablishment............................. Maps ......................................................................................................................................... 138136 MAPS: IBRDNos . 34708.34734. 34735  CHINA Guangxi IntegratedForestryDevelopment and Conservation Project Project Appraisal Document East Asia and Pacific Region EASRD Date: November 10, 2006 Team Leader: Jin Liu Country Director: David R. Dollar Sectors: Forestry (100%) Sector ManagedDirector: Christian Delvoie Themes: Other environment and naturalresources Project ID: PO88964 management (P);Rural non-farm income LendingInstrument: Specific InvestmentLoan generation (S) Environmental screening category: Partial Assessment Global Supplemental ID: PO87318 Team Leader: Jin Liu Lending Instrument: Specific Investment Loan Sectors: General agriculture, fishing and forestry Focal Area: B-Biodiversity sector (100%) Supplement FullyBlended?: Yes Themes: Biodiversity (P);Land administration and management (S);Rural non-farm income generation (S) [XI Loan [ ] Credit [XI Grant [ ] Guarantee [XI Other: Bio-Carbon Financing For Loans/Credits/Others: Total Bank financing (US$m.): 100.00 Total: 202.30 2.30 204.60 Borrower: Government of China MinistryofFinance, Sanlihe Beijing, China, 100820 Tel: 86-10-68551124 Fax: 86-10-68551125 YM.Yang@Mof. gov.cn ResponsibleAgency: Guangxi Regional Forestry Department Nanning Guangxi Zhuang Autonomous Region  China, 530022 Tel: 86-771-2809558 Fax: 86-771-2809558 Uffo@,Public.Nn.Gx.Cn FY I 7 8 9 10 11 12 13 Annual 0.20 0.35 1 .oo 1.30 1.40 0.70 0.30 Cumulative 0.20 0.55 1.55 2.85 4.25 4.95 5.25 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Re$ PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD B.2, TechnicalAnnex 3 The overall project development objective i s to improve the effectiveness o f forest management and institutional arrangements intimber production, watershed protection and nature reserves management in selected areas o f the Guangxi Zhuang Autonomous Region (GZAR). Global Environment objective Re$ PAD B.2, Technical Annex 3 The global development objective o fthe project is to conserve the globally significant biodiversity o fthe GZARby ensuring effective in-situ protection ofthreatenedand globally important forest habitats and rare and endemic species. Project description Re$ PAD B.3. and Technical Annex 4 The project would have four components: (a) expanding timber plantations to increase wood production; (b) increasingecological forest cover for greater watershed protection; (c) strengtheningmanagement o f nature reserves to protect biodiversity; and (d) enhancing institutional and management capacity. Which safeguard policies are triggered, ifany? Re$ PAD 0.6, Technical Annex 10 Environmental Assessment (OP/BP/GP 4.0 1): Yes Pest Management (OP 4.09) : Yes Involuntary Resettlement (OP/BP4.12) : Yes Indigenous Peoples (OD 4.20, being revisedas OP 4.10):Yes Forests (OP/BP 4.36): Yes  Significant, non-standard conditions, if any, for: Re$ PAD C.6 Covenants applicable toproject implementation: Project Implementation. A PMO and BO at the provincial level, and PMOS at county level, would be maintained in forestry agencies at all times during project implementation with staffing, functions and responsibilities acceptable to the Bank. Nature reserve management plans for proposed project nature reserves incorporating a time- bound implementation schedule, a description o f civil works required, and an environmental assessment, carried out in accordance with guidelines acceptable to the Bank should be prepared and furnished to the Bank for comments no later than March 30, 2009. No civil works construction, such as that planned for the project nature reserve, shall commence until it has been provided for and agreed upon insuch plan. 0 All afforestation sites should be established inaccordance with afforestationmodels acceptable to the Bank; all afforestation activities (including technical design, production arrangements, and cooperation and contractual arrangements involving afforestation entities) would be carried out in accordance with guidelines acceptable to the Bank and the Provincial P M O would complete the review o f all county afforestation master plans in accordance with guidelines acceptable to the Bank by June 30,2007. A participatoryplanting design should be used duringproject implementation to define, inter alia, farmers' preferences concerning forest species to be planted, contractual/operational arrangement between farmers and FFs, etc. I 0 Guidelines for karst management would be drafted by March 30,20 11. Financialconditions I The MOF would on-lend the loan to the Guangxi government with a maturity period o f twenty years including a grace period o f five years, with all other terms and conditions as received from the Bank. Sub-loan terms: sub-loans made to end-borrowers (individual farmers, farmer groups/communities and small-scale entities) by forestry bureaus would have the following terms: (a) for fast-growing eucalyptus species, interest payments would be annual, starting at the end o f the first year in which the sub-loan was made, and the recovery o f the principal would be made through balloon payments at the end o f the seventh year; (b) for forest species such as Quercus, Bamboo and Acacia species, interest payments would be annual, starting at the end of the first year in which the sub-loan was made, and the recovery o f the principal would be made after a six-year grace period in six equal payments from the endo f year seven to the end o f year twelve; and (c) for long-gestation species such as Chinese fir, Masson pine and broad leaf species, interest payments would be annual, starting at the end o f the first year in which the sub-loan was made, and the recovery o f the principal would be made after a six-year grace period in twelve equal payments from the end o f year seven to the end o f year eighteen. The interest rate to be paidby end-borrowers would be at a minimumequal to the WB rate to the GoC plus a surcharge to cover actual transaction costs and credit risks. In view o f the fact that: (i) sub-loans would be appraised, disbursed, monitored and recovered through existing FB offices and staff; and (ii) no forest can be cut or sold without FB approval, estimates place the value of this surcharge at about two percent.   A. STRATEGICCONTEXTAND RATIONALE 1. COUNTRYAND SECTORISSUES 1. China, the most populous and largest developing country, has long been a forest-poor country. The government has done a remarkablejob inincreasing forest cover, mainly through an extensive plantations program, from 13 percent in 1980s to 18.2 percent today. However, the current area o f forest per capita is 0.13 ha, significantly below the world average o f 0.6 ha. The increasing gap between timber supply and demand is a key constraint to sustainable forestry development. Currently, annual timber consumption exceeds supply by approximately 80 million cubic meters. Furthermore, most natural forest habitats have been reduced to small and isolated fragments. This has led to a significant threat to biodiversity, and many o f the threatened species are o f global importance. While the launch by the Government o f China (GoC) o f the Natural Forest Protection Program (NFPP) in 1998 was environmentally beneficial to China, it fbrther widened the gap between timber supply and demand. All these factors have also led to a significant increase in the import o f timber and wood products from neighboring countries contributing to unsustainable exploitation o f those natural forests. 2. Inorder to bring the forestry sector under more sustainable management and development, the GoC formulated a "Sustainable Forestry Development Strategy", focused on "the four shifts" as follows: (a) the shift from harvesting wood from natural forests to harvesting wood from plantation forests; (b) the shift from deforestation for the purpose o f land reclamation to conversion o f steep cropland to plantation forest; (c) the shift from non-fimded management o f ecological forests; and (d) the shift from giving the public sector the exclusive right to develop forest resources to widening that mandate to include the participation o f other social actors. The "four shifts" have brought about a historical and fundamental change in China's forestry sector. (See Annex 1for more details on the sector). 3. With the objective o f implementing the shift from harvesting natural forests to plantations, in 2002 the State Forestry Administration (SFA) designated four areas of the country as key timber production basedareas to promote forest plantation establishment. Guangxi Zhuang Autonomous Region (GZAR) i s one area designated because o f its near perfect agro-ecological conditions for producing large quantities o f timber. However, GZAR has a wood shortage; the annual timber consumption in the Region i s approximately 7.8 million m3,which is more than the annual production o f 5 million m3. The growing demand for timber in Guangxi has also increased the pressure on Guangxi's natural ecosystems and threatened its unique biodiversity, including one o f the largest and most important representatives o f karst ecosystem inthe world. Inadequate protection from illegal logging and unsustainable use o f non-timber forest products (NTFP) have led to the loss o f natural forests, critical to watershed protection, and extirpation o f globally important biodiversity such as the eastern black-crested gibbon (Nomascus nasutus) and tiger (Panthera tigris). These developments have made the effective development, management and protection o f forest resources into a highpriority o f the GZAR Government. 4. The GZAR recently launched a number o f forestry programs to increase timber production, manage watersheds to reduce soil and water erosion, and protect natural forest and biodiversity. These programs include: (a) the Intensively Managed Timber Products Bases Development 1  Program; (b) the Integrated Management for the Protection Forests in the Middle and Upper Reaches o f the Pearl River Program; and (c) the Natural Regeneration o f Vegetation on Karst Hill Program. The government also established a system o f nature reserves. All these programs will contribute to achieving both the provincial and national goals o f managing and developing forest resources in a sustainable manner. During the next five years (2006-2010) and inaccordance with its forestry development programs, the GZARplans to increase the area o f timber plantations by 870,000 ha and bring 667,000 ha o f watershed areas under effective protection. 5. While the GZAR government has taken positive steps towards sustainable forest management, it faces many challenges. For instance, to develop the wood producing sector the GZAR is relying on its provincial- and county-level Forest F m s (FF) and a combination of private sector partnerships/concessions (APP, Stora Enzo, etc.). While the FFs are the primary vehicle for implementing the public sector's forestry policy, they have been constrained by financial weakness, structural shortcomings and low levels o f technology. The GZAR government recognizes these constraints and i s taking measures to restructure these FFs in line with the national program o f State Forest Enterprise (SFE) reform. Although GZAR is an important region for the protection o f the Pearl River Watershed and karst biodiversity, the province lacks sufficient resources, technical and institutional capacity, and effective models for the protection o f the ecological forests and nature reserves set aside to protect valuable biodiversity. The government has also managed the three forest types o f production, protection and conservation forests separately, thus missing opportunities to enhance long-term sustainability o f the sector as a whole. 2. RATIONALE FOR BANKINVOLVEMENT 6. The proposed Guangxi Integrated Forestry Development and Conservation Project (GIFDCP) is designed to support the GZAR government in achieving its objective o f sustainable management o f forest resources and biodiversity conservation. The rationale for andvalue added o fWorld Bank(the Bank)involvement is as follows: The project would introduce and expand improved silvicultural techniques, multiple- function protection management models and environmental management guidelines by buildinguponthe Bank's 20 years o fhighlysuccessful involvement inthe forest sector in China, as well as adopt latest research results and international experience. Furthermore, this project, which would focus on a single province, would introduce a sector-wide, integrative and comprehensive approach to sustainable forest management and biodiversity conservation by supporting improvement o f all three forest categories o f timber production, ecological environment protection and biodiversity conservation in the context of sustainable forest management in GZAR, as well as support the development and implementation o f a GZAR forest sector development and conservation strategy, and priority policy studies and regulation revision. The Bank has had a highly successful engagement in the forestry sector in China for over 20 years. This project would benefit from the experiences and lessons learned from the five previous Bank-funded forestry projects. 2  Previous GEF-supported biodiversity conservation projects in China have focused principally on improving the management o f sites included in the national system of protected areas. The GIFDCP would continue this theme, but would also promote the strategic option o f addressing biodiversity conservation issues in areas adjoining established nature reserves. Guangxi's natural forest management policy, which identifies the natural regeneration o f its karst hills as a key objective, provides a valuable opportunity for integrating biodiversity conservation objectives into an existing watershed management program. The Bank i s active in the forestry sector in many countries and would be able to facilitate the introduction o f global best practices such as improved silvicultural techniques, ecosystems/landscape approach to conservation, sectoral analyses and reforms. There i s significant scope to add value from the Bank to introduce participatory and "bottom-up" approaches to forest resources planning and management by involving local communities, planting entities and households early in project design to better respond to communities' preferences and protect the farmers' interests, and to promote more equitable benefit-sharing arrangements. More active involvement o f local communities will lead to better adherence to management prescriptions and effective management. The Bank's involvement in the project would ensure that households' and small communities' interests are fully taken into account when they enter into production or rental arrangement with FFs and when forests are set aside for protection or conservation purposes. The Bank's involvement has also allowed for the leveraging o f additional trust fund resources from the GEF and the Bio-Carbon Fund for biodiversity conservation and carbon sequestration, respectively. To attain their forestry development goals and to reduce the wide gap between timber demand and supply, the GoC and the GZAR need to use private andpublic investments to sustain the growth o f the sector. While the private sector has focused exclusively on fast-growing forest species such as eucalyptus, the involvement o f the Bank in this project would allow for the use o f a broader range and mixture o f species. While the growth o f these mixed species is slower than that o f the hybrid eucalyptus varieties, for example, their impact on protecting watersheds and reducing wind- and water-induced erosion is more durable and significant. The Bank's involvement has also influenced the project design to include the reform o f FFs to make them into commercial enterprises, which was not part o fthe project original concept. 3. HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES CASdocument number: 35435-CHA Date of latest CASdiscussion: May 23,2006 7. The proposedproject would contribute to support forest resources management priorities o f China, including ecological forest protection, biodiversity conservation and timber plantation expansion. The proposed project i s highly relevant to the Bank's previous (2003) and new 3  Country Assistance Strategy (CAS o f May 23, 2006) for China and fits well within their goals o f respectively: (a) "Improving eficiency and sustainability of the use of natural resources " by promoting sound natural resource management practices and value addition through appropriate technologies, training and modem management experience, as well as on generating income opportunities for disadvantaged rural farmers in poor regions; and (b) "Managing resource scarcity and environmental challenges" by focusing on encouraging the development and use o f clean renewable energy technologies, accelerating afforestation and reforestation programs to support carbon sequestration and demonstrate the use o f carbon finance transactions, piloting improved approaches to natural resource management and formulating a strategy to protect biodiversity. GEF Operational Strategy/program objective addressed by theproject: 8. China ratified the Convention on Biological Diversity (CBD) inJanuary 1993. The project i s consistent with the GEF Operational Strategy, particularly strategic priority BI (Catalyzing Sustainability of Protected Areas) in that it will enhance the sustainability o f Guangxi Province's nature reserves system and strengthen the management o f five nature reserves o f global biodiversity significance with a total area that exceeds 650 h2. At selected sites outside these nature reserves, biodiversity management would be promoted through the integration o f specific habitat andwildlife conservationrecommendations into forest protection contracts for important watershed management areas. These sites would be located near to the project nature reserves and would thus act as `corridors' for the distribution and dispersal o f wildlife. The project will also therefore contribute to GEF strategic priority BII (Mainstreaming Biodiversity in Production Landscapesand Sectors). 9. The project conforms to the national Biodiversity Conservation Action Plan (1994) which was prepared with support from the GEF Pre-Investment Facility duringthe GEF Pilot Phase in China. The Action Plan identified two o f the project areas as centers o f China's biodiversity (see Annex 4 for a more detailed evaluation o f the project's proposed target sites). The conservation o f Guangxi's unique and rich biodiversity is also listed as a priority in several national biodiversity strategies, including the World Wide Fund for Nature (WWF) supported Biodiversity Review of China (1996) and China 's Biodiversity: A Country Study (1998). 10. The project is a key early component o f the ChinaKJNDP/GEF Biodiversity Partnership Program for the Conservation and Sustainable Utilization o f Biodiversity in China. The Programming Framework for this Partnership anticipates at least one new WB/GEF project that would help strengthen protected area management at the site level. This i s the role in the Partnership that the project will fill. The project would also contribute to the Partnership's objective o f integratingbiodiversity into investment decision-making at the provincial level and would demonstrate how biodiversity conservation can bemainstreamed into forest management at this level. 4  B. PROJECTDESCRIPTION 1. LENDING INSTRUMENT 11. A Specific Investment Loan (SIL) is proposed. The GoC will borrow the Loan on the standard IBRD terms, with a 20-year maturity and a five-year grace period. Ministry of Finance (MOF) will on-lend the IBRD Loan to the Guangxi Government on the same terms as the World Bank. In addition, about US$5.25 million will be provided by GEF as a grant to finance nature reserve management and biodiversity conservation activities. The BioCarbon Fund will also provide US$2 million as a carbon trade revenue (not project financing) to support the BioCarbon pilot program to test the carbon sequestration and trade process. The proposedproject would be implementedoveta period o f six years. 2. PROJECTDEVELOPMENTOBJECTIVE AND KEY INDICATORS 12. The overall project development objective is to improve the effectiveness o f forest management and institutional arrangements in timber production, watershed protection and nature reserves management inselected areas o f the GZAR. Progress towards the attainment of this objective would be measured by monitoring: (a) timber production efficiency such as planting survival and plantation growth rates under different institutional and partnership arrangements between forest farms and communitieskouseholds, as well as individual households; and (b) the increase inthe vegetation cover intargeted watershed areas. 13. The global development objective o f the project i s to improve the conservation o f the globally significant biodiversity o f the GZAR by ensuring effective in-situ protection o f threatened and globally important forest habitats and rare and endemic species. Progress towards the achievement o f these objectives would be measured by monitoring how well the five project nature reserves are being managed, how well biodiversity conservation is integrated into watershed protection, and how institutional capacity to deal with biodiversity conservationis improved. 3. PROJECTCOMPONENTS 14. The project would have four components: (a) expanding timber plantations; (b) increasing ecological forest cover; (c) strengthening management o f nature reserves; and (d) enhancing institutional and management capacity. A summary description o f these components is found below and a detailed description i s in Annex 4. The costs shown below include physical and price contingency provisions. a. Component 1: Expanding Timber Plantations (Projected Cost US$171.10 million) 15. Under this component, the project would finance: (a) the establishment o f approximately 200,000 ha o f fast-growing, high-yieldtimber plantations; and (b) the improvement o f nursery management, including the establishment o f four central nurseries and facilities to produce 5  high-quality planting materials to enable the introduction o f superior genetic materials and management technologies. These activities would enhance the productivity o f forest resources and increase the supply o f timber products, thereby taking pressure o f f natural forests and biodiversity conservation as well as increasing household incomes and generating job opportunities for local farmers. Most o f the plantation sites would be located in rugged hill terrain. It i s expected that the project would carry out its proposed planting activities and plantation management by engaging incontractual arrangements between households andFFs. 16. The component would be implemented in 37 counties (33 counties applied through the forest bureaus and four additional counties where only FFs would work with individual fanners) on land spread over 22,400 sites with an average size o f 8 ha. Few sites are larger than 100ha. Counties would implement the afforestation program on the basis o f a master plan which will define, inter alia, the species and the plantation and management techniques to be used in executing the afforestation program within each specific county. These master plans would be prepared and reviewed by the PPMO prior to the end o f the first year o f the project. There would therefore be no large-scale monoculture plantations and much o f the planting would be done in areas that are currently denuded o f perennial vegetation. Apart from eucalyptus, which has exhibited no invasive characteristics in China, this component will include at least ten other species, all but one native to China. The location o f the GIFDCP project counties is shown inthe appended project Map and a list o f these counties i s provided inAnnex 4. 17. A plantation development and wood demand study was commissioned from the Center for International Forestry Research (CIFOR) to assess the GZAR plantation resources and profitability, the requirements o f the wood processing sector, and the risks involved. The major conclusions were: 3.6 million ha o f land i s potentially available in all tenures for planting; the region's wood industry i s well situated for expansion but already suffers from a severe supply deficit which i s growing rapidly; locally grown wood has a cost advantage over imported wood but at the same time relatively highplantation costs reduce international competitiveness o f the wood industry; the wood industry is well positioned for access to domestic and ASEAN markets; and there is the potential to increase value added in industrialized products. The Guangxi Forestry Bureau (GFB) has used this study to choose an optimal species selection, design economic plantingmodels, concentrate plantations on economic site types and locations, andincorporatethe reductiono fbiologicalrisks into the project design. b. Component 2: Increasing Ecological Forest Cover (Projected Cost US$18.67 million) 18. A large part o f the watershed o f the Pearl River i s located in Guangxi Province and much o f the vegetation in this watershed has been seriously degraded. Since 1996, the GZAR has been implementing the Integrated Management of Protection Forests in the Upper Reaches of the Pearl River project. This component would contribute to the objectives o f this government program by developing and demonstrating models that would combine economic, environmental and social benefits. The proposed component would be financed entirely through counterpart hnds. Under this component, the project would finance the establishment of approximately 18,000 ha o f multiple-use protection forests in 25 GZAR counties including 6  the development o f a BioCarbon Fundpilot plantation. The BioCarbon initiative would cover about 4,000 ha in Huanjiang and Changwu counties. This pilot would demonstrate technical and methodological approaches to carbon sequestration and test the carbon trade process. The project would also support the government's program o f rehabilitating 100,000 ha o f natural vegetation on Guangxi's karst hills in 17 counties by closing and protecting these areas. On about one-third o f these closed forests, enrichment planting would be carried out. A large number o fthese sites are locatedinclose proximityto the project's naturereserves. 19. The protection forest models would pilot improved community-based plantations. Timber or multiple-use tree species would be established on land that has remained under collective land use rights inpoor and remote villages. Sustainable harvesting regimes would be set up and incomes would flow into the administrative village budget to fund community expenses such as small infrastructure. Township forestry stations would improve their capacity to provide technical support at all stages from plantation to planning the allocation o f income. The enrichment planting activity would markedly increase the speed and quality o f rehabilitation o f vegetation cover on karst hills in poor counties compared to the existing program. 20. In order to ensure unified management measures, the homogeneous growth of the plantations and effective monitoring, as well as to maintain the carbon sequestered and reduce risks from natural disasters during the 30-year crediting period, the proposed AfforestatiodReforestation (AR)activity under the Clean Development Mechanism (CDM) will be implemented either directly by individual farmers (440 ha) or through cooperation arrangements between farmers/communities and farmers/FFs (3,560 ha). Participation in the project would be decided through a participatory process carried out at the village level. Under the cooperative farmers/communities and FFs arrangement, the revenue from selling the carbon credit, which will accrue from the second year after plantation to year 10, will be split. Sixty percent will go to the farmers and forty percent to the FFs. For individual farmers, the income from the sale o f the forest products and the revenue from the sale o f the carbon credit would belong in its entirety to the local farmers/communities. The revenue from the sale o f bio- carbon credit would initially go from the BioCarbon Fundto the GFB, which will pass it on to the farmers/ communities andFFs. c. Component 3: ImprovingManagement of Nature Reserves (Projected Cost US$ 7.02 million) 21. The aim o f this component is to enhance the management o f existing nature reserves; increase management capacity and knowledge o f biodiversity resources (particularly in the little-known limestone ecosystems); and strengthen cooperation between local communities and nature reserve staff to address areas o fmutual interest. Specifically, the component would finance: (a) the development and implementation o f management plans for five globally significant, highpriority nature reserves for demonstration purposes including staff training and capacity building; (b) targeted biodiversity survey and research to increase knowledge, particularly o f karst biodiversity (outside the nature reserves), to better integrate biodiversity conservation into the broader landscape; (c) activities which will strengthen collaboration between nature reserves and local communities; and (d) development and implementation o f a simple participatory monitoring and evaluation system focused on the nature reserves and 7  building on the experiences of previous GEF-financed biodiversity projects in China. In addition, replication o f its experience and lessons will be actively promoted within Guangxi Province, with neighboring provinces and nationally through the China Biodiversity Partnership Program. d. Component4. EnhancingInstitutionaland ManagementCapacity (ProjectedCost US$5.06 million) 22. Financing from the Bank Loan, GEF Grant and counterpart funds would be used to implement an integrated institutional and management capacity-building program that would: (a) strengthen the capacity o f the provincial forestry bureau to develop and implement a sustainable provincial forest sector development and protection strategy (for production, ecological forests and biodiversity) and support priority policy studies, guidelines, and regulations revision; (b) implement applied research programs to generate operationally usable technologies to improve commercial forestry development, ecological forest protection, and biodiversity conservation; (c) disseminate research results, technical guidelines and lessons learned to GFB staff and beneficiaries; and (d) the establishment o f a simple project monitoring and evaluation system to monitor project performance towards the achievement of its development objectives and assess the project's environmental and socio-economic impacts. 4. LESSONS LEARNEDAND REFLECTEDINTHE PROJECT DESIGN 23. The proposed project draws principally on the experience o f other projects, in China and elsewhere, and on Bank reports inthe forestry sector, including the 1991 and 2002 Operations Evaluation Department (OED) reviews o f forestry projects; the 1994 Environment/Agriculture review o f implementation o f the Bank's forestry policy; the 1998 and 2002 Quality Appraisal Group/Agriculture reviews o f the Bank's forestry portfolio and GEF-supported project managed by the Bank; and the 2004 Development Strategy on Sustaining Forests. The key lessons learned and incorporated in the design o f the proposed project include: (a) the development and use of new technologies such as the use o f high performance species, high quality seedlings and more efficient plantingpractices i s essential to improve productivity; (b) the linkages between silviculture research and afforestation institutions are of key importance to facilitating technology transfer; (c) the stakeholders' participation inproject design through consultative meetings is significant and effective in directing the scope o f the project; (d) provision o f benefits to local stakeholders to protect ecological forest cover, such as the BioCarbon pilot program; (e) substantive local participation in the definition of objectives o f protected areas management (including development o f mechanisms to ensure that local communities benefit from protected areas) is essential to sustainable forest management; and (0 building capacity at the provincial forestry department level to support comprehensive planning and implementation is o f key importance for supervision and organizational sustainability. 5. ALTERNATIVESCONSIDEREDAND REASONSFORREJECTION 24. The team considered: 8  Proposing that the forest resource development (plantations and watershed protection) and nature reserve management be designed as two distinct projects with separate implementing agencies, Component 3 was originally linked to the Chinese Academy o f Sciences rather than to an agency such as GFB that has the necessary management authority. This option was rejected in favor o f an integrated project approach that would tackle forestry development holistically and enhance the likelihood o f overall project objectives being achieved. Including more provinces in a similar manner to previous Bank-financed forestry projects in China. This was rejected because focusing on one province would allow the project to tackle more o f the institutional and sector-specific issues which are difficult to address in multi-provincial projects. Focusing mainly on rural households in afforestation efforts since many lack access to credit for tree planting. However, the social assessment found that many households were not interested in being directly involved in tree planting but rather wished to enter into some shareholding arrangement with forest farms and companies for the use o f their land for forestry. Likewise, the team considered channeling project funds through a financial intermediary instead o fthrough the government network. This was rejected because none o f the rural commercial banks was interested in extending long-term loans for afforestation activities involving households and small-size plantingentities inthe remote areas. With regard to improving livelihoods o f local communities living near the boundaries o f nature reserves (or co-management), the team chose not to target a small number o f demonstration villages for livelihood activities because it has not had the impacts anticipated and has proven to be difficult to replicate and scale up. Instead, the team chose to work with a large number o f villagers to create an enabling environment that would allow nature reserve staff and communities to solve commonproblems. C. IMPLEMENTATION 1. PARTNERSHIPARRANGEMENTS 25. Inaddition to the Bank and GEF partnership, the BioCarbon Fundwill allocate about US$ 2 million to support a pilot afforestation program for the purpose o f CO2 sequestration and reducing greenhouse gases. This pilot initiative would demonstrate technical and methodological approaches to carbon sequestration and test the carbon trade process for the A/R C D Mprogram. 2. INSTITUTIONALAND IMPLEMENTATIONARRANGEMENTS 26. Project management arrangements have been designed on the basis o f successful implementation structures and models tried and proven effective under earlier Bank-supported forestry projects. Inthe case o f the proposed GIFDCP, a Project Leading Group (PLG), Project Coordination Group (PCG) and Project Management Offices (PMOS) would be established at the provincial level. The PLG will be chaired by the Vice-Governor responsible for forestry and will comprise representatives fiom the forestry, finance, planningand audit departments. The PCG will be located inthe GFB and will be led by the Director General. It will comprise 9  the relevant Deputy Directors and Division Chiefs including the leader o f the Wildlife Management Division. The PLG and PCG will set the principles and policies for the project, approve the overall implementation plan, coordinate inter-agency discussions and resolve major issues duringthe project's implementation. The PCGwill regularly undertake reviews o f the inter-component cooperation to foster integration and cross-fertilization o f activities. 27. The current provincial PMO, which was established to implement the existing Bank- financed projects, i s located inthe GFB. It will be responsible for Components 1and 2 andthe BioCarbon pilot program. It will also provide the financial management and procurement support to the Component 3. A Biodiversity Office (BO) has been set up in the Wildlife and Nature Reserves Management Station (WNRMS) to be responsible for Component 3 and to ensure that biodiversity concerns are integrated with the activities o f the other components. The WNRMS works closely with the Wildlife Management Division (WMD) which i s responsible for biodiversity-related policies and regulations. The GFB will be responsible for ensuring close coordination between WNRMS, WMD, and provincial PMO. The BO would have a broader mandate to manage those activities included in Components 3 and 4 that are financedbythe GEF grant. 28. PLGs and PMOSwould also be established at the county level for Components 1 and 2. For Component 3, a Project Management Group (PMG) would be established in each o f the five nature reserves directly under the nature reserve director. The PMGwould be responsible for supervision o f all aspects o f project activities in that nature reserve. It would report to the WNRMS. The PMG would include the head o f the nature reserve's Management Planning Team, the head o f its Community Relationships Team, its Training Coordinator, and its chief financial officer. Technical advice would be sought from the Forest Survey andDesign Institute andthe Guangxi Academy o f Forestry as required. The Department o f Forest Protectioninthe SFA will serve in an advisory capacity to the GFB during project implementation. For instance, management plans for national nature reserves produced by the project would be submitted to the Division o f Nature Reserves (DNR) in Beijing for review and comment o f technical aspects. 29. A Technical Support Panel (TSP) has been established within GFB the members o f which are from relevant research and technical institutes. The TSP would be responsible for overall quality assurance and control; identification and implementation o f research and extension programs; assisting the Provincial PMO and BO in carrying out project monitoring, training and technical services; and coordinating relevant departments and institutions to undertake the forestry strategy, policy study and the regulatory work. 30. The project beneficiaries include households, groups o f households, state-owned FFs, local small private planting groups, and nature reserves. With regard to the timber plantations, the exact production arrangements between households, forest farms and communities would be decided through a participatory process carried out at the village level. This process would allow farmers and communities to choose and decide on whether they wish to manage their plantations by themselves or in cooperation with forestry farms or other private planting entities 10  3. MONITORINGAND EVALUATIONOFOUTCOMES/RESULTS 31. Monitoring and evaluation (M&E) for the project would be based on a simple, inexpensive and therefore sustainable plan. The provincial andcounty PMOS,BO andnature reserve PMGs would monitor the project's progress and evaluate the overall project impacts. A detailed M& E plan has been drafted and was reviewed at appraisal and formally agreed to during project negotiations. A computerized baseline data system would be set up to monitor project implementation progress, the performance o f all afforestation entities, including progress in plantation establishment, detailed contractual arrangements with households and communities, as well as loan disbursement and reimbursement schedules. The comparison o f plantation growth rates o f smallholder forestry versus large-scale plantations would be an important element in this monitoring system. The GEF's protected areas Management Effectiveness Tracking Tool (METT) was used at the end o f project preparation to establish a baseline score for each o f the targeted nature reserves and its usage will be repeated at the mid-term review and before project closing. The experience and results o f the GEF co-financed biodiversity conservation components, and in particular the efforts to better integrate biodiversity conservation initiatives into forest resource and land management, will be thoroughly documented and the resulting reports will be shared with the Management Office and with the Steering Committee o f the China Biodiversity Partnership, as well as its Advisory and Coordination Group. 32. The project's progress and outcomes would be measured regularly andthe results would be included inthe project semi-annual reports. Under Component 4 o f the project, provisions have been made to buildthe capacity o fproject institutions to complete the requiredM&E activities. 4. SUSTAINABILITY AND REPLICABILITY 33. Experience from previous Bank involvement in forestry in China strongly supports the expectation o f sustainable impact. The recently completed (NRMP) and the existing (SFDP) have demonstrated good results in terms o f raising the quality o f staff and management and also institutionalizing project activities into the SFA system. The long-term institutional sustainability o f the GIFDCP will be achieved through a comprehensive program o f technical assistance and training to strengthen existing capacity and ensure the development o f long-term management skills in project management units, extension institutions, nature reserves, and local communities involved inmultiple-use activities inthe nature reserves. This program will make use o f management planning guidelines, training materials and curricula developed under the NRMP to identify needs and to design appropriate responses. In addition, the project will rely on existing administrative and organizational structures, especially at the local levels, to implement activities, which will continue after the end o f the project. Ecological sustainability i s being addressed through the implementation o f nature reserve management plans, environmental protection guidelines for plantations, and better management regimes for ecological protection forests. Social and cultural sustainability at the community level will be addressed by ensuring representation o f all ethnic minority groups and women in the development o f project activities. In addition, by integrating W M C interventions with N R M C activities in particular areas, some local communities will benefit from the livelihood enhancement opportunities that this component will provide inthe longterm. 11  34. The project's potential for replication i s high, assuming, as expected, that its experience is wholly or at least largely successful. Past experience has shown that the GoC is highlycapable o f replicating and scaling up successes, as illustrated by the following examples: (a) training manuals produced under the GEF-financed Nature Reserves Management Project are now being used by the SFA's training unit; and (b) reimbursement arrangements for plantation establishment introduced in earlier WB-financed afforestation projects i s now adopted by the SFA for its national programs. 35. The project design includes activities to disseminate and promote replication of its experiences and lessons within the GZAR, in adjacent provinces and nationally. For example, the improved biodiversity conservation management planning and community approaches that will be supported inthe target nature reserves will be disseminated as best practice andwill be replicated inother nature reserves inGuangxibythe GFB. This will be done by organizing and holding short training sessions/workshops for staff from other nature reserves in Guangxi during the later years o f the project. Replication inneighboring provinces will be encouraged by inviting nature reserve managers from these provinces to the workshops. Nationally, replication will be encouraged by inviting key staff o f the China Biodiversity Partnership Framework (CBPF) program to participate in the workshops, and by sharing the training and workshop materialswith the CBPF Steering Committee and Management Office. 5. CRITICALRISKSAND POSSIBLE CONTROVERSIAL ASPECTS 36. Based on the performance and lessons learned from prior Bank-financed forestry development projects in China, the risks that the project would not meet its development objectives are low to moderate. The expected risks and their ratings are summarized in the following matrix: RiskMitigationMeasure Key stakeholders may not support Plantation establishment and nature reserve conservation measures plans will be developed with the close participation o f all key stakeholders. Cooperation and contractual M During project preparation and through arrangements between farmers and farmer and community consultation, FFs may not reflect the preference appropriate contractual arrangements were and interests o f households or be identified and a model contract produced. transparent. These model contracts would be used by farmers and FFs. An effective monitoring system would be put inplace. The project planning entities may M A thorough assessment o f FFs (operational, not perform effectively or be financial and structural efficiency, financially sound. profitability, asset and liability) was carried out during project preparation. Regular audits o f each participating FF will be used each year to monitor performance and apply corrective measures. 12  Farmers may not have sufficient M The project will also provide payments for incentives for forestation activities. afforestation labor, which would generate revenue for households to meet their immediate needs for income requirements. Sufficient counterpart funds may N For the nature reserves and ecological forest not be available and project funds protection activities, most o f the counterpart may not be disbursed in a timely funds would be committed by the provincial manner government. For timber plantation activities, the ability to provide sufficient counterpart funds was a criterion for county/entities participation. Institutional capacity may not be N The project will provide substantial training adequate and project staff may not and capacity-building program. Guangxi has be technically qualified extensive experience with plantation projects, and implementation capacity i s not expected to be an issue. Overall Risk Rating M 6. LOAN~REDIT CONDITIONS AND COVENANTS a. ProjectImplementation. 37. A PMO and BO at the provincial level, and PMOSat county level, would be maintained in forestry agencies at all times during project implementation with staffing, functions and responsibilities acceptable to the Bank. 38. Nature reserve management plans for proposed project nature reserves incorporating a time-bound implementation schedule, a description o f civil works required, and an environmental assessment, carried out in accordance with guidelines acceptable to the Bank should be prepared and furnished to the Bank for comments no later than March 30, 2009. No civil works construction, such as that planned for the project nature reserve, shall commence untilithasbeenprovided for and agreeduponinsuchplan. 39. All afforestation sites should be established in accordance with afforestation models acceptable to the Bank; all afforestation activities (including technical design, production arrangements, and cooperation and contractual arrangements involving afforestation entities) would be carried out in accordance with guidelines acceptable to the Bank and the Provincial PMO would complete the review o f all county afforestation master plans in accordance with guidelines acceptable to the Bank by June 30,2007. 40. A participatory planting design should be used during project implementation to define, inter alia, farmers' preferences concerning forest species to be planted, contractual/operational arrangement between farmers and FFs, etc. 41. Guidelines for karst management would be drafted by March 30,201 1 13  b. Financial 42. The MOF would on-lend the loan to the Guangxi government with a maturity period o f twenty years including a grace period of five years, with all other terms and conditions as received from the Bank. 43. Sub-loan terms: sub-loans made to end-borrowers (individual farmers, farmer groups/cornmunities and small-scale entities) by forestry bureaus would have the following terms: (a) for fast-growing eucalyptus species, interest payments would be annual, starting at the end o f the first year in,which the sub-loan was made, and the recovery o f the principal would be made through balloonpayments at the end o fthe seventh year; (b) for forest species such as Quercus, Bamboo and Acacia species, interest payments would be annual, starting at the end o f the first year in which the sub-loan was made, and the recovery of the principal would be made after a six-year grace period in six equal payments from the end o f year seven to the end o f year twelve; and (c) for long-gestation species such as Chinese fir, Masson pine and broad leaf species, interest payments would be annual, starting at the end o f the first year inwhich the sub- loan was made, and the recovery o f the principal would be made after a six-year grace period intwelve equal payments from the end o f year seven to the end o f year eighteen. The interest rate to be paid by end-borrowers would be at a minimum equal to the WB rate to the GoC plus a surcharge to cover actual transaction costs and credit risks. In view o f the fact that: (a) sub-loans would be appraised, disbursed, monitored and recovered through existing FB offices and staff; and (b) no forest can be cut or sold without FB approval, estimates place the value o f this surcharge at about two percent. C. Environmentandsocial 44. All project activities would be carried out in accordance with the Process Framework for Mitigating Potentially Adverse Livelihood Impacts and the Ethnic Minorities Development Plan and the Resettlement Policy Framework prepared by the Guangxi Forestry Bureau, dated April, 2006. 45. All project activities would be carried out in accordance with the Environment Protection Guidelines andthe Pest Management Plan, bothpreparedby GFB, dated April, 2006. 14  d. Reportingandmonitoring 46. Semi-annual progress reports would be furnished to the Bank for review by February 28 and August 31 o f each year, commencing on August 31, 2007. The semi-annual progress reports shouldcontain the results of M&E activities performedpursuant to above. 47. A mid-term report on the progress o f the project implementation and proposed adjustment plan, ifneeded, as well as METT scorecard, would be furnished to the Bank by February 28, 2010, and a mid-term review would be conductedby June 30,2010. 48. An annual work and budget plan for the project for the next calendar year would be furnished to the Bank for review by December 31o f each year, commencing on December 31, 2007. D. APPRAISAL SUMMARY 1. ECONOMIC FINANCIALANALYSES AND 49. It i s calculated that the Economic Rate o f Return (ERR) o f the project would be about 24 percent and its Financial Rate o f Return (FRR) would be about 12 percent. The project would generate significant economic benefits. The major benefits would be directly generated by the additional wood andtimber products, which are inhighdemandinthe project area. The project i s expected to produce a total o f 25.1 million m3o f timber, 2.9 million tons o f fuel wood and 3.6 million tons o fbamboo poles, as well as a range o f non-wood forest products such as resin, bamboo sprouts, various types o f bark and fruits. Other major benefits from the project include the incremental sequestration o f carbon. This i s directly addressed inthe 4,000 ha o f watershed protection plantations where carbon emission rights are expected to be traded. However, all plantations under the project are expected to contribute to the sequestration o f carbon. The total incremental sequestration o f carbon i s estimated at 61.2 million tons, with a value o f between US$4 - 5/ton, constituting a major benefit o f the project. The other downstream and global benefits, such as the impact on soil and water conservation and on biodiversity conservation, are also significant. They are, however, not quantified in the economic analysis. The results o f the financial and economic analysis are summarized below anddetailed inAnnex 9. Component/Activity 15  50. Ifcarbon sequestration benefits are included, all project activities show IRRs above the 12 percent used as the reference value for the economic opportunity cost o f capital investment. 51. The financial cash flow o f individual project investments varies. Within the different types o f plantation, most fast-growing eucalyptus plantations are attractive due to their high and relatively quick financial returns. The relatively low attractiveness o f slow-growing timber, from a financial as well as an economic point o f view, suggests careful selection o fthis option. 2. TECHNICAL 52. The GFB has developed detailed afforestation models for timber plantation, multiple- purpose protection plantations, ecological forest and vegetation rehabilitation in the watershed and karst areas. National and international experience has been integrated in the project technical design. The selection o f species and planting sites is based on guidelines agreed with the Bank during project preparation, as follows: forest species were selected on the basis of market demand, farmers' preferences, growth potential, climatic and ecological suitability to specific site conditions, and environmental objectives. The sites were selected on the basis of the soil fertility, rainfall, temperature, erosion hazard and access to timber processing location. Those models drew on the implementation experience o f previous WB-financed forestry projects in China, and incorporated several changes to meet the specific aspects o f Guangxi. The WB reviewed and approved all the afforestation and forest rehabilitation models. The project design emphasizes the use o f improved genetic materials and improved nursery management practices, intensive silviculture to speed the growth o f commercial species, minimized rotation lengths, adaptive research, training and technical extension systems. Diversified species selection is emphasized to contribute to improvement o f the environment andthe stability o f landscape. 53. A BioCarbon pilot will be implementedfor multiple-function plantation establishment. The pilot, the first one in China, will explore and demonstrate the technical and methodological approaches o f a credible carbon sequestration and trade process by afforestation activities. The innovative methodological measures including baseline methodology and monitoring methodology have been reviewed and approved by CDM-EB. National and international experiences gained inforest restoration andwatershed management have been adopted. 54. The Bank also added its global experience inthe design o f the nature reserve management and biodiversity conservation. At present, no formal mechanism exists within the established administrative structures in China for the approval o f nature reserve management plans in the format which will be used under the GIFDCP. In order to facilitate approval o f the final management plan documents, the project will produce management plans in two separate volumes. The Strategic Management Plan will include details o f the baseline conditions, management strategy and objectives, and proposed zonation and management activities for the target site. The Operational Management Plan will include a detailed budget specifying investments (e.g., civil works and equipment) and recurrent costs (e.g., salaries, fuel, supplies and spare parts). Although both volumes o f each Management Plan produced by the project will be submitted jointly to the appropriate authorities for review purposes, only the Strategic Plan will require official endorsement. The Operational Plan will be used (with cross 16  referencing to the other volume) by the nature reserve authorities as the basis for soliciting funds from local, national and international sources as andwhen required. The project will also support the GFB to produce provincial forestry and conservation plans including funding priorities to implement nature reserve management plans. 3. FIDUCIARY a. Financial management 55. The Bank has conducted a thorough assessment o f the adequacy o f the financial management system o f the GIFDCP and has found that this management system can meet the financial management requirements stipulated in BP/OP 10.02 and provide, with reasonable assurance, accurate and timely information on the status o f the project in the reporting format agreed with the project and as required by the Bank. Training will be provided to project financial staff on an annual basis. The detailed financial management and disbursement arrangements are referredto Annex 7. b. Procurement 56. An assessment o fthe capacity o f the implementing agency to carry out procurement for the project was carried out by the World Bank's Office in Beijing in October 2005. The assessment reviewed its organizational structure and functions, past experience, staff skills, quality and adequacy o f supporting and control systems, and its legal and regulatory framework. The overall risk for procurement is low. The detailed procurement arrangements are referredto inAnnex 8. 4. SOCIAL 57. While this project principally aims to improve the management, sustainability, and environmental condition o f Guangxi forest resources, it also attempts to enhance the incomes o f local people and give them an incentive to participate. Most o f the project areas are in remote mountains and about half o f the areas are located in nationally/regionally designated poverty counties that are home to the poorest and most disadvantaged ethnic minority people in the GZAR. Inorder to make maximum use o f project opportunities and fully mobilize the target people's participation, a Social Assessment (SA) was carried out during project preparation to analyze stakeholder roles, diagnose potential risks and development opportunities, build local capacity and reinforce public consultation and involvement. In addition, more than 25,000 copies o f project information leaflets have been widely distributed to the communities o f the proposed project counties to inform the communities and households o f the projects' activities, loan terms and condition, to open options to households participating in the project and expected benefits, and to collect feedback on whether they would like to participate in the project and their preference on production and contractual arrangements. The feedback from the communities has been incorporated into the project design. The participation exercise will be continued during project implementation through a participatory planting design for the plantation establishment activities and through the strengthening o f local community relationships for the nature reserve management and rehabilitation o f ecological forest cover. The whole project design has therefore been made more efficient by its promotion o f local 17  ownership, ensuring equitable access to its benefits by poor farmers, vulnerable groups and ethnic minority peoples. The following are the key concerns identified by the SA and addressed by the project design. 58I Operations/Contractual Arrangements for Implementing Forest Plantations. Under the project, the FFs would cooperate with farmers and communities in carrying out the plantation establishment activities under different contractual arrangements. Currently, there are at least four types o f contractual arrangements: (a) a contract to lease the land with annual payments; (b) a contract with profit-sharing at harvest; (c) a contract with a mix o f annual payments and profit-sharing at harvest; and (d) a contract with a guaranteed amount at harvest. During pre- appraisal, the different contractual/operations arrangements were reviewed. It was confirmed that the menu o f options would remain open and that these options have been included in the project information leaflet disseminated to villages and households. It was agreed that details o f the contractual arrangements, such as inputs and benefit-sharing, would be included in the Participatory Project Design Manual as part o f the Project Implementation Plan (PIP). This would ensure that farmers make an informed choice. 59. Even though most households seem to prefer the prevailing practice o f a contract with annual payments, it was agreed that such a contract would be improved compared to the current practice o f long-term land leasing. First, the contract would include a clause for arbitration to help resolve disputes which may arise between households and the FF. Second, the contract would offer two options to allow for an increase inthe land rental fee during the contract period which ranges from 15-30 years. The first option would allow for the adjustment o f the rental fee after first cultivation, based on the current timber price. The second option would increase the rental fee by a negotiated percentage every five years until the end o f the contract period. The negotiated percentage would be agreed uponbefore the contract is signed. 60. Community Participation in Nature Reserve and Karst Rehabilitation: The project would promote better community relationships between the project nature reserves and communities to solve key problems together. Financing would be provided to support increasing target community and local government stakeholders' understanding o f biodiversity conservation through the development and implementation o f a community conservation education strategy and the provision o f training and technical assistance to communities to empower villagers to address key problems o f concern to both the communities and the nature reserve (e.g., participate in government programs for alternative livelihoods). The project will also provide modest funds for early interventions to decrease the threats from over-use o f the nature reserves' resources (such as for fuelwood), through targeted applications o f sustainable, practical, culturally appropriate and cost-effective measures (such as biogas) to reduce use from the nature reserves. 61. Gender Consideration in the Project Context. Women play important roles in rural production and family life in the project areas. Although both young men and women migrate for off-farm work, more adult women than men tend to remain in home villages. As the SA shows, most o f the households interviewed stated that decisions would be shared by husband and wife with regard to the land-use rights and forest activities on household hills, participation intree planting and technical training, and the responsibility for harvesting forest by-products. 18  62. Women prove to be enjoying a relatively highposition inthe family, and gender would not be a critical issue for households participating in the project. However, when households still rely on fuelwood for their energy needs, fuelwood collection for subsistence i s a heavy workload for women. Meanwhile, water collection remains a predominantly female task in many places. Therefore, women expressed strong interest in project activities that improve water access or reduce fuelwood collection, which would have a clear positive impact on them. In both the nature reserve and karst rehabilitation components, project design has been responsive to these concerns and has earmarked financing to address these issues. 63. Ethnic Minority Groups: Concerns on ethnic minorities are the focal point o f the SA. Nine o f the ethnic minority groups present in the project area fall into the category o f intended people under the Bank's social safeguard policy OD4.20 (now OP4.10). Most o f these ethnic minority peoples remain vulnerable compared to the rest o f the population due to a remaining gap with the mainstream society as well as due to their location inremote, disadvantaged areas. The SA studies proved that these groups have expressed a strong interest inparticipating inthe activities o f the project, and there are few limiting factors that would restrict their access. However, in each component a number o f risks o f potential negative impact from participation inthe project havebeen identified, some ofthem specific to ethnic minoritypeople. An Ethnic Minority Development Plan (EMDP) was developed to address all o f the issues specific to these groups and to indicate the ways for project activities to be designed compatibly with ethnic minorities' cultures. The EMDP was closely followed inproject design and will also be followed inimplementation period. See Annex 10 for more details. 64. The SA also screened for any possible impact on known archeological and historical sites and designated special localities with unique natural value that could be at risk under the current project design. The conclusion i s that no significant damage to non-replicable cultural property will occur under this project. 5. ENVIRONMENT 65. The GIFDCP has been assigned an Environmental Assessment (EA) category `Byin the Bank's classification system. To review the project's likely positive and negative environmental and social impacts, an EA (including an Environmental Management and Monitoring Plan - EMMP) covering possible impacts, mitigation measures, monitoring, and institutional strengthening, and a separate Social Assessment were prepared, building on the work o f similar previous projects in China. Overall, the project i s expected to generate significant environmental benefits because it focuses on high-priority natural resource management issues. The major potential impacts on the environment include: impact on vegetation and potential soil erosion due to temporary landoccupation at the plantingsites and land cultivation for site preparation for plantation; short-term impacts on native fauna; and pollutiodwaste management issues at the plantingsite. Ifthe mitigation measures proposed in the EMMP are implemented, the negative impacts during the implementatiodplanting phases will be minimized. 66. The components on Ecological Forest and Nature Reserves are expected to have positive environmental impacts, both directly by protecting some o f the most important remaining 19  natural forests and associated biodiversity in Guangxi and indirectly through protecting key forested watersheds. Any negative environmental issues arising from these components are expected to be insignificant and easily mitigated. 67. The Plantation Establishment component should also have positive environment impacts through the reduction o f pressure on natural forests as well as a decreased demand for imports o f forest resources from outside China and contributions to local community income. Negative environmental issues arising from this component are expected to be limitedinscope and easily mitigated. Nonetheless, these will require careful planning and execution principally because o f the wide coverage and small unit size o f the component. An objectively verifiable process o f screening o f sites identified for conversion to plantations under the component has been developed to ensure that they are outside o f intact forests, will not convert or degrade any natural habitats, andwill not adversely affect cultural property. Inaddition, a Pest Management Plan as well as a set o f environmental protection guidelines for plantation establishment (based on the Bank's on-going Sustainable Forestry Development Project) have been agreed, covering establishment and operations protocols to ensure that unintended environmental impacts are avoided, with special attention to issues o f pest management. The main features are briefly described above and discussed inmore detail inAnnex 10. 68. Date o freceipt o f final ENEMMP :April 2006 (submitted to Infoshop on 04/18/2006) Date o freceipt o f final SA : April 2006 (submitted to Infoshop on 04/18/2006). 69. Consultation on the project was thorough. Methods used included the posting o f public letters in project areas, publishing notices in local newspapers, placing notices in government offices and libraries, organizing meetings and interviews with villagers, holding five general symposia and two expert symposia (to which NGOs were invited), preparing public participation questionnaires and consulting with individuals, and receiving many telephone calls. In the rural areas, families were consulted about current uses o f farmlandforestland, pesticides and fertilizer application, living conditions, public health, project design and attitudes. The consultations were done incooperation with the Social Assessment Group. Three counties/cities (Qinxi, Laibing and Huanjiang)were selected for detailed interviews. A total o f 1800 questionnaires was sent to a wide range o fpeople, from government officials, technicians and project beneficiaries, o f which 1,678 were returned. Almost all respondents believe the project i s necessary although there were concerns over soil quality, erosion, pests and diseases, biodiversity, and short-term waste management issues. One-third o f the respondents did not think there would be any environmental impacts at all and that the project would benefit the environment and provide jobs. A number o f constructive suggestions were made such as developing mixed forests, ensuring that state and provincial laws were followed, promoting environmentally-friendly fertilizers, provide training opportunities, taking care when using exotic species, subsidizing those forestry activities with biological benefits, and clarifying use rights. The expert meetings also raised a series of suggestions such as ensuring that the biological impacts are minimized, ensuring that timber exploitation is minimized, avoiding monoculture o f trees, givingattention to land suitability for plantations, avoiding large areas o f plantations and looking for ways to use natural forest to act as corridors between blocks o f plantation. The project design accommodated all reasonable suggestions. 20  6. SAFEGUARD POLICIES Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.0 1) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.1 1) Involuntary Resettlement (OP/BP 4.12) IndigenousPeoples (OD 4.20, being revised as OP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Projects inDisputed Areas (OP/BP/GP 7.60)* Projects on International Waterways (OP/BP/GP 7.50) a. EnvironmentalAssessment, 70. A thorough EA was conducted, a summary o f which i s provided in Annex 10. The EA is the result o f work by the experienced group o f experts from the Guangxi Environmental Protection Research Institute (GEPRI) and the Forestry College o f Guangxi University in Nanning, with additional help from an international consultant. The EA is complementedby a separate SA. The EA has an EMP which includes Environmental Protection Guidelines and a Pest Management Plan for the timber plantations component. b. Pest Management. 71. Increasing the area o f plantations could increase the incidence o f pests and disease which, in turn, could result in an increased use of pesticides. The SFA advocates and follows an integrated pest management (IPM) approach which i s adopted in turn by the GFB. Thus the use of: (a) non-chemical methods o fpest and disease control as a first option; and (b) chemicals as last resort based on objective monitoring o f pest and disease levels are promoted. These procedures have been institutionalized within the project in the form o f a Pest Management Plan which includes a training program for participating households and forestry bureau staff responsible for project implementation. All chemicals recommended by GIFDCP fall within the World Health Organization's (WHO) hazard categories I1 (moderately hazardous), I11 (slightly hazardous), or U(chemicals unlikely to present acute hazard innormal use). c. InvoluntaryResettlement. 72. The social specialists team investigated the involuntary resettlement and land acquisition issues o f the project. No involuntary population relocation or land acquisition is expected under the project. However, some potential loss o f land or assets by individuals in a community might occur due to small-scale infrastructure construction (e.g., village roads, storage sheds, etc.), which will be identified through a community-based planning process. A Policy Framework for Resettlement and LandAcquisition has hence been prepared by the SA 'By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputed areas 21  team in accordance with the Bank safeguard policy OP4.12 (Involuntary Resettlement), to establish the agreed principles and procedures to be followed in the event that development activities requiring land acquisition are determined during project implementation. Moreover, in compliance with the policy to adequately address possible adverse impacts on people's livelihoods arising from new restrictions on access to resources in the nature reserves or hill closure areas under the project, a Process Framework for Mitigating Potential Adverse Impact has been developed by the SA. The Process Framework will ensure that project implementation includes a participatory process used for local people to avoid significant restriction impacts under the nature reserve management and watershed rehabilitation components, select and agree on measures to mitigate those impacts which cannot be avoided, and resolve any conflicts. Boththe PolicyFramework andProcess Framework have beenmade available in the Bank Infoshop and to the public in county PMOs and Township Forestry Stations inthe project areas before project appraisal. d. Indigenous Peoples. 73. Guangxi i s a Zhuang Minority Nationality Autonomous Region, where the number of Zhuangpeople is more than 15 million, accounting for 33 percent o f the total. The other ethnic minorities account for about 5 percent, including mainly Maio, Yao, Dong, Maonan and Yi. In the 42 project counties, nine o f these ethnic minorities are present, they represent 593,000 beneficiaries or 34.9 percent o f the total project population. The project SA was carried out to investigate and assess various situations o f the minority peoples by the expert team including a minority nationalities expert and an EMDP was developed. Led by the SA exercise, extensive consultation has taken place with the dissemination o f project leaflets and sample application forms inall proposed communities o fproject counties. More than 130 villages were intensively consulted by the SA team and county PMOs, and more than 1500 households have been surveyed by questionnaire. As the SA indicates, most o f the ethnic minority groups in the project areas remain vulnerable in terms o f poverty incidence and difficult natural environments, and all o f them express a willingness to participate in project activities. The EMDPtherefore sets out the practicalsteps that will be taken to ensure: (a) that ethnic minority groups have equitable opportunities to take part in, and fully benefit fiom, the project; and (b) that the risks o f potential negative impacts identified are avoided or minimized. Before project appraisal, the EMDP was made available inboth the Han and local ethnic minority languages (e.g., the Yi written language) in the related county PMOdLibraries and Township forestry stations. It has also been made available to the public at the WE3 Infoshop. e. Forestry. 74. The project fully complies with the Bank's Forest Policy. It would not finance plantations that involve any conversion or degradation o f critical natural habitat, including adjacent or downstream critical natural habitats. Project plantations would be established on unforested sites or on lands already converted (not converted in anticipation o f the project). The project would not introduce invasive species that could pose a threat to natural habitats. While the project would not finance any type o f forest harvesting, it has made provisions to finance: (a) the training o f Forest Bureau management and staff in forest certification; and (b) the implementation o f a step-wise forest certification pilot. 22  75. Duringproject pre-appraisal, the Borrower and the WB team agreed on the principle that certification o fproject plantations would not only bringhigher prices for the wood products but would also broaden its market base, since the demand for certified wood inChina is increasing. Because o f these potential benefits, the GFB and the Bank task team have agreed to implement a step-by-step forest certification pilot under the project. Sensitizing the Borrower to forest certification started during project preparation when the WWF-China Program was invited to conduct a workshop to introduce the concept of forest certification to GFB, PMO, and State Forest Farms participating under the project. This workshop took place in December 2005. During project pre-appraisal, the pilot certification process was initiated by inviting (through WWF-China) a Chinese forest certification expert to hold more in-depth discussion with the GFB and one State FF on certification procedures and requirements (including potential costs associated with certification). After completion o f this first step, it was agreed that the next step would be an informal pre-assessment o f a candidate FF @e., Gaofeng Forest Farm) to determine more precisely the gaps, the steps required, and the investment costs needed to meet the required certification standards. The pre-assessment was carried out in July 2006. Completion o f further steps would be evaluated by Gaofeng FF and the GFB on the basis o f their short-term and long-term financial and economic viability and impact on Gaofeng's operations. According to the GFB,Stora Enso, a multinational private sector company active inthe Guangxi Province, has shown some interest inparticipating inthe pilot certification to be initiated inthe Gao FungFF under the project. 76. The GoC has made a commitment to move toward sustainable management o f its natural forests and to retain as much effective forest cover as possible. The project focuses on the development o f small blocks o f plantations to relieve pressures on natural forest resources and to help improve watershed forests and forest nature reserves The site screening process undertaken as part o f the EA (see Annex 10) would be continued duringproject implementation to ensure that plantations would be established on sites outside areas o f intact forest. 7. POLICY EXCEPTION READINESS AND 77. As designed, the project is hlly consistent with Bank policies and no exceptions to policy are required. 23  Annex 1: Country andSector Background CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject A. Background: 1. The People's Republic o f China (PRC), the most populated and largest developing country, is poor in forest resources. Its forests cover an area o f about 175 million ha or 18.2 percent o f its land area. This i s equivalent to 0.13 hectare per capita, which is significantly below the world average o f 0.6 hectare per capita. The total standing volume o f wood in the country is estimated to be about 12.5 billion cubic meters or about 9.42 cubic meters per capita. This represents only 12.6 percent o f the World's average o f 72 cubic meters per capita. Inthe past decades, more than seventy percent o f timber came from harvestingprimary and secondary natural forests and less than 30 percent from plantations. As a result o f its rapid economic growth and rising population, China is now confronted with increasing environmental degradation and challenges. 2. Environmental degradation i s one o f the fundamental constraints to China's sustainable economic and social development. Water and soil erosion is very serious inmany watersheds. Erosion has had an impact on areas that cover nearly 3.6 million square kilometers (37 percent o f the total land area). Desertification i s estimated to have had an impact on more than 1.7 million square kilometers (18 percent o f the total land area). It is estimated that only 16 provinces in China still have some natural forest cover. Most natural forest habitats have been reduced to small and isolated fragments; this inturnhas led a significant proportion o f the local fauna and flora to become threatened. 3. The gap between timber supply and demand has recently become huge. To satisfy the rapidly growing demand o f its industry and markets, the country relies on imports. Currently, annual timber consumption exceeded supply by approximately 80 millioncubic meters. At the current pace o f economic development, it i s estimated that the gap between wood demand and supply will reach 120 million cubic meters by 2010. The launch by the GoC o f the NFPP in 1998, which put inplace a logging ban on natural forests, has further widened the gap between timber supply and demand. This has also led to a significant increase in the import o f timber and wood products from neighboring countries and elsewhere. Trade statistics show that in 2004 China imported about 26.3 million cubic meters o f logs and about 82.7 million cubic meters o f sawn timber, veneer, plywood, furniture, wood pulp, paper and paperboard and other wood products, which represent more than 545 percent o f the logs, 302 percent o f the wood board and 176 percent o f the wood pulp and paper products that were imported in 1998 before the loggingbanwas instituted. 4. The management o f forest resources i s still poor inmany areas o f China and the quality o f existing natural and planted forests i s low. According to the national forest inventory carried out between 1999 and 2003, the average forest stand volume in China i s about 50.4 cubic meters per hectare, or only about 50 percent o f the world average. Chinese forest land productivity and ecological functions need to be improved significantly through the introduction and adoption o f sustainable forest management approaches and advanced technologies. 24  5. To address the above issues and maximize the positive contributions o f forestry to the environment and to the national economy, the GoC formulated a "Sustainable Forestry Development Strategy". This focused "the four shifts", as follows: (a) the shift from harvesting wood from natural forests to harvesting wood from plantation forests; (b) the shift from deforestation for the purpose o f land reclamation to conversion o f steep cropland to plantation forest; (c) the shift from non-fundedmanagement o f ecological forest to fbnded management o f these ecological forest; and (d) the shift from giving the public sector the exclusive right to develop forest resources to widening that mandate to include the participation o f other social actors. The "four shifts" have brought about a historical and fundamental change in China's forestry sector development strategy. To implement these changes, the GoC launched the following six forestry development programs: a. The Natural Forest Protection Program (NFPP). The NFPP established a complete logging ban on the natural forests along the upper reaches o f the Yangtze River and the upper and middle reaches o f the Yellow River, and significantly reduced the allowable in cutting key state-owned forest areas in Northeast China and Inner Mongolia. The NFPP also mandated local governments to protect natural forests in other regions o f the country and aimed at rehabilitating and developing natural forest in these regions. b. The Three Northern Areas and Yangtze Basin Shelterbelt Development Program. This program was designed to establish key forest shelterbelt systems in China's three northern areas (northwest, northeast and northernpart o f China) to control desertification and to reverse the deterioration o f the ecosystems in those areas. The Program also aimed to develop shelterbelts inthe Yangtze River Basin, which included controlling water and soil erosion inthe Pearl River and HuiRiver watersheds. C. The Conversion of Cropland to Forest and Grassland Program (also known as the Grainfor Green Program). This is a strategic program aimed at controlling and reducing soil andwater erosion insteep mountainous areas throughout the country. d. The Beijing Area DesertiJication Control Program. This program was established for the purpose o f reducing the impact o f wind erosion and shifting sand dunes on the environment around Beijing and to establish an ecological shelterbelt around the outskirts o fBeijingand Tianjin city. e. The Wildlife Conservation and Nature Reserve Development Program. This long-term program focuses on biodiversity conservation and wetland protection. It promotes genetic conservation and the establishment o f gene banks, biodiversity conservation, environmental protection for wetland ecosystem and the establishment o f nature reserves. J: The Fast-growing and High-Yielding Timber Plantation Base Program. This program was designed to address the widening gap between the supply o f and demand for timber products. It is an afforestation program aimed at increasing timber 25  plantations to meet the demands for wood-based products, It also contributes to reducing the logging pressure on China's remaining natural forests. Upon completion o f its implementation, the program i s expected to generate about 130 million cubic meters o ftimber annually. 6. The GZAR is located in the poor southwestern part o f China. Because it is located in sub-tropical and tropical zones, with high precipitation and temperatures as well as adequate soils and a long growing season, the GZAR has near perfect agro-ecological conditions for growing forest trees and producing large quantities o f timber. Currently, the annual timber consumption in the province is approximately 8 million cubic meters compared to an annual production o f about 5 million cubic meters. Based on economic and wood-related industrial development, demand for timber in 2010 will reach about 13 million cubic meters per year, whereas supply is expected to remain at about 80 million cubic meter per year. Duringthe last few years, the province has been designated by the SFA as one o f four key timber production basedareas o f China. In formulating their economic development strategy, the GZAR authorities have adopted a land use development policy that strongly promotes afforestation. Its industrial development i s based in part on wood product processing and includes several paper mills and furniture manufacturing facilities. 7. To implement its afforestation policy, the GZAR decided to use a combination of private sector partnerships/concessions (Stora Enzo, etc.) and its provincial and county level FFs. While they are the primary instruments for implementing the public sector's forestry policy, these public sector institutions have not been able to fully engage and their contribution to the development o f the sector remains muchbelow its potential. The low contribution o f the FFsto the development o f the forestry sector is due to: (a) their weak financial capabilities; (b) the lack o f local sources o f credit for the forestry sector; and (c) structural inefficiencies, which include a low level o f production and management technology and high cost o f production due to overstaffing and high labor charges. Inorder to energize its FFs and increase afforestation and timber production, the GZAR government i s inneed o f assistance to improve the financial capacity o f its FFs and reform their operation to make them into technologically advanced commercial enterprises. 8. Over the last years, the reform inland use arrangement has been widespread among all FFs. These reforms, which have taken a variety o f forms, lead to better incentives for improving quality o f afforestation works and better prospects o f profitability in afforestation projects. The concrete definition o f different types o f reform o f FFs include: (a) contracting state-owned forest land by SFF workers for afforestation activities, which became a form o f settlement with the semi laid-of workers; (b) share-holding and/or partnership: this typically involves a group o f workers contracting out a large piece o f forest-land under SFFs for management. Each involved worker pays investment to the partnership and owns certain shares based on his/her investment, while the farm also owns a certain amount o f shares. This arrangement is also widespread within most of the farms and on the farm-community corporation land; and (c) individually-managed forest-land for orchard growing, which is made mainlyto provide farm workers a basic means of living(much like the private plot allotment in the rural area). Workers own all the products o fthis type o fprivate operation. 26  9. Currently, reforms in SFFs have mainly occurred internally under SFFs. SFF management re-structure has been put inthe government's agenda, which will be implemented inthe next a few years. The M h e r reform will include the following steps. First, the existing SFFs would be re-categorized into two types: (a) Ecological and Public Interest (EPI) SFFs, and (b) Commercial SFFs. For EPI SFFs government funding will increase because major functions of these farms will be provision o f ecological services. For Commercial SFFs, a higher level o f independence and less direct government funding will be expected, for the reason that these farms will be operating mainly for economic ends. Second, the main form o f new institutional arrangement for Commercial SFFs will be share-holding system, the private sector would be allowed to buy out some o f the state-owned assets and participate in management of SFFs and their forest resource. Third, all social functions o f the SFFs would be transferred to local government so that newly-formed enterprises from SFFs would be able to operate more efficiently. 10. Nearly 50 percent o f the Pearl River watershed basin is located in the northern and north-eastem parts o f Guangxi which has the richest limestone flora and fauna resources in China. The GZAR is therefore an important contributor to the protection o f the Pearl River watersheds and the karst ecological systems. However, because o f its slow economic development, the province lacks the resources to implement the soil and water conservation measures, including the plantation o f multi-species forests, for the protection o f its watersheds. 11. Inaddition to the negativeimpacts resulting from illegal logging and over-use ofNTFP by poor rural dwellers, the strong demand for timber is also increasing the pressure on Guangxi's natural ecosystems and threatening its fragile biodiversity. Moreover, poor management and lack o f protection o f natural forests have resulted in the deterioration o f hydrological systems, serious soil erosion, and major habitat degradation, fragmentation and loss. Many animal and plant species are now threatened; some are facing near extinction, especially inthe large limestone areas inthe western part o f Guangxi. This situation has made comprehensive and integrated development, management and protection o f forest resources very highpriorities o f the GZAR Government. 12. In accordance with the National Forestry Development strategy, the GZAR recently launched a number o f forestry development programs to increase timber production, manage watershed to reduce soil and water erosion and protect natural forest and biodiversity. These programs include: (a) the Intensively Managed Timber Products Basis Development Program; (b) the Integrated Management for the Protection Forests in the Upper Reaches o f the Pearl River Program; and (c) the Natural Regeneration o f Vegetation on Karst HillProgram. These three programs will contribute to achieving both the provincial and national goals o f managing and developing forest resources in a sustainable manner. During the period from 2005 and 2010 and in accordance with its forestry development programs, the GZAR plans to increase timber plantations by 870,000 ha and bring 667,000 ha o f watershed areas under effective protection. To reach these goals, the GoC and the GZAR Government are seeking the Bank's financial andtechnical assistance to support the Guangxi forestry development programs. 27  Annex 2: Major Related Projects Financedby the Bank and/or other Agencies CHINA: Guangxi Integrated Forestry Development and Conservation Project Sector Issue Project LatestSupervision(PSR) Ratings :Bank-financedprojects only) BankGroup-financedinChina: Implementation Development Progress UP) Objective (DO) Afforestation, management of natural forests, and biodiversity S S conservation. ForestryDevelopment in Poor Areas Project Sustainable Forestry S S Development Project IFC-Developing Wood Products Processingin S S Guangxi Province Bank-Financed(inother Countries) Cambodia -Forest Timber concessionplanningand Concession Management U U management. and Control Pilot Project Linkingbetter managementand Vietnam -Forest conservation with local rural Protection and Rural S S development Development Project Lao PDR-Sustainable Forestry and Rural U S Development Project Smallholder plantationestablishment Vietnam-For est Sector and sustainable financing Development Project S S mechanismfor biodiversity conservation. Other DevelopmentAgencies China -European Union-Natural Forest Natural forest management Management Project S S IP/DORatings: HS (Highly Satisfactory), (Satisfactory), U(Unsatisfactory), HU (Highly Unsatisfactory) 28  GEF-supportedProjects 1. Sustainable Forestry Development Project (existing). The main objectives o f the SFDP are the development and adoption o f innovative management approaches to better manage some of the last remaining forested areas in China and to establish plantations to relieve pressures on those forest resources. The approaches developed for and applied to the protection of sustainable management of natural forest resources inpilot areas in China will provide models for wider application under the government's national NFPP. The SFDP has three components: (a) Natural Forest Management; (b) Plantation Establishment; and (c) Protected Areas Management. The ProtectedAreas Management Component is financed by the GEF. 2. The GEF grant will: (a) enhance the management o f priority nature reserves located inthe logging ban areas o f the NFPP which are o f global significance for biodiversity conservation purposes; (b) identify and survey the wildlife inareas important for biodiversity conservationin Western Sichuan which forms part o f a globally important eco-region known as Southwest China Temperate Forests; (c) increase participation o f communities innature conservation and the sustainable management o f natural resources; (d) strengthen the capacity o f institutions, particularly at the provincial and reserve levels, to manage the natural forestdnature reserves sustainably; and (e) support key protected area andnatural forest-related policy studies. 3. Wetland Biodiversity Conservation and Sustainable Use Project (existing). This project will remove barriers to effective wetland conservation at four demonstration sites (Sanjiang Plain, Ruoergai Marshes, Yancheng Coast and Dongting Lakes) of global biodiversity significance. These barriers include: (a) a lack o f integration o f wetland management and biodiversity conservation into development planning; (b) no institutional mechanisms for multi-sectoral wetland management; (c) limited awareness o f wetland values and functions at all levels; (d) lack o f examples o f sustainable development o f wetland resources and involvement o f local communities; and (e) lack o f technical capacity at national and local levels to manage and conserve wetlands and their biodiversity. A national coordination component will ensure that lessons learned from this project will be appropriately transferred to other wetlands throughout the country. GEF support will be closely allied with new GoC programs that conserve biodiversity and ensure locally sustainable development. 4. Multi-agency and Local Participatory Cooperation in Biodiversity Conservation in Yunnan's Upland Ecosystem (existing). This project addresses threats to mountain ecosystem biodiversity in two sites in Yunnan Province. The principal constraining factors identified include: (a) poor inter-sectoral planning and management; (b) limited involvement o f local communities in conservation planning and management; and (c) a lack o f capacity, awareness and information required to conserve biodiversity. 5. Inorder to address these issues, the project will initiate five sets o f complementary activities related to (a) the development o f inter-sectoral planning and management mechanisms; (b) capacity building for the Wuliangshan Reserve Co-management Council and the Qinshan Watershed Management Council; (c) the promotion o f ecologically-sustainable livelihoods; (d) public awareness, training and education; and (e) community-based biodiversity inventory and monitoring. 29  6. Nature ReservesManagement Project (completed). The main objective o f the NRMP was to enhance biodiversity conservation through innovative approaches to organization, planning, skills development, information management, and the integration o f local communities into reserve management. It was designed to: (a) to strengthen conservation, management and sustainable use o f ecosystems and habitats that have been identified as national priorities by the GoC in the Biodiversity Conservation Action Plan; (b) to increase the involvement of local communities in the planning and management o f nature reserves, addressing in particular the social and economic requirements of poor households in poverty areas; (c) to introduce an innovative economic incentive program to reduce biodiversity land-use conflicts in critical habitats that involves enterprise restructuring and job redeployment; (d) to build institutional capacity for the preparation o f conservation plans and the implementation o f sustainable land- use programs; (e) to develop new research mechanisms and priorities to encourage scientific excellence and facilitate international exchange; (0to expand the role o f local and international NGOs in sector planning and management; and (g) to promote conservation o f endemic species, such as the giant panda and other plants and animals unique to China. Project areas include the Xishuangbanna (Yunnan), Shennongjia (Hubei) and Wuyishan (FujiadJiangxi) Nature Reserves; the Poyang Lake (Jiangxi); and the Qinling mountains o f Shaanxi Province (Foping, Niubeiliang,Zhouzhi andTaibaishan cluster o f reserves). 30  Annex 3: ResultsFrameworkandMonitoring CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject ResultsFramework PDO/Global OutcomeIndicator Use of OutcomeInformation EnvironmentObjective To improve effectiveness o f 1.1. Project-supportedtimber 1.1. PY2-3. FBs andFFs would forest management and plantations achieve higher timber evaluate plantation quality (success institutional arrangements in volume growthper hectare than non- rates) and improve technology as timber production, watershed project plantations areas. relevant. protection andnature reserves management inselected areas 1.2. Project FFemployees are able to 1.2. PY6. FFs and FFs workers to o fthe GZAR. engage inself employment. evaluate achievement and find other avenue o f self employment, if needed. 2.1. Increase invegetation cover in 2.1. PY4-5. GFB and FBs to monitor targeted watersheds at project impact o f forest closures and completion. ecological forest plantations to document results and to guide ecological forest management and policy. The GE objective is to 3.1 Populations o fkey indicator species 3.1. PY3-6. Changes inbiodiversity, improve the conservation o f (e.g., primates & turtles) or areas o f resource use and threats usedto the globally significant limestone forest inat least 4 out o f 5 guide local decision-making and to biodiversity o f the GZAR. nature reserves remain stable or increase. adjust nature reserve management plans. IntermediateResults ResultsIndicatorsfor Each Use of ResultsMonitoring Oneper Component Component ComponentOne: ComponentOne: ComponentOne: Expanding timber plantations: 1.1Afforested area increases by 200,000 PY2-5. GFB and PMOSmonitor Timber production by FFs and ha with a tree survival rate above 90%. plantation establishment goals, and HHsincreasesinthe project improve implementation and area. 1. 2 100percent o f all contractual techniques to achieve targets. arrangement per type (operations models) recordedinproject M&E PY2 Farmer preference for different database. contractual arrangements usedto 1.3 Numbero fparticipating farm adjust participatory design manual. households reached. ComponentTwo: ComponentTwo: ComponentTwo: Increasing Ecological Forest 2.1 Area inha o f multiple protection 2.a PY2-3. ForesUvegetative cover i s Cover: forest established. monitored systematically to define Watershed protection land and 2.2 Tons o f carbon sequestered. the best combination o f soil and water conservation improved water conservationpractices. and carbon sequestration increased. ComponentThree: ComponentThree: ComponentThree: Improving Management o f 3.1 a Average Nature Reserve PY2-3. Nature Reserve Management Nature Reserves Management Effectiveness Tracking Plan implementation performance Management effectiveness o f Tool score for five target reserves and outcomes evaluated and plans five target nature reserves improves from 43 to 60 at mid-termand strengthened as needed. improved. to 70 at comdetion. PY5: With-and without- project 31  3.lb. Project-supported nature reserves interventions evaluated andresults maintain a higher METT score than a used to guide future decisions bythe sample o f comparable non-project nature autonomous region. reserves. 3.1~.Measurable improvement occur on PY3-4: Actual versus planned target at least one pre-defined indicator for values are compared to guide nature each o f the five project nature reserves reserve management decisions. (see targets inmonitoringtable below). New sites with high 3.2. Two new highbiodiversity value PY4-5: Biodiversity values o f new biodiversity value identified sites identified, threats analyzed, sites confirmed. Statusheat and protection initiated. conservationplans preparedand analysis guides management plan implementationbegun. design, ComponentFour: ComponentFour: ComponentFour: Enhancing Institutional and 4.1 Provincialforest strategy formulated PY3-4. Project monitoring system Management Capacitv and adopted by Guangxi authorities. and indicators evaluated andresults ProvincialForest Bureau, usedto improveproject County Forest Bureau, FFs, 4.2 Number o f staff and households implementation, focus and impact. HHsandnature reserve trained. management entities have the skills needed to formulate 4.3 Numbero f guidelines and technical strategy and to develop and advisory bulletins developed and sustainably manage forest disseminated. plantations, watersheds and nature reserves. 4.4 Monitoring and evaluation system performance evaluated periodically and improved. 32  l o " -I- s3 *I w 1: 2 I 00 3 I s vr I 3 I M m , 2 + 0 0  I 1 9 t8 5 I $2 $ & E A L 8 c! + m+ W 2+ 3 W 2 z Y hl ----+-- + 3 9 16 2+ 9 + W 2Y z+ z .B  3 4 4 P 0 2 3 u - 0 2 3 IA m 0 E: - 0 U $ Z 3  Annex 4: DetailedProjectDescription CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject A. ProjectArea 1. Guangxi is a Zhuang Autonomous Region (GZAR) with a large population o f ethnic minority people from 54 different ethnic groups. Together these ethnic groups comprise 18 million people (38 percent o f GZAR's total population). The vast majority (86 percent) of ethnic minority people in Guangxi are Zhuang. Ten other groups are recognized as native nationalities: the Yao, Miao, Dong, Mulao, Maonan, Jing, Yi, Shui, Yilao and Hui. The other 42 ethnic minority groups present in Guangxi are non-native minorities with a total population o f less than 20,000. Nine o f the ethnic minorities groups present inthe project area are native nationalities. 2. Karst hills cover 38 percent o f the GZAR's total land area. These karst areas are renowned for their combination o f humanpoverty and fragile, often degraded vegetation cover. The issues of poverty reduction and environmental rehabilitation inGuangxi are closely linked. Degradation o f the GZAR's natural habitats i s a complex historical process that was not slowed untilthe mid-1990s when there was massive migration out o f karst regions by the poor to the off-farm labor market. This helped to reduce pressure on local resources, and farming in Guangxi's karst areas i s now mostly a part-time occupation. At the same time, a series of provincial government programs was initiated to improve the standard o f living in karst areas and enhance the quality o f natural forest habitats. The Ecological Forest Cover and Nature Reserves Management Components o f the GIFDCP are directly linked to the government's program o f encouraging the rehabilitation o f natural vegetation on Guangxi's karst hills. 3. The project areas are located in42 counties. Plantation establishment activities will be carried out in 37 counties and ecological forest management activities will be undertaken in25 counties, including two counties which would participate in the BioCarbon pilot program. In addition, five nature reservesklusters will participate in the nature reserves component. They are Nonggang Cluster, DamingshadLongshan, Maoershan and Mulun Nature Reserves, and one as-yet unidentified cave site to gazette as a protected area in order to capture the globally- significant biodiversity found underground inthe exceptional cave system o f Guangxi. To the extent possible, counties with proposed nature reserves also include timber plantation establishment and ecological forest activities to enhance biodiversity values and contribute to local livelihoods in the areas adjacent to nature reserves in order to reduce pressure on the forest resources. B. ProjectComponents Component 1:ExpandingTimber Plantations(Total Cost US$171.10 million) 4. The aim o f component is to establish new timber plantations in an economically, environmentally and socially sustainable way to meet the growing gap between domestic supply and demand, to generate new employment and income for forestry farms and rural households, and to improve environmental management by the reduction o f pressure on natural forest and decrease o f timber product inputs from outside o f China. The key activities are: (a) 36  establishment o f timber plantations; and (b) provision o f related technical support services such as planting stock development, nursery management and extension o f the improved technologies for plantation establishment andmanagement. 5. The timber plantations sub-component would finance the establishment of about 200,000 ha o f timber plantations with high-quality plantingmaterials and modern management including incorporation o f environmental considerations into plantation management for fiber and pulp, plywood and construction timber production to meet forecast national and local shortages o f wood. Specifically, funding would be provided for: (a) all labor requirements for site preparation and planting inthe first year, as well as maintenance duringthe first three years o f plantation establishment; (b) materials and equipment, including seedlings, organic and chemical fertilizer, and simple agricultural tools; and (c) indirect costs related to survey and design at the start o f the project and environmentallsocial management and monitoring. The plantation sites are located in 37 counties (of which 33 counties applied through the forest bureaus and four additional counties where only FFs would work with individual farmers) and spreadover 22,400 sites with an average size o f 8 ha. Very few sites are larger than 100ha. 6. Species, planting sites and project areas have been selected on the basis o f guidelines agreed during project preparation. The 11 species were selected according to farmer preferences, growth potential, climatic and ecological suitability to specific site conditions, technical experience and acceptance in China, environmental objectives, and product marketability. They are clones o f Eucalyptus, also Quercus grifJithi, Q acutissima, Betula alnoides, Acacia mangium, Liquidambar formosana, Pinus massoniana, and Cunninghamia lanceolata, and the selected bamboos are Phyllostachys pubescens, Bambusa pewariabilis, Sinocalamus latiflorus, andDendrocalamopsis grandis. The sites were selected on the basis o f soil fertility, rainfall, temperature, erosion hazard, and economic access to end-use markets. All project sites have been identified, and detailed technical design plans for the first year plantations have beencompleted before project appraisal. 7. All plantations would be established in accordance with afforestation models for each species agreed with the Bank, which cover technicallsilvicultural prescriptions, growth targets, establishment costs, and financial and economic rates o f return. There are 14 models; 11 for timber tree species; two for bamboo establishment and one for bamboo rehabilitation. These models draw on the implementation experience o f previous Bank-financed forestry projects in China, and incorporate changes to meet the specific Guangxi situation, including lower planting densities in order to promote shorter production cycles; faster income generation; revised fertilizer application rates that reflect the specific nutrient requirements o f the sites to stabilize the fertility o f soil; less intensive site preparation, smaller planting holes and reduction in tending times to decrease labor requirements and minimize environmental damage on steep sites; and greater reliance on clonal planting stock and other improved planting materials in order to promote faster tree growth. Dueto variable conditions inthe project areas, the generic afforestation models may be adjusted based on local site conditions and market opportunities but subject to review and approval by GuangxiPMO. The Bank would review andapprove all the affforestation models. Assurances were obtained at negotiations that all project plantations would be established in accordance with models acceptable to the Bank, and GFB would complete the review o f all technical design plans for the plantation sites, in accordance with 37  guidelines acceptable to the Bank by April 20, 2007. The afforestation models for individual species are summarized inthe PIP. 8. In contrast with previous Bank-financed plantation projects in China, this sub- component would also better link timber production, marketing and processing by closely linking the selection o f the plantation site location, the planting design and production arrangements to the existing and approved timber processing industries. A market analysis of timber supply and demand was carried out by CIFOR in collaboration with GFB to assess GZAR plantation resources and profitability, the requirements o f the wood processing sector, and risks involved. The major conclusions were: 3.6 million ha o f landis potentially available inall tenures for planting; the region's wood industry is well situated for expansionbut already suffers from a severe supply deficit which is growing rapidly; locally grown wood has a cost advantage over imported wood; relatively high plantation costs reduce international competitiveness o f the wood industry; the wood industry is well positioned for access to domestic andAssociation o f South East Asian Nations (ASEAN) markets; andthere i s potential to increase value-added in industry products. GFB has used this study to make an optimal species selection, design economic planting models, concentrate plantations on economic site types and locations, and incorporate the reduction o f biological risks into the project design. The study also underscored the importance o f correct plantation site location according to the usual biological criteria for each species, and also economic return criteria, and the extraction and transport costs to the utilization industry. 9. The main afforestation entities are provincial and county-level FFs, communities and households, o f which FF is accounting for 53.6 percent, communities about 15 percent and households about 31.4 percent o f the total loan. Communities and individual households would participate in the planting activities separately; the FFs would largely cooperate with farmers and communities in carrying out the plantation establishment activities under different "plantation production arrangements" which would bring more benefits to farmers. The project would address the problem o f fragmented production by testing different models o f stakeholder organizations and contractual systems creating economies o f scale, which are necessary for efficient supply chains to enable new products to reach the markets. The state FFs are in the best position to provide and extend the latest technologies offering better returns on the landas well as access to the timber market. A concentration o f production yielding marketable quantities o f timber products, which are commonly achieved through these contracts, reduces transaction costs. In addition, since demand for certified wood in China is increasing, the possibility o f piloting forest certification could potentially bring additional benefits to the households. 10. The technical support services sub-component would finance: (a) planting stock development and up-grading o f four FF forest nurseries; and (b) infrastructure requirements o f afforestation. More specifically, (a) The Planting Stock Development Program would include the introduction o f improved genetic materials and nursery management technologies, and the production o f about 424 million seedlings required under the project, o f which about 388 million seedlings are for timber plantation establishment and about 36 million for multiple- 38  purpose protection plantation establishment. The total project seedling requirement would be grown by existing nurseries operated by state FFs, collective FFs, or specialized households under contract with FFs or county PMOs. Every participating county would have one central nursery and several smaller nurseries located near plantingsites inorder to minimize transport distance and handlingo f seedlings prior to planting. It i s plannedto use 33 central nurseries and 30 smaller nurseries. These have been inspected and chosen according to detailed criteria and certified for project tree stock supply. The nurseries' silvicultural management o f each species is prescribed by project regulations and provides for regulator inspection. All seedlings would conform to detailed growth standards for each species, including collar diameter, seedling height and root system configuration. The project would use specified genetically-improved seed or clones which are the most suitable andbest quality available. The project would finance the nursery-gate production cost o f the final seedling, which would be added into the unit cost for afforestation. It was agreed that 100 percent counterpart financing would be provided for nursery up-grading and the extension of four FFs nurseries to increase production and quality o f containerized tree stocks. These will be mostly Eucalyptus and would also include Acacia, Betula, Masson Pine and Quercus. The expansion is planned to start in2007 and be completed at the end of the second year o f project implementation. The four nurseries are: Huangmiam FF nursery, Gaofeng FF nursery, Dongmen FF nursery and Bobai FF nursery. The extension would include tissue culture, office and nursery equipment (including on-site irrigation system, tractor and trailors, and plant containers), and civil works (such as storage sheds, shade houses, cutting beds, growing areas, access ways and offices). It would also include commissioning and associated training inthe use o f new equipment. The total budget for this activity is estimated at 8 million RMB. The detailed design would be reviewed and approved by the provincial PMOs. However, the provincial PMOs will provide summary reports with a short description o f the design, a list o f items and a budget for each nursery to the Bank as part o f following year's work plan. (b) Rural Infrastructure Program comprises the construction o f forest trails and small guardstorage sheds by plantingentities. It was agreed that trails would be dirt paths no wider than 1.5 meters, generally constructed along the contour within the planting sites and sheds would be about 60 square meters, constructed o f brick and concrete in line with local standards for similar construction. The costs o f forest trails is included inthe agreed schedule o fplantation establishment unit costs. Component 2: IncreasingEcological Forest Cover (Total Project Cost US$18.67 Million) 11. The aim o f the component is to develop demonstration models under the GoC's Pearl River Protection Program that provide not only environmental but also economic and social benefits. The component would finance: (a) the establishment o f about 18,000 ha of multiple- use protection forests; and (b) the promotion o f forest regeneration and vegetation rehabilitation, on a large scale (100,000 ha) in25 counties o f GZAR, through hillclosure inthe watershed and karst areas. All the funding resources to finance the multiple purpose protection 39  forest establishment and watershed rehabilitation would be financed from the counterpart funds. 12. Several changes to the traditional protection forest technology practiced inChina would be introduced, as follows: 0 Protection forests are typically established as inviolate islands o f conservation inChina, inwhich economic development activities andlocal community use ofthe resource are severely restricted. By contrast, the component would support the development of multiple-use management o f protection forests which integrate non-consumptive economic activities-such as the production o f timber, fruit and nut plantations, and medical plants-with afforestation for environmental benefits. Under this approach, the economic welfare o f local communities i s maximized, contributing to improved incentives to manage the forests on a sustainable basis. The afforestation models used in protection forests have traditionally been based on large tracts o f monoculture. Instead, the component would introduce 16 tree species which would promote greater biodiversity, reduce the incidence o f pests and disease damage, and promote the development o f different canopy levels. Particular emphasis has been given to integration o f conifers and broadleaf species for biodiversity conservation, and for development o f multi-tiered, vertically-stratified canopies to minimize soil erosion and water run-off. There are eight afforestation models to improve tree cover and increase species diversity; three economic tree afforestation models and five mountaidhill closure models of which two have a sustainable production product. Eight o f the sixteen species have production potential while providing protection and ecological benefits. Protection forests are typically subject to little management after establishment, which undermines long-term, sustainable development o f the resource. Protection forests financed under the project will involve periodic tending and thinning to ensure efficient natural regeneration o fthe stands throughout the life o f the forest. 13. Two systems will be used to establish protection forests under the component. In the areas that are completely deforested, afforestation entities will plant a variety o f new conifer and broadleaf species. About 16 species, most o f them native species, will be used. Inareas that are denuded but retain a sufficient number o f healthy seed-bearing trees, the hills will be closed to economic activities to allow the forest to regenerate naturally. Some "enrichment" plantings will be required where there are heavily deforested areas. The hill closure system restricts consumptive use o f forest resources (such as clear cutting of trees for fuelwood or buildingmaterials) but permits some controlled use o f forests inlinewith agreed environmental management guidelines (such as grass cutting, limited fuelwood collection and harvesting the species that regenerate by sprouting, for which the root will be retained). 14. The selection o f planting sites and species was based on criteria agreed with the Bank during the project preparation. These criteria include: (a) the degree o f erosion hazard o f the sites as estimated by technical staff; (b) potential impact o f the site on the pearl river hydrology 40  and the ecological system inthe karst areas; and (c) the need for sites to be located either on the bankso fthe PearlRiver or its affluents andor within severely degradedkarst areas. 15. The tree and bamboo species were selected largely on the basis o f climatic and ecological suitability to specific site conditions, environmental management objectives, and social-economic requirements o f the afforestation entities for income generation, fuelwood, and other forest products. The main species are native and include: (a) trees: Pinus massoniana, Quercus griffithi, Q. acutissima, Schima superba, Liquidambar formosana, Cunninghamia lanceolata, Zenia insignis, Cryptomeria fortunei, Magnolia oficialis, Cinnamomum cassia, Illicium verum, and Toona sinensis; and (b) bamboos: Dendrocalamus minor, Bambusa pewariabilis, and Dendrocalamopsis grandis. Eucalyptus will be planted in a few sites outside the karst areas as part o f the BioCarbon pilot because their highinitial growth maximizes the benefits for the farmers. 16. GFB has prepared a detailed afforestation model for each species which covers technical silvicultural prescriptions, growth targets, establishment costs, financial and economic rates o f return, and environmental benefits. These models draw on the government's existing guidelines for protection forests, the experience from past implementation experience under the PearlRiver ProtectionProgram andprevious Bank-financed forestry projects. 17. Three measures are needed to avoid or minimize potential social impacts o f hillclosure on local communities. First, administrative villages will apply on a voluntary basis. The selection criteria would ensure that project villages are not the better-off villages, that have the capacity to undertake hill closure without outside assistance, or very poor villages. Although dependence on hillsides for subsistence agriculture and helwood collection i s rapidly decreasing (in particular through the Guangxi biogas extension program), the poorest villages still have high proportions of households which depend on these activities and should not start hill closure until a later stage. Second, resource access restrictions will be decided through a participatory process, designed on the basis o f best practice in Guangxi and other provinces, including internationally-funded projects. Third, hill closure would be linked with the government's biogas program which will provide an alternative in solving the potential problem o f lack o f fuelwood caused by the restriction o f access to forest resources, particularly to areas closed for natural regeneration. It was agreed that the necessary biogas support would be included aspart of theproject activities with the needed budget arrangements. 18. To better link this component with the Nature Reserves (NR) component and provide a means to enhance both the ecological environment as well as bringbenefits to villages adjacent to the reserves, the site selection criteria for the areas around the project N R s would include the following: locatedwithin 5 kmof a nature reserve; cover an area that i s greater than 1square kilometer; have greater than 30 percent original vegetation cover; form clusters or corridors to enhance the distribution and dispersal o fwildlife; and demonstrate willingness on the part ofbothvillages and forestry bureaus to participate. 41  19. BioCarbon Pilot. This component will also pilot the establishment o f 4,000 ha of multiple-use protection forests for carbon sequestration and to test the carbon trade process. This BioCarbon pilot, the first in China, would provide more incentives for households to maintain forests on degraded forest areas and thereby sequester greenhouse gases. In order to ensure unified management measures, unified growth o f the plantations, maintain the carbon sequestered and reduce risk from natural disasters for the 30-year program implementation period, the pilot program will be largely implemented through cooperative arrangements between farmers/communities and planting entities (FFs or companies). Although interviews with farmers and communities by the SA team confirmed the desirability o f the above arrangement, the pilot would also explore these management arrangements to demonstrate the viability of a community-based forest management approach by providing technical support and findingmechanisms to reduce management and other risks. 20. Of the total target area o f 4,000 ha o f plantations, 440 ha will be directly managed by individual households and 3,560 ha will be managed through a cooperation arrangements between farmers/communities and farmers/FFs. Participation in the project would be decided through a participatory process carried out at the village level. Under the cooperative farmers/communities and FFs arrangement, the revenue from selling the carbon credit, which would start to accrue from the second year after plantation to year 10, would be split; sixty percent would go to the farmers and forty percent to the FFs. For individual farmers, the income from the sale o f the forest products and the revenue from the sale o f the carbon credit would belong in its entirety to the local farmers/communities. The revenue from the sale o f bio-carbon credit would initially go from the BioCarbon Fundto the GFB which will pass it on to the farmers/ communities and FFs. Component 3: Improving Nature Reserves Management (Total Project Cost US$ 7.02 million) 21. The component would have four sub-components: (a) nature reserve planning and management; (b) conservation management at sites outside the existing NR system; (c) community relationships with project nature reserves; and (d) monitoring and replication. 22. The nature reserve planning and management sub-component would finance the preparation o f ecological baseline maps, and the nature reserve management plandevelopment and implementation. More specifically, it will finance: (a) small amount o f civil works; (b) needed equipment, particularly field equipment; (c) surveys and map development; and (d) consultant services. (a) Baseline ecosystems map production. Financing would be provided to support the preparation o f four baseline ecosystems maps for: (a) the Nonggang, BanLi andB a Pen NRs (three sites); (b) the DamingshdLongshan (two sites); (c) the MulunNR;and (d) the Maoershan NR. The maps would include information on the distribution and diversity o f ecosystems within the project sites, along with other information such as management zones, the local road network and the location o f villages. They will be developed using existing baseline data and information collected during the management plan preparation process. The modality o f using satellite imagery to 42  facilitate the preparation o f these maps would also be investigated. Preparation of the maps would be contracted out to a qualified mapping institute. (b) Management plan development. Financing would be provided to support the preparation o f management plans for: (a) the Nonggang NR; (b) the DamingshdLongshan N R s (which are contiguous); and (c) the Mulun NR. In addition, the existing management plan for Maoershan NR would be revised to emphasize an ecological approach to planning. Although the DamingshdLongshan reserves would have a single management plan, each NR would have a separate action plan describing implementation activities. The management planning process would follow the guidelines laid down in the SFA Developing Guide of Nature Reserve Management Plan. These guidelines were developed as part o f the GEF-financed Nature Reserves Management Project and are currently being utilized to guide nature reserves management planning in the Sustainable Forestry Development Project (also GEF-funded). Staff from the BanLi and B a PenN R s would attend the project's planned management plan training activities because together with Nonggang, these areas protect the entire global population o f the Critically Endangered white-headed black leaf monkey (Trachypithecus poliocephalus leucocephalus). Staff from Ban Li and B a Pen would also participate in the preparation o f a Species Protection Plan for the white-headed black leaf monkey. This Plan would incorporate inputs from those universities and institutes that have existing research programs concerning this primate at these reserves. The project's proposed nature reserve management planning process would give considerable emphasis to identifying options for engaging local communities in nature reserve management and to improving the flow o f sustainable benefits from the reserves to the surrounding communities. Aside from providing important information, the planningprocess would initselfbe a means for sharinginformation and for establishing a dialogue between the reserve staff and the local communities. Although people living inandaroundthese reserves are dependent onthese resources, andare most affectedby the presence o f the reserves, they seldom are consulted or participate in decisions regarding their management. This has, on occasions, resulted in the alienation o f NR neighbors and in limited support for the objectives o f the reserves. Similarly, the lack of participation o f other agencies and stakeholders in nature reserve planning and management has resulted in increasing outside threats to the reserves and, in some cases, a general lack o f support. (c) Management plan implementation. The proposed project nature reserves are poorly equipped to carry out routine patrolling and other field-level management activities. The sub-component would strengthen the effectiveness o f field-level protection systems based on the needs identified inthe nature reserve management plans. Support would be provided for: (a) guard posts, boundary markers, observation posts, and miscellaneous equipment for field protection staff; (b) field kits for research and protection staff to facilitate the collection and storage o f field data, including 1ocaVGuangxi field identification guides and a 1ocaVGuangxi manual for monitoring biodiversity and 43  resource use for nature reserve management; and (c) improved communications technology and equipment to improve reserve administration. Financing would also be provided to support some small civil works and the acquisition o f office equipment and vehicles necessary to improve protection inthe NR sites. Civil works would only be supported in cases where there i s an unambiguous link to demonstrable biodiversity conservation benefits in line with the different objectives included inthe management plans for each o f the reserves. An assurance was obtained duringnegotiations that expenditures for the construction of civil works ineach o f the proiect N R s would not be elipible for financing from the Loan or the GEF Grant until such a time when these works are provided for in the reserve management plan and that such a planhas been cleared by the Bank. Lastly, a training program would be designed to improve the capacity o f all reserve staff for routine nature reserve management. Management planning and community-based nature conservation would' provide intensive learning opportunities for staff in nature reserves and the provincial WNRMS. Existing staff and new recruits would participate in an integrated program o f eight in-service training courses designed to cover job responsibilities. The training would be organized locally by Training Coordinators in each o f the four nature reserve complexes, and would be delivered by expert trainers, who themselves would be trained with international expert input. A program of general staff training would be implemented involving all reserve staff to provide them with enhanced skills needed to carry out their jobs effectively. The training programs would be tailored to the needs and levels o f different job positions, with separate courses targeting decision-makers, middle-level managers, research and monitoring staff, community affairs staff, community-based patrol staff, enforcement staff (forest police) and administrative staff. Training would be based largely on existing curricula, particularly those developed by the GEF-supported NRMP (completed) and SFDP (existing), supplemented with additional materials prepared to cover specific issues relevant to Guangxi, such as local flora and fauna, cave biology and management o f karst protected areas. Most courses would be delivered locally in the project N R s to provide opportunities for demonstrations and field practice. Inorder to support other project components and to provide maximum opportunities for experiential learning, much o f the training would be integrated with the other components. The training would address the needs for skills and knowledge needed to accomplish key project tasks andimplement innovations, such as biodiversity and social surveys (including the production and use o f the 1ocaVGuangxi field guides), management planning, community extension training and participatory community- based monitoring. Certain courses would be opened to selected staff from township forestry stations and village governments. Site visits and discussion forums on specific themes would be organized to share ideas and lessons between nature reserves. In addition to a limitednumber of regional site visits, exchanges between project reserves would be organized, with the participation o f selected local government staff and non- project nature reserves from Guangxi. 44  Proposed focus topics for exchange of practical experience Host nature reserve Effective management of karst landscape areas for biodiversity Nonggang conservation Management of tourism to minimize negative impacts and maximize DamingshadLong conservation benefits. Community-basedsmall-scale tourism shan Karst andcave survey andmappingtechniques Mulun (a) Planning and implementationof public conservation education and Maoershan development of awareness-building materials. (b) Participation of local communities inpatrollingandmonitoring Training courses would also be designed to reach key stakeholders outside o f the nature reserves. An orientation course on biodiversity conservation would be designed and delivered to staff o f the GFB and to key planningunits such as the Guangxi Provincial Development andReform Committee (GPDRC). Training would be delivered by expert trainers recruited from local institutions such as the Guangxi Forestry Academy (Nanning), Guangxi University (Nanning) and Guangxi Normal College (Guilin). For specialized topics, local research institutes such as the Institute o f Forest Survey and Design (Nanning) and the GuangxiInstitutes o f Zoology, of Botany and Social Sciences would be used, as well as Guangxi-based field centers o f various researchers, such as the white-headed black leaf monkey field stations established by Beijing University and the Southwest Forestry College. Wherever appropriate, partnerships would be formed with other programs providing relevant technical assistance and training, such as those sponsored by the project's other components and by the Kadoorie Farm and Botanical Garden's South China Biodiversity Program. National and international technical assistance would be provided to the training team, with a particular focus on improving training methods for in-service training, and updating specialist knowledge (e.g., on park-community approaches andcommunity-based monitoring o fbiodiversity andresource use). The principal purpose o f this activity set would be to assist with the development o f appropriate organizational management structures insupport o f enhanced nature reserve management. Some o f the project N R s (e.g., Longshan) are relatively new. In these cases, they will be actively recruiting new staff to fill their quotas and assigning them to newly-created positions. Other project reserves are already fully staffed but are still constrained by inefficient organizational structure and personnel management. The project would assist the reserves to increase their institutional capacity with technical assistance and training in management methods. The project would also strengthen existing administrative capacity within the WMD o f the provincial GFB. The WMD would have staff designated as responsible for: (a) nature reserve planning; (b) community-basednature conservation; and (c) training coordination. WMD staff would receive training and technical assistance, and would then take the lead in identifying local experts and local trainers to support nature reserve management activities. 45  23. The ConservationManagement o f Sites Outside the Existing Nature Reserves System sub-component aims to enhance the biodiversity outside o f the nature reserves and comprises the following activities: (a) Cave biodiversity conservation. Cave fauna are animals that have adapted to life in perpetual darkness and to stable conditions o f temperature and humidityinunderground voids. Cave fauna is also o f special biological interest because o f its endemism which i s higher than that o f any other habitat. Guangxi i s known to be one o f the most varied karst limestoneregions on earth andcantherefore be expected to host a rich diversity of subterranean fauna. The results' o f a preliminary survey o f the subterranean fauna o f four proposedproject sites, which was conducted during project preparation, confirmed this expectation. The overall conclusions o f the report were: (a) Guangxi's caves support one o f the richest cave fish faunal assemblages inthe world; (b) Guangxi's cave beetles include the most highly evolved species (Girufaenops clurkei) inthe world; and (c) Guangxi's caves host the richest community o f troglobitic (cave-restricted) millipedes on earth (millipedes being one o f the most important group o f obligate subterranean organisms), The sub-component would support comprehensive biodiversity surveys o f karst cave ecosystems in the Mulun NR and one other locality which would be selected on the basis o f a thorough field assessment o f possible options carried out duringthe course o f project implementation. The biodiversity surveys o f the second site would support recommendations on the feasibility o f establishing a new NR specifically for the management and protection o f a representative example o f Guangxi's rich subterranean fauna. The preliminary assessment and full field surveys would be conducted by professional research organizations (such as the Institute o f Zoology and the Institute o f Botany in Beijing, or the Institute o fZoology and Institute o f Botany inKunming) assisted by one or more international specialists with extensive knowledge o f Asian karst cave ecosystems. The project will support exchange visits for two o f the national scientists to visit institutions outside China where karst animal groups are studied. Nature reserve staff would be trained in cave fauna survey and mapping techniques, and appropriate equipment would be provided. Recommendations for the enhanced conservation o f project karst cave sites would be developed and (for Mulun) these would be incorporated into the nature reserve's Management Plan. Once the project's surveys and training activities are completed, support would be provided for the preparation o f guidelines for management o f karst and cave biodiversity in Guangxibased on existing materials from World Conservation Union (IUCN) Vietnam. With funding from the project, the GFB will organize a provincial workshop to present and discuss the results with keyplayers involved inkarst management inthe province to agree on actions to be taken. 1Deharveng,Louis 2005 GuangxiIntegratedForestryDevelopmentandBiodiversityConservationProject. Reporton subterraneanbiodiversityofGuangxi.Unpublished. 46  An assurance was obtained during negotiations that guidelines for karst management would be developed and submitted to the Bank for comments by March 30.201 1. (b) Southwest GuangxiKarstArea conservation. The limestone karst o f southern China i s the most extensive, best developed and most important in the world and China's karst is most extensive in the provinces o f Guizhou and Guangxi. A recent survey in Vietnam of primates found that the only known mainland population o f the globally "Critically Endangered" Eastern Black Crested Gibbon (Nomascus nasutus) persists ina small patch o f karst forest in Cao Bang Province, Vietnam. This forest patch extends across the border into China, and gibbons were heard by local villagers in China as recently as 2002. Helen's Slipper orchid (Paphiopedilum helenae) was recently discovered on an isolated karst tower in Vietnam near the Guangxi border. It is nearly extinct inVietnam as a result o f over-collecting. It is not known if the species exists in China. An endemic species o f cat snake (Boiga guangxiensis), known only from Nonggang, may occur inother nearby habitats, but no information is available about the biodiversity o fthese two reserves. Protected areas adjacent to correspondingprotected areas inneighboring countries offer the possibility o f increased benefits for biodiversity at reduced cost as a larger area o f habitat can be protected by sharing the costs. Several N R s exist near the international border in Guangxi Province. In Trung Kanh District o f Cao Bang Province Vietnam, one district-level NR has been established and one newly-proposed NR is on the international boundary. However, neither o f these reserves appears to be adjacent to existing reserves in China. Nine Watershed Forest Protection Areas are located immediately adjacent to the international border inthe south-west o f Guangxi. The sub-component would support a rapid biodiversity assessment o f the south-west Guangxi karst conservation area, focusing on existing protected areas and remaining blocks o f unprotected forest habitat with potential for biodiversity conservation. The results o f this assessment would be used to support GFB's goal o f establishing a new national-level NR inthe south-western part o f Guangxi. A team comprising specialists from provincial research institutes and universities and staff o f local County and Prefecture Forestry Bureaus would travel to these sites to assess habitats and compile preliminary lists o f plants and terrestrial vertebrates with technical assistance from national experts. Before field-work activities commence, the modalities o f using satellite imagery to facilitate these surveys would be investigated. The team would produce recommendations for improvements in the management o f existing NRs, and for reconsideration o f the status o f these reserves. Improved maps o f the boundaries o f existing NRs would be prepared, and recommendations for adjustment o f boundaries and establishment o f a new national-level reserve would be made as appropriate. With funding from the project, GFB will organize a provincial workshop to present and discuss the results andto agree on actions that needto be taken. (c) Watershedforest conservation. As a means to integrate biodiversity considerations into the broader forest landscape, the sub-component would support a biodiversity rapid assessment o f selected sites in the project's Increasing Ecological Forest Cover 47  Component. Many o f these sites are small and support very little original vegetation, andso their biodiversity potential is expected to berelatively low. However, some sites are relatively large, and having been managed for watershed protection purposes, their original vegetation has been maintained although it is often in a much degraded condition. Sites would be selected on the basis o f the following guiding criteria; wherever possible they should: (a) be located within five kilometers o f one o f the project's nature reserve sites; (b) cover an area that is greater than one km2;(c) have more than 30 percent o f the original vegetation cover; and (d) form clusters or `corridors' to enhance the distribution and dispersal o fwildlife. The conservation management priorities identified during the biodiversity rapid assessment would be integrated into the management contract between the village collectivehndividual households and the county forestry bureau for each site, with the overall goal o f developing a more holistic and comprehensive approach to sustainable forest management and biodiversity conservation in areas outside Guangxi's existing nature reserve system. There should, therefore, be demonstrable willingness on the part o f both the villagers and the forestry bureau to participate. For monitoring purposes and to increase local knowledge and interest in conservation, the biodiversity rapid assessments would be repeated annually. Village and county forestry officers would form part o f the monitoring team, and the biodiversity conservation priorities identified duringthe initial assessment o f each site wouldbe modified as necessary. 24. The Community Relationships with Project Nature Reserves sub-component aims to create an enabling environment to allow nature reserves and communities to solve key problems together. The goal would be to build the capacity o f the project's nature reserves staff to work as facilitators. Financing would be provided to support: (a) increasing target community and local government stakeholders' understanding o f biodiversity conservation and the threats it faces from their actions by assisting nature reserves to develop and implement a community conservation education strategy; (b) the provision o f training and technical assistance to communities to empower villagers to address key problems o f concern to both the communities and the nature reserve; and (c) early interventions to decrease the threats from over-use o f the nature reserves' resources, such as for fuelwood, through targeted applications of sustainable, practical, culturally-appropriate, and cost-effective measures to reduce use from the nature reserves. The sub-component would have the following activities: (a) LocaZ community engagement. It is envisaged that the management planning process would identify a number o f potential activities for engagement o f local communities in nature reserve management that would be further developed and supported. In addition, the project would build the capacity o f nature reserves to create a collaborative environment with adjacent communities at all levels. Central to the effort would be training and technical assistance to a Community Relations Section in each nature reserve, which would encourage dialogue on conservation with local communities, organize community and public education, facilitate technical training courses in selected natural resource management-related topics for communities, and 48  facilitate community access to grants and loans from government and other sources for activities o fmutual benefit to community members and to the nature reserve. (b) Community conservation education and public awareness. Funds would be provided for developing and implementing conservation education and public awareness programs. The programs would incorporate experience gained from the previous Bank/GEF-financed projects. Nature reserves and provincial W N R M S community affairs staff would be trained, using technical assistance and field-based courses, to prepare and implement community conservation education strategies. Funds would be provided for each nature reserve to implement programs outlined inits strategies within its own communities. The objective is to experiment with innovative approaches for informing and educating different target groups within communities about the functions, ecology, regulations, and problems o f nature reserves and relationship and conflicts o f people andnature reserves. The goal would be to buildon existing experience in China while introducing techniques that inform and educate people consistent with the realities o f their lives and local conditions while encouraging participation inbetter conserving nature reserves. Whenever practical, ethnic minority languages would be used in environmental education, since this is often more culturally appropriate even when no great language gap exists. Courses would emphasize learning relevant to the local environment by building on local knowledge, including the history o f the local environment and the unique features o f local habitats (such as karst). Courses would extend beyond awareness-building to encourage community involvement in conservation through practical activities such as participatory monitoring within the nature reserve, hill closure in adjacent areas and more environmentally-friendly agriculture with reduced pesticide and fertilizer use. To facilitate this participation, a Coordination Committee would be established and linked to each nature reserve protection station. It would comprise the managers o f reserve protection stations, village forest guards recruited from the communities, representatives from township government and leaders from administrative villages. Public education for a broader audience would include dissemination o f existing materials and the design o f new educational materials by the NRs with support from Technical Assistance (TA) and from the provincial Wildlife and Nature Reserve Management Station. New materials could include a series o f 1ocaVGuangxi field identification guides, publications on Guangxi's karst landscape, wildlife postcards, posters, postage stamps, textbooks for students and an internet site for Guangxi N R s , beginning with the project NRs. (c) Community skills enhancement. NR staff would also organize training o f both community leaders and rural households, focusing on addressing issues that have an impact on both community livelihoods and nature reserve management. Appropriate topics for training would be identified through multi-stakeholder planning with the communities. These might include: (i)approaches to the prevention of wildlife damage; (ii) fuel conservation and new sources o f household fuels; (iii) technical skills 49  from forestry and agriculture for more diversified and sustainable sources of livelihoods; (iv) skills inenterprise development for community-based, environmentally friendly tourism; and (v) skills for improved management o f household economic activities. Sources o f technical information and trainers would be identified with the help o f project TA and appropriate courses would be organized by the nature reserves' community affairs section. (d) Local project greening. Training courses for improving the capacity o f village committees to manage community projects would also be developed and delivered. Assistance would be provided by the community affairs staff to these village committees to access non-project hding programs for community - based conservation, poverty alleviation and small-scale agricultural development. The project would facilitate access for these villages to grants and loans for environmentally friendly afforestation available under Components 1and 2. Most activities inthis set would be based on existing government programs (such as the provincial Biogas Program) but the project would facilitate distribution to allow benefits to reach priority villages, targeting either the entire population or the poorest families in these villages. To achieve selected achievable outputs early and easily, the project would provide subsidies for priority communities adjacent to each reserve for a short list o f proven technologies that reduce pressure on the nature reserve and that provide early benefits to the communities. This list would be drawn up by the nature reserve community affairs staff with input from TAs, choosing those that are most appropriate to local needs and conditions, cost-effective, culturally appropriate and practical. Communities and protection stations would select activities for each village from this short list during a meeting organized by the Coordination Committee. Potential activities would include: (i) small grants to match government subsidies to poor households for biogas pools and fuel-efficient stoves; (ii) creation o f fuelwood woodlots; (iii) proven, environmentally-sound effective mitigation measures against animal damage (such as crop substitution andphysicalbarriers); (iv) paddocks for cattle and cut-and-carry forage crops; (v) native grass seed for planting beneath trees in collective forest areas; (vi) waste bins for used plastic and pesticide bottles; and (vii) wireless phone access for village fire prevention teams. 25. The Monitoring and Replication sub-component aims to establish and institutionalize a scheme at nature reserve level to track progress in reserve management and to guide conservation action. The sub-component comprises the following activities: (a) Nature reserve monitoring scheme. The project would facilitate discussions within GFB andthe reserves to agree on objectives, institutional framework and strategy for a nature reserve monitoring scheme. For each reserve, one key indicator has been identified during preparation. However, a matrix o f key indicators on biodiversity, resource use, reserve effectiveness and threats would be established as part o f the reserve Management Plan. The scheme would be simple and involve local communities inand adjacent to the reserves. To foster local ownership and thus the sustainability o f monitoring, key indicator species and habitat types would be identified in a dialogue 50  betweenthe local communities, nature reserve staff and GFB during year one o f project implementation. In addition, experience from other projects suggests that monitoring by local rangers and community members generates local awareness o f conservation and strengthens existing community-based resource management systems. It can improve collaboration between local stakeholders and government staff and improve communication between local stakeholders and authorities. Whenever possible, already existing guidelines and training materials (e.g. from previous GEF-fimded projects in China and participatory schemes in the Philippines and other countries in the region) would be adapted to the Guangxicontext. To enhance local ownership, reserve staff will take a leading role in the design o f the scheme. One of the indicators will be progress inmanagement effectiveness measured annually by reserve staff and community representatives, through completion o f the GEF's Protected Areas METT. The METT would also examine the inputs provided by local communities to the nature reserve management planning process. An assurance was obtained that the results o f the METT would be included in the mid-term review report. Other methods include fixed point habitat photography, patrolling forms completed during routine patrolling with the help o f local/Guangxi field guides, camera trap surveys managed by local village teams after appropriate training, and participatory monitoring with focal group discussions in key villages adjacent to each reserve. The methods would be described in a local/Guangxi reserve monitoring manual. A mechanism would be established to ensure integration of monitoring information into management decisions. Findings from the monitoring will be validated with the local communities and compiled in semi-annual summary reports to the reserves' decision- makers and the WMD. In WMD, the China Biodiversity Information Monitoring System data management system would be used for collating and summarizing monitoring data from each reserve. (b) Management plan reviews. Every year each nature reserve would organize a meeting to assess the implementation o f the management plans. The evaluation o f the management plan progress in the last year o f the project would serve as a basis for overall evaluation o fthe sub-component. (c) Replication activities. The project would disseminate and promote replication o f its experiences and lessons within Guangxi Province, adjacent provinces and nationally. For example, the improved biodiversity conservationmanagement planning, community engagement andparticipatory monitoring approaches that will be supported inthe target nature reserves will be disseminated as examples o f "best practice" and will be replicated in other nature reserves in Guangxi by the provincial forestry administration. This will be done by organizing and holding short training sessions/workshops for staff from other nature reserves in Guangxi during the later years o f the project. Replication inneighbouringprovinces will be encouraged byinvitingnature reserve managers from these provinces to the workshops. Nationally, replication will be encouraged by inviting key staff o f the CBPF program to participate inthe workshops also, and by sharing the training and workshop materials with the CBPF Steering Committee and Management Office. 51  Component4. EnhancingInstitutionalandManagementCapacity(Cost US$5.06 million) 26. The GoC and GZAR government are committed to sustainable forest management and the aim o f this component i s to contribute towards this goal. Financing from the IBRDLoan, GEF grant and counterpart funds would be used to implement an integrated institutional and management capacity buildingprogram that would: (a) strengthen the capacity o f the provincial forestry bureau to develop and implement a sustainable provincial forest sector development and protection strategy (for production, ecological forests andbiodiversity) and support priority policy studies, guidelines, and regulations revision; (b) assist with the implementation o f applied research programs to generate operationally usable technologies to improve commercial forestry development, ecological forest protection, and biodiversity conservation; (c) disseminate the research results and (technical) guidelines to GFB staff and beneficiaries, buildingthe capacity o f the project implementation agencies, plantingentities and households on sustainable forest resource management; and (d) establish a simple project monitoring and evaluation system to monitor project performance, achievement o f the project objectives and environmental and socio-economic impacts. 27. Forest Sector Strategy, Priority Policy Studies, Guidelines and Regulations Development. This sub-component would promote the adoption o f a sector-wide, integrative and comprehensive approach to sustainable forest resource management by assisting the development and implementation o f a GZAR forest sector development strategy as well as priority policy studies and regulation revision. A detailed GZAR forest sector development strategy studyplanwas reviewed by the appraisal mission and included inthe PIP. 0 The sector strategy development would: (a) analyze current Guangxi forestry resources management, identifying the obstacles and issues for sustainable forest resource development and protection; (b) explore strategic approaches to forestry sector development in forest resource base establishment and forestry industry development; ecological environment protection and improvement, particular the watershed and karst areas protection; the nature reserve management and biodiversity conservation; and the technical and policy supporting frameworks; (c) prepare the Guangxi forestry sector development strategy and action plan which would be implementedby the Guangxi forestry agencies. The topics o f policy study/guidelines and regulations development would be identified and carried out during the course o f the forestry sector strategy preparation. The potential studies identified during project preparation include the following: (a) Optimizing the selection o f timber species, plantation sites and market outlets by developing an economic model to establish priorities on locations o f plantations for various industries. (b) Land tenure and use, which would explore the land ownership and land management right related issues, particularly on land release and cooperatively management arrangements. 52  (c) Regulation on Guangxi wildlife and plant protection and nature reserve management. (d) Guidelines for karst areasmanagement. (e) Non-public forestry development incentive mechanismand policy. (f) Compensationpolicy for ecological forest management. 28. Research and Extension Programs. This sub-component would strengthen the operational focus of national and provincial research efforts and ensure the timely transmission of research findings to the field. The program would entail activities that have broader impacts at the provincial level (e.g., applied research on intensively managing timber plantation, enhancing ecological forest and karst area protection and biodiversity conservation). The component would support research on: (a) improved seed selection and breeding for the main native species; (b) genetic improvement on advanced generation o f the main fast-growing species including disease-resistant clone extension; (c) the restoration o f forest and vegetation techniques and ecological system monitoring for the Pearl River Basin; (d) integrated pest management for timber plantation management and ecological forest protection; and (e) methodologies andparameters for biomass and carbon sequestration measurement for the main tree species in Guangxi. Fifteen demonstration items would be established. These would stress the use o f superior genetic stock combined with appropriate plantation management methods for both commercial and environment purposes. New disease- and cold-resistant clones would be included. About 13 new technologies would be extended to the project areas. The key extension messages include introducing improved planting materials, particularly clones; nursery management technologies including root cutting, containerized seedlings, tissue culture technologies and mycorrhizal associations, as well as cost-effective silvicultural techniques. About 3500 ha demonstration plantation would be established to demonstrate the improved technologies to the timber plantation and ecological forest management. Lessons learned from previous Bank-financed forestry projects show that field demonstrations are extremely useful for new technologies transfer to the planting entities and farmers. A number o f support activities to the extension system would also be established or developed. They are: information networks, producing and printing technical booklets and video, purchasing o f office and extensionpresentation equipment. 29. It would also support with GEF financing a competitive small grant research program to address both long-term or short-term information requirements for more effective nature reserve management in GZAR. The emphasis would be on applied research to solve practical management problems related to three broad themes: (a) nature reserve/people interactions (e.g. impacts o f legal or customary human uses such as grazing and non-timber forest product harvesting on reserve resources as well as importance o f these uses to local livelihoods and possible realistic solutions); (b) nature reserve management (e.g., zoning and nature reserve boundary definition with reference to the types and extent o f various ecosystems and animal ranges and realistic expectations of what i s possible to implement in practice; impacts and control of forest fire; tourism); and (c) nature reserve community development (e.g., sustainable income-generatingopportunities from NTFPs). 30. The project's nature reserve management plan development process will identify priority research needs for the Nonggang, DamingshdLongshan, Mulun and Maoershan 53  Nature Reserves. Based on the research needs identified inthese management plans, a research proposal for each site would be developed. The cost o f the research program at the nature reserve level is includedincomponent 3. 31. The research and extension sub-component would be implemented by the TSP, located in the GFB. The small competitive research grant for biodiversity conservation would be implementedby the BO. 32. Training and Technical Services. This sub-component would support the training and other technical services to disseminate new techniques and project technical and management guidelines to the project implementation agencies and the project beneficiaries, including planting entities and households. The existing forestry extension networks at county and township levels would be used for this purpose. FFs would serve as centers o f development in afforestation technology and plantation management and would transfer the improved technology to rural communities via demonstration, training and nursery products (seedlings and areas saplings). This program would support: (a) the provision o f training materials for different audiences including provincial and county staff, FFs and other planting entities and farmers; (b) the development and implementation o f domestic training programs for the project staff and farmers including the Wildlife Management Division staff and relevant agencies such as Guangxi Provincial Development and Reform Committee; (c) overseas training for project staff to learn the effective implementation o f forest resources management and biodiversity conservation; and (d) national and international consultancy services in a variety o f technical areas. A detailed training and technical service planwas discussed during project preparation andwas further reviewedbythe appraisal mission. 33. The proposed training program includes 1,050 person-days for provincial and county P M O staff; about 6,950 person-days for the county, township forestry station staff, nursery managers and FFs; and about 182,000 person-days for the farmers and community heads, and other county planting entities. This program also includes 2,3 10 person-days o f overseas training and international consultant services. Training would be aimed at the following groups: PPMO and PMO management personnel, technicians in PMOSand forest stations, nursery personnel and farmers. The content o f the training would include: (a) project management systems, techniques and requirements; (b) nursery: guidelines, standards and techniques; (c) plantatiodecological: techniques, standards guidelines, environmental protection and integrated pest control; and (d) farmer household support: technology, rural energy, livestock breeding, family finance and crop cultivation. The training plan for nature reserve staff and communities surroundingthe project NRs i s included incomponent 3. 34. Monitoring and Evaluation Program. This sub-component would support the implementation o f a comprehensive monitoring and evaluation framework designed to monitor project performance, process, objective achievement, market change, and environmental and socio-economic impacts. The monitoring plan would: (a) set up a computerized database to monitor project process for the afforestation entities who take part in the plantation activities showing detailed contractual arrangements, as well as loan disbursement and reimbursement schedules. The comparison o f economic viability o f smallholder forestry versus large-scale plantations would be an important element in this monitoring system; (b) monitor project 54  implementation progress; (c) monitor quality and performance o f the plantation establishment, ecological forest management and nature reserve management; (d) evaluate the achievement of the project objective; (e) measure and assess the environmental and social parameters to ensure that potential negative impacts would be mitigated; and (f) monitor and validate the BioCarbon sequestration and accumulate experience on afforestation and reforestation C D M program. Officials with responsibilities for monitoring will be expected to report both data and its interpretation and to give recommendations for project adjustments and improvements. An independent evaluation in the second year o f project implementation would assess the main project risks focusing on the implementation o f the EMDP, process framework and project production and contract arrangements. The project M&E planwas further reviewed and agreed by the Bank inthe project appraisal stage. Key performance indictors to facilitate monitoring andevaluationduringproject implementation are described inAnnex 1. 55  Annex 4 Table 1. Tableof CountiesParticipatinginthe GIFDCP - 56  Annex 4 Table2: Naturereservemanagementplanningsites proposed - for GEFfinancingin GuangxiProvince DamingshadLongshan NonggangNR Damingshanand LongshanNRs Counties Longzhou,Ningming Wuming, Shanglin, Mashan, Binyan (Damingshan); Shanglin(Longshan) Size 101kmz 170 km2 (Damingshan); 107 km2 (Longshan). Total: 277 km2 The NRs are contiguous Population No peoplelive insidethe NR 3,067 people live in Longshan. Half of this NR including the entire eastern sector comprises community forests and agricultural land. There are no people residing in Damingshan but there is significant pressure from communities living nearby GEF Justification The reserve is one of only three that Protect some of the largest southern protect the global population of the subtropical montane evergreen broad- "Critically Endangered" White-Headed leafed forests in China and rare Black Leaf Monkey which numbers examples of relatively undisturbed approximately 700 animals (i.e. half lowland streams. Damingshan Reserve China's estimated giant panda is listed as being of national population). Nonggangis recognizedas significance in the 1996 Biodiversity a site of global significance in the Review ofChina. It is also identified as Biodiversity Review of China. It is also beinga `Priority Ecosystem' in Chinain identified as being a `Priority the Biodiversity Conservation Action Ecosystem' in China inthe Biodiversity Plan. Conservation Action Plan. Biodiversity White-HeadedBlack Leaf Monkey and Fauna includes Francois' Leaf Monkey other globally threatened animals-such and other globally threatened animals as the Assamese macaque, Asian golden including a unique assemblage of at cat andAsian blackbear. least eight freshwater turtles, six of which are IUCN-listed as either Critically Endangeredor Endangered. Subterraneanbiodiversity 32 taxa collected in Nonggang caves 25 taxa collected in Longshan caves during project preparation including during project preparation including a two milliped species which represent Collembola (provisionally assigned to first records in China. the family Bourletielidae) which if confirmed representsthe first ever cave recordfor this particularfamily. Current Status NationalNatureReserve National (Damingshan) Provincial (Longshan) Mainthreats Fuelwood collection, vegetation Fuelwood collection, vegetation clearance for agriculture, and fire from clearance for agriculture and hunting. In adjoining sugarcane plantations and Longshan's karst areas agriculturalrun- community forests. off contaminates subterranean water resources, and wetland habitats are damaged by small-scale dam constructionfor fish ponds. 57  Annex 4 Table2: Naturereserve managementplanningsites proposed - for GEFfinancingin GuangxiProvince (con't) Characteristics I NonggangNRcluster DamingshadLongshan (proposed) of ecological baseline maps, improvementbf field level management systems, provision of a smallamount of civil works, research. (2) Strenetheningof NWlocal communityrelationshiDs: Enhanced access to local government development initiatives, energy conservation, delivery of sustainable technologies, communityconservation educationandpublic awareness. (3) Training and CaDacitv Building: In-service training at all levels, building capacityfor training delivery andinstitutional capacitybuilding. (4) Monitoring and evaluation: Project managementtraining, regular patrolling to collect field data andperiodic sampling Cultural features Zhuang ethnicminority group MostlyZhuang. Projectsite in Longshanhas Yao ethnicminority group Existing or proposed (1) GuangxiUniversity. Vegetation, programs flora andornithological research and monitoring project. (2) SouthwestForestrvCollege. FrancoisLeafMonkey research project (3) GuangxiInstituteof Botany. Flora andPseudotaxis chienii research nmiects 58  Annex 4 Table 2: Naturereservemanagementplanningsites proposed - for GEFfinancinginGuangxiProvince (con't) Characteristics MulunNR MaoershanNR Counties Huanjiang IXingan, Ziyuan, Longsheng Projectfocus MulunNR IMaoershanNR Size' Population 295 people live in two villages in the I There are no people residing in experimental zone o fthe NR Maoershan but there is significant pressure from nearby communities. GEF Justification Preserves a large area of subtropical evergreen broadleaf and mixed evergreen broadleaf-conifer forest with large patches of old-growth vegetation. Member of the China MAB Network. Listed as being of national significance in the 1996 Biodiversity Review of China Biodiversity Southeast Asia. golden cat. Threatened birds include Syrmaticus eliotti, Tragopan caboti and Oriolus mellianus. Subterraneanbiodiversity Mulun's Cave 52 surveyed during No karst cave systems. Current Status National National Mainthreats Fuelwood collection, non-timber forest Bamboo encroachment, domestic product collectionandhunting livestock, andtimber harvesting Key interventions (proposed) collect field dataandperiodic sampling Cultural features MaonanandZhuangethnic minorities I Mostly Han people. Some Yao and Miao ethic &o;ities Existing or proposed (1) GuangxiInstituteof Botanvand (1) SouthChinaAericulture University. Pro@- GuangxiUniversity.Kmeria Insectresourcesurveyproject. septentrionalis survey andreproduction (2) SouthChinaInstituteofBotany. project. Forestbiodiversitymonitoringproject. (2) GuangxiUniversity.Blind cave fish (3) GuangxiForestrvBureau. surveyproject Threatenedplantsmonitoringproject. 59  Annex 4 Table 3: Data for communities living in or near to project nature reserve sites - Nature Numberof counties(district), village WithinNR Mainnationalities Reserve committees (VC), naturalvillages (NV) & population COW- T o m VC NV Popula- NV No.of ties tion people Nong- 2 6 29 66 15,034 0 0 Zhuang 60  Annex 4 Table 4: NatureReserves inthe SouthwestGuangxiKarstBiodiversityArea - * As assessedinthe 1996Biodiversity Review of China. `A' =Area of global biodiversity conservation significance `B' =Area ofnationalbiodiversity conservation significapce `C' =Area oflocal significance `D' =Not suitable for listingas anature reserve `B(A)' =Area ofnational significance which couldbecome o f global significance iflinked with other N R s nearby 61  Annex 5: ProjectCosts CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject Project Cost Summary (US$ '000) cost Including % of IBRD GEF Contingencies Total Financing 'Financing A. Expanding Timber Plantations County/City implementedplantations 100,424 49.1 57,921 Provincial Forest Farm plantations 69,555 34.0 40,031 Expansionand Improvementof Nurseries 1,118 0.5 Subtotal Expanding Timber Plantations 171,097 83.6 97,952 B. Increasing Ecological Forest Cover Watershed protectionplus Bio-carbontrade 2,613 1.3 Watershed protection planting 10,075 4.9 Closing Slopeland 5,985 2.9 Subtotal Increasing Ecological Forest Cover 18,673 9.1 C. Improving Managementof Nature Reserves ProvincialNR ManagementSupport 1,669 0.8 1,087 Development& implementationof management plans 5,348 2.6 3,718 Subtotal Improving Managementof Nature Reserves 7,017 3.4 4,805 D. Enhancing Institutional and ManagementCapacity Researchand Extension 1,112 0.5 ResearchGrant 316 0.2 316 ForestryStrategyla 316 0.2 49 75 Capacity BuildingandTraining 2,972 1.5 1,259 54 Projectmonitoringand evaluation 343 0.2 240 Subtotal Enhancing Institutional and Management Capacity 5,059 2.5 1,548 445 Total PROJECTCOSTS 201,847 98.7 99,500 FinancialCharges During Implementation 2,750 1.3 500 Total Costs to be Financed 204,597 100.0 100,000 5,250 \a To be implementedby the Guangxi Forestry Research Institutewith shared financingfrom WB loan, GEF, and counterpart funds Note: 1.Identijiable taxes and duties are US$4.07million, and the totalproject cost, net of taxes, is US$195.8 million. Theshare ofproject cost net of taxes is 98percent. The project cost estimate includes physical contingencies o f 20 percent for all civil works and 10% for the plantation works. Price contingencies for foreign origin goods are applied based on projected MUV-5 price escalation factors o f 2.4 percent for 2006 and 2 percent for each o f the following years. For local inflation, price increases o f 1.5 percent per year for all project years are used. Detailed annual project costs and the breakdown o f local and foreign project costs are available inthe project file (COSTAB). 62  2, Works 3,49 3. Goods 3.81 I 7. Non Bnixk Financingii 27.40 Expenditure Category Total costs 5. Research Grant 63  Annex 6: ImplementationArrangements CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject Institutionalandimplementationarrangements 1. Project management arrangements have been designed on the basis of successful implementation structures and models tried and proven effective under earlier Bank-supported forestry projects. In the case o f the proposed GIFDCP, a PLG, PCG and PMOs would be established at the provincial level. The PLG would be chaired by the Vice-Governor responsible for forestry and would consist o f representatives from the forestry, finance, planningand audit departments. The PCG will be located inthe GFB and will be led by the Director General. It would comprise the relevant Division Chiefs including the leader of the WMD, PPMO, and Planning/Finance. The PLG andPCGwould set the principles andpolicies for the project, approve the overall implementation plan, coordinate inter-agency discussions and resolve major issues during the project's implementation. The PCG would regularly undertake reviews o f the inter-component cooperation to foster integration and cross- fertilization of activities. 2. The current provincial PMO, which was established to implement the existing Bank- financed projects, is located inthe GFB. It will be responsible for Components 1 & 2, and the BioCarbon pilot program. It will also provide the financial management and procurement support to Component 3. A BO has been set up in the W N R M S to be responsible for the MNRC and to ensure that biodiversity concerns are integrated with the activities o f the other components. The WNRMS works closely with the WMD which is responsible for biodiversity-related policies and regulations. The GFB will be responsible for ensuring close coordination between WNRMS, WMD and the provincial PMO. The BO would have a broader mandate to manage those activities included in components 3 and 4 that are financed bythe GEF grant. 3. PLGs andPMOs would also be established at the county level. Ineach nature reserve, a PMG would be created directly under the nature reserve director. The PMG would be responsible for supervision o f all aspects o f project activities inthat reserve. It would report to the BO o f WNRMS. The PMG would include the head o f the nature reserve's Management Planning Team, the head o f the nature reserve's Community Relationships Team, the nature reserve's Training Coordinator, and the nature reserve's chief financial officer. Technical advice would be sought from the Forest Survey and Design Institute and the Guangxi Academy o f Forestry as required. The Department o f Forest Protection in the SFA would serve in an advisory capacity to the GFB duringproject implementation o f the nature reserves component. Management plans for national nature reserves produced by the project would be submitted to the DNR inBeijing for review and comment o ftechnical aspects. 4. A TSP has been established within the GFB consisting o f members from relevant research and technical institutes. The TSP would be responsible for identifying and carrying out the research and extension programs, assisting the Provincial PMO and BO incarrying out the project monitoring, training and technical services, as well as coordinating relevant 64  departments and institutions to undertake the forestry strategy, policy study and the regulatory work Timber ProductionArrangements 5. The relationships and production arrangements between households, FFs and communities would be decided through a participatory process carried out at the village level. This would allow farmers and communities to choose from a menu o f options and decide on whether they wish to manage their plantations by themselves or in cooperation with FFs or other planting entities. The participatory process and social assessment conducted during project preparation showed that a large majority o f households in remote areas and about half o f households in other areas have a preference for cooperative arrangements with FFs; about 25 percent o f the farmers would prefer to take a loan directly from the project andplant on their own, whereas 75 percent prefer to cooperate with forest farms or other plantingentities. 6. The project entities are state-owned FFs, private plantingcompanies, households groups and individual households. A survey o f the Participatory PlantingDesign, inwhich households or group o f households choose the option o f obtaining an individual loan from the project and plantingon their own, would be carried out one year ahead o f planting time. The other option available is when the FFs and companies participate inthe project planting activities through a cooperative andcontractual arrangement with farmers and communities. Monitoringandevaluationof outcomes/results 7. M&E for the project would be based on a simple, inexpensive and sustainable plan. The provincial and county PMOS,the BO and the nature reserves would monitor the project's progress and evaluate the overall project impacts. The M&E system would be designed to monitor project performance and impact. A detailed M& E planhas been prepared (Annex 3). Itwas reviewed at appraisal and agreed to duringnegotiations. A computerizedbaseline would be set up to monitor project implementation progress, the performance o f all afforestation entities (including progress inplantation establishment), detailed contractual arrangements with households and communities, as well as loan disbursement and reimbursement schedules. The comparison o f economic viability o f smallholder forestry versus large-scale plantations would be an important element in this monitoring system. The Protected Areas METT which was completed during project preparation to establish the baseline status would be used to track improvement in nature reserve management effectiveness at mid-term and before project closure. 8. The project's progress and outcomes would be measured regularly andthe results would be included inthe project semi-annual reports. Under Component 4 o f the project, provisions have been made to build the capacity o f project institutions to complete the required M&E activities. 65  Annex 7: FinancialManagementandDisbursementArrangements CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject 1. The Financial Management Specialist (FMS) has conducted an assessment of the adequacy o fthe project financial management system o f the proposed project. The assessment, based on guidelines issued by the Financial Management Sector Board on November 3, 2005, concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. In the FMS's opinion, the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status o f the project in the reporting format agreed with the project andas requiredbythe Bank. 2. Fundingsources for the project include aBank loan, a GEF grant andcounterpart finds. The Bank loan proceeds will flow from the Bank into the project Special Account (SA) to be established at, and managed by, the Guangxi Provincial Finance Bureau (GPFB), to county finance bureaus (FBs) and then to county PMOS. From there the funds would be delivered directly to the final beneficiary. For the component to be executed by FFs, the funds will be delivered from the SA to the provincial PMO and then to the provincial state-owned FFs. The GEF funds will flow from the Bank into a SA separately set up for GEF grant to be established at, and managed by the GPFB, and then directly to the nature reserves. Traditional disbursement techniques will be used, not Financial Management Report (FMR)-based disbursements given the project's specific conditions. The counterpart funds will be provided byprovincial, county government, FFs and other beneficiaries. Audit Arrangement 3. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank-financed projects in China, the project will be audited in accordance with ISA and the Government Auditing Standards o f the People's Republic of China (1997 edition). The Guangxi Provincial China State Audit Bureau has been identified as auditors for the project. The annual audit report would be issued in the name o f the Provincial Audit Office. 4. The annual audit reports o f provincial project consolidated financial statements would be provided to the Bank within six months o f the end o f each calendar year. This requirement would be stipulated in the loan agreement. The responsible entity and timing are summarized as below: Component Submittedby Duedate Consolidatedproject financial Guangxi June 30 o f each year I statements Provincial PMO 66  5. Output basemnit Cost Disbursement. To facilitate the full participation o f local labor and promote cost effectiveness and the timely delivery o f inputs in the project areas, an output based disbursement procedure would be used. Disbursement would be made on the basis o f a combination o f agreed unit cost disbursement models (Appendix 1 below) and certification statements by the PPMOs verifying that the plantations have been completed in accordance with agreed quality standards. Originally, 14 unit cost plantation models were formulated on the basis o f unit cost estimates, including costs o f seedlings, fertilizer, labor and other inputs reflecting the prevailing market situation. These unit cost plantation models were prepared, reviewed and agreed by the Bank missions. At appraisal, the 14 unit cost plantation models were consolidated into six unit cost disbursement models to improve transparency and simplify disbursement. The unit cost disbursement models have been derived by combining and averaging unit cost plantation models for similar tree species. 6. Tranching of Disbursement for Plantation Establishment. In order to ease the burden o f project farmers and keep them from having to advance the full funding required for the establishment o f forest plantations, it was agreed that unit cost disbursement would be undertaken over a three-year period and infive installments. Duringthe first year o fplantation, payment would be made inthree installments, the first paid to farmers after they complete the site preparation, the second after completion o f plantation, and the third payment after the side dressing o f fertilizer and tending are completed. During the second year, one single payment would be made after farmers complete the application o f fertilizer side dressing and tending o f the plantation. During the third and last year, the remaining single payment would be made after farmers complete the application o f fertilizer side dressing andtendingo f the plantation. 7. Certification of Output-based Disbursement for Plantation Establishment. Requests by the PPMO for output-based disbursements prepared on the basis o f agreed unit cost disbursement models must be certified by the relevant PMOs before their submission to the Bank. The certification process would be undertaken as follows. After completing eligible plantation work, project beneficiary households, farmer groups, village committees or FFs would report to their respective County PMO on the amount o f work completed and claim reimbursement. The County PMOs would designate forestry inspectors who would visit the plantation sites to measureherify the species planted, the area claimed as planted, and the conformity o f the plantation with agreed quality standards. Once the inspectors are satisfied that the work claims are genuine and to standard, they would certify the reimbursement claims. The County PMOs would summarize the reimbursement claims in Statements o f Expenditures (SOEs) and forward the certified SOE to the PPMO. The PPMO would review the SOEs and certifications o f the County PMOs and undertake field random checks on a sample o f the claims. Once satisfied that the claims are accurate, the PPMO would consolidate the SOEs, prepare a Withdrawal Application on the basis o f the agreed unit cost disbursement models and certify the Application before submittingit to the Bank. 67  3 m N m v, 0 N m N b W b W W 3 m N N b m m W W W d - s 3 3 0 m b b 00 W 01 3 N 3 m W m v, m s 0 3 N W b v, m N m m 00 m - - m zm 0 2 sE! 0 $1 d z 3 s m v, N d B d - - $1 3 N N 0 v, $1 Q\ 0 00 m s Q\ $1 d m 3 3 Q\ v, H UY Ei  8. Disbursement rates. During project appraisal and negotiations the disbursement rates shown inthe tables o fparagraph 10below were confirmed. 9. RetroactiveFinancing. Retroactive financing o fLoan Categories 1and2 andGEF Grant Categories 1, 2 and 3 would cover eligible expenditures incurred after July 1, 2006 (appraisal was undertaken during the period from June 7 to 11, 2006). The maximum amount financed would be equivalent to 10 percent o f the total loan and grant amounts. The PMO has prepared a work and financing plans for retroactive financing and submitted it to the Bank duringnegotiations. ALLOCATION OFLOANPROCEEDS 10. Proceeds o f the Loan would be disbursed against expenditure categories as shown inthe table below: Allocationof IBRD LoanProceeds by DisbursementCategoryz ExpenditureCategory Amount in Disbursement I US$ million Percentage II 3. 1. Works 1.37 50 2. Plantations 94.87 60 II Goods III 2.33 III 100 4. Consultant Services TraininglStudy Tours 1.43 70 TOTAL 100.00 -2/ TheFront-EndFeehasbeenwaivedinitsentirelyfor allprojectsapprovedbytheBoardinFY07 69  Allocationof GEFGrant Proceeds by DisbursementCategory ExpenditureCategory Amount in Disbursement US$million Percentage 1. Works 0.42 50 2. Goods andEquipment 0.62 85 II 5. 3. Consultant Services Training/Study Tours 3.61 70 4. Research Grants 0.30 100 Community LivelihoodSeed Grants 0.30 100 TOTAL 5.25 I I I I The amounts of disbursed inclusive of taxesfor all categories. Use of Statementsof Expenditures(SOEs) 11. Some o f the proceeds o f the loan may be disbursed on the basis o f SOEs as indicated inthe table below. ExpenditureCategory Contracts 1.Works All 2. Plantations All 3. Goods IUS$500,000 4. Consultants IUS$100,000forfirmsand IUS$50,000forindividuals 5. Training and Study Tours All 6. Grant for Research All 7. Grant for LivelihoodCommunitv Activities All DesignatedAccount (DA) 12. Two Designated Accounts (DAs) will be established in the Provincial Finance Bureau (one for the Loan and one for the GEF Grant). The authorized allocation o f DAs was discussed and determined duringnegotiations. 13. The GPFB will be directly responsible for the management, monitoring, maintenance and reconciliation o f the DAs' activities o f the project. Supporting documents required for Bank disbursements will be prepared and submitted by respective project implementing entities through county PMOSand Finance Bureaus, and by the provincial 70  PMO to the provincial Finance Bureaus for final verification and consolidation before sending to the Bank. For the component executed by the FFs, the supporting documents will be submitted to the provincial PMO directly andthen to the provincial Finance Bureau. For Component 3, the supporting documents will be submitted by the nature reserves to the BO, and by the provincial PMOs to provincial Finance Bureaus for final verification and consolidation before sending to the Bank. The flow o f the withdrawal applications i s as follows: IBRD loan County PMOs Provincial Provincial World entities andFinance -+ PMO -+ FinanceBureau -+ Bank Bureaus GEFwant I"""bF( Provincial Provincial World Finance Bureau FinancialManagementandReportingArrangements 14. Implementing Entity. A PLG, PCG and PMO would be established at the provincial level. The PLG would be chaired by the Vice-Governor responsible for forestry and would consist o f representatives from the forestry, finance, planning and audit departments. The PCG would be located in the GFB and will be led by the Director General. The current provincial PMO, established to implement the existing Bank-financed projects, i s located inthe provincial Forestry Bureau. It would be responsible for managing Components 1, 2 and 4. It would also provide the financial management and procurement support to Component 3. A BO has been set up in the W N R M S to be responsible for managing component MNRC and to ensure that biodiversity concerns are integrated with the activities of other components. PMOs would also be established at the county level and the state-owned FFs. For Component 3, a PMG would be established in each o f the five nature reserves and the PMG would be responsible for supervision o f all aspects o f project activities inthat nature reserve. The organization chart i s as follows: 71  ClProvincial forest farms 15. Funds Flow. The flow of IBRD funds would follow the traditional route from the Bank to the DA set up inthe GPFB to countyFBs andthento county PMOS. Fromthere, the funds will be routed directly to the final beneficiaries. For the component executedby FFs, the funds will be delivered from the DA to the provincialPMO and then to the FFs. The flow of GEF funds would be from the Bank to the DA set up inthe GPFB and thento the nature reservesdirectly. The funds flow of counterpart funds will follow the domestic procedures, dependingonthe source of funding. The funds flow is as follows: IBRD loan The World DA managed CountyFBs CountyPMOS Implementing byprovincial -+ + + entities FB GEFgrant The World + DA managedby The nature Bank provincialFB ' reserves 72  16. Project accounting staff with appropriate qualifications and work experience are critical to the successful implementation of project financial management. Based on discussions, observation and review o f educational background and work experience o f the staff identified for financial and accounting positions in the provincial and county PMOS, the task team noted that most o f financial staff recruited should be able to meet the Bank's minimumrequirements. However, given that about halfo fthe financial staff are new to the Bank project and that the knowledge o f financial staff needs to be updated, financial management training has been provided by the provincial PMO prior to project negotiations. 17. To strengthen the financial management capacity and to achieve consistent quality o f accounting work, a Project Financial Management Manual has been prepared, providing detailed guidelines on financial management, internal controls, accounting procedures, fund andasset management, and withdrawal applicationprocedures. The Bank has reviewed the Manual and found it acceptable; it will be finalized and distributed to all the project financial staff before loan and grant effectiveness. 18. Accounting Procedures. The administration, accounting and reporting o f the project will be set up in accordance with the Circular #13: "Accounting Regulations for World Bank FinancedProjects" issued inJanuary 2000 by the MOF. The circular provides in-depthinstructions o faccountingtreatment o fproject activities andcovers the following: Chart o f account 0 Detailed accounting instructions for each project account Standard set o fproject financial statements Instructions on the preparationo fproject financial statements 19. The standard set o f project financial statements mentioned above has been agreed to between the Bank andMOF. It applies to all Bankprojects appraised afier July 1, 1998 and includes the following: Balance sheet Statement o f sources and uses o f funds by project components Statement o f implementation o f Loan Agreement Statement o f implementation o f GEF Grant Agreement Statement o f special account (loan) Statement o f special account (GEF grant) Notes to financial statements 20. Each o f the implementing entities would manage, monitor and maintain its respective project accounting records. Original supporting documents for project activities would be retained by originating implementing entities. In addition, each implementing entity would prepare financial statements to be reviewed, approved and consolidatedby the provincial PMObefore sendingto the Bank for review andcomment on a regular basis. 73  21. InternalAudit. There is no formal independent Internal Audit department for the project. However, this will not impact the project's financial management as PMO management and monitofing, Bank supervision visits, and yearly external audits will serve as the mechanism to ensure that financial management controls are functioning appropriately. 22. Information System. There is no uniform accounting software being used by the implementing entities, although some implementing entities are using accounting software for their current activities. It i s uncertain at this stage if they can integrate the project activities into their current system and it i s highly possible that the project implementing entities will manually account for their transactions. 23. Supervision Plan. A detailed supervision plan for this project will be included as part of the China Audit Strategy document, This document will take into considerationthe size andFMrisk rating o f this project. 74  Annex 8: ProcurementArrangements CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject A. General. 1. Procurement for the proposedproject would be carried out inaccordance with the World Bank "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, the "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The description o f the various items under different expenditure categories is presented below. For each contract to be financed by the IBRD LoadGEF Grant, the procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame would be agreed between the Borrower and the Bank project team inthe Procurement Plan. The first procurement plan covers the initial 18-month period and will be updated at least annually or as required to reflect the actual project implementation needs and improvements ininstitutional capacity. Plantationsand Procurementof Works Community Participation in Procurement 2. Neither ICB nor N C B contracts are foreseen because o f nature o f the project. Plantation establishment with a total cost o f US$157.78 million including land clearance and preparation, seedlings, purchase of fertilizer, planting o f seedling and tending, and forest trails would be implemented through community participation by communities and beneficiary FFs by utilization o f local labor, materials, equipment and technology. Under community participation, communities/FFs would mobilize their own village labor or hire labor to implement the plantations in accordance with the annual plantation plan and technical standards agreed with the county PMO. Payment would be made against completed and verified actual plantations based on the agreed unit cost per species per hectare for each county. Implementation and quality o f plantations would be periodically supervised by established technical teams ledby the provincial and county PMOS. Shopping 3. Small works with a total cost o f US$4.32 million (such as storage sheds, checklguard posts, fencing and boundary markers) would be procured and awarded through shopping procedures as specified in paragraph 3.5 o f the Procurement Guidelines. These works estimated to cost less than US$lOO,OOO equivalent per contract would be suitable for lump sum and fixed-price contracts awarded on the basis o f quotations obtained from at least three local contractors. 75  Procurementof Goods 4. A total o f US$4.52 million worth o f goods would be procured for the project. These would include: vehicle, motorcycles, office equipment and field kits. The procurement would be done usingthe Bank's Standard BiddingDocument (SBD) for all ICB and Model BiddingDocuments for NCB agreedbythe GoC andthe Bank. (i) International CompetitiveBidding (ICB)Allcontracts for goods costing US$500,000 equivalent or more would be awarded through ICB procedures as specified inthe Procurement Guidelines. (ii) NationalCompetitiveBidding (NCB)NCBprocedureswouldbeusedfor procurement o f goods costing less than US$500,000 equivalent per contract. Contracts that are estimated to cost less than US$300,000 may be advertised in a provincial daily newspaper only. (iii) Shopping.Othergoods,suchasfieldkitsinsmallerquantitiesandavailable off-the-shelf, would be procured using shopping procedures with contracts under US$lOO,OOO equivalent per contract. Selectionof Consultants 5. A total o f about US$5.34 million o f consulting services would be required and would include nature reserve management planning, biodiversity survey and protection planning, institutional and capacity building, and project monitoring and evaluation. Most services would be provided by individual consultants and some by consulting firms. The consulting contracts for firms which are expected to cost more than US$200,000 equivalent per contract would use the Quality and Cost Based Selection (QCBS) or Quality Based Selection (QBS) in conformity with paragraphs 2.1 through 3.4 o f the Consultants Guidelines. Most consulting contracts for firms are estimated to be under US$200,000 equivalent per contract under this project. The Selection Based on Consultants Qualifications (CQ) would be used for these contracts. Chinese university, design and research institutes as a source of consultants may be included in the shortlist if they meet the requirements specified in paragraph 1.11 o f the Consultants Guidelines. In such case, QBS or CQ would be used instead o f QCBS. Short lists o f consultants for services estimated to cost less than US$300,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions o f paragraph 2.7 o f the Guidelines. Under the circumstances described in paragraph 3.10 o f the Consultants Guidelines, the consultants would be selected and awarded under a sole-source basis, subject to the Bank's prior approval. Individual consultants would be selected and contracts awarded in accordance with the provisions o f paragraphs 5.2 through 5.3 o f the Consultants Guidelines. Under the circumstances described in paragraph 5.4 of the Guidelines, individual consultants may be selected and awarded on a sole-source basis subject to the Bank's prior approval. 76  Training, Workshops and StudyTours 6. A total o f US$3.61 million for training and study tours would be required. Detailed annual programs will be developed by the PMO during project implementation and included inproject annual work planfor the Bank'sreview. Actual expenditures incurred in accordance with the approved detailed programs will be used as the basis for reimbursement, Non-BankFinancing 7. A total of about US$27.93 million of other costs would be required for the project. These costs are largelyrelated to: (a) Component 2; (b) the management overhead costs o f the PMOs including plantation site selection, field survey and design, quality checking and acceptance, and project implementation supervision; and (c) incremental costs including operating costs and consumables for field surveys, office consumables, field allowance covering travel costs, and communications for the project BO for GEF Grant management. CompetitiveResearchGrant under GEF Component 8. A total o f about US$300,000 would be provided as grants to research institutes to carry out small-scale research programs for nature reserves management and biodiversity conservation. Proposals for grants would be evaluated on predetermined criteria by a Research Grant Evaluation Panel established in GFB in accordance with the procedures set out inthe PIP. LivelihoodCommunity (Seed) Grant under GEF Component 9. A total o f about US$300,000 would be provided as grants to communities adjacent to the nature reserves for agreed activities such as fuel-efficient stoves and bio-gas outlined inthe PIP. The selection o f beneficiaries would be carried out in accordance with the detailed procedures set out inthe PIP. B. Assessment of theAvency's Capacitvto ImplementProcurement 10. Procurement activities would be carried out by PMOs established at provincial and county level. The Provincial PMO was established in 1989 with 15 technical, procurement and financial officers and has adequate experience in the earlier Bank-financed projects. The county PMOshave also been establishedwith staff o f about 3-10 technical officers. 11. An assessment of the capacity o f the ImplementingAgency to implement procurement actions for the project was carried out by the Bank's Beijing Office in October 2005. The assessment reviewed its organizational structure and functions, past experience, staff skills, quality and adequacy o f supporting and control systems, and the legal and regulatory framework. The overall project risk for procurement is low. 77  C. ProcurementPlan 12. The Borrower has developed a procurement plan for project implementation which provides the basis for the procurement methods. The plan would be available at the Guangxi PMO in the GFB and will also be available inthe project's database and in the Bank's external website. The initial 18 months planwas agreed prior to loan negotiations. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. WorldBankPriorReview 13. All contracts: (a) in excess o f US$500,000 for goods; (b) for consultant services in excess o f US$lOO,OOO for firms and in excess o f US$50,000 for individuals; and (c) all contracts awarded under single source selection would be subject to prior review by the Bank. All other contracts would be subject to ex post review by supervision missions, and the post review sampling ratio would be one out o f twenty contracts. E. FreauencvofProcurementSuuervision 14. Inaddition to the prior review supervision to be carried out from the Bank offices, the capacity assessment o f the Implementing Agency has recommended that procurement ex post reviews should be conducted once a year. Annex 8 Table 1 - Thresholds for ProcurementMethodsand PriorReview ExpenditureCategory Contractvalue Threshold Procurement Method (US$thousands) 1. Works NA N S 2. Goods >500,000 ICB 3. Consultant Services >100,000 for firms >50,000 for individuals All single source consultants 4. training and Study Tours NA NA 78  Annex 9: Economicand FinancialAnalysis CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject 1. A financial and economic analysis has been carried out for the Component 1 (timber plantation) and Component 2 (watershed protection) and for the project as a whole. The method is described below with some ofthe key figures summarized inTables 9.1 to 9.5. Assumptions: 2. Input/OutputPrices. The economic analysis is based on the use o f market prices for all tradable products. For most commodities, economic prices are well reflectedby the prevailing financial prices. The economy o f China is relatively open andintegrated inthe world markets, and market prices are a good indication of opportunity costs. However, fbture market prices for timber andindustrial wood process are difficult to predict. While most projections indicate relatively strong prices with an upwardtrend, a certain level o fmarket riskremains. Following the principle of a conservative estimate the lowest price prediction scenario is used in the economic analysis, which suggests a 12 percent reduction in market prices which also takes into account that the quality produced could be lower than expected. The keyprices used inthe analysis for industrialwood andtimber andseedlings are showninTable 9.1. 3. Labor. A large proportion o fproject investment is inthe form of unskilled labor. A cost of RMB 25 per labor day has been used inthe financial analysis. Given the relative level o f unemployment inparticular inrural areas, the opportunity cost for unskilled labor is expected to be only 80 percent o fthe prevailing financial costs. 4. Land. It is assumed that most of the plantations will be developed on existing marginal crop lands with low agricultural productivity or on underutilized shrub- and bush-land. The economic opportunity costs are low and in some cases close to zero. In the economic analysis the average market value o f RMB 300 per ha per year i s used as a proxy for the economic opportunity cost. 5. GlobalBenefits. Inaddition to on-site benefits, a range o fbenefits o f a global dimension are likelyto be significant: Reduction of Greenhouse Gases and Carbon Sequestration. Vegetation and soils are widely recognized as carbon storage sinks. Sequestration o f carbon in terrestrial ecosystems offers a low-cost means of reducing carbon emissions. The `Kyoto Protocol' makes provisions for direct human-induced land-use change and vegetation- recovering activities to be considered in relation to each country's Greenhouse Gases reduction target. The incremental biomass per hectare, which will be generated over the next 20 years, is estimated to be between 100 and 450 tons of dry matter. This is expected to lead to an incremental carbon sequestration equivalent to 180 to 800 ton C02-e. It i s difficult to estimate the economic damage o f global warming. Provisional estimates of global warming damage under a scenario o f doubling COz concentration 79  show estimated damage ranging from 0.25 to 2 per cent o f the world's GNP for the year 2030.Using 1percent o f GNP and discountingthis damage back to present values results in global warming damage o f US$7 to 18 per ton o f fixed carbon. For the analysis, a low value o fUS$4 per ton is used as a shadow price for fixed carbon. This price is close to the currently discussed value for emission trading rights and i s also used inthe BioCarbon fhd analysis. Biodiversity.Not only Component 3, which is directly aimed to protect biodiversity, but also the Component 2 would contribute to protect, restore or increase biodiversity in an area considered of global significance for biodiversity. In particular, the protection o f watershed areas or natural re-vegetation i s expected to contribute to a restoration o f biodiversity and o fthe habitat for plants andwildlife. While biodiversity has a clear economic value expressedby the importance the national and international society places on it, accepted and agreed quantification methods are not available. Generally cost-effectiveness methods are usedtojustify investments inbiodiversity. Long-termImpact on Climate and Rainfall. A restored vegetative cover inbarren limestone areas couldhave a positive impact on the climate inthe region, particularly a more moderate temperature distribution, increased air humidity and more evenly distributed rainfall. While such an impact is likely to be positive, this effect would be very difficult to quantify. 6. DownstreamBenefits. Inaddition to incremental production benefits inthe project areas, the project would have benefits inthe downstream areas o fthe PearlRiver watershed resulting from the re-establishment o f a higher degree o f tree and other vegetative cover. These downstream benefits would be far reaching including: (a) lower variability in water flows through the year and hence reduced severity o f down-stream floods, reducing flood damage, and lowering the need for investment inflood protectionworks; (b) reduced sediment load in the river system, which would increase the operational life and efficiency o f downstream reservoirs and irrigations systems. Lower sediment would also reduce the rate o f rise inriver beds inthe delta areas andhence the need for flood protectionmeasures; and (c) a potentially higher future-use value for the watershed in terms o f drinking water, hydro-power and new imgation schemes. While it is difficult to quantify these benefits, the economic analysis uses the value o f the standingtimber as a lower reference value o f the true economic value. This i s a conservative estimate, based on the assumption that, if the society decides against harvesting a forest, the forest's other function (e.g., watershed protection or biodiversity value) i s considered o fhighervalue than the value o fthe harvested timber. 7. Plantation Pattern. The project would develop 200,000 ha o f plantation forests, o f which 90,220 ha would be either o f eucalyptus or o f a mixture o f eucalyptus and other trees; 98,140 ha would include slow-growing trees, and 11,640 ha would be o f various species o f bamboo. Under Component 2, 18,000 ha o f the protection forests would be planted, o f which 4,000 ha are expected to be used under the BioCarbon trading facility. The assumptions about the development o fthe various plantations are shown inTable 9.2. 8. Phasing. The cash flow analysis is generally done for one production cycle (except for the Y-10 eucalyptus model, which includes one coppice production) for each o f the 80  plantation activities and a maximum length o f 20 years for the individual activities. For aggregated cash flow analysis, 25 years are used considering that the project will be implementedover 5 years. 9. Physical Output. Plantation models are used to estimate physical production under Components 1 and 2. The project i s expected to produce a total o f 25.1 million m3of timber, 2.9 million tons o f fie1 wood and 3.6 million tons o f bamboo poles, as well as a range o f non-wood forest products such as resin, bamboo sprouts, and various types o fbark or h i t s . The incremental sequestration of carbon is estimated at 61.1 million tons C02 equivalent. Details are showninTable 9.3. 10. Results: Economic Rate of Return (ERR): The results o f a preliminary rate o f return calculation are shownbelow. A summary o f the overall economic cash is shown inTable 9.4. Component/Activity without global with carbon benefits sequestration ERR% I FRR% I benefits ERR% I Proiect I I I I 16.2 I 11.9 I 23.8 FARMODsoftware is usedfor dataprocessing andIRR calculations. 11. Sensitivity analysis: Output prices for forestry products are likely to be at least stable. More likely, there will be anupwardtrend. Therefore, the riskthat the conservative prices used in the economic analysis could not be achieved is considered small. A greater uncertainty, however, is associatedwith some o f the inputprices. Inparticular, fertilizer costs have shown significant increases in the past, and it i s uncertain how much they will continue to rise. A sensitivity analysis i s thus carried out focusing on the impact o f unexpected increases in fertilizer costs. Two scenarios are modeled: (a) an increase o f 20 percent, and (b) an increase of 50 percent over the baseline assumptions. The results are shown inthe table below. 81  Component/Activity ERR without global benefits % ERR with global benefits % Baseline 20% up 50% up baseline 20% up 50% up Timber Plantation 16.7 15.9 14.8 23.8 22.6 21.1 12. The analysis shows that increases in fertilizer costs have a relatively small impact on the ERRo fthe project; evena 50percent increasebringsthe ERRdownfiom 23.8 percent to 20.5 percent. All groups o f activities would remain economically viable with an ERR over 12 percent. The impact is most significant inbamboo plantations, which require large amounts o f fertilizer all through the production period. Hence, with a fertilizer price increase o f 50 percent, the economic viability without the global benefits would reach a critical stage. FinancialAnalysis 13. A financial analysis has been carried out for the project as a whole resulting in a Financial Rate o f Return (FRR) o f 11.9 percent, which i s relatively attractive and can compete with alternative investment options. Financial cash flows have also been calculated for all individual plantation activities. They are shown inTable 9.5. The financial cash flow analysis for individual plantation activities indicates a significant difference between eucalyptus plantations and slow-growing timber plantations. From a financial cash flow point o f view, most eucalyptus plantation models would be preferable over slow-growing timber species. This analysis suggests that private investors and (in particular, smaller investors), who cannot invest in a mix o f plantations will choose faster-growing species which have an earlier return from which a loan can be repaid. Larger investors and state farms can, however, also make use o f land not suitable for fast-growing species and can (with a mix o f plantations) generate sufficient income for loan repayment. Overall, all timber plantations are financially attractive. This is not necessarily the case for all o f the watershed plantations, for which ecological benefits have a higher importance. 82  China Guangxi IntegratedForestryDevelopmentand ConservationProject Table 9.1: Financial Prices Unit Yuan Unit Yuan outputs Inputs Forest Logs (tlmber plantation) Seed and seedlings Pine logs4-6cm m3 264 Pine Seedling No. 0.15 Pine logs 8-12cm m3 384 Fir Seedling No. 0.15 Pine logs 14-18cm m3 480 Quercus Seedling No. 0.23 Pine logs >20cm m3 660 Betula Seedling No. 0.3 Fir logs 4-6cm m3 360 LiquidambarSeedling No. 0.40 Fir logs 8-12cm m3 462 EucalyptusSeedling No. 0.28 Fir logs 14-18cm m3 600 Acacia Seedling No. 0.26 Fir logs >20cm m3 780 Bamboo Seedling No. 1.20 Betula logs 4-6cm m3 264 Bamboo Hybrid Seedling No. 2.00 Betula logs 8-12cm m3 420 Sinocalamus Seedling No. 1.50 Betula logs 14-18cm m3 540 Phyllostachys(2)Seedling No. 3.00 Betula logs >20cm m3 720 Zenia insignis seedlings No. 0.20 Liquidambar logs4-6cm m3 240 Dendrocalamusseedlings No. 2.50 Liquidambar logs 8-12cm in3 336 Cryptomeria seedling No. 0.22 Liquidambar logs 14-18cm m3 408 Schima seedlings No. 0.20 Liquidambar logs >20cm m3 480 Illiciumverum seedling No. 0.50 Eucalyptuslogs 4-6cm m3 286 Cinnamon seedlings No. 0.25 Eucalyptuslogs 8-12cm m3 352 Magnolia officinalis seedling No. 0.28 EUcalyptuS logs 14-18cm m3 418 Harvestingand Handling Eucalyptuslogs >20cm m3 495 Timber logging m3 45-50 Acacia logs 4-6cm m3 242 Timber loading/unloading m3 15 Acacia logs 8-12cm m3 308 Timber freight m3 28-32 Acacia logs 14-18cm in3 440 Fuel wood collection ton 20-30 Acacia logs >20cm m3 495 Fuel wood loadinglunloading m3 15 Quercus mixed logs m3 286 Fuelwood freight m3 22-27 Schima superba mixed m3 384 Bamboo pole logging ton 75 Liquidambar mixed m3 270 Bamboo hybrid pole logging ton 70 Eucalyptusmixed m3 385 Sprout collection ton 500 Cryptomeria mixed m3 300 Gum tapping ton 1,500 Bamboopoles ton 250 Gum freight ton 100 Bamboopoles hybrid ton 230 Star Anis harvesting ton 4,000 Fuelwood Cinnamon harvesting ton 2,100 Pine Fuel wood ton 160 Magnolia officinalis harvesting ton 1,800 Fir Fuel wood ton 160 Mixed logs harvesting m3 95 Quercusfuel wood m3 175 Harvesting design fee m3 4 Betulafuel wood m3 175 Road maintenance m3 15 Liquidambar fuel wood ton 175 Labor Eucalyptusfuel wood ton 180 UnskilledLabor day 25 Acacia fuel wood ton 180 Standingvolume Pine timber m3 414 Fir timber m3 498 Zenia insignis m3 492 cryptomeria m3 498 Schima superba m3 456 Other forest products Bamboosprouts ton 1,500 Pinegum resin ton 3,500 Star Anis dry ton 10,000 Cinnamon bark ton 6,000 Cinnamon leaves ton 300 Magnolia officinalis bark ton 4,500 Other benefits Carbon sequestration(tCO2-e) ton 32 83  China Guangxi Integrated Forestry Development and Conservation Project Project Summary Table 9.2: Plantation Pattern Hectares over years (curnrnulative) 1 2 3 4 5 Timber plantation Eucalyptus Y-8 Eucalyptus (1250stemslha) 12,866 25,732 41,814 48,247 54,680 Y-9 Eucalyptus (1666stemslha) 5,929 11,859 19,271 22,235 25,200 Y-I0 Eucalyptus 2-cycles (1250stem /hs 1,024 2,047 3,326 3,838 4,350 Y-6 Eucalyptus+Acacia 1,409 2,819 4,581 5,285 5,990 Sub-total eucalyptus 21,228 42,457 68,992 79,605 90,220 Other timber Y-I Pinus Massoniana 14,198 28,395 46,142 53,241 60,340 Y-2 Chinese Fir 1,939 3,878 6,301 7,271 8,240 Y-3 Quercus griffinith 1,899 3,798 6,171 7,121 8,070 Y-4 Betula alnoides Hamilt 3,826 7,652 12,434 14,347 16,260 Y-5 Liquidambar formosana Hance 353 706 1,147 1,324 1,500 Y-I 1 Acacia 878 1,755 2,852 3,291 3,730 Sub-total other timber 23,093 46,184 75,047 86,595 98,140 Bamboo type Y-I2 Phyllostachys pubescens new 765 1,529 2,485 2,868 3,250 Y-I5 Phyllostachys pubescens improv. 1,294 2,588 4,206 4,853 5,500 Y-13 Hybrid Bamboo 445 889 1,445 1,668 1,890 Y-14 Sinocalamus latiflorus 235 471 765 882 1,000 Sub-total bamboo type 2,739 5,477 8,901 10,271 11,640 Sub-total Timber plantation 47,060 94,118 152,940 176,471 200,000 Watershed protection BioCarbon F-I Pinus+Quercus (BC) 360 900 900 900 900 F-2 Pinus+Schima (BC) 240 600 600 600 600 F-3 Liquidambar+Pinus 420 1,050 1,050 1,050 1,050 F-4 Liquidambar+Fir 180 450 450 450 450 F-5 Eucalyptus 400 1,000 1,000 1,000 1,000 Sub-total BioCarbon 1,600 4,000 4,000 4,000 4,000 Other Watershed protection F-1-1 Pinus+Quercus (WS) 522 1,045 1,698 1,959 2,220 F-1-2 Pinus+Schima (WS) 207 414 673 776 880 F-6 Zenia+Dendrocalamus 824 1,647 2,676 3,088 3,500 F-7 Cryptomeria 71 141 229 265 300 F-8 Zenia+Liquidambar 273 546 887 1,024 1,160 F-9 Illicium verum 419 838 1,361 1,571 1,780 F-I0 Cinnamomum cassia 209 419 681 785 890 F-I1 Magnolia officinalis 47 94 153 176 200 F-12 Hybrid Bamboo 162 325 528 609 690 F-13 Dendrocalamus minor 560 1,120 1,820 2,100 2,380 Sub-total other watershedprotection 3,294 6,589 10,706 12,353 14,000 Sub-total Watershedprotection 4,894 10,589 14,706 16,353 18,000 Total Project 51,954 104,707 167,646 192,824 218,000 84   2 2 w - " 4 ' r j ' I "9 'cup!? w - r o o 0 ' 9 'rjm,? w .- .-OO 0 1.- d 1-q- 2 N .-ON 2 ' 4 ' 2 2 2 2 N 'p! '"I I I ' 0 0 ' T " " * I I I r N 0 5  m f - - m 8 s m h ( o ? t ? 2 %0 2m 2N F 2 E 0 0 o m r r 8 8 00 r I- d r- * ' l a 0 r $ 9 4B 46 $ 2 c) U J m cy m a ! r r   China Guangxi Integrated Forestry Developmentand Conservation Project ProjectSummary Table 9.5: Summaryof IRRs ERR excl.CO2 ERR incl.CO2 FlRR benefit benefit Timber plantation Eucalyptus Y-8 Eucalyptus(1250stems/ha) 20.6% 22.0% 33.7% Y-9 Eucalyptus(1666stemdha) 18.3% 19.5% 30.1% Y-I0 Eucalyptus2-cycles (1250stemslhs 18.9% 19.9% 30.8% Y-6 Eucalyptus+Acacia 17.2% 18.6% 36.4% Average eucalyptus 18.8% 20.0% 32.8% Other timber Y-I Pinus Massoniana 13.5% 15.0% 17.5% Y-2 Chinese Fir 11.1% 12.8% 15.1% Y-3 Quercus grifinith 13.1% 14.4% 27.5% Y-4 Betula alnoides Hamilt 13.1% 15.0% 19.2% Y-5 Liquidambarformosana Hance 12.3% 15.8% 22.9% Y-11 Acacia 13.1% 13.9% 27.3% Average other timber 12.7% 14.5% 21.6% Bambootype Y-12 Phyllostachyspubescens new 15.5% 15.7% 24.8% Y-I5 Phyllostachyspubescens improv. 16.7% 15.9% 31.8% Y-13 Hybrid Bamboo 21.7% 17.0% 28.8% Y-14 Sinocalamus latiflorus 14.0% 15.4% 29.8% Average bamboo type 17.0% 16.0% 28.8% Watershed protection BioCarbon F-I Pinus+Quercus(BC) 6.1% 7.7% 17.3% F-2 Pinus+Schima(BC) 7.1% 9.2% 15.3% F-3 Liquidambar+Pinus 5.9% 8.2% 14.0% F-4 Liquidambar+Fir 5.9% 8.2% 13.9% F-5 Eucalyptus 10.9% 18.9% 34.2% Average BioCarbon 7.2% 10.4% 18.9% Other Watershed protection F-1-1 Pinus+Quercus(WS) 8.9% 10.7% 18.1% F-1-2 Pinus+Schima(WS) 10.2% 12.2% 18.0% F-6 Zenia+Dendrocalamus 10.9% 10.9% 14.6% F-7 Cryptomeria 8.0% 8.5% 15.5'10 F-8 Zenia+Liquidambar 10.2% 11.O% 15.2% F-9 Illiciumverum 10.6% 12.0% 14.3% F-10 Cinnamomum cassia 9.8% 10.8% 12.8% F-I1 Magnoliaofficinalis 8.2% 10.0% 13.6% F-12 Hybrid Bamboo 11.6% 8.7% 15.9% F-13 Dendrocalamusminor 9.8% 7.2% 14.7% Average other watershedprotection 9.8% 10.2% 15.3% 89  Annex 10: SafeguardPolicyIssues CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject A. Summary ofEnvironmentalIssues 1. Background. The GIFDCP seeks to improve the livelihoods o f villagers involved inforestry activities and forest product enterprises through integrated, demand-driven, and sustainable management o f forest resources, biodiversity conservation and timber production systems. This will be effectedthrough: the establishment o f intensively managed timber plantations and the development of mechanisms that would better linktimber production, marketingandprocessing; the demonstration o f improved watershed management for environmental protection, including a carbon sequestration and trade pilot program; better management o f nature reserves for the conservation o f globally important ecosystems andbiodiversity; and capacity buildingandmonitoring, training and evaluationprogram. 2. The components are integrated and built upon each other to support the Guangxi government's desire for sustainable forest development and to generate maximum benefits to local beneficiaries, the national economy and the environment. The proposed project period is six years; the plantation activities will be completed in the first four years, tendering will continue inthe final two years, and the biodiversity conservation component will be executed over six years. 3. Project Location. The GZAR is located in south China, in the headwaters o f the Pearl River is located south-east o f Yunnan and the Guizhou Plateau with mountainous and hilly topography inthe north-west, much o f it limestone karst, and flatter, low-lying landin the south-east. The GZAR has about 50 million people o f whom some 80 percent are involved inagricultural activities and 38 percent are ethnic minorities. The project activities are widely scattered across GZAR; the project plans to involve 37 counties/municipalities intimber plantationestablishment, 25 counties/municipalities inthe watershed management component, and five nature reserves inthe biodiversity conservation component. 4. Natural Conditions. The project areas are located inthe northern sub-tropical zone with a monsoon humid climate with mean annual rainfall between 1,250-1,750 mm. The mean annual temperature ranges between 17-22OC. GZAR is a biologically-diverse area much o f which falls within the Indo-Burma Biodiversity Hotspot. The limestone karst areas cover about 38 percent o f GZAR, mainly inthe north-west part and have many range- restricted and threatened species associated with them. 5 . Forest Cover and Nature Reserves. Forest cover in the project counties averages about 55 per cent, but differs from county to county. The GZAR has 96 nature reserves of different categories and five o f the most outstanding o f these have been selected for project support under the biodiversity conservation component. 90  6. Public Participation. In order to seek local support, increase transparency and accountability to the public, reach consensus with various stakeholders, and enhance ownership o f the environmental management elements o f the proposed project, participation o f beneficiaries and other stakeholders was o f crucial importance in the environmental assessment process. Methods used included posting o f public letters in project areas, publishingnotices in local newspapers, placing notices ingovernment offices and libraries, organizing meetings and interviews with villagers, holding five general symposia and two expert symposia (to which NGOs were invited), preparing public participation questionnaires and consulting with individuals, and receiving many telephone calls. A total o f 1800 questionnaires were sent to a wide range o f people. Almost all respondents believed the project was necessary, although there were concerns over soil quality, erosion, pests and diseases, biodiversity, and short-term waste management issues. Constructive suggestions were made included developing mixed forests, ensuring that state and provincial laws were followed, promoting environmentally-fr-iendly fertilizers, providing training opportunities, taking care when using exotic species, subsidizing those forestry activities with biological benefits, and clarifying use rights. 7. Environmental AssessmentReport. The EA for the GIFDCP was prepared to meet the requirements o f the Bank, the GoC and the government o f GZAR. The GIFDCP was assigned an EA category `Byin the Bank's classification system. To review the project's likely positive and negative environmental impacts, an EA and an EMMP (covering mitigation measures, monitoring, and institutional strengthening) built on the work o f similarpreviousprojects inChinawere conductedby specialists from the GEPRI, as well as staff o f the Forestry College o f Guangxi University in Nanning, with additional help from an international consultant. The EA has learned from previous Bank-supported forestry projects in China, especially those that have been implemented in GZAR (the National Afforestation Project, the Forest Resource Development and Protection Project, and the Forestry Development in Poor Areas Project), through on-the-ground assessments and a review o f the available monitoring data. 8. Overall, the project is expected to generate significant environmental benefits because it focuses on high-priority natural resource management issues. The Plantation Establishment component should also have positive environment impacts through the reduction o f pressure on natural forests, a decreased demand for imports o f forest resources from outside China, and contributions to local community income. The major potential impacts o f the plantations component on the environment include: degradation o f vegetation and potential soil erosion as a result o f temporary land occupation at the construction sites, as well as site preparation for the plantations; short-term impacts on native fauna; and pollutiodwaste management issues at the planting sites. Ifthe mitigation measures proposed in the EMMP are implemented, the negative impacts during implementatiodconstruction phases will be minimal. 9. Potential negative environmental issues arising from plantation development include those associated with establishing large-scale plantations with few species (some o f which are not native to China), selecting the sites for those plantations, and the management o f 91  pests and diseases. The project design has been sensitive to these issues by setting clear guidelines for an objectively verifiable process o f site selection, supporting mainly small blocks o fplantations, increasing the number and variety o f tree and bamboo species/clones, and avoiding any tree species with a history o f invasive behavior. Detailed annexes on Plantation Management and Pest Management (based on the Bank's previous Sustainable Forestry Development Project) were prepared as part o f the EA. Nonetheless, these will require careful planning and execution because o f the wide coverage and small unit size of the component. 10. The components on ecological forests and nature reserves are expected to have positive environmental impacts, both directly (by protecting some o f the most important remaining natural forests and associated biodiversity in Guangxi), and indirectly (through protecting key forested watersheds). Any negative environmental issues arising from these components are expected to be insignificant and easily mitigated. 11. Environmental Impact Mitigation Measures. Mitigation measures have been proposed to reduce the expected negative environmental impacts o f the project. Since the project sites are scattered throughout the GZAR, effective implementation o f the proposed mitigation measures, if not well organized, could be a major challenge for the project. To cope with this challenge, the EMMP (including institutional strengthening, reporting, and environmental training requirements) has beendeveloped andthe budget for it i s an integral part o fthe project. The EMMP envisages the PPMOtaking environmentalmanagement and monitoring as part o f its core responsibilities through all stages o f the project. 12. Inorder to ensure the successful implementationofthe proposed EMMPandinline with relevant national environmental regulations, each County-level PMO will appoint one to three officers (depending on the number and area o f plantation blocks) who will have full responsibility for the successful implementation o f the EMMP. The County-level PMOS will also designate one o ftheir staff to be trained bythe project to take the responsibility o f ensuring the adoption o f all EMMP activities by the project at the county/farm level. These staff will be responsible for the preparation o f the environment protection reports and documents related to project implementation for the review o f State Environment Protection Agency (SEPA), the Bank and respective (EPBs). Ultimate responsibility for ensuring that all activities identified in the EMMP are implemented rests with the PPMO which will ensure the smooth flow o f required environmental reportddata from the counties to the regional office. B. Summaryof SocialIssues 13. Involuntary Resettlement. Neither project agencies nor other governmental units are expected to identify or undertake activities requiring taking o f land under this project. Accordingly, no involuntary population relocation or land acquisition is envisaged. However, some loss o f land or assets by individuals in a community may occur due to small-scale infrastructure construction (e.g., village roads, storage sheds.) which will be identified through a community-based planning process during project implementation. 92  Resettlement-related impacts hence cannot be ruled out o f the project completely. A Policy Framework for Resettlement and Land Acquisition has therefore been prepared by the S A team in accordance with the Bank safeguard policy OP4.12, Involuntary Resettlement, to establish agreed principles and procedures to be followed in the event that such development activities requiring land taking are determined duringproject implementation. 14. Moreover, in compliance with the policy adequately to address possible adverse impacts on people's livelihoods arising from new restrictions on access to resources inthe nature reserves or hill closure areas under the project, a Process Framework for Mitigating Potential Adverse Impact has been developedby the SA team. The Process Framework will ensure that project implementation includes a participatory process for local people to avoid significant restriction impacts under the nature reserve management and watershed rehabilitation components, select and agree on measures to mitigate those impacts which cannot be avoided, and resolve any conflicts which may occur. 15. As agreed, the Borrower will attest that no activities requiring involuntary taking of land or unnecessary restriction o f access to natural resources will be undertaken in this project without prior acceptance by the Bank o f appropriate planning remedies. The GEF Commission, as the source o f grant support, will also attest that it will not provide support for any activities requiring involuntary taking o f land, or activities imposed by government agencies on villages receiving grant support. 16. Indigenous Peoples. Guangxi is a Zhuang Minority Nationality autonomous province-level region. It has ethnic minority people from 54 groups totaling 18 million people that account for 38 percent o f Guangxi population. The Zhuang i s more than 15 million people, about 86 percent o f ethnic minority people and 33 percent o f the total. The other ethnic minorities account for about 5 percent. Inthe 42 project counties, nine o f these ethnic minorities are present; they are: the Zhuang, Maio, Yao, Dong, Maonan, Yi, Shui, Mulao, and Gelao, with a population o f 593,000 beneficiaries that account for 34.9 percent o f the total project population. These ethnic minorities either reside in their own groups or are intermixed with others (including the Han), and their proportion in local population differs between the project counties. All nine ethnic minority groups inthe project areas can be defined as indigenous people and their presence invokes the Bank's social safeguard policy OP4.10, Indigenous People. 17. The project SA was carried out in early project preparation and an EMDP was developed based on the SA findings. Some 28 villages in nine project counties and 18 hamlets in the (then) seven natural reserves (only five nature reserves have been retained under the project) and adjacent areas, as well as two group companies and three FFs were surveyed and interviewed by the SA team. Most o f the villageshamlets were inhabited by multi-ethnic minority groups, including all the nine ethnic minorities covered by the project. Inorder to extendproject information disclosure andpublic consultation, a training workshop on participatory approach and (PRA) was heldduring the SA exercise, and about 130 representatives from all the originally proposed seven project Nature Reserves, 33 93  project counties, thirteen state FFs and four group companies, as well as staff o f the PMO andthe Regional Forestry Design Institute attended the workshop. 18. Trainees carried out four sample village consultations in each o f the 42 proposed counties, and 10-15 household questionnaire interviews in each village. At the end of the SA fieldwork, a stakeholder workshop was held inconsultationwith all related government and technical line agencies in the region. After the workshop, more than 25,000 project information leaflets were distributed and the sample application forms were sent to the proposed project communities. During the comprehensive consultation processes, various views, needs, aspirations and attitudes toward the project components o f the multiple stakeholders, especially those o f the primary stakeholder farmers and ethnic groups, were identified and analyzed to help steer project design. 19. As the SA indicates, while this project aims to improve the management, sustainability and environmental condition o f Guangxi's forest resources, it also intends to enhance project economic benefits to local people and to give them the incentive to participate inthe sustainable management o f natural resources. Most o f the project areas are in remote mountains and about half of the areas are located in the nationallyh-egionally designated poverty counties that are home to the poorest and most disadvantaged people in Guangxi Region, including many o f ethnic minority groups. Therefore, most o f the ethnic minority groups in the project areas remain vulnerable in terms o f poverty incidence and difficult natural environments, and all o f them have expressed willingness to participate in the project. The EMDP, as one o f the result o f the SA exercise, therefore sets out the practical steps that will be taken to ensure that ethnic minority groups have equitable opportunities to take part inand fully benefit from the project, and that the risks o fpotential negative impacts identified are avoided or minimized. 20. Because o f the remaining gap between the ethnic minority groups and mainstream society, special profiles were prepared for all ethnic minority groups identified in these areas in order to tailor project design to local ethnic cultures. The profiles describe: (a) the basic demographic data and locations o f the ethic minority groups; (b) their livelihoods and opportunities; and (c) their cultural traditions and ways o f lives. Although there are few limiting factors that would restrict access o f the ethnic minority groups to the project, in eachproject component a number o f risks o fpotential negative impact have been identified. Some o f them are specific to ethnic minority people, while others are not specific although being related to them. Overall, these risk factors especially relate to land tenure and contractual arrangements in the commercial plantations, and to restrictions in resource access in the nature reserves and hill closure. A large proportion o f ethnic minority people live in areas that are too remote from the main roads to establish viable plantations; and in most cases ethnic minority people lack capital and face more difficulties in access to new technology and information. 21. In view of their various vulnerable situations, the EMDP'commits that all project activities offer development opportunities to ethnic minority people in the project areas while mitigating any potential risks. It includes three types o f measures for this purpose: (a) 94  one inclusion measure applies to all counties to ensure that isolated ethnic minority communities are given equal access to apply to the project; (b) general measures apply to all project villages whether they include ethnic minority people or not, and their purpose is to ensure that opportunities for positive impact for local people including ethnic minorities are taken advantage of, such as participatory detailed design and capacity building; and (c) a number o f specific measures infavor o f the ethnic minority people's involvement ensures attention to (and monitoring of) ethnic minority issues, including culturally compatible planning, training and supporting activities to local ethnic minorityneeds. 22. Inthe detailed project component design stage for the first year project activities, the Borrower followed up the SA exercise and hlfilled the EMDP commitments to conduct the participatory design procedures in all the villages in 20 percent o f the project areas, on the basis o f free, prior and informed consultation with local ethnic minority people about the project nature and impacts. A Participatory Project Design Manual was developed and farmers' participation procedures were determined, including village meetings and focus groups on project component design, technical training and contractual discussion, and villagehousehold application and decision-making. Inparticular, each design o f the project components was ensured with cultural and location-specific appropriateness, and all the procedures were recorded. It i s evident that the EMDP helped not only the project design with special attention to local ethnic minority groups but also its implementation with their informedparticipation andbroad support. 95  Annex 11: Project Preparation and Supervision CHINA: Guangxi Integrated Forestry Development and Conservation Project Planned Actual PCNreview 8/27/2004 8/25/2004 InitialPID to PIC 9/9/2004 9/15/2004 InitialISDS to PIC 9/9/2004 9/15/2004 Appraisal 06/04/2006 06/07/2006 Negotiations 08/15/2006 10/10/2006 BoarcURVPapproval 12/14/2006 12/14/2006 Planned date o f effectiveness 03/15/2007 Planned date ofmid-ternreview 06/30/2010 Planned closing.date 12/31/2012 Keyinstitutions responsible for preparation ofthe project: GZARProvincialForestry Bureau Bank staff andconsultantswho worked onthe project included: Name Title Unit LiuJin Task Team Leader EASRD Mohamed NoureddineBenali Lead Operations Officer/Co-TTL EASRD Susan Shen LeadEcologist EASRD Tom Brummer Senior Silviculture/Nursery Specialist Consultant Tony Whitten Senior Biodiversity Specialist (Safeguards) EASES Zong-Cheng Lin Social development Specialist (Safeguards) EACCF Josef Ernstberger Senior Economist Consultant Carlos Escudero Lead Counsel EACCF Melinda Good Senior Counsel LEGEA Dong Yi Financial Management Specialist EACCF ShiJinan Senior Procurement Specialist EACCF Xiaolan Wang Operations Officer EASRD HongweiZhao Team Assistant EACCF Minhnguyet L e Khorami ProgramAssistant EASRD World Bank funds expendedto date onproject preparation: 1. Bankresources:US$387,909 2. Trust funds: US$ 83,000 3. Total: US$ 470,909 Estimated Approval and Supervision costs: 1. Estimated annual supervision cost: US$130,000 96  Annex 12: Documentsinthe ProjectFile CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject A. Government Reports relatedto the Project: 1. Project ImplementationPlan June, 2006 2. Afforestation Models and Financial-BenefitAnalysis Models for Timber Plantation, EcologicalForest Plantation and Watershed Rehabilitation 3. Plantingstock development plan (including planting materials and seedlingcriteria for major planting species; nursery management guidelines; and nursery extension plan) 4. Training and extension programs for the Expanding Timber Plantation and Increasing Ecological Forest Cover Components 5. Guangxi Forestry Strategy and Policy Study Plan 6. ProjectMonitoringand EvaluationPlan 7. Project DesignDocument for BioCarbon Pilot. 8. Baseline Methodology and MonitoringMethodology for BioCarbon Pilot 9. Procurement Management Manual 10. Goods and Equipment Procurement Plan. 11. Financial Management Plan 12. Social Assessment Report 13. Social safeguard document, including: (a) an Ethnic Minority DevelopmentPlan; (b) a LandAcquisition and Resettlement Policy Framework; and (c) a Process Framework for MitigatingPotentialAdverse Impact 14. Participatory Project Design Manual 15. Environmental Assessment 16. EnvironmentProtection Guidelines for PlantationEstablishment andManagement 17. Pest Management Plan 18. Timber Product Market Study Report B. BankStaffAssessment: 1. Identification Mission Aide Memoire September2004 2. MiniPreparation MissionAide Memoire April 2005 3. Preparation Mission Aide Memoire July 2005 4. Pre-appraisalMission Aide Memoire February2006 5. Appraisal Mission Aide Memoire June 11, 2006 6. Procurement Capacity Assessment Report for the Project June 15,2005 7. Financial Management System AssessmentReport June 15,2005 8. Assessment for the State FarmManagement Mechanism andReformProcess, November 2005 9. Assessment for the State FarmFinancial Statement, November 2005 C. Others: 1. GEF Project ExecutiveSummary 97  Annex 13: Statementof Loansand Credits CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject Difference between expected and actual Original Amount inUS$ Millions disbursements Proiect ID FY Pumose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO91020 2007 CN-FujianHighway Sector Investment 320.00 0.00 0.00 0.00 0.00 320.00 0.00 0.00 PO83322 2007 CN-SICHUANURBAN DEV 180.00 0.00 0.00 0.00 0.00 180.00 0.00 0.00 PO75732 2006 CN-SHANGHAIURBANAPL2 180.00 0.00 0.00 0.00 0.00 158.62 -4.72 0.00 PO81255 2006 CN-ChangjiangPearlRiverWatershed 100.00 0.00 0.00 0.00 0.00 99.75 3.42 0.00 Reha PO81348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 150.00 0.17 0.00 PO82992 2006 CN-GEF-Termite Control Demonstration 0.00 0.00 0.00 14.36 0.00 14.36 0.00 0.00 PO70519 2006 CN-FuzhouNantaiIslandPeri-Urban 100.00 0.00 0.00 0.00 0.00 100.00 6.33 0.00 Dev PO84742 2006 CN-IAIL 111 200.00 0.00 0.00 0.00 0.00 169.04 13.46 0.00 PO85124 2006 CN-Ecnomic ReformImplementation 20.00 0.00 0.00 0.00 0.00 18.44 -1.23 0.00 PO85333 2006 CN-5th InlandWaterways 100.00 0.00 0.00 0.00 0.00 91.34 9.57 0.00 PO96158 2006 CN-RenewableEnergy I1(CRESP 11) 86.33 0.00 0.00 0.00 0.00 86.11 -0.22 0.00 PO99992 2006 CN-Liaoning MediumCities 218.00 0.00 0.00 0.00 0.00 218.00 0.00 0.00 Infrastructure PO94388 2006 CN-HFC-23 EmissionsReduction 0.00 0.00 0.00 0.00 0.00 980.20 0.00 0.00 PO93906 2006 CN-3rdJiangxi Hwy 200.00 0.00 0.00 0.00 0.00 200.00 0.00 0.00 PO86629 2006 CN-HeilongjiangDairy 100.00 0.00 0.00 0.00 0.00 99.15 0.50 0.00 PO67828 2005 CN-RenewableEnergy Scale-up Program 87.00 0.00 0.00 0.00 0.00 86.57 43.97 0.00 PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 165.14 23.47 0.00 PO67625 2005 CN-GEF-Renewable Energy Scale-up 0.00 0.00 0.00 40.22 0.00 38.22 -0.35 0.00 Program PO72721 2005 CN-GEF-Heat Reform& Bldg EgyEff. 0.00 0.00 0.00 18.00 0.00 16.20 3.27 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 95.95 32.89 0.00 Development PO68752 2005 CN-Inner Mongolia Highway& Trade 100.00 0.00 0.00 0.00 0.00 81.77 3.44 0.00 Comd PO57933 2005 CN-TAI BASINURBANENVMT 61.00 0.00 0.00 0.00 0.00 43.41 10.53 0.00 PO81161 2005 CN-CHONGQING SMALL CITIES 180.00 0.00 0.00 0.00 0.00 177.10 19.38 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT 100.00 0.00 0.00 0.00 0.00 92.55 3.65 0.00 MGMT PO69862 2005 CN - AgriculturalTechnologyTransfer 100.00 0.00 0.00 0.00 0.00 92.25 15.29 0.00 PO87291 2005 CN-PCFJinchengCoal BedMethane 0.00 0.00 0.00 0.00 0.00 19.13 0.00 0.00 Project PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 116.09 0.09 0.00 PO69852 2004 CN-Wuhan UrbanTransport 200.00 0.00 0.00 0.00 1.oo 145.58 137.10 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 104.05 12.87 0.00 PO65463 2004 CN-JiangxiIntegratedAgric. Modem. 100.00 0.00 0.00 0.00 0.00 81.57 32.01 0.00 PO65035 2004 CN-Gansu& Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 37.98 13.44 0.00 Development PO73002 2004 CN-Basic Education in Westem Areas 100.00 0.00 0.00 0.00 0.00 52.67 44.47 0.00  PO84003 2004 CN-GEF GUANGDONG PRDURB 0.00 0.00 0.00 10.00 0.00 9.82 2.63 0.00 ENV PO75035 2004 CN - GEF-HaiBasin Integr. Wat. 0.00 0.00 0.00 17.00 0.00 13.47 7.39 0.00 Env.Man. PO75602 2004 CN-2ndNationalRailways (Zhe-Gan 200.00 0.00 0.00 0.00 1.oo 54.17 -38.16 -39.16 Line) PO75728 2004 CN-GUANGDONGPRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 85.50 -12.39 0.00 PO81749 2004 CN-HubeiShiman Highway 200.00 0.00 0.00 0.00 1.oo 88.04 22.38 0.00 PO77615 2004 CN-GEF-Gansu& Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 7.91 6.57 0.00 Develop PO77137 2004 CN-4th InlandWaterways 91.00 0.00 0.00 0.00 0.46 74.89 13.01 12.51 PO70441 2003 CN-HubeiXiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 41.71 28.38 0.00 PO70191 2003 CN-SHANGHAIURBENVMT APLl 200.00 0.00 0.00 0.00 0.00 122.44 36.00 0.00 PO68058 2003 CN-Yixing PumpedStorageProject 145.00 0.00 0.00 0.00 0.00 82.12 26.99 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 108.01 20.01 0.00 PO58847 2003 CN-3rdXinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 30.70 16.03 0.00 PO67337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 0.00 26.00 0.00 7.93 25.60 0.00 PO40599 2003 CN-TIANJIN URB DEV I1 150.00 0.00 0.00 0.00 0.00 132.04 42.94 0.00 PO71147 2002 CN-TuberculosisControlProject 104.00 0.00 0.00 0.00 0.00 51.52 24.44 0.00 PO70459 2002 CN-InnerMongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 20.33 -2.34 0.00 PO68049 2002 CN-HubeiHydropower Dev inPoor 105.00 0.00 0.00 0.00 0.00 22.76 13.76 0.00 Areas PO64729 2002 CN-SustainableForestryDevelopment 93.90 0.00 0.00 0.00 0.00 36.74 21.78 0.00 PO58846 2002 CN-Natl RailwayProject 160.00 0.00 0.00 0.00 5.00 13.14 18.14 0.00 PO60029 2002 CN-GEF-Sustain.Forestry Dev 0.00 0.00 0.00 16.00 0.00 8.01 13.13 0.00 PO56199 2001 CN-3rd InlandWaterways 100.00 0.00 0.00 0.00 0.00 21.63 9.46 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 23.21 20.78 0.00 PO58845 2001 CN-JiangxiI1Hwy 200.00 0.00 0.00 0.00 54.77 10.37 65.14 0.00 PO56596 2001 CN-ShijiazhuangUrbanTransport 100.00 0.00 0.00 0.00 0.00 53.90 53.90 0.00 PO47345 2001 CN-HUAI RIVERPOLLUTION 105.50 0.00 0.00 0.00 0.00 39.41 39.41 -2.34 CONTROL PO45915 2001 CN-Urumqi UrbanTransport 100.00 0.00 0.00 0.00 0.00 33.14 33.14 0.00 PO56424 2000 CN-Tongbai Pumped Storage 320.00 0.00 0.00 0.00 100.00 39.50 142.70 3.26 PO45910 2000 CN-HEBEI URBANENVIRONMENT 150.00 0.00 0.00 0.00 0.00 43.86 38.53 0.00 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 29.50 76.17 101.41 -2.70 PO58843 2000 CN-Guangxi Highway 200.00 0.00 0.00 0.00 19.70 3.37 23.07 3.37 PO58844 2000 CN-Henan Provincial Hwy 3 150.00 0.00 0.00 0.00 0.00 25.41 25.41 0.00 PO42109 2000, CN-BEIJMG ENVIRONMENT I1 349.00 0.00 0.00 25.00 0.00 234.11 234.11 -0.72 PO64730 2000 CN-Yangtze Dike Strengthening 210.00 0.00 0.00 0.00 0.00 74.25 74.25 2.24 PO64924 2000 CN-GEF-BEIJINGENVMT I1 0.00 0.00 0.00 25.00 0.00 20.21 24.87 4.48 PO42299 1999 CN-Tec Coop Credit N 10.00 35.00 0.00 0.00 5.84 15.08 19.02 0.00 PO43933 1999 CN-SICHUANURBANENVMT 150.00 2.00 0.00 0.00 0.00 56.29 56.31 4.2 1 PO36953 1999 CN-HEALTH IX (ShiyongWang, Back- 10.00 50.00 0.00 0.00 0.40 18.46 17.44 16.47 UP) PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0.00 36.50 0.12 36.61 0.00 PO38121 1999 CN-GEF-RENEWABLE ENERGY 0.00 0.00 0.00 35.00 0.00 12.15 34.77 25.55 DEVELOPMENT PO57352 1999 CN-RURAL WATER N 16.00 30.00 0.00 0.00 0.00 1.12 0.86 0.83 PO51856 1999 CN-AccountingReform& Development 27.40 5.60 0.00 0.00 0.00 8.06 7.95 0.51 PO51705 1999 CN-FujianI1Highway 200.00 0.00 0.00 0.00 0.00 21.16 21.16 10.82  PO46829 1999 CN-RenewableEnergy Development 100.00 0.00 0.00 0.00 0.00 0.06 0.06 0.06 PO36414 1998 CN-GUANGXI URBANENVMT 72.00 20.00 0.00 0.00 13.48 26.16 39.07 11.98 PO03619 1998 CN-2nd InlandWaterways 123.00 0.00 0.00 0.00 40.21 3.88 44.09 7.09 PO03614 1998 CN-GuangzhouCity Transport 200.00 0.00 0.00 0.00 20.00 60.43 80.43 60.43 PO03566 1998 CN-BASIC HEALTH(HLTH8) 0.00 85.00 0.00 0.00 0.00 7.29 4.84 0.00 PO03539 1998 CN-SustainableCoastal ResourcesDev. 100.00 0.00 0.00 0.00 2.06 26.18 28.24 23.46 PO44485 1997 CN-ShanghaiWaigaoqiao 400.00 0.00 0.00 0.00 0.00 29.47 33.05 33.05 PO36405 1997 CN-Wanjiazhai Water 400.00 0.00 0.00 0.00 75.00 4.41 79.41 4.41 PO03594 1996 CN-GansuHexi Corridor 60.00 90.00 0.00 0.00 0.00 36.40 40.72 28.86 Total: 10,413.40 317.60 0.00 237.08 406.56 6,368.35 2,139.30 208.67 100  CHINA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillionsofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 11.oo 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH China Fund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China I1 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDHVenture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 ChengduHuarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 DagangNewSpring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJMDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 101  2005 FiveStar 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2006 GDIH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 GreatInfotech 0.00 1.73 0.00 0.00 0.00 1.03 0.00 0.00 2006 HangzhouRCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00 2005 HiSofl Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoft Tech 0.00 4.34 0.00 0.00 0.00 1.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2004 JiangxiChenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 LaunchTech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 MaanshanCarbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 MaanshanCarbon 11.00 1.oo 0.00 0.00 5.00 1.oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng& IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 MinshengBank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 MinshengBank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 NanjingKumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 NanjingKumho 31.38 2.23 0.00 0.00 31.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 NewChina Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 NewHope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 NewbridgeInv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 NorthAndre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00 2006 RenaissanceSec 0.00 0.00 20.04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 31.38 0.00 0.00 SAC HKHolding 0.00 1.60 0.00 0.00 0.00 1.oo 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00 2000 SEAF SSIF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00 SHKeji IT 3.OO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78 2004 SIBFI 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20200 0.00 0.00 0.00 0.00 0.00 StoraEnso 20.83 0.00 0.00 4.17 11.00 0.00 0.00 0.00 2005 StoraEnso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 StoraEnso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2006 VeriSilicon 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 ZhejiangGlass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00 102  2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00 2006 Zhongda-Yanjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Totalportfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic. 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 LaunchTech 0.01 0.00 0.00 0.00 2005 MSShipping 0.00 0.01 0.00 0.00 2003 Peak Pacific2 0.00 0.01 0.00 0.00 Total pendingcommitment: 0.05 0.03 0.03 0.14 103  Annex 14: Country at a Glance CHINA: Guangxi IntegratedForestryDevelopment and ConservationProject East Lower- I POVERTY and SOCIAL Asia 8 middle- China Pacific income Development diamond' 2005 Population. mid-year(millions) 1304 5 1,885 2,475 GNIpercapita (Atlasmethod, US$) 1,740 Life expectancy 1627 19B GNi (Atlasmefhod, US%billions) 2269 8 3,067 4,747 T Average annual growth, 1999.05 Population (?@ 0.7 0.9 10 Laborforce(%J 10 13 14 GNI Gross per primary M os1 recent estimate (latest year available, 1999-05) capita enrollment Poverty 1% of population belownationalpovertyline) Urban POpuiation (% 0 fto~alpopuiation) 40 41 50 Life expectancyat birth (years) I 71 70 70 1 Infant mortality (per 1000live births) 26 29 33 Child malnutrition (%of children under 5) 8 15 a Access to improvedwater source I Access to an improvedwater source (%ofpopulatlon) 77 79 82 Literacy (%ofpopulationage a+) 91 91 89 Gross primaryenrollment (%ofschool-age population) I18 in in -*-,- ".China Male 118 IS 115 Lower-middle-income group Female Iff tn 10 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1985 1995 2004 2005 Economic ratios' GDP ( U S billions) 3049 7280 19317 2,228 9 Gross capital formation/GDP 378 393 38.7 Exports of goods and services/GDP DO 23.1 34.0 Trade Gross domestic savingsiGDP 336 415 412 Gross national savingslGDP 340 40 1 42.2 T Current account balance/GDP -3.8 0.8 3.6 5.0 Interest payments/GDP 0.2 0.6 0.2 Total debt/GDP 5.5 6.2 P.9 Total debt service/exports 7.7 8.6 3.5 Present value of debt/GDP Q.5 1 Present value of debt/exports 35.7 Indebtedness 1985-95 1995.05 2004 2005 2005-09 I (averageannualgrowthJ GDP 9.7 8.8 0.1 9.9 8.0 - -..(.China GDP percapita 8.2 8.0 9 4 9.2 7.3 Exports of goods and services Lower-middle-income group 9.4 73.7 28.4 23.6 0.3 STRUCTURE o f the ECONOMY 1985 1995 2004 2005 (% oF GDP) IGrowth o f capital and GDP (%) Agriculture 28.4 8 . 8 0.1 Industry 43.1 47.2 46.2 Manufacturing 34.9 Services 28.5 33.1 40.7 Householdfinal consumption expenditure 53.2 47.5 48.5 02 03 05 Generalgov't final consumption expenditure 00 01 04 0.2 110 0.2 Imports of goods and services 10.1 20.9 314 --.---GCF -GOP 1985-95 1995-05 2004 2005 (averageannualgrowth) Growth o f exports and imports (X) Agriculture 4 2 3.3 6.3 5.0 'OT Industry P.8 9.9 111 0.8 Manufacturing 0.0 Services 9.5 9.7 9.8 0.1 HousehoIdfinal consumption expenditure 0 . 2 5.7 11 Generalgov't finalconsumption expenditure 9 4 8.9 6.8 Gross capital formation 9.4 0.1 0.O 0.5 Imports of goods and services 0 . 3 v.4 22.5 15.3 Note:2005 data are preliminaryestimates. This table was produced from the Development Economics LDB database. 'The diamonds show four keyindicators inthe country(in bold) compared with its income-groupaverage. If dataare missing,thediamondwiil 104  China PRICES and GOVERNMENT FINANCE 1985 1995 2004 2005 Domestic prices inflation (%) I (% change) 111- Consumer prices .. 16.9 4.0 1.8 Implicit GDP deflator 10.1 13.7 6.9 3.8 Government finance (% of GDP, includes currentgrants) Current revenue 28.0 10.8 16.6 17.5 Current budget balance 7.3 0.6 1.7 2.0 I -GDPdeflator *CPI I Overall surpluddeficit 0.0 -1.5 -1.5 -1.3 TRADE 1985 1995 2004 2005 (US$ millionsl Export and Importlevels (US$mill.) Total exports (fob) 27,350 148,780 593,369 771,511 Food 3.803 9,954 18,870 I1.wo,m T 1I Mineralfuels, lubricants,and related material 7,132 5,332 14,476 800,wo Manufactures 13,522 127,295 552,818 727,191 6 W . m Total imports (cif) 42,252 132,084 561,423 674,331 4w.m Food 1,553 6,132 9,156 Fuel and energy 172 5,127 48,003 2w.m 1 I Capital goods 16,239 52,642 252,624 230,369 0 Export price index (2000=100) 52 118 102 106 88 00 01 02 03 M 05 Importprice index (2000=100J 74 107 112 119 Exports Imports Terms of trade (2000=100J 70 110 91 88 BALANCE of PAYMENTS 1985 1995 2004 2005 (US$ millions) Current account balance to GDP (%) Exportsof goods and services 30.489 167,974 655,827 643,537 Importsof goods and services 43,092 151,882 606,543 746,150 6 T Resource balance -12,602 16,092 49,284 97,386 Net income 641 -11.774 -3,523 4,668 Net current transfers 243 1,434 22,898 10,000 Current account balance -11.518 5.752 68,659 112,055 Financingitems (net) 6,096 16,711 137,705 98,000 Changes in net reserves 5,422 -22,463 -206,364 .210,055 1 99 W 01 02 03 04 05 Memo: Reserves including gold (US$ millions) .. 80.277 622,945 826.303 Conversion rate (DEC, locaVUS$) 2.9 8.4 8.3 8.2 EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 (US$millions) :ompositlonof 2004 debt (US$ mlli.) Total debt outstanding and disbursed 16,696 118,090 248,934 IBRD 498 7,209 11,035 11,140 A: 11,035 IDA 431 7,038 10,670 9,741 B: 10.670 Total debt service 2,478 15,066 23,657 IBRD 26 810 1,054 1,139 IDA 4 63 264 296 Composition of net resourceflows Official grants 117 330 381 Official creditors 1,117 7,902 16 Privatecreditors 2,867 5,013 7,970 Foreigndirect Investment(net inflows) 1,659 35,849 54,936 Portfolioequity (net inflows) 0 0 10,923 World Bank program Commitments 1,092 3.148 1.285 ,- IBRD E Bilateral - Disbursements 565 2,269 1,188 1,131 B IDA D Other mltilateral - F Private - Principal repayments 0 364 999 1,004 1C IMF -- G Short-terr ~ Netflows 565 1,905 190 127 Interestpayments 29 509 319 430 Nettransfers 536 1,396 -130 -303 Note:This table was producedfrom the Development Economics LDB database. 8112/06 105  Annex 15: IncrementalCostAnalysis CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject 0VERVIE w 1. Despitehavingexcellent agro-ecologicalconditions for timber production andrich forest biodiversity, China's GZAR i s rapidly losing forest cover, and its biodiversity is increasingly threatened. The major cause o f these inter-related problems is that annual timber consumption (7.8 million m3) significantly exceeds sustainable annual timber production (5 million m3). Inadequate capacity for, and outdatedmethods of, nature reserve management and sub-optimal integration of forest management and biodiversity conservation plans and actions are also contributing to the loss o f biodiversity. 2. The goal o f the project is to address the twin problems o f unsustainable forest management and increasingly threatened biodiversity. Its objective i s to improve the effectiveness and integration o f management and institutional arrangements for timber production, watershed protection and nature reserves management. This will be achieved by establishing and implementing technically and institutionally viable, integrated and replicable forest and nature reserve management systems and processes. Project activities will be grouped into four inter-linked components: (a) ExpandingTimber Plantations; (b) Increasing Ecological Forest Cover; (c) Improving Management o f Nature Reserves; and (d) Enhancing InstitutionalandManagement Capacity. 3. Monitorable indicators o f the achievement o f its global environment objective include: (a) management effectiveness o f five targeted nature reserves improved; (b) number o f new areas with highbiodiversity value identified and set aside for conservation; and (c) number of nature reserves where abundance and conservation status o f biodiversity has improved, based on the implementation o f integrated management plans, improved collaboration betweenreserve staff and local communities, andparticipatory monitoring. Context andBroadDevelopmentGoals Context 4. The GZAR i s located on the southern frontier o f China and neighboring Vietnam. Guangxi straddles the Tropic o f Cancer, and thus spans the north tropical and southern and mid sub-tropical climatic zones, with elements o f each in its flora and fauna. The terrain slopes generally from north-west to south-east but the topography and geology are complex, with ranges o f mountains and karst hills interspersed with lowlands bisected by numerous rivers. Elevations range from sea-level at Beihai to the 2,141 meter peak o f Maoershan, the 106  highest peak in southern China. Guangxi supports a wide variety o f forest and wetland ecosystems, including many broadleaf forest formations andmangrove forests. 5. These complex conditions mean that Guangxi i s particularly rich in native fauna and flora. Surveys have recorded over 8,350 species o f vascular plants belonging to 1,717 genera and 288 families, Some 890 species o f terrestrial vertebrates have also been recorded. This makes Guangxi the third richest province in China for biodiversity (after Yunnan and Sichuan). Despite this importance, Guangxi has not received the same forest management and conservation attention as those two provinces, even though GZAR supports a denser human population. The result has been that most natural habitats have been reduced to relatively small isolated fragments, and this in turn has led to a large proportion o f its fauna and flora being threatened. Taxon China's total . Guangxi's total Proportion(%) Vascularplants 27,142 8,354 30.8 Mammals 581 166 28.6 Birds 1,244 483 38.8 Reptiles 376 157 41.8 Amphibians 284 84 29.6 Fish 3,862 700 18.1 6. The GZAR i s a particularly important area for limestone forests, especially in the tropical and southern sub-tropical zones. Karst limestone covers about 38 percent o f the landarea o f Guangxi.Limestone forests intropical China occur mainly insouthern Yunnan Province and southwest GZAR while subtropical limestone occurs in a narrow north-south band in Guangxi, Yunnan, Guizhou and Chongqing. Because o f the great diversity o f edaphic conditions and complex topography o f limestone regions, vegetation types on limestone are extremely diverse and rich inendemic and restricted-range taxa. For example, of the 669 plant genera recorded inNonggangNature Reserve, only 371are shared with the limestone forests o f Xishuangbanna insouthern Yunnan, 465 km away. Most species found inseasonal rainforest on limestoneare also found innon-limestone areas, butmanyspecies, termed calcicoles, are restricted to or selective for limestone areas. Inthe Nonggang Nature Reserve for example, 20 percent o f the plants species are characteristic o f limestone areas while 13 percent o f the flora species are exclusively found on limestone. 7. Karst regions also support underground limestone ecosystems that are particularly rich in unique biological types. Much of this fauna is poorly known, but preliminary surveys suggest an extremely rich fauna o f specialized species (such as bats, fish and insects). Many o f these species have extremely restricted distributions, such as the six species o f blindcave fish known only from the underground waters of Guangxi. Despite their global significance, these karst-dwelling species and their rare and unique ecosystems have received very little conservation attention. 107  Development Goals 8. Since the late 1970's, the GoC has beenimplementing an aggressive program o f reforms and interventions that have resulted in rapid rates o f economic growth. Investment in China's physical infrastructure has mushroomed, which has led to the development of considerably improved systems o f transportation, energy and other services that have improved overall competitiveness. Economic policy reforms in the context o f general domestic and international trade liberalization have created enhanced incentives for private sector investments. Increased social sector spending in health, education and basic water and sanitation requirements have targeted the amelioration o f poverty and, in the political field, institutional reforms have been directed at the stream-lining o f existing government institutions and to the devolution o f decision-making authority to local governments. All o f these development initiatives are being actively supported by multilateral and bilateral agencies, as well as by internationalNGOs. 9. Guangxiis one o f China's poorest provinces with a large number o f ethnic minorities. In line with national priorities, provincial government spending is focused principally on economic development and poverty alleviation. Inthe forestry sector, funding is inadequate andmost is used for production-oriented activities andincreasing the timber supply through plantations and improved watershed management initiatives. Although it i s recognized that the maintenance o f Guangxi's biodiversity - the individual species as well as the habitats that support them - could be an important feature o f the province's overall development strategy, there i s currently limited effort andincentive to enhance its conservation status. Baseline Scenario Scope 10. Much o f Guangxi's remaining biodiversity is located in a network o f nature reserves that cover 6.5 percent o f the province's land area. However, a large rural population which uses the resources o f these areas for their subsistence needs surrounds all o f the nature reserves. Direct threats to the forests o f the province's nature reserves take the form o f agricultural encroachment, logging, fuelwood collection and livestock grazing. Other associated factors which have had a negative impact include fire, hunting, and harvesting and trade inparticular species o f wild animals and plants. Despite a strong commitment to biodiversity conservation, few if any o f Guangxi's nature reserves are able to control these threats effectively. 11. Under the baseline scenario, the GZAR government will take the following steps to help address its timber supply deficit and to rehabilitate some o f its natural forests and watersheds: (a) establish approximately 200,000 ha o f fast-growing, high-yield timber plantations, and expand and improve its tree nurseries to produce high-quality planting materials through the introduction o f superior genetic materials and management technologies (cost US$171.10 million); (b) establish approximately 18,000 ha o f multiple- use forests, rehabilitate 100,000 ha o f natural vegetation on Guangxi's karst hills, and develop a pilot BioCarbon fimd plantation (cost US$18.67 million); (c) improve the 108  management o f forest plantation o f nature reserves ((US$7.02 million); and (d) strengthen production and ecological forest management capacity and applied commercial forest management research programs and disseminate their results (cost US$ 5.06 million). 12. The Guangxi government recognizes that its protected areas are important for ensuring the effective functioning o f essential ecological processes and life-support systems on which human survival and development depend. It also recognizes that they protect species and populations that are highly sensitive to human disturbance. However, without new approaches to nature reserve management and closer integration o f commercial, ecological and nature reserve planning and management, the baseline forest management activities will not halt the deterioration o f natural forest habitats and the biodiversity of Guangxi's nature reserves. 13. Under the Baseline Scenario, its nature reserve management initiatives can be grouped into three sets of activities: (a) Nature Reserves Planning and Management which includes some modest management plan development and implementation (e.g., Maoershan), field level management systems (such as patrolling), and investment (civil works, equipment, vehicles); (b) Nature Reserve Relationships with Local Communities which includes limited community conservation education and public awareness activities conducted in local villages; and (c) Training and Capacity Buildingwhich involves general staff training. Under the baseline scenario, no action will be taken to conserve biodiversity in ecological forests or to integrate conservation considerations into forest development plans to promote sustainable forest conservation andmanagement. Costs o f the baseline Nature Reserve Management Program 14. Under the baseline scenario, the GZAR government would maintain management activities at the project's proposed nature reserve sites at historical levels (based on expenditure trends over the last six years). For the project period (2006-201 l), the GZAR Government confirmed that these expenditures would be US$4,900,000. In addition, in some o f the proposed nature reserve sites, research projects will be financed under a range o f local university programs (US$200,000). There are no donor programs in any o f the project nature reserves. The total cost o f the baseline nature reserve management activities is therefore estimated to be US$5,100,000 as summarizedbelow: I Daminnshan I 1.23 I 0.08 I I Loneshan I 0.14 I 0 I I Mulun I 1.32 I 0 I I Maoershan I 1.42 I 0.11 I 1 TOTAL I 4.9n I n.2n I 109  Benefits 15. Under the baseline scenario, most nature reserve expenditure would be directed towards salaries and the construction o f buildings and protection stations. Comparatively few resources would be expended on important applied nature reserve management activities, such as the development and application o f ecological planning tools, community liaison work, and staff capacity development. Research at the project's proposed sites would be conducted mostly by professional scientists with very limited involvement of nature reserve staff, and the results o f this research would be little used to modify existing management regimes. Thus, although implementation o f the Baseline Scenario will result in some improvement to the protection and management o f global biodiversity at the target nature reserves, the limited expenditure levels and the traditional way the resources would be allocated not result in significant, sustainable, long-term conservation benefits. In addition, opportunities to promote biodiversity conservation through more integrated forest plantation and natural forest planning and investments would be foregone. As a result, much o f Guangxi's rich biodiversity would continue to be adversely effected by weak nature reserve management, timber and fuel-wood harvesting, overgrazing and associated vegetation disturbance, illegal hunting, and habitat loss and fragmentation. Without GEF support, a unique, strategically valuable and replicable opportunity to demonstrate integrated forest management and biodiversity conservation at the provincial level, for the benefit o fthe China Biodiversity Partnership Framework, would also be lost. Global Environmental Obiective 16. Nine percent (55 species) o f the animals and 16 percent (82 species) o f the plants that are red-listedby I U C N for China occur inthe project's nature reserves. Datafor Guangxi does not include a limited number of invertebrates andfish 110  17. In the national context, 40 species o f Guangxi's plants are now listed as "first-class state protected" and an additional 69 species are listed as "second-class protected". Habitat loss andhuntinghave led to simiiar threats to the fauna and, o f the terrestrial vertebrates, 26 are "first-class protected" and 116 are "second-class protected". Several formerly widespread species, such as the eastern black-crested gibbon (Nomascus nasutus) and tiger (Panther0 tigris), are now presumed to be extinct in the province. However, Guangxi still supports a number o f endemic species found nowhere else such as the white-headed leaf monkey (Trachypithecus poliocephalus leucocephalus) and the Guangxi cat snake (Boiga guangxiensis). The global environmental objective o f the GEF Alternative i s to improve and strengthen the overall management and conservation o f these important biodiversity resources inGZAR. GEFAlternative Scope 18. With GEF assistance for addressing the global biodiversity objective identified above, the GoC would be able to undertake a more effective program o f protected area management that would generate both national and global benefits. Under the Baseline Scenario outlined above, the principal GoC emphasis i s on timber supply enhancement and capital-intensive nature reserve infrastructure development. The major focus of the incremental activities would be to emphasize the ecological and social aspects o f protected area planning. The GEF Alternative would establish a more scientific and integrated approach to management o f the project nature reserve sites which specifically addresses management capacity constraints and issues related to the impact that: (a) local communities have on nature reserves; and (b) nature reserves have on local communities. The emphasis would be on community outreach and helping communities to find other sources o f local development funding. It would also promote the conservation o f globally- significant karst ecosystems that are currently outside the nature reserve system. In addition, it would integrate biodiversity conservation planningwith commercial and natural forest management planning. Specific interventions would include: 111  Project sub-component Interventions Nature Reserves Planning (a) baseline ecosystems mapproduction; (b) management plan development; and and Management (c) management plan implementation and nature reserve stafftraining Conservation Management of (a) cave biodiversity conservation; (b) Guangxfliemamtransboundary Sites Outside the Existing conservation; and (c) watershed forest conservation Nature Reserve System Community Relationshps (a) local communities' engagement in nature reserve management; (b) with Project Nature Reserves community conservation education and public awareness; (c) community skills enhancement; and (d) local project greening and training o f village committees Monitoring and Evaluation (a) nature reserve monitoring scheme; (b) management plan reviews; and (c) replication activities Enhancing Institutional and (a) forest sector strategy, priority policy studies, and guidelines/regulations Management Capacity development; (b) research and extensionprograms; (c) training and technical services; and (d) project monitoring and evaluation program costs 19. Total expenditures under the GEF Alternative Scenario are estimated at US$12.60 million, detailed as follows: Projectsub-component AdditionalCostinUS$ million Nature Reserves Planning and Management 2.84 ConservationManagement o f Sites Outside 1.80 the ExistingNature Reserve System Community Relationships with Project 1.83 Nature Reserves Monitoring and Evaluation 0.55 Enhancing Institutional and Management 0.48 Capacity TOTAL 7.50 Benefits 20. The project would: (a) have a positive global benefit by conserving biodiversity in five sites o f acknowledged international significance for biodiversity conservationpurposes; (b) benefit local communities living around the project's nature reserves by enhancing community skills and facilitating access to programs that address threats to the nature reserves; and (c) strengthen the capacity o f human resources and biodiversity conservation sector institutions. 112  IncrementalCosts 21. The difference between the cost o f the Baseline Scenario (US$5.10 million) and the cost o f the GEF Alternative (US$12.60 million) is estimated at US$7.50 million, o f which US$5.25 million would be supplied by GEF financing and US$2.25 million from the GoC, as confirmed by the GZAR Government. This represents the incremental cost for achieving sustainable global environmental benefits. 113  Annex 16: Scientific& TechnicalAdvisory PanelRosterReview CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject Endorsement 1. The project would be an important attempt at integrating forestry management and biodiversity conservation at the provincial level while promoting participatory management and monitoring; it would include an innovative BioCarbon pilot and as designed shows strong evidence o f participatory design and GoC commitment. The proposed GEF component has clear incremental benefits in enabling nature reserve protection and biodiversity conservation within the overall landscape management approaches; actions proposed are strategic and replicable, and likely to make an important contribution to biodiversity and endangered species protection in the region. The reviewer considers the I GEF component as globally and regionally important, and well conceived, and strongly recommends its support. Key issues A. Scientificandtechnicalsoundnessof the project 2. The project would be a first attempt at a provincial-level integrated planning approach across production and protection forests, using landscape ecology approaches to include the human population and populated areas within overall forest and land management strategies. It would be a new venture for Bank support to the forest sector in China, which has previously concentrated on national-level policy development and has relied heavily on self-driven replication. This holistic approach to sustainable forest and biodiversity management i s in line with GoC policies for sustainable development and management o f forest resources and involvement o f communities in natural resource management. The project focus is in line with GoC policies for expanding timber and forest plantation and management inthe GZAR. 3. A key issue inrolling out Agenda 21 and inthe planning o f forestry interventions within this project is the integration o f forestry goals within general socio-economic planning for the GZAR. Forestry i s high on the agenda o f the GZAR. The extent to which project planning and implementation review is meshed (and prioritised) within socio-economic development planning o f the GZAR i s not entirely clear2, but the Assumptions and Risks analysis and PMO structure would appear to ensure adequate consultation at all planning levels. 2Industrialdevelopment planningof the GZAR is mentioned only once (PAD p.28), but no major industrialdevelopment is plannedthat is likelyto impact on the project. 114  4. Component 1(non-GEF) o f the project focuses on the establishment o f a large area of timber plantations, not pulpwood plantations, although the latter will also be required inthe future if the GZAR i s to develop `several paper mills' (Project brief p.28). Considerable effort has been expended inproject design in determining appropriate planting approaches, requirements for nurseries, new technologies, financing tools, etc. The planting will be undertaken by many smallholders, under various financial mechanisms but primarily through partnership agreements (Project brief p.21), as a requested and sensible means for smallholders to minimise their own financial risks. 5. Component 2 (non-GEF) focuses on improvement o f forest cover inkarst areas. Project interventions to increase the area o f protection forests with ultimate long-term benefits for carbon sequestration and biodiversity are sound and funded entirely by GoC. The component includes a BioCarbon fund pilot plantation, which i s excellently conceived and will provide valuable regional experience, including testing the market approaches for wider scale environmental benefits from carbon trading. There are likely to be additional benefits o f connectivity through mixed-species planting between natural forest areas, referred to inthe project proposal, although this is a long-term benefit that will be linked to development o f a mature forest structure andmicroclimate inthese connecting corridors. 6. Component 3 (GEF) is important inthat it aims to establish protected area management as an integratedpart o f the landscape management strategies, rather than set-asides. It aims to develop approaches that will enable local communities to interact with the protected areas and obtain some benefits from them, and also extends biodiversity protection principles outwards from the protected areas into the wider landscape. The latter is expressed both in terms of improving forest cover (Component 2) and in defining new protected areas where there i s a high biodiversity value or occurrence o f endangered species. The landscape level interventions o f the project also give scope for integrating biodiversity protection in other forms o f forest management - especially where the biodiversity concerned i s underground and therefore where the critical factor is the control o f local climate andwater regimes through establishing and maintaining forest cover above ground. (Some o f the component 3 activities in surveying cave fauna are at first sight a little divergent from the rest o f the project, but this can be considered inthe above light and Reviewer agrees with the decision to adopt the single project approach rather then separating o f f cave conservation into a different project: Project briefp.12). 7. Component 4 (part GEF) is designed to develop the capacities needed among stakeholders at all levels to adopt the integrated management and production technologies proposed, and to institutionalise them within stakeholder organisations. The areas o f training indicated within the proposal appear comprehensive, but Reviewer has some reservations concerning the proposed M&E system and its institutionalisationpost-project. The envisaged local staff contribution to environmental impact monitoring and mitigation, expressed as a major challenge to the project, appears minimal (Project briefp.85) -but on the other hand, this may be sufficient (based on previous experience) and there is little point inestablishingmonitoring structures that are unsustainable post-project. 115  8. An over-arching theme o f the project is that forestry approaches envisaged will assist in forest protection and conservation by: a) improving livelihoods o f the rural poor to reduce the need to generate additional income by dubious means; and b) supplying a market for timber that would otherwise be supplied through illegal wood extraction. Environmental education and various other interventions to help lessen reliance on natural resources, such as on-farm NTFP production, perhaps are also designed to reduce the need or inclination to exploit wild biodiversity resources. The project documents have not quantified actual threats on wild timber and biodiversity resources, but generally these threats are considerable and fuelled by a very large urbanmarket in south China3. Ethnic minorities in particular, who are less easily reached by project benefits, can be expected to respond primarily to continuing opportunities to market forest products illegally rather than to project aims unless project efforts are successful in mainstreaming these remote communities (which seems quite unlikely). Adequate monitoring and enforcement o f linkages between project benefits, and community conformance to project and GZAR rules, is crucial inthis respect as the highmonetary value o f biodiversity products, inparticular is hard to resist, should opportunities arise. Project experience to date is quite difficult to develop a linkage mechanism between receiving project benefits and monitoring/enforcement o f rules, and for different parties to agree on such a mechanism. The NORDECO-type participatory monitoring mechanisms suggested for this project are perhaps, the most appropriate system to attempt to establish this vital link. B. Identificationof globalenvironmentalbenefits 9. The global environmental benefit i s foreseen as an enhanced enabling environment for biodiversity conservation and management. This would be achieved through improved management capacity and a reduction o f conflict in the use o f biodiversity resources between stakeholders. The GIFDCP provides livelihoods alternatives through development o f the forest sector. Incremental benefits o f GEF support are expected to be enablement o f active conservation programmers through providing the background (baseline) information required for management decision making, the training required to make and enact these decisions, and some level o f financial support for field operations. 10. Ineffect, the enabling environment for conservation is improved and the GZAR staffs, which are currently provided only basic salary and some infrastructure, are provided with the means to take advantage this. Much o f the biodiversity and forest resources o f the target area are currently unmanaged or provide only domestic benefits unrelated to environmental protection - the project provides the opportunity for these areas to begin providing measurable global benefits. 11. The importance o f this approach inthis location is clear. The region is extremely rich in biodiversity and so far has received less attention than neighboring regions of similar importance (Project brief p.97). The GZAR has two Centers o f Plant Diversity and two 3 See World Bank, 2005, The illegal and unsustainable trade in animals and plants in East Asia: why the World Bank should care. A. Grieser Johns and J. Thompson. Available online at www.worldbank.org/biodiversity 116  Endemic Bird Areas defined by WWF, Birdlife, IUCN, etc. There are also important aspects o f trans-boundary conservation through synergy with Vietnamese initiatives in biodiversity conservation (Project brief p.47) - some o f these initiatives likely to be supported through WB-GEF support for the up-coming Vietnam Conservation Fund. C.How does the project fit within the context of the goals of GEF 12. The project is rooted in principles o f GEF OP#3. It focuses on integrated and sustainable management o f timber production, watershed protection and set-aside (nature reserve) forests as a tool towards poverty alleviation and livelihood improvement. Landscape (especially karst landscape) and biodiversity conservation (including cave systems) are integrated within the overall approach as a necessary component to achieving sustainable management o f the overall ecosystem and ultimately in conferring various environmental and social benefits. The above relates specifically to GEF Operational Strategy Priority BII, and is an important model inthis respect. Furthermore, the inclusion o f the BioCarbon pilot in the overall GIFDCP is an opportunity for biodiversity conservation implications o f carbon sequestration plantations and set-aside forests also to be explored within the context o fPriority BII. 13. At the protected area level, the intervention also relates specifically to GEF Operational Priority BIand again provides model approaches for wider replication. The project is also in line with planning outputs of previous GEF interventions in China and strategy documents produced by WWF and others (Project briefp.8). D. Regionalcontext 14. The project is restricted to GZAR but has wider implications for China as a whole, and has aspects o f trans-boundary conservation with Vietnam. Its specific focus is necessary to pilot an integrated landscape approach in depth and Reviewer supports the decision not to take a wider national-level approach in this respect (Project brief p.12). The target nature reserve areas are wholly in need o f support and GEF intervention here assists with realisation o f national-level biodiversity conservation strategies and with priorities o f eco- regional approaches. E.Replicability ofthe project 15. A key feature o f the project as a whole i s to pilot means o f small scale timber plantation and management systems as a livelihoods improvement approach which also addresses a supply-demand gap that is heavily impacting on natural forests. There are concerns as to the efficiency o f quality control and monitoring systems for plantations spread in small lots over a very wide area, but if the project manages to address some o f these inherent problems it will provide widely applicable models o f small-holder plantation approaches consistent with the local absorptive capacity for new technologies. 117  16. Specific GEF interventions in piloting o f national-level management planning approaches and their integration with communities around the nature reserves, and capacity building to achieve this should also be replicable. Any success developing local-level comunity-driven planning processes that link delivery o f donor project and Government prowamme benefits around nature reserves with achievement o f conservation objectives for the reserves would beparticularly important to replicate. Reviewer notes and supports the intention for a wider dissemination o f capacity building duringsome project trainings (Project briefp.15 andp.43). F.Sustainability ofthe project 17. GIFDCP interventions are carefully designed to be consistent with local needs, absorptive capacity and environmental concerns, all o f which are likely to ensure sustainability o f approaches if the support o f Government i s maintained. Institutionalising o f approaches is likely, given the stakeholder support expressed (Project brief p.14). The extent to which benefits reach remote communities, particularly o f ethnic minorities, is perhaps a cause for concern since these communities may be a focus o f illegal activities duringandpost-project. 18. While GEF interventions are designed to be cost-effective and replicable, the sustainability o f implementation o fmanagement plans i s questionable, since these appear to be dependent to some extent on further external (national or international) support post- project. Means o f prioritising and funding basic operational activities need to be defined post-project. As an intention o f the project i s to identify further potential protected areas, which will also require GZAR funds, already in short supply, this shortage o f operational funding could be exacerbated. (See specific comments.) A focus o f the GEF intervention should perhaps be developed means o f re-focusing existing funds, perhaps through re- evaluation o f priorities through the Guangxi protected area system as part o f a provincial protected area planningexercise. Secondarv issues G.Linkageto other focal areas 19. The project as a whole focuses on reversing land degradation through forest development, for land cover and biodiversity protection, and for livelihood improvement. There is a clear link with the focal area `climate change' in that reforestation and forest protection increases carbon sequestration - inclusion o f a BioCarbon pilot emphasises this link. H.Linkageto other programmes andactionplansat the regionalor sub-regional level 20. The GIFDCP has been developed through a comprehensive consultation process and is in line with all relevant aspects of PRCs Sustainable Forestry Development Strategy and 118  other central Government instruments (Project brief p.27). It is also in line with GZAR plans to increase timber plantations by 870,000 ha andbring 667,000 ha o f watershed areas under effective protection. Model forestry approaches to be used in GIFDCP have to some extent been developed by previous and on-going projects andprogrammes such as SFDP. 21. GEF interventions apply tools and lessons learned from previous GEF projects at national level and selected provinces, notably NRMP (Project briefp.31-32). Site selection and overall focus is consistent with the goals o fthe GoC Biodiversity Conservation Action Plan. Conservation objectives are also linked to WWF and FFI action plans, particularly for nature reserves and key species such as primates, and to regional action plans for karst landscape conservation inparticular. I.Otherbeneficialordamagingenvironmentaleffects 22. Environmental issues are discussed andpotential environmental impacts are adequately summarised inthe project proposal (Project briefAnnex 10). 23. The key issue for the project as a whole is the extent to which project benefits generated by GIFDCP reach the more remote communities who are most proximate and rely to the greatest extent on natural resources from the key nature reserves. Successful execution o fproject capacity buildinginitiatives, strengthened control o f the nature reserves and better enforcement o f legislation would result inreduced access andpotential hardship for already marginalised communities. The project clearly aims to support these communities through a variety o f appropriate instruments, but may need to clarify at an early stage more precisely how these benefits will be delivered or facilitated by the project on an individual community basis. Experience from elsewhere in the region i s that it i s hard to develop financial benefits for communities adjacent to protected areas at a level that compensate for a closure o f access to valuable (ifillegal) resources. 24. Concerning the plantation programme, the species mix for planting appears to have been very well researched. It is several times stated that GZAR presents near ideal agro- ecological conditions for timber production, so it might be said that the use o f Eucalyptus and perhaps some other species which are most useful in harsh environmental conditions could be considered as over-emphasised. Reviewer understands, however, that Eucalyptus will not be planted on karst and not in mixed species plantings, which is acceptable in environmental terms. J. Degree of involvementof stakeholders inthe project 25. The involvement o f stakeholders inproject design, aimed at ensuring that project goals meet local stakeholder needs, has been exhaustive. . 26. Plantation component institutional arrangements are complex, with PMO direction and management by FFs in line with their restructuring to private entities and with an aim to improve their currently very low contribution to development o f the forest sector. A large 119  number o f households will be involved in joint partnership arrangements with FFs for establishment o f plantations on their own land (their preferred option). The focus o f the project on development o f participatory forest management mechanisms will ensure the continuation o f this large-scale involvement. 27. Remote communities inthe vicinity of nature reserves, too remote to be easily engaged intimber plantation work, will be facilitated to engage with Government programmes and Component 2 activities supporting forest rehabilitation. The capacity o f the envisaged `community co-management committees' will need to be created, as they do not currently exist. Alignment o f these new committees with existing village planning and administration structures, as proposed, will ensure that various activities undertaken by the village are coordinated - and this forms the basis for a mechanism to ensure linkage between development benefits coordinated by the project and the achievement o f conservation goals as setjointly by the village and the nature reserve authority. K.Capacitybuildingaspects 28. The project pays considerable attention to capacity building which will be extremely complex due to the number o f stakeholders involved. Capacity building initiatives are clearly presented, however, and appear comprehensive. Reviewers only comment relating to GEF component would be that project should ensure adequate attention i s paid to community liaison and deployment skills for nature reserve guards (including `forest police' - mentioned once, Project brief p.49, and particularly that attention be paid to experience from other countries which face the common problem o f patrolling large areas with few staff and which have long ago determined that central and unpredictable deployment andthe management skills for this are very important (see Specific comments). L.Innovativenessofthe project 29. The project as a whole is highly innovative in China inrepresenting a provincial level in-depth sector-wide approach to forestry, where GoC programmes are used as the basis for integrating the management o f production and protection forests, with overall themes o f watershed protection, livelihoods development and biodiversity conservation. Considering both livelihoods development and biodiversity conservation priorities across an entire landscape presents problems in terms o f the legal basis for co-management and extractive use o f protection forests and nature reserves, the incorporation o f biodiversity considerations into production forestry and overall land use planning, inter-departmental responsibilities, jurisdictions and financial support. However, lessons learned in this project will be o f major importance inguidingsimilar holistic approaches. 30. The mechanisms proposed for small-scale plantation development, management and monitoring are to a large extent tried and tested (although the species mixes envisaged are perhaps innovative) and use existing Government structures. The main variations o f the project are a particular effort at stakeholder involvement in planning the financing mechanisms and distribution o f benefits (Le. joint partnership arrangements with FFs). 120  Quality control and environmental monitoring will be difficult, however, due to the wide distribution and small size o f individual forest plantation lots and some innovative mechanisms remain to be developed here. 31. The BioCarbon pilot is o f major significance and approaches adopted here will provide guidance for similar initiatives throughout the region. 32. The landscape focus o f the project on karst is in itself highly innovative and its consideration o f below ground biodiversity even more so. Technical aspects o f support planned for nature reserves to a large extent put into practice planning and management models developed under previous programmes. The primaryinnovative aspects mentioned here concern the engagement o f local communities and definition o f benefits to support this process. Reviewer's opinion is that management planningmodels proposed are perhaps not innovative enough and need to more forcibly address the issue o f linkages with Government planningand financing processes. There are risks here inthat nature reserve managers will not see good reasons to adopt management processes and activities that are project-driven andnot requested by Government, and this should be addressed at policy level by relevant stakeholder organizations. M.Specific commentsonProiectBrief 33. p.5 (Alternatives considered and reasons for rejection.) Last point. This is entirely valid, but the enabling environment also extends away from the immediate physical environment to the socio-political environment and the project as a whole will need to address this through consultative processes and policy adjustment at higher levels to achieve aims o f GEF component. The project appears to be able to do this through its management structures and should ensure this happens. Common problems are not always solvable at the level o f interactionbetween the nature reserves and local communities. 34. p.14 (M&E) Reviewer emphasises the importance o f not only `integrating biodiversity conservation initiatives into forest resource and land management' but in ensuring feedback through the M&E system to ensure that landuse is actually decided on the basis o f both conservation values and productionpotential. 35. p.44 (Management planimplementation) Reviewer strongly recommends Guard Post construction (provision o f equipment, etc.) be dependent on a staff deployment analysis. There is a regional tendency to distribute Guards in small numbers in different guard posts with individual patrolling areas, rather than organise a centrally deployed guard force that can be much more unpredictable in its management activities. A lesson learned elsewhere is that unpredictability i s as important as capacity inapprehending forest violators. 121  36. p.49 (Community conservation education andpublic awareness) The programme as elaborated here seems rather unfocussed and needs a consultation process at an early stage in implementation to determine the most useful approaches and methods to be applied. 122  BankTask Team'sResponsesto STAPReviewer Comments A. KEY ISSUES 1. SCIENTIFICAND TECHNICAL SOUNDNESSOFTHE PROJECT: The Reviewer believes that the project i s scientifically and technically sound. He finds that the GEF-funded Component and activities are important; in that, it aims to establish protected area management as an integrated part o f the landscape management strategies, rather than set-aides. It aims to extend biodiversity protection principles outwards from the protected areas into the wider landscape. The landscape level interventions also give scope for integrating biodiversity protection in other forms o f forest management, especially where the biodiversity concerns i s underground and therefore where the factor i s the control o f local climate and water regimes through establishing and maintaining forest cover above ground. H e queried the extent to which project planningand implementation review mesh with socio-economic planning for GZAR and expressed some reservation about the M&E system and its institutionalization post-project. Theproject will assist in the development of provincial-levelforest sector development and conservation strategy. This strategy would be approved by the provincial government and therefore will need to consistent with the provincial socio-economic development plans. The overall project M&E system will be implemented through existing government structures and staff at different levels supplemented by participation of local communities in the case of the nature reserves. Not establishing new or parallel systems will ensure continuation of the monitoringpost-project. 2. IDENTIFICATION OFGLOBALENVIRONMENTALBENEFITS: The project area is extremely rich inbiodiversity and so far has received less attention than neighboring regions o f similar importance. Much o f the biodiversity and forest resources o f the area are currently unmanaged or provide only domestic benefits unrelated to environmental protection. The project provides the opportunity for these areas to begin providing measurable global benefits. The Task Teamagrees. 3. HOW DOESTHE PROJECTFITWITHIN THE CONTEXT OFTHE GOALS OF GEF: The project focuses on GEF OP#3 (Forest Ecosystems) but also fits within the context o f GEF Operational Strategy PrioritiesBIandBII. The Task Teamagrees. 123  4. REGIONAL CONTEXT: The project i s restricted to Guangxibut has wider implications for China as a whole and has aspects o f trans-boundary conservation with Vietnam. In addition, the project fits with priorities o f eco-regional approaches. The Task Team agrees. 5. REPLICABILITY OF THE PROJECT: The project activities are replicable. For instance, GEF interventions in piloting management planning approaches and their integration with communities around the nature reserves, and capacity building to achieve this can be replicated in other areas. A key feature o f the project is to pilot means o f small scale timber plantation and management systems as a livelihoods improvement approach which also addresses a supply-demandgap that is heavily impacting on natural forests. The reviewer is however concerned with the efficiency o f quality control and monitoring systems for plantations spread in small lots over a very wide area, but if the project manages to address some o f these inherent problems it will provide widely applicable models o f small-holder plantation approaches consistent with the local absorptive capacity for new technologies. The Task Team agrees that the project activities are replicable. With regard to quality control and monitoring of plantation lots, there is already experience with this from a previous project onforestry development in poor areas, and no major issues on M&E have been identiped with regard to working with small holders. 6. SUSTAINABILITY OF THE PROJECT: All proposed project interventions are consistent with local absorptive capacity to assist sustainability. As an intention of the project i s to identify fbrther potential protected areas, which will require government funds, shortage o f government operational funding for protected areas could however become a constraint. The Reviewer suggests that the GEF intervention should develop means o f re-focusing existing funds, perhaps through re- evaluation o f priorities through the Guangxi protected area system as part o f a provincial protected area planning exercise. The Task Team agrees that theproject activities can be sustained and that refocusing of existing government funds could further assist sustainability. The Forestry review under Component 4 will include a provincial protected area planning exercise to rationalize the provincial protected area (PA) system. Degazetting low value PASwouldfree upfunds for other more important sites. 124  B.SECONDARYISSUES 7. LINKAGE TO OTHERFOCALAREAS: The reviewer describes that the project as a whole focuses on reversing land degradation through forest development, for land cover and biodiversity protection, and for livelihood improvement. Inaddition, he describes linkages to the climate change focal area. The Task Team agrees. 8. LINKAGETO OTHERPROGRAMMESAND ACTIONS PLANSAT THE REGIONALOR SUB-REGIONALLEVEL: The reviewer believes that the project links well with other programmes and action plans including, for instance, all relevant aspects o f China's Sustainable Forestry Development Strategy and other central Government instruments. He also describes that GEF interventions apply tools and lessons learned from previous GEF projects at national level and selected provinces. Site selection and overall focus is consistent with the goals o f the Government Biodiversity Conservation Action Plan, and conservation objectives are also linked to WWF and FFI action plans and to regional action plans for karst landscape conservation. The Task Team agrees. 9. OTHERBENEFICIALORDAMAGINGENVIRONMENTALEFFECTS: The reviewer believes that potential environmental impacts are adequately considered inthe project proposal. However, the key issue for the project as a whole i s the extent to which project benefits reach the more remote communities who are most proximate and rely to the greatest extent on natural resources from key nature reserves. The project clearly aims to support these communities but may need to clarify at an early stage more precisely how these benefits will be delivered or facilitated by the project on an individual community basis. , The Task Team agrees. The Community Relationships with Nature Reserves Sub-component aims to work with local communities to solve key problems which will include community skills enhancement. 10. DEGREEOFINVOLVEMENT OFSTAKEHOLDERSINTHE PROJECT: The involvement o f stakeholders inproject design, aimed at ensuring that project goals meet local stakeholder needs, has been exhaustive. The Task Team agrees. 125  11. CAPACITY BUILDING ASPECTS: The project pays considerable attention to capacity building. Capacity building initiatives are clearly presented and appear comprehensive. The project should ensure adequate attention is paid to community liaison and deployment skills for nature reserve guards as well as experiences from other countries facing common problems o f patrolling large areas with few staff. The Task Team agrees. The project will use curriculum developed under previous GEF- financed Nature Reserves Management Project which includes modulesfor forest guards. Thecurriculum built on international experiences of FFI, WWF, WCS, etc. 12. INNOVATIVENESS OF THE PROJECT: The project as a whole i s highly innovative. Four examples are provided. The Reviewer felt that proposed management planning models are not innovative enough and therefore need to link with government planning and financing processes. The management planning process proposed is based on experiences of the two previous GEffinanced biodiversity projects in China of what worked and did not work. The proposal to develop an overall strategic managementplan for the reserve which includes details of the baseline conditions, management strategy and objective, and proposed zonation and management activities, and an operational management plan which includes detailed budget specibing one-time and recurrent expenditures is one key lesson learned to better link with government's ownplanning and budgetingprocess. C. SPECIFIC COMMENTS 13. ENABLING ENVIRONMENT EXTENDSBEYONDIMMEDIATE PHYSICAL ENVIRONMENT: The reviewer pointedout that commonproblems are not always solvable at the level o f interactionbetween the nature reserves and local communities. Thetask team agrees. The Community Relationship Subcomponentwill also support facilitation andfostering of closer working relationships between nature serves, local communities and district andprovincial government. 14. INTEGRATING FINDINGSFROMMONITORINGINTO DECISION- MAKING: The Reviewer emphasizes the importance o f not only "integrating biodiversity conservation initiatives into forest resource and land management" but in ensuring feedback through the 126  monitoring and evaluation (M&E) system to ensure that these two considerations are given appropriate weighting indeciding landuse options. The Task Team agrees. The importance of using data from monitoring to give recommendations for project adjustments and improvements will be emphasized in the description of the M&E Programme (Component 4). 15. STAFFDEPLOYMENT ANALYSIS Reviewer recommends Guard Post construction (provision o f equipment, etc.) in Nature Reserves be dependent on a staff deployment analysis. He describes a regional tendency to distribute Guards in small numbers indifferent guardposts with individual patrolling areas, rather than organize a centrally deployed guard force that can be much more unpredictable inits management activities. The Task Team agrees.Preparation of a StaffDeployment Analysis will be included aspart of the trainingplan. 16. COMMUNITY CONSERVATIONEDUCATIONAND PUBLIC AWARENESS As written, the program seems to be unfocused and there is a need for a consultation progress at an early stage o f implementation to determine the most useful approaches and methods to be applied. The Task Team agrees. A situation analysis and conservation education/public awareness plan will be developed duringyear 1of implementation. 127  Annex 17: Lineof CreditArrangements CHINA: GuangxiIntegratedForestryDevelopmentandConservationProject A. ProposedFinancingof ProjectComponent1 - ExpandingTimber Plantation 1. Under the proposed project, two groups o f final beneficiaries would use projectrnank loan funds. The first group i s made up o f provincial FFs. These are state- owned enterprises under the supervision o f the GFB. The management team and boards o f the FFs are appointed by the GFB. Their role is to manage state-owned forest plantations on behalf of the Government. Inreturn, the FFs receive fees to cover their costs. The FFs have also been serving as development centers for afforestation technology and plantation management. New technology is disseminated from the FFs to rural communities via demonstration programs, farm-community joint afforestation projects and nursery products (seedlings and saplings). Additionally, the farms provide community services (schools and hospitals). It is anticipated that implementation o f the afforestation program o f the FFs under the project would be financed by project funds (Bank loan and counterpart funds) in the form of budget transfers. Under this arrangement, Bank loan funds would be passed on to the FFsvia the GFB to plant forests. The cost o f these plantations would be recoveredby the GFB. The incremental forest plantation assets financed by the project would be owned by the Provincial Government andcould be disposed off at will. There would be no line o f credit or on-lending for the afforestation work to be implemented by the FFs. 2. The second group o f final beneficiaries i s made up o f farm households (HHs), communities and informal farm entities/associations. Project funds/Bank loan would be on- lent to these beneficiaries for the purpose o f establishing new forest plantations. It is expected that project households would plant about 31 percent o f project plantations, communities would plant about 15 percent and informal farm entities would plant a little less than 10percent. The line o f credit (LOC) provisions o f OP 8.30 would apply to the on- lending o f project funds that would be made available to this latter category o f project beneficiaries. B. PresentStatusof CreditServices andProposedIntermediationArrangements ExistingFinancialInstitutions: 3. Duringthe course of project preparation, the task team met with representatives o f the four financial institutions that provide financial services or have an impact on the agricultural/rural sectors inthe project areas. These institutions are the China Development Bank (CDB), The Agricultural Bank o f China (ABC), the PRC's Central Bank Office in Guangxi and the Rural Credit Cooperative (RCC) System. These institutions confirmed that: (a) Long-term credit for the establishment o f forest plantations was not available to households. 128  (b) The CDB and the Agricultural Development Bank offer long-term credit for forest plantation establishment only to solvent FFs and forest companies. (c) The rural finance system in China is heavily regulated by the People's Bank of China, particularly with regard to interest rate charged by financial institutions. Bank lending terms are approximately as follows: loan maturity varies from about 5-15 years, with one (ABC) to three (CDB) years o f grace and a commercial interest rate o f between 5.76 percent (ABC) and 6.12 percent (CDB). (d) During the past five years, the combined efforts o f CDB and ABC were only able to partially satisfy the demand for financing afforestation activities. The lack o f sufficient financing is a constraint on the growth and development o fthe forestry sector inGuangxi. (e) When they meet certain criteria, large borrowers are able to obtain interest subsidies from one o f the following three sources: (i)the infrastructure subsidy for the CDB loans - a 3 percent discount over a period o f three years for ten-year loans; (ii) desertification the subsidy for commercial loans - a 2 percent discount over a period o f three years for ten- year loans; and (iii) poverty alleviation subsidy - a 2.76 percent discount over one year the for long-tern loans. ( f ) The Rural Credit Cooperative System (RCC) is the only officially-licensed provider o f financial services to rural households and at present it offers only short-term loans. There is no intention on the part o fRCCs to finance medium - to long-term loans to the forest sector. Credit Intermediation by Government Institutions 4. Over the past fifteen years, Guangxi benefited from three Bank-financed forestry projects. Inthe absence o f a functioning bankingsystem inthe projects' areas and inorder to provide the credit needed to establish forest plantations, the Bank and the GoC agree to use a combination o f FBs and the M o F disbursement system (Finance Bureaus) to intermediate sub-loans for the three Bank-financed projects. Under this arrangement, most of the Bank loan proceeds were passed on to various FFs as budget transfers with provisions for future cost recovery. In some instances, Bank funds were used by FFs to enter into share-cropping contract arrangements under which the FFs contribute the cost o f afforestation and the households contribute land and labor. This has worked well in the past, and both the FF and households benefited. The implementation o f this budget transfer/cost recovery scheme was implemented by the PPMO and County PMOS,which were part o f the Forestry Bureau. The PPMOPMOs' role was to plan the overall project design and oversee the implementation o f its activities on behalf o f the Forestry Bureau. The role o f the PPMOPMOs also included, inter alia, appraising, disbursing and recovering the cost o f the capital investments under the three projects. Currently, there i s no overdue cost recovery from the FFs to the Forest Bureau and onward to the Finance Bureau. 129  Alternatives Considered and Proposed Arrangement 5. As indicated above, the project will only provide a line o f credit for the second group o f final beneficiaries which includes the households, communities and small-size private entities. Under the present circumstances, none o f the existing financial institutions (CDB, ABC, and RCCs) are equipped or interested inproviding credit to these clients for forest plantation. Some ABC andRCC agencies work with households, community groups, etc., but only for the provision o f seasonal (less than one year) credit. Because o f past lending practices, many RCC branches are insolvent and some are illiquid. Inaddition, the ownership structure o f the RCC system is ambiguous. Even though the RCC system is in a restructuring program, it would currently not meet the minimumprudential requirements to qualify as a financial intermediary for the purposes o f on-lending Bank loans under the Bank's OP 8.30. 6. Inview of the fact that existing financial institutions are neither equipped for, nor interested inproviding the credit services required by project households, communities and small entities, it i s proposed to continue having the Forestry Bureau and its PPMOPMO network manage the project's afforestation line o f credit. The PPMO and PMOS are government institutions whose primary activity is not on-lending ODA funds. The PPMOPMOs network and Finance Bureaus are not considered to be commercial financial institutions and there i s no intention to convert them into banks. They have been selected for this activity as a transitory measure because there i s no viable commercial financial system that could perform this task adequately. Recently, the Bank has carried out a rural finance study in China. It i s hoped that future efforts by the GoC with assistance from the Bank and other donors would leadto greater involvement o f commercial banks infinancing rural development. Active engagement and discussion have been carried out between the Bank's financial sector and rural sector with the key government agencies to explore options o f future investment inthe sector. C. InstitutionalArrangements andCreditManagementProcedure 7. As inother Bank-supported sector investment projects, this project is not designed as a vehicle to address financial sector issues in China, and the government agencies involved in the on-lending o f loan proceeds are not commercial financial intermediaries as defined by OP 8.3; the evaluation o f commercial financial intermediaries typically required by OP 8.30 is neither possible nor necessary. However, the procedures used by the government-administered system for appraisal, monitoring and collection o f sub-loans has been evaluated by the Bank. The Bank has financed three forestry projects inthe Province, and there is no overdue payment from the FFs to the Finance Bureau as a request o f the effective risk mitigation method. Without the permit issued by the FB, the tree growers and sub-loan beneficiaries cannot harvest or sell the forest plantations funded by the project. Under the project, a P M O has been set up within the FB which will be responsible for making the loan and collecting the repayment. As a result, at harvest and sale, the repayment o f the sub-loans i s deducted by the buyer o f the timber from the sale price, paid directly to the Forestry BureauPMOS network or the tree growers (sub-loan beneficiary), or 130  repayment i s effected usingthe harvested timber to make an "in-kind"repayment directly to the Forest BureadPMOs network. The PPMO has developed a credit management system andprocedures to ensure that the credit line isproperly managed andmonitored. The credit ' management procedures have been documented by the Forestry Bureau in the PIP. The credit management procedures cover the terms and conditions o f loans, appraisal criteria and process, disbursement, collection, monitoring procedures, recording and reporting norms. These procedures and all attached forms have been reviewed by the Bank; it has been agreed that PPMO will use local banking specialists to make further improvements before the project starts to implement. Institutional Arrangement 8. The PPMO would be responsible for all aspects o f project administration, including program management, procurement, financial management, supervision o f PMOs, issuing the PIP (including the credit management procedure), andmonitoring and evaluation. The 33 project county PMOs would be the focal points managing the project in each county, which includes appraising the application o f the final beneficiaries, disbursing, on-lending and collecting the repayment o f sub-loans. 9. Households interested inproject plantation activities can either apply for sub-loans individually or as part o f community groups. In either case, the proposed arrangements would be as detailedbelow. Credit Management Procedure LoanApplication andApprovalProcedures 10. When an interested party wishes to obtain a loan, he/she contacts the village government and requests to be listed among the potential end-borrowers. For the borrowing farm households, the formation o f a joint-liability borrowing group would be encouraged. Each o f the group members would fill out a loan application form, which would contain information related to the activity and level of loan financing required; equity contribution, if any; basic household information including income; indebtedness to formal and informal credit sources; household assets and loan security. The written requests would then be communicated to the county PMOs which would conduct both technical screening and an assessment o f the credit-worthiness and debt repayment capability o f the farmer. The farmers would submit: (a) a list o f assets to be used as collateral in addition to the plantation; (b) existing income details o f the borrowing households. If the farmer is determined to be credit worthy and meets all o f the other criteria for planting the trees, he/she be listed as an end borrower. An on-lending contract be signed between the household and the County Forest Bureau. The contract, a copy o f which i s kept by the farmer, would define the amount o f the loan, the interest to be paid and the repayment schedule, as well as the penalties for late repayment. 131  11. The County Participatory Design Group (representatives from village, township and county PMO) appraise and approve loan applications with a value up to RMB50,OOO. The Review Committee (representatives from county PMO, Finance Bureau aided by a banking specialist) appraise and approve loan applications with a value between RMB50,OOO and RMB300,OOO. Any loan application valued at more than RMB300,OOO would need to be submitted to the Provincial PMO for final approval after its successful appraisal by the ReviewCommittee. Selection Criteria of Project End-Borrowers 12. A set o f selection criteria for sub-borrowers has been agreed. These include: (a) the communities, households and afforestation entities would voluntarily participate in the project; (b) the proposed plantation site has to meet the specific soil and climatic requirement for certain species, and be relatively close to the main roads; (c) i s willing to use the existing forest land as collateral; (d) equal opportunity would be given to minority ethnic groups to participate inthe project activities; and (e) the household selection process would be transparent and would be undertaken through a participatory approach based on the above selection criteria. It was further agreed that inselecting project beneficiaries the following criteria be used by the PMOSand County Finance Bureaus: for households applying for project sub-loans, the households should have: (a) experience and skill in establishing and maintaining production forest plantation; (b) sufficient labor power; and (c) the ability to repay their sub-loans, based on their projected household cash flow, credit history, current debt load, current householdincome status, andco-signatories/guarantors. Loan Default Risks, Credit Monitoring and Collection of Loans 13. To improve loan collection and repayment and in order to reduce default risks, the Guangxi Government plans to enforce the following rules: (a) The Forest Bureaus will continue to control the harvesting o f forest plantations by issuing tree-cutting permits, and will keep itself informed o f all sales o f forest trees plantedwith sub-loans; in most cases, sub-loan repayments would be collected through the purchaser o f the standing timber, who would pay the amount owed by the farmer directly to the relevant forest bureau; (b) the contracts with end-borrowers prohibit the unauthorized sale o f all trees before their corresponding sub-loan i s fully paid; and (c) sub-loan collection rates will be used to evaluate the performance o f the Finance and Forest Bureau staff in charge o f sub-loan recovery. The PPMO plans to develop a Project M I S system, which would be used to manage andmonitor the project sub-loans and other on-lending aspects. The system would, inter alia, monitor sub-loan appraisal dates and amounts, disbursement dates and amounts, recovery dates and amounts, overdues, default and breach o f obligations and the main reasons for their occurrence, remedies taken, and debt write-offs. Key loan portfolio quality indicators such as collection rates will also be included. The monitoring system would be computer-based within each county Forest Bureau. 132  14. The staff from both Finance and Forest Bureaus would receive credit management training, especially on loan assessment and administration with emphasis on long-term loans, delinquency management, collections and monitoring. When necessary, the PPMO would hire bankingspecialists to help appraise the creditworthiness o f large end-borrowers. Flow of Funds 15. The Provincial Finance Bureau would on-lend loan proceeds to the County Finance Bureau which takes the credit risk on behalf o f the County government. The County Finance Bureau then on-lends to County Forest Bureaus which in turn lends to final beneficiaries. Since in most counties, the RCC has established the credit score and rating system for each rural household, the County Forest Bureau can use the system to help make sound decision on the debt repayment capacity o f the borrowing households. In addition, the PPMO has developed the appraisal criteria and term sheet to be included in the credit management procedure. The On-lending Agreement will be signed between the end- borrower and the County Forest Bureau. Township Forest Station staff, with help from Finance Station staff, would be responsible for making the contractual agreements with beneficiaries and would also be responsible for the collection o f interest and loan repayment andfor monitoring the cost-recovery performance. 16. The flow o f Bank loan funds would follow the traditional Ministry o f Finance route as described by the chart below. The World -+ SA Provincial Provincial Bank managedby + Forest Bureau State-Owned Forest GPFB Farms County Finance County Forest Bureau Bureau 17. The recovery o f loans would follow a similar flow, but in reverse. Repayment i s received by the county Finance Bureaus and passed on to the provincial Finance Bureaus. 133  Essentially, it i s the Forest Bureau that will bear the credit risk o f on-lending. All h d s repaid to the Provincial Finance Bureau will be returned to the budget, and there will be no revolving fund facility. D. ProposedProjectOn-lendingTerms to FinalSub-borrowers 18. Interest rates in China are controlled administratively by the Central Bank. They have recently moved from a fixed interest rate regime to operating within specified interest rate bands. These interest rate bands vary by industry. There is one potential interest rate anchor for on-lending to final sub-borrowers under this project. Both CDB and ABC make medium-term loans to legal entities for financing plantations o f one type o f fast-growing forest tree. These loans have a 3-15 year maturity and the annual interest rate is in the range o f 5.76 percent - 6.12 percent. The GoC considers forestry development as an important measure to improve the ecological environment. As forest plantation establishment has a relatively low financial rate o f return with long harvest rotation, the GoC applies a preferential policy to promote the development and growth o f forest resources. Recently, the MOF and the Ministry o f Forestry issued ajoint-regulation which provides rebates on interest rates paid by tree-planting entities on their loans from the domestic financial intermediaries. 19. Based on the above analysis o f the prevailing interest rates for similar loans, the GoC has proposed that the interest rate on on-lending to the households under this project would be the same as that o f CDB and ABC's. There is also a political dimension to the Provincial governments' request to set the proposed interest rate to the households. The GoC i s concerned with the growing divide between rural and urban incomes and has instructed all Provincial governments to adopt policies that support farm incomes. The Guangxi provincial government is concerned that it would be seen to be exploiting farmers ifitborrows funds at the IBRDrate andon-lends funds at ahigherrate. The initialproposal o f the Provincial government was to on-lend at the IBRD rate, without a mark-up. During project preparation, through a process o f analysis and negotiation, and inthe absence o f any reference rate for medium - to long-term loans inthe project area to farm households, it was agreed that the interest rate would be administratively set. The interest rate to be charged to beneficiaries o f project sub-loans would take into account all costs associated with the Bank's loan, plus the relevant operating costs and a provision for credit risk. As such, it is agreed that a minimum2 percent spread will be added to the Bank's loan cost to the GoC to cover the operating cost o f government staff and risk provision. This was the highest rate that the Guangxi provincial government was willing to accept. This interest rate would apply to all end-borrowers. The end-borrower will receive the loan inlocal currency and no foreign exchange risk would be passed on to the beneficiary households. 20. Itwas agreed that sub-loan repayments be based on financial models for the various tree species to be planted under the project, taking into consideration estimated cash flows and the fact that end-borrowers would have other sources o f income that could be used to repay their sub-loan obligations. Although there are more than ten types o f forest tree species, these would be grouped in three categories to simplify on-lending procedures. 134  Each category would have a different maturity and repayment schedule. The financial analysis o f the tree models shows that the financial viability o f these plantations was sensitive to short repayment and grace periods. While the loan principal will be collected based on the followingproposedrepayment schedule, the interest incurred on each sub-loan will be collected semi-annually: Type of plantation Grace Period Principal Repayment Period Eucalyptus Species 6 One balloon payment at the end ofyear 7. Bamboo, Quercus, Acacia 6 Payment over 6-year periodbetween years 7-12 Chinese Fir, Pine, broad-leaf 6 Payment over 12-year periodbetween years 7-18 Species 21. The PPMO has developed the following draft standard templates with assistance from banking specialist: (a) Loan Application Form; (b) Loan Appraisal Form with evaluation criteria (one for the household and one for the entity); (c) On-lending Agreement with detailed loan term and repayment schedule based on above-mentioned proposal; and (d) Loan Repayment Record including the detailed information regarding the beneficiary, the detailed repayment schedule and actual collection information. These forms have been attached to the draft PIP. 22. At the wrap-up meeting o f the pre-appraisal mission with the central government agencies in Beijing, representatives o f the National Development and Reform Commission (NDRC), the decision-maker o f national capital investment on behalf o f the central government, informed the Bank mission that the on-lending interest rate to the end- borrower should be passed on as the World Bank rate to the Government without any mark- up. This is based onNDRC Decree 28 "The Provisional Guidelines for Investment Projects Funded by International Financial Institutions and Foreign Government Loans" which became effective on March 1, 2005. Article 24 o f this Decree states "When loans are to be repaid or guaranteed by governments at local levels, the same terms offered by foreign lenders should in principle be passed on to the borrower. Should adjustment o f terms be required to hedge against risks o f foreign debt, the on-lending agency shall obtain a prior endorsement by NDRC." Inaddition, a mark-upon the cost of World Bank loan to end- borrowers in the rural countryside i s perceived as a deviation from the current government policies, particularly vis a vis the very recent "Report o f the Work o f the Government" made by the Prime Minister asking for the building o f a new socialist countryside. Inthis report, the GOC calls for making all necessary efforts to stabilize, improve and strengthen government support to rural development. Both the NDRC and Ministry o f Finance insisted that the project's on-lending rate to the end-borrowers should be the same as the Bank's rate to China without any mark-up. The Bank's team had several round o f discussions with NDRC and MOF explaining the pricing principles that reflects adequate coverage o f costs and risks. Finally, Bank rate plus 2 percent spread i s the maximum on- lending rate which was accepted byboth central and local governments. 135  Annex 18: OperationsArrangementModelsfor PlantationEstablishment CHINA: GuangxiIntegratedForestryDevelopmentand ConservationProject 1. The project operatiodcontractual arrangements would be decided through a participatory process carried out at the village level, reflecting the preference of the farmers and communities through consultation with them. The main afforestation entities are provincial forest farms, country-level forest farms/small scale planting entities, communities and households. Forest farms will use 54 percent o f the WE3 loan for afforestation activities, communities would use about15 percent andhouseholds 31percent. The community and individual households would participate in the planting activities separately and the forest farms would largely cooperate with farmers and communities in carrying out the plantation establishment activities under different production and contract arrangements, which would bringmore benefits to farmers. 2. Currently, there are at least four types o f contractual arrangements: (a) contract with profit sharing at harvest; (b) contract with mix o f annual payments and profit sharing at harvest; (c) contract with guaranteed amount at harvest; and (d) contract to lease the land with annual payments. The mission reviewed the different contractual arrangements, and confirmed that the menu o f options would remain open to the farmers. These options have been included in the project information leaflet and disseminated to villages and households. The details o f the contractual arrangements, such as inputs and benefit sharing as well as risks would be included inthe Participatory Project Design Manual as part o f the PIP. This participatiodconsultation process would ensure that farmers make an informed choice. 3. The four contractual arrangement models are summarized as the following: a. Model one: Contract with profit sharing at harvest. Under this arrangement, farmers and forest farms are the joint partners, where local farmers will contribute lands and labors. Local forest farms will invest in plantingactivities, provide technical inputs and manage the plantations during the project period. The contractual arrangements will be made between the farmers/communities and the FF on the plantation establishment and management responsibilities, inputs and benefit sharing. The farmers and forest farms will share the income from forest products based on their inputs. Inalmost cases, the forest farms will pay farmers' labor inputs as soon as the job i s done to ensure their short-term income. b. Model two: Contract with mix o f annual payments and profit sharing at harvest. This contractual arrangement i s largely as the same as the model one. The difference i s that as the forest production has relative long rotation, the forest farms would pay part o f the benefits from the final product to farmers as an advance annually duringthe project period, inorder to increase the farmer short-term income for their livelihood needs. 136  C. Model three: Contract with maranteed amount at harvest. Under this arrangement, the farmers will contribute lands and labors and forest farms will invest in planting activities, provide technical inputs and manage the plantations during the project period. The contractual arrangements will be made between the farmers and the forest farms on the inputs and benefit sharing. The farmers and forest farms will share the income from forest products based on their inputs. However, the farmers' sharing should be guaranteed by fixed amount o f logs or timbers according to their sharing at harvest. According to this arrangement, forest farm would take the natural and investment risks and ensures the farmers' benefits. The farmers, who have more chance to work out side o f the rural areas and the householders with less labor, preferthis arrangement. d. Model four: Contract to lease the landwith annual payments. This model is most welcome bythe households, which live inthe economic backwards andremote areas with plenty o f land and less population. The farmers would receive the annually land use payment and the amount o f payment is depend on the quality and location o f the lands. The forest farm will pay farmers on land use annually and labor inputs as soon as the job is done by cash. The forest farm will manage plantation and benefit from timber products. Under this arrangement, the farmers can get quick income fkom annual payments and there is no management risk to farmers. 4. The project promotes a variety o fjoint partnerships where small farmers would not simply rent their land, but would be hllpartners sharing in the profits o f the afforestation venture. However, a large number o f households prefer the prevailing practice o f contract with annual payments by leasing the landto forest farms for plantation establishment. The project would improve such contract compared to the current practice o f long-term land leasing. First, the contract will include a clause for arbitration to help resolve disputes which may arise between households and forest farms. Second, the contract will offer two options to allow for increase inlandrental fee duringthe contract period which ranges. The first option would allow for the adjustment o f rental fee after first cultivation based on the current timber price. The second option would be increasingrental fee by agreed percentage every five years until end o f the contract period. The percentage would be negotiated and agreed uponbefore the contract is signed or each five year. 137   Maps CHINA: GuangxiIntegrated ForestryDevelopmentand ConservationProject IBRDNos. 34708,34734,34735. 138   IBRD 34734 CHINA GUANGXI INTEGRATED FORESTRY DEVELOPMENT AND CONSERVATION PROJECT PLANTATION ESTABLISHMENT - MAP 34734 Ziyuan Quanzhou Sanjiang Longsheng 322 Dongzu Gezu 20181 321 20165 PROTECTION COUNTY 20184 209 Jiang FOREST FARMS Xing'an HUNAN Guanyang COUNTY CAPITALS GUIZHOU gnoR Lingchuan PREFECTURE CAPITALS 321 20182 PROVINCIAL CAPITAL Lingui Guilin 210 Rongshui Rong'an 322 PROVINCIAL HIGHWAYS 20253 Miaozu Tian'e 20171 207 NATIONAL HIGHWAYS 20343 Yachang achang Huanjiang RAILROADS 209 20332 Nanpan Yongfu 20161 Nandan 321 20343 Gongcheng CANALS Longlin Gezu Jiang Forest Farm Forest Farm Maonanzu Luocheng Leye Fuchuan Yaozu RIVERS 324 HongshuiHe Mulaozu 20252 Yangshuo 20183 Yaozu Liucheng HuangmianHuangmian Pingle 323 COUNTY BOUNDARIES 20341 Forest Farm Forest Farm Fengshan Hechi 323 20251 323 Xilin Donglan Zhongshan Luzhai 323 PROVINCIAL BOUNDARIES 20342 Yishan Lipu 20331 Hezhou INTERNATIONAL BOUNDARIES Lingyun Liuzhou 321 Tianlin SanmenjiangSanmenjiang 207 Liujiang Forest Farm Forest Farm Bama Yaozu Jinxiu Mengshan Daguishan Daguishan 324 323 Yaozu Xincheng 20134 Zhaoping Forest Farm Forest Farm 209 20141 323 Jiang 20031 323 Du'an Bose WeiduWe Yaozu Hongshui He Gui 322 Forest Farm Forest Farm Xiangzhou YUNNAN Tianyang 20324 Heshan 20322 Dahua Yaozu Laibin Mashan 321 207 GUANGDONG 20312 210 20231 Wuxuan Pingnan Tiandong You Xun Wuzhou Jiang Napo Jiang Jiang Shanglin He 209 Tengxian Guiping 20133 Cangwu Debao Pingguo 20323 Binyang 20318 Jiang 207 Jingxi Long'an 324 Yu 20131 Xi Wuming Jiang Tiandeng 322 Guigang 324 20311 20321 20131 Cenxi 20315 GaofengGaofeng Rongxian Daxin 324 Forest Farm iang Forest Farm J NANNING Yong LiuwanLiuwan 207 Yongning 20222 Forest Farm Forest Farm 324 20311 Zuo Jiang 324 LiangfengjiangLiangfengjiang Hengxian Beiliu 20124 Fusui Forest Farm Forest Farm Yulin 20312 RUSSIAN FEDERATION Chongzuo QipoQipo 325 20121 20122 20314Longzhou Forest Farm Forest Farm Lingshan KAZAKHSTAN HEILONGJIANG Luchuan 322 DongmenDongmen Ningming Forest Farm Forest Farm 20221 209 Pubei JILIN Sea 20124 Bobai MONGOLIA VIETNAM Pingxiang 20214 of 322 KYRGYZ Japan PaiyangshanPaiyangshan Shangsi 20211 Bobai Bobai REP. LIAONING D.P.R. OF XINJIANG GOL KOREA Forest Farm Forest Farm Forest Farm Forest Farm Qinzhou MON BEIJING NEI BEIJING JAPAN HEBEI TIANJIN REP. OF GUANGDONG 20212 KOREA SHANDONG Yellow Fangcheng 325 QINGHAI SHANXI Sea Gezu 325 NINGXIA JIANGSU Qinlian Qinlian GANSU SHAANXI HENAN 20123 0 10 20 30 40 50 60 Forest Farm Forest Farm Hepu ANHUI SHANGHAI E a s t XIZANG G HUBEI KILOMETERS SICHUAN ZHEJIANG C h i n a Beihai NGQIN CHO HUNAN NGXI S e a JIA FUJIAN GUIZHOU National Capital TAIWAN This map was produced by the Map Design Unit of The World Bank. YUNNAN GUANGXI GUANGDONG The boundaries, colors, denominations and any other information Beibu Gulf Province Boundaries P h i l i p p i n e shown on this map do not imply, on the part of The World Bank HONG KONG Group, any judgment on the legal status of any territory, or any International Boundaries MACAO S e a VIETNAM endorsement or acceptance of such boundaries. B a y o f LAO P.D.R. HAINAN B e n g a l PHILIPPINES OCTOBER 2006  IBRD 34708 CHINA GUANGXI INTEGRATED FORESTRY DEVELOPMENT AND CONSERVATION PROJECT ECOLOGICAL FOREST PLANTATIONS/PROTECTION Ziyuan PLUS BIO-CARBON PLANTATIONS - MAP 34708 Quanzhou Sanjiang Longsheng 322 PROTECTION FOREST + Dongzu Gezu MOUNTAIN CLOSURE 20181 321 20165 BIO-CARBON PLANTATION 20184 Jiang 209 Xing'an HUNAN COUNTY CAPITALS Guanyang PREFECTURE CAPITALS GUIZHOU gnoR Lingchuan PROVINCIAL CAPITAL 321 20182 Lingui Guilin PROVINCIAL HIGHWAYS 210 Rongshui Rong'an 322 NATIONAL HIGHWAYS 20253 Miaozu Tian'e 20171 207 RAILROADS 20343 Huanjiang 321 CANALS 209 20332 Nanpan Yongfu 20161 Luocheng Gongcheng RIVERS Longlin Gezu Jiang Leye Fuchuan COUNTY BOUNDARIES 324 HongshuiHeNandan 20343 Maonanzu Mulaozu 20252 Yangshuo 20183 Yaozu Yaozu Liucheng Pingle 323 20341 Hechi PROVINCIAL BOUNDARIES 323 20251 Xilin Fengshan Donglan 323 Zhongshan Luzhai 323 INTERNATIONAL BOUNDARIES 20342 Yishan Lipu 20331 Liuzhou Hezhou 321 Tianlin Lingyun Liujiang GN Bama Yaozu Jinxiu Mengshan 324 323 Yaozu Xincheng 20134 Zhaoping 207 323 209 20141 Gui 20031 323 Bose Du'an Jiang Yaozu Hongshui He 322 Xiangzhou YUNNAN Tianyang 20324 Heshan 20322 Dahua Yaozu Laibin Mashan 321 207 ODGNAUG 20312 210 20231 Wuxuan Pingnan Tiandong You Wuzhou Jiang Napo Jiang Xun Jiang Shanglin He 209 Tengxian Guiping 20133 Cangwu Debao Pingguo 20323 Binyang 20318 Jiang Jingxi Long'an 324 Yu 207 20131 Wuming Xi Tiandeng Guigang Jiang 20311 20321 20131 322 20315 324 Rongxian Cenxi 324 Daxin Yong Jiang NANNING 207 20222 324 20311 Zuo ang 324 Ji Yongning Hengxian 20124 Beiliu Fusui Yulin 20312 RUSSIAN FEDERATION 325 20121 Chongzuo 20314Longzhou Lingshan KAZAKHSTAN Luchuan HEILONGJIANG 322 Ningming 20221 209 Pubei Sea 20124 Bobai MONGOLIA JILIN VIETNAM Pingxiang 20214 of 322 KYRGYZ Shangsi 20211 REP. LIAONING D.P.R. OF Japan 20122 XINJIANG KOREA Qinzhou MONGOL BEIJING NEI BEIJING JAPAN HEBEI TIANJIN REP. OF 20212 Fangcheng 325 GUANGDONG KOREA SHANDONG Yellow QINGHAI SHANXI Sea Gezu 325 NINGXIA JIANGSU GANSU SHAANXI HENAN 0 10 20 30 40 50 60 20123 Hepu ANHUI SHANGHAI E a s t XIZANG HUBEI KILOMETERS SICHUAN ZHEJIANG C h i n a Beihai CHONGQINGHUNAN S e a GUIZHOU JIANGXIFUJIAN National Capital TAIWAN This map was produced by the Map Design Unit of The World Bank. YUNNAN GUANGDONG The boundaries, colors, denominations and any other information Beibu Gulf Province Boundaries GUANGXI P h i l i p p i n e shown on this map do not imply, on the part of The World Bank HONG KONG Group, any judgment on the legal status of any territory, or any International Boundaries MACAO S e a endorsement or acceptance of such boundaries. VIETNAM B a y o f LAO HAINAN B e n g a l P.D.R. PHILIPPINES AUGUST 2006  IBRD 34735 CHINA GUANGXI INTEGRATED FORESTRY DEVELOPMENT AND CONSERVATION PROJECT NATURE RESERVES MANAGEMENT - MAP 34735 Ziyuan Mao'ershan Mao'ershan Quanzhou Sanjiang Longsheng 322 Dongzu Gezu 20181 321 20165 NATURE RESERVES 20184 209 Jiang COUNTY CAPITALS Xing'an HUNAN Guanyang PREFECTURE CAPITALS GUIZHOU gnoR Lingchuan PROVINCIAL CAPITAL 321 20182 PROVINCIAL HIGHWAYS Lingui Guilin 210 Rongshui Rong'an 322 NATIONAL HIGHWAYS 20253 Mulun Mulun Miaozu Tian'e 20171 207 RAILROADS 20343 Huanjiang CANALS 209 20332 Nanpan Yongfu 20161 Nandan 321 Gongcheng RIVERS Longlin Gezu Jiang Luocheng Leye Fuchuan Yaozu COUNTY BOUNDARIES 324 HongshuiHe 20343 Maonanzu Mulaozu 20252 Yangshuo 20183 Yaozu Liucheng Pingle 323 PROVINCIAL BOUNDARIES 20341 Fengshan Hechi 323 20251 323 Xilin Donglan Zhongshan Luzhai 323 INTERNATIONAL BOUNDARIES 20342 Yishan Lipu 20331 Hezhou Lingyun Liuzhou 321 Tianlin Liujiang Bama Yaozu Jinxiu Mengshan 324 323 Yaozu Xincheng 20134 Zhaoping 207 209 20141 323 Jiang 20031 323 Du'an Bose Yaozu Hongshui He Gui 322 Xiangzhou YUNNAN Tianyang 20324 Heshan 20322 Dahua Yaozu Laibin Mashan 321 207 GUANGDONG 20312 210 20231 Wuxuan Pingnan Tiandong You Xun Wuzhou Jiang Napo Jiang Jiang Damingshan Damingshan Shanglin He 209 Tengxian Guiping 20133 Cangwu Debao Pingguo 20323 Longshan Longshan Binyang 20318 Jiang 207 Jingxi Long'an 324 Yu 20131 Xi Wuming Jiang Tiandeng Guigang 20311 20321 20131 322 Cenxi 20315 324 Rongxian Daxin 324 NANNING Yong Jiang 207 20222 324 20311 Zuo ang 324 Ji Yongning Hengxian 20124 Beiliu Fusui Yulin 20312 RUSSIAN Nonggang Nonggang FEDERATION 325 20121 20314 Chongzuo Lingshan KAZAKHSTAN HEILONGJIANG Luchuan Longzhou 322 Ningming 20221 209 Pubei JILIN Sea 20124 Bobai MONGOLIA VIETNAM Pingxiang 20214 of 322 KYRGYZ Shangsi 20211 REP. LIAONING D.P.R. OF Japan XINJIANG GOL 20122 KOREA Qinzhou MON BEIJING NEI BEIJING JAPAN HEBEI TIANJIN REP. OF GUANGDONG 20212 KOREA SHANDONG Yellow Fangcheng 325 QINGHAI SHANXI Sea Gezu 325 NINGXIA JIANGSU GANSU SHAANXI HENAN 20123 0 10 20 30 40 50 60 Hepu ANHUI SHANGHAI E a s t XIZANG G HUBEI KILOMETERS SICHUAN ZHEJIANG C h i n a Beihai NGQIN CHO HUNAN NGXI S e a JIA FUJIAN GUIZHOU National Capital TAIWAN This map was produced by the Map Design Unit of The World Bank. YUNNAN GUANGXI GUANGDONG The boundaries, colors, denominations and any other information Beibu Gulf Province Boundaries P h i l i p p i n e shown on this map do not imply, on the part of The World Bank HONG KONG Group, any judgment on the legal status of any territory, or any International Boundaries MACAO S e a VIETNAM endorsement or acceptance of such boundaries. B a y o f LAO P.D.R. HAINAN B e n g a l PHILIPPINES AUGUST 2006