Nepal - Second Forestry Project

Document of The World Bank FOR OFFCIAL USE ONLY Report No. 12615 PROJECT COMPLETION REPORT NEPAL SECOND FORESTRY PROJECT (CREDIT 1400-NEP) DECEMBER 21, 1993 Agriculture Operations Division Country Department I South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Name of Currency = Nepalese Rupee (NR) CURRENCY EXCHANGE RATES Appraisal Year (1983) US$1.0 = NRs 14.30 Intervening Years (1983/84 - 1991/92) US$1.0 = NRs 32.50 Completion Year (1992) US$1.0 = NRs 43.50 WEIGHTS AND MEASURES Kilometer (km) 0.62 miles 1 meter (m) 2 1.09 yards 1 square kilometer (km) = 100 hectares (ha) 1 hectare (ha) = 10,000 m = 2.47 acres (ac) 1 cubic meter (m3) = 35.32 cubic feet (cu ft) 1 cubic meter = 28.28 cubic feet (for true board measure) ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank CF - Community Forestry CFAD - Community Forestry and Afforestation Division CFDD - Community Forestry Development Division CFDTP - Community Forestry Development and Training Project CTA - Chief Technical Adviser DFO - District Forest Officer EEC - European Economic Community ERR - Economic Rate of Return FAO - Food and Agriculture Organization of the United Nations FAO/CP - FAO/World Bank Cooperative Programme FD - Forestry Department FI - Institute of Forestry FRD - Forestry Research Division GDP - Gross Domestic Product HMG - His Majesty's Government of Nepal IDA - International Development Association M&E - Monitoring and Evaluation MEU - Monitoring and Evaluation Unit MFSC - Ministry of Forests and Soil Conservation MFTW - Ministry of Forests Training Wing ODA - Overseas Development Administration (United Kingdom) P.A. - Per Annum PCR - Project Completion Report SAR - Staff Appraisal Report SCF - Standard Conversion Factor TA - Technical Assistance TCFPU - Terai Community Forestry Project Unit TCP - Technical Cooperation Programme UNDP - United Nations Development Programme FISCAL YEAR July 16 - July 15  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Offic of DiOecto,-Gonera Opeireatln Evaluation December 21, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Subject: Project Completion Report on NEPAL Second Forestry Project (Credit 1400-NP) Attached is the Project Completion Report on Nepal - Second Forestry Project (Credit 1400-NEP) prepared by the South Asia Regional Office. The Borrower did not submit Part I. Credit 1400-NEP of US$18.0 million (SDR 16.7 million) was approved in July 1983 and closed in June 1992, two years behind schedule, and US$13.7 million (SDR 10.4 million) was canceled. Project design was based on the Nepal Community Forestry and Training Project (Cr. 1008-NEP), approved in 1980, and aimed to increase supplies of a broad range of forest products, promote people's participation in forest management, introduce improved cooking stoves to conserve fuel, expand training facilities and forestry research, and strengthen the Forestry Department. The well-prepared PCR explains clearly that project design was inappropriate and incomplete. The design was based on a project for Nepal's Hills which was ill-adapted to the Terai, and design details missing at approval prevented implementation from starting on time. As a result, implementation started badly and never recovered. Design flaws were followed by counterpart funding shortages, slow mobilization of co-financing and appointment of key staff, and cumbersome local procurement practices. Efforts to elicit farmer participation in forestry outside private lands through village panchayats failed. Ineffective monitoring and evaluation made reliable data scarce, and combined with poor project coordination to remove any chance of turning the project around during implementation. The successful development of private tree nurseries and farm forestry, however, are small but significant bright spots in an otherwise weak performance. The principal lessons of the project are familiar: quality at entry matters vitally, and the Bank must appraise more carefully the institutional capacity of Borrowers to implement complex projects. The project is rated as unsatisfactory, sustainability is unlikely, and institutional development is negligible. No audit is planned. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICIL USE ONLY PROJECT COMPLETION REPORT NEPAL SECONTD FORESTRY PROJECT (Cr. 1400-NEP) TABLE OF CONTENTS Page No. PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . .ii PART I: PROJECT REVIEW FROM IDA'S PERSPECTIVE . . . . . . . . . . . .1 Project Identty . . . . . . . . . . . . . . . . . . . . . . .1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . Project Objectires and Description . . . . . . . . . . . . . . 2 Project Design and Organization . . . . . . . . . . . . . . . 3 Project Implementation . . . . . . . . . . . . . . . . . . . . 4 Project ResuLts . . . . . . . . . . . . . . . . . . . . . . 11 Project Sustainability . . . . . . . . . . . . . . . . . . . 12 IDA Performance . . . . . . . . . . . . . . . . . . . . . . 13 Borrower Performance . . . . . . . . . . . . . . . . . . . . 14 Project Relationship . . . . . . . . . . . . . . . . . . . . 16 Consulting Services ......... ... ... ... . . 16 Project Documentation and Data . . . . . . . . . . . . . . . 16 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . . . 18 PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . . 19 Related Bank Loans and/or Credits . . . . . . . . . . . . . 19 Project Timetable . . . . . . . . . . . . . . . . . . . . . 19 Disbursements . . . . . . . . . . . . . . . . . . . . . . . 70 Project Implementation . . . . . . . . . . . . . . . . . . . 20 Project Cost and Financing . . . . . . . . . . . . . . . . . 21 A. Project Cost . . . . . . . . . . . . . . . . . . . . 21 B. Project Financing (US$million) . . . . . . . . . . . 21 Project Results . . . . . . . . . . . . . . . . . . . . . . 22 A. Direct Benefits ................ 22 B. Economic Impact . . . . . . . . . . . . . . . . . . 22 C. Financia! Impact . . . . . . . . . . . . . . . . . . 22 D. Studies . . . . . . . . . . . . . . . . . . . . . . 22 Use of IDA Resources .................... 23 A. Staff Inputs . . . . . . . . . . . . . . . . . . . . 23 B. Missions .. . . . . . . . . . . . . . . . . . 23 C. Costs . . . . . . . . . . . . . . . . . . . . . . 23 Status of Compliance with Covenants . . . . . . . . . . . . 24 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ANNEX 1: Economic Analysis . . . . . . . . . . . . . . . . . . . . . 27 Table 1: Economic Analysis of the Vhole Project . . . . . . 28 Table 2: Actuai Project Costs . . . . . . . . . . . . . . . 29 Table 3: Annual Planted Areas . . . . . . . . . . . . . . . 30 Table 4: Economic Crop Budget (Maize) . . . . . . . . . . . 31 Table 5: Economic Crop Budget (Mustard) . . . . . . . . 32 Table 6: Economic Crop Budget (Pulses) . . . . . . . . . . 33 APPENDICES: 1. In-Country Training Courses and Workshops . . . . . . . 34 2. Publication . . . . . . . . . . . . . . . . . . . . . . 37 PROJECT DATA SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . 40  PROJECT COMPLETION REPORT NEPAL SECOND FORESTRY PROJECT (Cr. 1400-NEP) PREFACE This is the Project Completion Report (PCR) for the Second Forestry Project in Nepal, for which Credit 1400-NEP in the amount of US$18.0 million was approved on July 3, 1983. However, in November 1985, the Credit was reduced to US$16.0 million as cofinancing through an EEC grant became available. In addition, the project scope was revised in November 1990, and at that time the Credit was further reduced to US$9.0 million. The Credit was closed on June 30, 1992, with total disbursements of US$4.3 million. Grant funds provided by EEC were used to finance the technical assistance (TA) component executed by FAO until the end of 1989, and FAO/TCP and UNDP assistance was extended from January 1990 to June 1991 to provide continuing support for TA activities. Parts I and III of the PCR were prepared by an FAO/World Bank Cooperative Program mission1 which visited Nepal in March 1993. It is based on a review of all relevant project documents, field visits to selected project areas and discussions with the Borrower's project staff and associated Bank staff. Part II, which was to be prepared and submitted by the Borrower by September 15, 1993, has not yet been received. T. Lohavisavapanich (Economic/Mission Leader) and M. Johnson (Forester).   PROJECT COMPLETION REPORT NEPAL SECOND FORESTRY PROJECT (Credit 1400-NEP) EVALUATION SUMMARY Objectives (i) The objectives of the project were to: (a) increase supplies of fuelwood, poles, timber and fodder in 13 districts of the central and eastern Terai, by planting barren lands and by improving areas of natural forest; (b) promote people's participation in planting and forest management activities; (c) introduce and popularize improved cooking stoves to conserve fuel; and (d) expand training facilities, improve research and extension and strengthen the Forestry Department (FD). These were to be achieved over a six-year period by (i) establishing 4,550 ha of community (panchavat) and strip plantations, 3,200 ha of institutional and demonstration woodlots and 5,900 ha of agro-forestry plantations; (ii) distributing 32 million seedlings to farmers for planting on 12,500 ha of privately owned lands; (iii) improving 35,000 ha of natural forests; (iv) establishing a network of 328 nurseries, one third of which were to be privately operated; and (v) distributing 20,000 improved cooking stoves. The project also provided funds for the expansion of training facilities and strengthening of the forest organization, particularly in forestry extension, research and monitoring and evaluation (M&E). Substantial technical assistance (TA) was also provided by the project to help in executing field plantings and developing a training and research program and an M&E system. (ii) The total project cost, including physical and price contingencies, was estimated at NR 343 million or US$24.0 million. This was to be financed through: (a) an IDA Credit of US$18.0 million (SDR 16.7 million), which became effective in November 1983; (b) His Majesty's Government of Nepal (HMG) budget allocations of US$4.8 million; (c) and farmers' contributions of US$1.2 million. However, in 1985, the amount of the IDA Credit was reduced to US$16.0 million (SDR 14.9 million) as cofinancing through an EEC grant to fund the project's TA component became available. The overall implementation of the project was to be entrusted to the head of a Terai Community Forestry Project Unit (TCFPU) established within the Community Forestry Development Division (CFDD) at Kathmandu. Responsibility for implementing the plantation program and the natural forest improvement and distribution of improved stoves components was to be entrusted to the District Forest Offices (DFOs) . The research program was to be developed by the Forestry Research Division (FRD); the Ministry of Forests Training Wing (MFTW) was to be responsible for in-service training; and the Institute of Forestry (FI) for certificate-level training courses.  - iii - Implementation Experience (iii) The project was prepared by HMG with FAO/CP assistance and was processed further by IDA's appraisal mission. The project was over-optimistic in its scope, and in its design not enough attention was given to relevant aspects, such as: (a) the different socio-economic conditions of people in the Hills and the Terai regions, (b) the country's limited financial and trained manpower resources, (c) identification of suitable planting and forest improvement areas in advance, (d) an appropriate design for the improved stoves, (e) a management plan with supporting information from forest inventory for the improvement of the natural forest and (f) a clearly defined operational directive for the development of a research program. These deficiencies caused serious delays in implementation, hindered the project's progress and reduced its impact. (iv) Project implementation was much slower than anticipated at appraisal because of the late approval of the EEC cofinancing facility; delays in the establishment of TCFPU and the approval of staff positions and the recruitment of the Chief Technical Adviser (CTA) and experts; cumbersome procurement procedures; and inadequate and late release of budget allocations. Implementation progress was also hindered by frequent changes of the head of TCFPU, and the consequent lack of motivation on the part of the incumbent; inadequate field staffing and high staff turnover; and limited coordination between TCFPU, CTA and experts, FRD and DFOs. (v) The IDA Credit was further reduced to US$9.0 million (SDR 6.85 million) in June 1990 due to savings arising from low physical achievements and substantial depreciation of the Nepalese Rupee against the US Dollar. As a result, the project scope was revised and several components were discontinued or deleted. The agro-forestry plantation and the distribution of improved stoves components were discontinued from 1991 due to problems of permanent settlement of landless farmers in state natural forest areas and lack of appropriate design and interest by FD respectively. The preparation of a National Forestry Development Plan component was deleted because it was covered by an Asian Development Bank-financed Forestry Master Plan exercise and the completion of some buildings for Fl and MFTW was financed using funds available under CFDTP. (vi) Emphasis was given to achieving the set planting targets which were over-ambitious, leading to neglect of the community participatory approach proposed under various plantation components. Also, because of the village panchayats' organizational and financial constraints, the concept of the organization of community participation through the village-level organization proved unwieldy. As a result, most of these community plantations were entirely established as conventional state plantations. Similarly, little progress was made in the development of training, extension and research programs until late in the project. (vii) A natural forest management plan was introduced only in the Rautahat District where experiments on alternative silvicultural systems were carried out. To address problems of soil degradation, Siwalik plantations were also initiated through community protection and reafforestation. From 1990 onwards, specific  lv - emphasis was given to the implementation of the forest management plan in the Rautahat District, the improvement of degraded fringes of natural forest, the formation of smaller forest user groups, and the preparation and implementation of community forest management plans. (viii) Performance of TA, which was executed by FAO, was generally satisfactory but hindered from the start by delay in the approval of EEC cofinancing and HMG's slow consultant approval procedures. Quality of TA expertise was generally good, but suffered some problems of liaison with TCFPU and DFO staff because of the frequent staff transfers. (ix) The IDA Credit closed on June 30, 1992, two years behind schedule. With an adjusted performance rating of 3, i.e., a problem project rating. The last disbursement was on December 11, 1992, after which total disbursements amounted to only US$4.3 million (SDR 3.6 million). Grant funds provided by EEC were used to finance TA which was executed by FAO. When the EEC facility was more or less fully utilized by the end of 1989, continuing TA from 1990 to mid- 1991 was financed under FAO/TCP and by UNDP. Total project costs amounted to about NRs 357 million (US$11.0 million). While in Nepalese Rupee terms they are 104Z of the SAR estimate, the relevant proportion in US Dollar terms was 46Z. Results (x) General. The project results were mixed. Despite various difficulties, the project attained most of the physical targets set at appraisal; and the promotion of private nurseries as well as the planting program, (except in respect of agro-forestry plantations), was successful. However, there was a shortfall of almost 8OZ in achieving the target set at appraisal for natural forest improvement. Additionally, the promotion of community participation was only partly achieved, although the project ultimately created a public awareness of the benefits of tree planting and forest protection and management. The project also initiated training and experiments on silvicultural treatment in natural Sal (Shorea robusta) forest and soil and water conservation measures in the Siwalik foothills through community protection and reafforestation. (xi) Impact on Production. Due to lack of sufficient information on areas of the private plantings and tree growth rates for all plantations and natural forest improvement, the increased forest produce resulting from the project cannot be quantified with accuracy. Only an indicative assessment of the project's impact on production is possible applying tree growth rates assumed in the SAR to: (a) the total area of 10,200 ha covered by the project plantings, (b) the assumed area of 7,300 ha covered by private plantings (para. 5.10), and (c) 6,265 ha of degraded fringes of natural forest under improvement by natural regeneration of Sal trees (para. 5.20). Based on these assumptions, the proect over 40 years is expected to generate a total of about 3.8 million m of over z-0 years 3s3 mo fuelwood, 0.5 million m of poles, 0.4 million m of sawlogs, 0.7 million tons of fodder and about 1,300 tons annually of foodgrains from the Taungya intercrops, or 60Z, 50X, 30Z, 40Z and 40% of the appraisal estimates, respectively (Part III, 6. A.). No fruit tree seedlings were distributed under  - v - the project. :he lower estimated production as compared to the SAR estimate is attributable to the significantly reduced areas of the private plantings, agro- forestry plantations, and natural forest improvement. (xii) Economic Impact. Due to the failure to establish a proper monitoring and evaluation (M&E) system during implementation, insufficient information was available to re-estimate the project's economic impact. However, an indicative economic rate of return (ERR) analysis was carried out based on actual project costs and estimated benefits (para. 6.2) and using assumptions particularly on growth and yield rates. The re-estimated ERR of 12Z is far lower than the SAR estimate of 27Z due mainly to a 40Z cost overrun of costs for nursery and plantation establishment. Sustainability (xiii) Prospects of sustainability appear good for the private nurseries and farm forestry components, but much less so for the community, strip, agro- forestry plantations demonstration woodlots, natural Sal forest management and the institutional components. After project closure on June 1992, most private and institutional nurseries continued their activities because their operations were financially profitable and private nurseries are active in seedling supply. However, because FD distributed free seedlings and guaranteed procurement, some private nurseries did not have confidence in future marketing. In addition, attention is needed to ensure good average quality of seedlings and species diversification. (xiv) The private plantings appear sustainable and there is little doubt that Dalbergia (Sissoo) trees are readily marketable. However, in the long term FD should promote species diversification and appropriate planting techniques through extension. The former would reduce price risk from the oversupply of Sissoo and risk of disease in a near monoculture, while the latter would reduce the rate of mortality at planting. (xv) Since most of the plantations established under the project are maturing for harvesting and FD's policy is to hand over the forest management responsibility to local communities, it is desirable that DFOs assist in the preparation of forest management plans and, hand the plans over to user groups for implementation. Although TCFPU and DFOs staff gained some experience in the implementation of community forestry activities, all 230 incremental staff were transferred back to FD territorial divisions or termi-nated. At present, DFOs have insufficient budget funds and little staff time to sustain these plantations, to continue the formation of user groups, and to prepare and implement forest management plans. In only NRsl7 million was allocated to DFOs, mainly to cover the costs for completing the remaining buildings. Without sufficient financial and staff support, the pace of these works will be very slow. Moreover, to ensure that appropriate techniques are carried out, extensive training in forest management is required for both DFO staff and user groups.  - vi - Findings and Lessons Learned (xvi) The project suffered from a number of shortcomings including the inadequacies of project design, funding and organizational capacity. The deficiencies of project design (para. 4.2) caused serious delays in implementation, hindered project progress and reduced its impact. The funding constraints severely affected the overall progress of project implementation and threatened sustainability (para. 7.3). The organization of community participation through the village panchayat system proved unwieldy; but the formation of smaller forest user groups, developed with the help of forestry facilitators, was successful and appears sustainable (para. 5.13). The weakness of design and lack of clearly defined operational directives for technical support components and forestry research affected the qu lity aspect of project implementation. The weakness in the existing organization of FD and FRD, and the failure to develop appropriate corrective action plan affected the quality of planning and design for future community development programs. (xvii) The implementation experience suggests a number of lessons, the most important of which are: (a) components without appropriate design and clear operational directives are unlikely to do well; (b) the scope of any project and the scale of its operations should be based, among other things, on a careful and in-depth analysis of the Borrower's financial and managerial capabilities; lack of adequate funding severely affected the overall progress of the project and its sustainability; (c) to ensure timely and successful implementation, in particular in respect of plantations and degraded natural forest management, suitable planting areas should be identified in advance, appropriate forest management plans with supporting forest inventory information should be available, and operational directives should be clearly defined; Cd) effective project implementation can be only ensured by appointing an experienced and energetic Head for the project's implementation unit, by maintaining continuity in that appointment, and by establishing close coordination between different agencies involved in the project; (e) while emphasis on the quantitative aspects of a forestry project is desirable in the short run, to deal with forest degradation and the rural energy crisis, focusing on qualitative aspects, which result in a much greater impact and which improve prospects of sustainability in the long run, is equally important;  - vii - (f) to ensure adequate local participation in community forestry activities, it is desirable to identify beneficiaries and organize them in small user groups, and to define at the outset their roles, responsibilities and harvesting rights; and (g) a meaningful project impact evaluation is possible only when an efficient M&E system is established and information on the performance of plantations and natural forest management is regularly collected during and after project implementation.  PROJECT COMPLETION REPORT NEPAL SECOND FORESTRY PROJECT (Credit 1400-NEP) PART I: PROJECT REVIEW FROM IDA'S PERSPECTIVE 1. Project Identity Project Name Second Forestry Project Credit No. 1400-NEP RVP Unit South Asia Region Country Nepal Sector : Agriculture Subsector Forestry 2. Background 2.1 IDA's Nepal Forestry Sector Review of 1978 (Report No. 1952-NEP) identified two key problems which are still relevant today: (a) the rural energy crisis and the environmental deterioration caused by over-utilization of forests, and (b) the need to step up rural afforestation by encouraging local community participation. Apart from population pressure in the Hills, the main constraints to forestry development were identified as shortages of trained forestry staff and financial resources to initiate and maintain a large-scale forest development program. To remedy the deteriorating forestry situation, the Sixth Five-Year Plan (1980-85) of His Majesty's Government of Nepal (HMG) gave priority to forestry development with people's participation; and HMG, together with IDA and several bilateral aid agencies, embarked upon a program of reforestation and natural forest improvement. Initial efforts were concentrated in the north Hills, where the first Community Forestry Development and Training Project (CFDTP, Cr. 1008-NEP) was started in 1980 and completed in 1990. As part of its strategy for continuing development, HMG decided to pay increased attention to the forestry needs of the southern plains (Terai), where shortage of fuelwood supplies had become critical. Accordingly, HMG approached IDA for assistance and the Second Forestry Project (Cr. 1400-NEP), was processed and approved. The project constituted the second IDA-supported operatoon in the development of community forestry and forestry training facilities in Nepal. Subsequent IDA- funded projects are the Rasuwa-Nuwakot Rural Development Project (Cr. 1727-NEP) with a community forestry component, approved in 1986, the Structural Adjustment  2 Credit (Cr. 1769-NEP)' , approved in 1987, and the Hill Community Forestry Project (Cr. 2028-NEP), approved in 1989. 3. Project Objectives and Description 3.1 The principal objective of the project was to increase supplies of fuelwood, poles, timber and fodder in 13 districts in the central and eastern Terai by establishing panchayat forests2/ , strip and agro-forestry plantations, and by improving areas of natural forests. Its secondary objectives were to introduce, popularize and distribute improved cooking stoves as a fuelwood conservational measure; provide training support to enable the Forest Department (FD) staff to implement various forestry activities; aid strengthen forestry research, field operations and planning activities. 3.2 The project was to finance a six-year development program, incorporating the following elements: (a) provision of funds for staff, civil works, equipment, vehicles, operating expenses and nurseries for the establishment of 2,000 ha of panchayat forest, 2,550 ha of strip plantations, 3,200 ha of institutional and demonstration woodlots, 5,900 ha of plantations in degraded forest areas using agro-forestry techniques, and distributing 32 million seedlings for planting on 12,500 ha of private and institutionally owned land; (b) provision of funds for staff, equipment and vehicles for the management of 35,000 ha of natural forest through silvicultural improvement operations; (c) enlargement of the Community Forestry Development Division (CFDD), the Forestry Research Division (FRD), District Forest Offices (DFOs) and the Planning Division of the Ministry of Forests and Soil Conservation (MFSC) to direct and supervise the nurseries and plantation program, expand forestry research activities, monitor and evaluate project implementation, prepare a National Forestry Development Plan, and design, produce and distribute 20,000 fuel efficient wood-burning stoves; It included a component to develop an appropriate policy for the implementation of community forestry programs in Nepal. a Panchayat forests meant forest plantations created through the panchayat system. However, due to a change in the local administrative structure in 1990, the panchayat system was replaced by the Village Development Committee system and panchayat forests became known as community forests.  3 (d) expansion of staff training opportunities by providing funds for the construction of teaching facilities at the Institute of Forestry (FI) in Pokhara and Hetauda Districts and the Ministry of Forests Training Wing (MFTW) in Kathmandu, training 109 Assistant Rangers and 34 Forest Officers and in- service training and study tours for professional and forestry extension staff; and (e) provision of 28 consultant-years of expatriate technical assistance (TA) and 8 consultant-years of local consultancy services for a mid-term review of project progress, the establishment and management of community forestry and agro- forestry nurseries and plantations, forestry research, in- service forestry training, stove technology, the preparation of a National Forestry Development Plan, and monitoring and evaluation surveys. 3.3 The total project cost, including physical and price contingencies, was estimated at NRs 342.9 million or US$24.0 million. This was to be funded through an IDA Credit of US$18.0 million, HMG budget allocations and farmers' contributions of US$4.8 million and US$1.2 million, respectively. Responsibility was to be entrusted to DFOs for implementing the plantation program and the natural forestry improvement and the distribution of improved stoves components. The research program was to be developed by FRD; MFTW was to be responsible for in-service training and FI for certificate level training courses. 4. Project Design and Organization 4.1 Design. The project was prepared by HMG in July 1982 with the assistance of Food and Agriculture Organization/World Bank Cooperative Program (FAO/CP); it was subsequently appraised by Bank staff in November 1982. At appraisal, sub-components for forestry research, improved stove technology, mid- term project progress review, and completion of buildings for FI at Pokhara and Hetauda and for MFTW were added and the project implementation period was extended from five to six years. In view of the environmental degradation and scarce forest resources, the concept of the project was sound in its aim to remedy the deteriorating forestry situation in the southern plains. 4.2 However, the project was inadequate in several aspects. First, the project approach was based on two years of limited experience from the implementation of the IDA-assisted CFDTP in the Hills, where the traditions and socio-economic conditions of local people are entirely different from those of the Terai region. Second, the scale of the project was too large and its scope complex, considering the country's financial and trained forestry resources. Third, the physical targets set at appraisal were somewhat arbitrary, as suitable planting and forest improvement areas were not identified in advance. These constraints caused serious delays in implementation. Budget allocations and provision of incremental staff at about only half of the appraisal estimates were inadequate, and substantial time was taken to identify the planting areas. Lack  4 of: (a) appropriate design for the improved stoves, (b) a management plan with supporting information from forest inventory for the improvement of the natural forest. and (c) operational directives for the improvement of natural forest and the development of a research program further hindered implementation progress. This led to the discontinuation of the improved stoves distribution program and little progress could be achieved in the latter two programsnamely (b) and (c) above. 4.3 Organization. As proposed at appraisal, the organization and coordination of the project provided sufficient framework for project implementation. A Terai Community Forestry Project Unit (TCFPU) was to be established within CFDD at Kathmandu and its Head was to be responsible for overall project implementation. The Director General of FD was to be appointed as Project Coordinator for the implementation of activities within FD. In addition, an existing Project Coordinating Committee established under CFDTP was to assist the Project Coordinator on coordination between different ministries *nvolved in project implementation. 5. Project Implementation 5.1 Critical Variances in Implementation. In the event, MFSC decided to locate the TCFPU headquarters in Hetauda District. Also, there were delays in appointing the Head of TCFPU, the Chief Technical Adviser (CTA), and TA experts. Although the siting of TCFPU in Hetauda facilitated convenient access to project areas, it rendered coordination and essential works in Kathmandu difficult. A considerable amount of time was spent by the Head of TCFPU and the CTA in Kathmandu on pursuing the approval and release of budget funds, procurement and staff positions. Therefore, little time was available for management and supervision of works in Hetauda and at operational units in the field level. Frequent changes in the position of the Head of TCFPU (5 persons over 9 years) and the consequent lack of enthusiasm on the part of the incumbents led to poor project management. Inadequate field staffing and high staff turnover and limited coordination between TCFPU, CTA and experts, FRD and DFOs further slowed down the pace of project implementation. However, the overall project management and coordination improved towards the end of implementation when a small liaison office was created in Kathmandu. 5.2 While the project started in 1984, key project activities began only in 1986. The start-up of the project was delayed because of late approval of the European Economic Community (EEC) cofinancing facility which became effective in November 1985, at which time the IDA Credit was reduced to US$16.0 million (SDR 14.9 million). The project area was extended in 1988 and 1989 from the original 13 districts in the central and eastern Terai to 20 districts to cover also the western Terai. The IDA Credit was further reduced to US$9.0 million (SDR 6.9 million) in June 1990 due to savings arising from low physical achievements and substantial depreciation of the Nepalese Rupee against the US Dollar. As a result, the project scope was revised and two components were discontinued. The components for agro-forestry plantation and the distribution of improved stoves were discontinued in 1991 due to problems of permanent settlement of landless  5 farmers in state natural forest areas, for the former, and lack of appropriate stove design and interest by FD for the latter. The preparation of a National Forestry Development Plan component was deleted because this was covered by a Forestry Master Plan exercise, which was financed by the Asian Development Bank (ADB). Funds available under CFDTP were used to complete some buildings for FI and MFTW. 5.3 The original physical targets were over-ambitious. Emphasis was given to achieving those set planting targets, which lead to neglect of the community participatory approach proposed under various plantation components. As a result, most of the community plantations were established as conventional state plantations. Similarly, little progress was made in the development of training, extension and research programs until late in the project. 5.4 A natural forest management plan was introduced only in Rautahat District where experiments on alternative silvicultural systems were carried out. Siwalik plantations to address problems of soil degradation were also initiated through community protection and reafforestation. From 1990 onwards, specific emphasis was given to the formation of forest user groups and the preparation and implementation of community forest management plans. 5.5 The IDA Credit closed on June 30, 1992, two years behind schedule. The last disbursement was on December 11, 1992, when the total disbursements amounted to US$4.3 million (SDR 3.6 million). Grant funds provided by EEC were used to finance technical assistance (TA) which was executed by FAO. When the EEC facility stood more or less fully utilized by the end of 1989, continuing TA from 1990 to mid-1991 was financed under FAu/TCP and by the United Nations Development Programme (UNDP). The total actual project costs amounted to about NRs357 million (US$11 million). While in Nepalese Rupee terms they contribute 104% of the SAR estimate, the relevant proportion in US Dollar terms was 46Z. 5.6 Nursery and Seedling Production. The project was to establish 220 community and 100 private nurseries to produce 32 million seedlings for distribution for private plantings, for panchayat and strip plantations, and for institutional and demonstration woodlots. In addition, eight central nurseries were to be established to produce seedlings for the agro-forestry plantations. 5.7 As of June 1992, 548 tree nurseries comprising 310 community nurseries, 233 private nurseries and 5 central nurseries had been established, representing respectively 141X, 233Z and 63Z of the SAR targets. In addition, 24 institutional nurseries were established. Throughout the project implementation period, seedlings produced from private and community nurseries were procured by DFOs at 53 paisa (1 rupee = 100 paisa) per seedling. Although demand was such that it was possible to charge a market-determined price for seedlings, it was FD's policy to distribute them free of charge to villagers and institutions. This led to wasted resources and inadequate maintenance and protection after planting. 5.8 Because of the lack of regular monitoring, no reliable information was available on the total seedlings produced, distributed or surviving. Most of the  6 figures used to illustrate the physical achievements of the project were based largely on the number of nurseries established and an empirical average annual production of 60,000 seedlings per nursery. However, the increasing number of nurseries established indicates that demand for private and institutional plantings rose rapidly towards the end of the project period. About 13 million seedlings were reported to have been distributed from 1985 to 1988 and a further 8.5 million in 1989, 6.5 million in 1990 and 9 million in 1991. Thus, in total, about 37 million seedlings were distributed by the end of 1991, exceeding the SAR target by 16Z. Furthermore, 14 million seedlings were reported to be held by private and community nurseries for planting in the second half of 1992. 5.9 According to the results of a farm forestry survey conducted in six districts in 1989, Sissoo (Dalbergia sissoo) has been the main species raised and represents over 90Z of seedlings planted. The survey showed that after Sissoo, the next three most requested species were, in descending order, Teak (Tectona grandis), Ipil-Ipil (Leucaena leucocephala) and Sal (Shorea robusta), although the most commonly planted after Sissoo were Ipil-Ipil,Dendrocalamus sp. Dalbergia latifolia and Eucalyptus sp. Of the 450 villagers surveyed, 77Z said they would be willing to pay NR 0.51 per seedling and the mission found at least NR 1.0 quoted as a likely market price in 1993. Recent instances of nocturnal looting of Government nurseries for Sissoo seedlings indicated strong demand. Given a regular supply of reliable seed, the prospects for continuing private nurseries appear very good. 5.10 Private Plantings. Because most land in the Terai is privately owned, development of farm forestry is very important. The project target to distribute 32 million seedlings was equal to planting 12,500 ha. As noted para 5.8, 37 million seedlings were distributed for private and institutional planting by the end of the project's last planting season in 1991. Trees were planted mainly for fuelwood (64Z), followed by timber (29Z) and fodder (4Z); but, due to lack of regular monitoring, the overall rate of survival of seedlings is uncertain. As an indicator, however, a 1989 survey showed that the average survival rate for all species planted was only 39.4Z. Livestock damage accounted for 50? of mortality, improper planting method 15Z, and damage by people 8Z. Using an empirical planting rate of 2,000 trees/ha and an average survival rate of 39.4?, 37 million trees are equal to planting 7,300 ha or 58Z of the SAR target. Although demand for seedlings and willingness to pay appear sufficient to fuel private nursery development, there appears to be a continuing need for TA to improve site and species selection, genetic improvement of selected specie weeding and protection from livestock. 5.11 Community Forestry. At appraisal, it was recognized that the concept of community forestry would be new in the Terai. The community participation in the panchayat forest and in demonstration woodlot plantations was to be organized through the village panchayat. Sites were to be selected by village panchayat forest committees and DFOs, with plans for their management drawn up with FD's assistance and agreed with the village panchayats. Plantations were then to be established and maintained for four years by DFOs using hired labor. After that, protection was to be the panchayat's responsibility and forest produce divided among panchayat members according to forest plans.  7 5.12 As stated earlier (para 5.3), emphasis was initially given to achieving the set planting targets and community participation was neglected. Inadequate staffing, training and extension services contributed to this. In addition, the village-level organization proved unwieldy as the village panchayats were administratively too distant from local beneficiaries, overloaded with various development works and not financially and managerially capable of organizing user groups or maintaining the established plantations. These shortcomings were not thoroughly assessed at appraisal. As a result, most of the plantations were established without community involvement. 5.13 Community participation therefore evolved from the panchayat system to the formation of smaller user groups, which was developed under a forestry facilitator approach in 1989 and implemented from 1990 onwards. As a result, as of June 1992, about 142 user groups were formed; 109 forest management plans were prepared covering about 5,000 ha of plantations and degraded fringes of natural forest; and 65 plans, covering about 3,000 ha, were handed over to user groups with DFOs' assistance for implementation. However, following project closure, DFOs have insufficient budget funds and little staff time to continue these activities (para 7.3). 5.14 Panchayat Forest. At appraisal, 2,000 ha of vacant public land was to be planted as panchayat forest. As of June 1992, a total of 2,300 ha of plantations (1152 of the SAR target) were established entirely by DFOs without community participation. Ninety percent of the plantations were established over with fair-quality Sissoo. However, the establishment costs were high when barbed-wire fences and hired forest watchers were used for protection. 5.15 Institutional and Demonstration Woodlots. As against the SAR target of 3,200 ha (for establishing 1,000 ha of institutional and 2,200 ha of demonstration woodlots on vacant lands and small isolated blocks of degraded natural forest, respectively), a total area of 2,620 ha was planted (82Z of the SAR target), consisting of 1,010 ha of institutional and 1,610 ha of demonstration woodlots. The shortfall in demonstration woodlots was due to difficulty in identifying small blocks of degraded forest areas and a lack of interest from village panchayats. Generally, the plantations were well established, mostly with Sissoo but with other species such as Teak, Eucalyptus, Acacia auriculiformis, Ipil-Ipil, Melia azedarach and Cassia siamea. Although the community aspect was neglected, the objective of demonstration was largely achieved. 5.16 Strip Plantations. A total of 2,550 ha was to be established along roadsides, canals and riverbanks using paid labor to plant and protect the plantations, These plantations were to supply fuelwood, poles and timber to Government, and minor forest produce, (e.g., grass, fodder, fruit, twigs, etc.,) to local inhabitants. A total of 2,380 ha (93Z of SAR target) was planted. Expensive mounds were used at roadsides, which were not always necessary, but overall quality was good. The plantations have a high visual impact, act as an admirable demonstration of a variety of species, are about 80Z Sissoo with some Teak, Eucalyptus, Ipil-Ipil and other species, and have an unquantifiable, but probably beneficial effect on the local micro climate. Canal banks are the  8 property of the Ministry of Water Resources and roadside strips belong to the Ministry of Transport and Communication. With the latter, there were cases of resentment where land was acquired for road construction by compulsory purchase, with no compensatory payment being made. This led to instances of uprooting of trees by uncompensated former owners of the land. Overall, however, roadside and canalside planting was very successful. 5.17 Siwalik Plantations. Although not envisaged at appraisal, about 1,240 ha of Siwalik land was reported to have been covered by plantings. Siwalik land is moderately to steeply sloped with a severe natural erosion hazard; it needs to be kept under forest cover, mainly for protection, with only minor removal of produce for local usage. Large denuded areas are in need of reafforestation. Considerable success can be and has been achieved by natural regeneration (para 5.19), but planting is also necessary in some places. However, since almost all of the plantings were undertaken in 1991/92, it is too early to measure success. 5.18 Agro-forestry Plantations. At appraisal, a somewhat arbitrary target of 5,900 ha spread over eight sites in four districts was set for replacing degraded natural forest with plantations of quick-growing species using Taungya agro-forestry. This involved introducing landless people into state forest land to plant denuded forest and cleared land with trees and to intercrop with their agricultural crops until canopy closure. The target exceeded the capacity to implement and led to design, organizational and management problems. Locations for action were reduced earlier on by FD from eight to two and only 1,680 ha (28Z of the SAR target) were established with Taungya intercropping (maize, pulses, mustard, etc.) over three years. In some cases Sal forest, which could have regenerated naturally, was cleared for plantations of exotic species such as Teak, Eucalyptus, Ipil-Ipil and Acacia spp. Sometimes poor matching of species to site led to plantations no more productive than Sal. In one of the two areas where project funding supported the extension of an already existing Taungya scheme, farmers were left deep inside the forest land without adequate supporting social infrastructure and with nowhere else to go, causing them considerable social hardship. In the other location, the agro-forestry plantations were sited more wisely at the forest edge and the landless participating farmers remained in their villages outside forest land. 5.19 Natural Forest Improvement. The SAR envisaged managing 35,000 ha of natural forest through silvicultural improvement operations in blocks of forest spread through each of the seven forestry divisions in the project area, when no management plans were in force and trials were required to establish which silvicultural systems would be most appropriate to local conditions. The concept was therefore modified by project management and work concentrated only in Rautahat District. With TA, a baseline survey and forest inventory were carried out, and a ten-year management plan drafted in 1989 for the 31,000 ha of the Rautahat forest. Initial five-year trials of four different silvicultural systems were laid out and should be followed by treatment of 11,950 ha by the end of the ten-year plan period. However, it took 18 months to obtain MFSC approval for the plan, leaving hardly another 18 months for implementation before the extended project closure. With further TA input on detailed implementation and training of Rautahat District staff, some 60 ha were given experimental fellings.  9 Although funds were made available from the budget, DFOs lacked additional logistical support and manpower to fully implement the plan. Without continuing external support, development of effective sustainable management of the natural forests of the Terai is unlikely. 5.20 A highly desirable development not fully foreseen at appraisal has been the assumption of management by communities of the degraded fringes of Sal natural forest. By providing protection from fire and grazing, natural regeneration--particularly of Sal by root suckers--occurs prolifically and clearing and replanting are not always necessary. Since 1990 the project has initiated preliminary management in this way over about 6,265 ha. 5.21 Training and Extension. The project design included provision of funds for construction of teaching facilities, fees, travel and allowances for training 109 Assistant Rangers and 34 Forest Officers in MFTW's regular in- service training programs. Provision was also made for funding a considerable separate project in-service training program and study tours for professional and forestry extension staff. 5.22 Civil works were financed using funds available under CFDTP (para 5.2). MFTW's in-service training programs covered 479 participants at officer level and 1,015 at ranger level (from both the project and non-project districts) over the project period. The project also successfully developed a comprehensive in-service training program shaped to the conditions in the Terai. 5.23 Courses were designed to decentralize training and extension activities to regional and district levels, as only the establishment of independently working structures at these levels would ensure long-term sustainable development. Over 40 courses and workshops were held (Appendix 1) and subjects included planning, forest management, forest protection, environmental awareness, environmental protection, nurseries, agro-forestry, seed collection, community forestry and stove promotion and installation. They were designed variously to suit the needs of forestry staff, nursery naikes, forestry facilitators, forest motivators/stove promoters and installers, farmers and institutional participants from schools' campuses and community committees. Overseas study was sponsored for one MSc in natural resources management, one three-month course in extension management and communication and one three-week training in social forestry. Group study tours were arranged in the Terai and in the Philippines, Korea, Nigeria, Sudan and Europe. The rapid expansion of community and on-farm forestry towards the end of the project period is evidence of the success of training inputs. 5.24 Research. The project was to provide staff, vehicles, buildings and operating expenses to strengthen and enable FRD to undertake an expanded research program consisting of species and provenance trials, upgrading improved seed collection, studies on nursery practice, investigations on intercropping of trees and agricultural crops, and studies on planting and tending operations, in growth rates in plantations and natural forests and methods of bamboo and poplar cultivation. The only TA input to research was to be provided by a tree seed production and procurement specialist for a period of 12 months. However, such  I10 a consultancy was not included in the TA agreement between HMG and FAO and there was no research input listed in the TA Operation Plan. It was assumed that TA would come, as necessary, from the ongoing Overseas Development Administration CODA) funded-Forestry Research Project. In the event, very little use was made of the project funding for research. The 1988 mid-term review stated that no research had been done and recommended suspension of disbursement, which was carried out. However, the suspension was subsequently lifted. 5.25 In actual fact, project funding was used for fuelwood species growth trials which were laid out in 1985 at three sites distributed over three districts, together with bamboo establishment trials at two sites. Results were reported in 1991 showing the relative productivity of various fuelwood species and that bamboo was best propagated from single node culm cuttings. A resurgence of activity in 1988 and 1989 led to establishment of agro-forestry demonstration trials in three districts and on-farm agro-forestry trials on 37 farms in a three more districts. The five-year duration of the trials, however, prevented any evaluation by project's end. Experiments to measure yield of Sal natural forest under four different treatments were also set up at one site in 1988. TA funded by the EEC grant made considerable inputs on poplar cultivation. A poplar planting program was carried out in 10 Terai districts in 1989 and 1990 to demonstrate the potential of different poplar clones in various environments and at different spacing. However, results were not available by project closure and there was no evidence of FRD/ODA follow-up, highlighting the danger of individual programs initiating uncoordinated research. 5.26 Improved Stoves. The program of distribution of improved stoves started in 1984 as stove promoters/installers were recruited. By the end of 1990, a total of 24,110 stoves (121Z of the SAR target) were distributed to villagers. However, their acceptance by villagers suffered from an inappropriate design. The appraisal mission had assumed that the stove design distributed successfully in the Hill areas would be accepted in the Terai, but this was not the case due to the difference in socio-economic conditions. The size of the improved stove was too small for the large family size in the Terai, alien to cooking tradition there, and suffered from maintenance problems as stove promoters and installers were inadequately trained. According to results of a survey conducted in 1987, only 60Z of the stoves distributed during 1984-1987 were still in use. Moreover, due to lack of management attention and interest in FD, the improved stove program was discontinued from 1991 and there was no further information collected on its performance. 5.27 Monitoring and Evaluation. The project was to provide funds and additional staff to strengthen the existing Monitoring and Evaluation Unit (MEU) in CFDD to monitor project progress and problems encountered during implementation, evaluate villagers' acceptance of social forestry activities, determine tree survival rates for the community forestry components, and participate in the mid-term project progress review. Funds were also to be provided for local consultants to establish an M&E system. 5.28 An MEU was established under TCFPU but its staffing was delayed. Despite the provision under TA for an M&E expert, the development of a system for  11 monitoring the nursery and plantation programs, and the training of a few staff, there was no regular monitoring carried out, except for a few surveys. Moreover, the M&E Division of MFSC developed (in 1992) a simple district level M&E system for use on project-related activities, but the implementation of the system has yet to be approved by MFSC. As a result, the performance of MEU was inadequate. Throughout the project implementation period, it only compiled information on the physical achievements under the nurseries, plantations and improved stoves distribution components. No data was collected on seedlings produced and distributed or on areas planted under the private plantings. Similarly, because of the poor performance of FRD, little information on tree growth rates was collected. However, the farm forestry and strip plantation surveys conducted by TA experts, local consultants and MEU are useful, mainly in terms of the measurement of tree survival rates. 5.29 A mid-term project progress review was to be carried out in the third year (1985) of the original implementation period by a TA team with participation from MEU. However, due to HMG's long delay in approving consultant candidates, the review was undertaken only in 1988 by a TA team, but without participation of MEU. The review was found useful by IDA and the Borrower to adjust project scope and extend the implementation period. 5.30 Technical Assistance. Performance of TA executed by FAO was generally satisfactory but hindered from the start by the delay in the approval of the EEC cofinancing facility and HMG's slow candidate approval procedures. TA did not become operational until November 1985. Although the CTA arrived in November 1985, subsequent recruitment of experts was slow and full momentum in TA activities was therefore not attained until 1988-89. Initially the TA concentrated on getting FD plantation activities under way. Training and extension activities to reorientate FD staff to the community approach and involve communities in forestry activities developed only from 1989 onwards and have since been showing impressive field results. The training courses and workshops organized by TA are listed in Appendix 1 and the publications produced are in Appendix 2. 5.31 Quality of TA experts was generally good but suffered some problems of liaison between TCFPU and DFOs staff, which was caused by frequent transfers of the staff. Following the end of project funding, all TA has been discon- tinued. Project incremental staff have been paid off and a number of TCFPU staff with valuable project experience have retired. To continue a number of the project's activities, further TA inputs may well be required. 6. Project Results 6.1 General. Project results have been mixed. Despite various diffi- culties, the project attained most of the physical targets set at appraisal. The promotion of private nurseries and the planting programs, except in respect to agro-forestry plantations, were successful. However, there was a shortfall of almost 8OZ in achieving the target set at appraisal for natural forest improvement. Also, the promotion of community participation was only partly  12 achieved, although the project ultimately created a public awareness of the benefits of tree planting and forest protection and management. The project also initiated training and experiments on silvicultural treatment in Sal natural forest and soil and water conservation measures in the Siwalik through community protection and reafforestation. 6.2 Impact on Production. Due to lack of sufficient information on areas of private plantings, tree growth rates for all plantations and natural forest improvement, the increased forest produce resulting from the project cannot be quantified with accuracy. Only an indicative assessment of the project's impact on production is possible by applying tree growth rates assumed in the SAR to: (a) the total area of 10,200 ha covered by the project plantings, (b) an assumed area of 7,300 ha covered by private plantings (para 5.10), and (c) 6,265 ha of degraded fringes of natural forest under improvement by Sal natural regeneration (para 5.20). Based on these assumptions, the project over a period of 40 years is expected to generate a total of about 3.8 million mz3 of fuelwood, 0.5 million m3 of poles, 0.4 million m3 of sawlogs, 0.7 million tons of fodder and about 1,800 tons annually of foodgrains from the Taungya intercrops, or 60Z, 50Z, 30Z, 40Z and 40Z of the appraisal estimates, respectively (Part III/6A). No fruit tree seedlings were distributed under the project. The lower estimated production as compared to the SAR estimate is attributable to the significantly reduced areas of private plantings, agro-forestry plantations and improved natural forest. 6.3 Economic Impact. Due to failure in establishing a proper M&E system, insufficient information was available to re-estimate the project's economic impact. However, an economic rate of return (ERR) analysis was carried out based on actual project costs and estimated benefits (para 6.2) and using assumptions particularly on growths and yield rates. However, this analysis should be deemed indicative. The re-estimated ERR for the project at 12Z (Annex 1, Table 1) is far lower than the SAR estimate of 27Z. The lower re-estimated ERR is due mainly to a 40% cost overrun in nursery and plantation establishment and to the reasons given in para 6.2. 7. Project Sustainability 7.1 Prospects of sustainability appear good for private nurseries and farm forestry, but critical for the community, strip and agro-forestry plantations, as well as for institutional and demonstration woodlots and the Sal natural forest management components. After project closure in June 1992, most private and institutional nurseries continued their activities, due mainly to financially profitable operations. The scene is set for private nurseries to take over future seedling supply. However, because FD distributed free seedlings and guaranteed procurement, some private nurseries did not have confidence in future marketing. In addition, to ensure their profitibility, private nurseries should pay more attention to producing better quality seedlings of the species damaged by the people.  13 7.2 The private plantings appear sustainable and there is little doubt that Sissoo produce is readily marketable. However, it would be desirable in the long run to promote species diversification and appropriate planting techniques through extension. The former would be to reduce price risk from the oversupply of Sissoo and risk of disease in a near monoculture, while the latter would reduce the rate of mortality at planting. 7.3 Since most of the plantations established under the project are maturing for harvesting and FD's policy is to hand over the forest management responsibility to local communities, it is desirable that DFOs assist in the preparation of forest management plans and, hand the plans over to user groups for implementation. Although TCFPU and DFOs staff gained some experience in the implementation of community forestry activities; unfortunately, all 230 incre- mental staff were transferred back to FD territorial divisions or terminated. At present, DFOs have insufficient budget funds and little staff time to sustain these plantations and to continue the formation of user groups, preparation and implementation of forest management plans. In FY92193 only NRs 17 million were allocated to DFOs mainly to cover the costs for completing the remaining buildings. Without sufficient financial and staff support, the pace of these works will be very slow. Moreover, in order to ensure that appropriate tech- niques are carried out, extensive training on forest management is required for both DFOs' staff and user groups. 8. IDA Performance 8.1 IDA's performance was weak in project design and the resulting deficiencies (para 4.2) caused serious delays in implementation, hindered the project's progress and reduced its impact. On the community participation aspect, the concept of the village-level organization through the village panchayat proved unwieldy, but the formation of smaller user groups was successful and appears sustainable (paras. 5.12-5.13). 8.2 IDA's performance was much stronger during the implementation period. A total of 15 supervision missions were fielded at appropriate intervals. At least one Forester participated in 11 missions and staff continuity was maintained over a period of 2-3 years. Quality of advice was generally satisfactory. Bank staff were instrumental in accelerating procurement, in deploying and recruiting staff and technical experts, and in obtaining budget allocations. IDA's decision to restructure the project's scope and extend the implementation period considerably benefited the project. This allowed FD to plan its activities and achieve most of the physical targets. 8.3 There were, however, some shortcomings to which IDA should have given closer attention and taken mitigating measures during implementation. First, as the siting of TCFPU in Hetauda rendered coordination and essential works in Kathmandu difficult, IDA should have strongly insisted that FD establish a small liaison office in Kathmandu at an early stage of project implementation, and appoint an experienced and energetic Head of TCFPU, whose continuity of appointment could be maintained. Second, it should have ensured that FD carry  14 out regular project monitoring during project implementation so that a meaningful project impact evaluation could be undertaken. Third, to enhance community participation at an earlier stage of implementation. IDA should have strongly encouraged FD to establish a clear policy on ownership, cost and benefit sharing, and distribution arrangements and procedures for handing over the established plantations and natural forests to communities for protection and utilization. 8.4 The most important lessons for IDA are: (a) the experience of the project suggests that components without appropriate design and clear operational directives are unlikely to do well; (b) the scope of any project and the scale of its operations should be considered by a careful and in-depth analysis of the Borrower's financial and managerial capabilities; (c) to ensure full community participation in community forestry activities, it is desirable to identify beneficiaries and organize them in smaller user groups, and to define their participating roles and responsibility and harvesting rights at the outset; (d) to ensure timely and successful implementation, in particular in respect of plantations and degraded natural forest management programs, suitable planting areas ought to be identified in advance, appropriate forest management plans with supporting information from forest inventory ought to be available and operational directives must be ascertained and clearly defined; and (e) a meaningful project impact evaluation would be possible only when an efficient M&E system is established and information on the performance of plantations and natural forest management is regularly collected during and after project implementa- tion. 9. Borrower Performance 9.1 In general. the Borrower's performance was satisfactory, especially in the promotion of private nursery and seedling production and in the attainment of the plantation targets. However, project implementation suffered from a combination of factors which resulted 4n a final project rating of 3, i.e., a problem project. These factors were: low budget allocations, HMG's procedural rigidities in the procurement and awarding of civil work contracts, late appointment and deployment of key project staff, slow clearance of technical assistance consultants, and late release of budgeted funds. Frequent changes in the Head of TCFPU and staff high turnover and limited coordination between TCFPU, DFOs, FRD and the TA team caused some operational inefficiencies. Implementation  of the training, extension and research components was not given adequate priority, and forestry research remains weak even after project completion. The distribution of a free and unlimited number of seedlings led to significant wasted resources and lack of proper maintenance and protection after planting. 9.2 In the community participation component little attention was given to involve local communities in preparation of forest management plans and in plan implementation until late in the project. FD also failed to carry out regular project monitoring which prevented a meaningful project impact evaluation. However, an encouraging feature is that the Borrower, with assistance from TA experts, has been responding to emerging problems and has initiated some remedial measures, such as silvicultural treatment for Sal natural forest management; formation of user groups and the hando.er of state plantations and degraded fringes of natural forests to communities; delegation of the release of tri-mester budgets to the District Comptroller General and decentralization of civil works contract awarding (para. 11.2). 9.3 The Borrower satisfactorily complied with the Credit covenants. However, the statements of expenditure, project account and special account audit reports were often prepared with serious delay. Moreover, due to lack of commitment from the Borrower after Credit closure, neither sufficient local funds were allocated nor project staff maintained (para. 7.3) to continue development works initiated or to sustain momentum in community forestry activities gained through the project. 9.4 The main lessons for the Borrower are: (a) it is important at appraisal/negotiations for the Borrower to accept only projects that are within its funding capacity; lack of adequate funding severely affected overall progress of the present project and is threatening its sustainability; (b) an effective project organization can be ensured by appointing an experienced and energetic Head for the project's implementation unit and maintaining continuity in that appointment, and by establishing close coordination among the different agencies involved in the project; (c) timely completion of the dispersed civil work programs is likely only if the contract awarding authority is decentralized from the central to district level; and (d) while emphasis on the quantity aspects of a forestry project is desirable in the short-run to deal with forest degradation and the rural energy crisis, focusing on quality aspects, which result in a much greater impact and which improve prospects of sustainability in the long-run, is, equally important.  16 10. Proiect Relationship 10.1 Based on the foundation of years of close cooperation between FD and IDA, the relationship between the Borrower and IDA was consistently good. At the ministerial level, lack of coordination has been noted, particularly between FD and the Departments of Roads and Transport and of Irrigation, on the identifi- cation and release of lands for strip plantations. At present, due to land tenure problems, some of the strip plantations have not yet been released by the above departments for handover to communities. Within MFSC, there was a lack of coordination among TCFPU, FRD, FI, MFSC's Training Wing and Planning Division, which affected the progress and quality of the research, training and extension programs and the M&E of the project. 11. Consulting Services 11.1 Despite serious delay, procurement was satisfactory and most of the anticipated equipment and vehicles were purchased. However, some unnecessarily large equipment (e.g., generators, bulldozers and mechanical cultivators) was purchased. Some are redundant and others too expensive on fuel. 11.2 Services rendered by expatriate and local consultants were generally satisfactory (paras. 5.30-5.31). The performance of contractors for civil works programs was variable but generally adequate. However, construction of buildings was hampered by a combination of factors: (a) financial constraints; (b) an attempt by FD to put the whole civil works package into one bidding contract; and (c) lengthy procedures of approval and award of contracts. As a result, many biddings were called, but failed to attract any contractors due to the dispersed construction locations. Construction began only in 1990 when the bidding was decentralized to DFOs. At project closure, only 8 out of a total of 23 DFO offices, beat offices and staff quarters under construction had been completed, compared with 103 anticipated at appraisal. The remaining 15 units are expected to be completed in 1993. 12. Project Documentation and Data 12.1 Documentation on the project, including the SAR, project files and the Development Credit Agreement, all provided useful conceptual frameworks but inadequate implementation directives to the Borrower. These caused serious implementation delays and led to discontinuation of some component activities (para. 5.2).  17 12.2 Useful information for project implementation and for PCR preparation included supervision and mid-term review mission reports, a series of technical working papers and plantation survey reports prepared under the EEC/UNDP/FAO TA projects, and TCFPU's progress reports on project activities. However, cost information was not kept in detail to allow realistic comparisons with appraisal estimates and separate accounts were not maintained according to either project components or expenditure categories. Also, very little information was collected on seedlings produced and distributed for private plantings (para. 5.8) or on growth and yields of plantations and natural forests (para. 5.28). There is, a clear need to pay attention to these aspects in the implementation of any future project.  18 PROJECT COMPLETION REPORT NEPAL SECOND FORESTRY PROJECT (Credit 1400-NEP) PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE fThe Borrower was reauested to submit Part II bv SeDtember 15. 1993, Part II has not yet been received.1  19 PROJECT COMPLETION REPORT NEPAL SECOND FORESTRY PROJECT (Credit 1400-NEP) PART TH: STATISTICAL INFORMATTON 1. Related Bank Loans andlor Credits Loan/Credit Tltle/Purpose Year of Status Approval Credit 1008-NEP Community Forestry Development and Training Project 1980 Completed - to increase supplies of fuelwood in Hill areas through establishment of new plantations and rehabilitation of areas of degraded forets. Credit 1727-NEP Rasuwa-Nuwakot Rural Development Project 1986 Completed - included a forestry component that reflected HMG's Community Forestry Policy. Credit 1769-NEP Structural Adjustment Credit 1987 Completed - to develop an appropriaee policy environment for the implementation of a Community Forestry Program in Nepal. Credit 2028-NEP Second Hill Community Forestry Project 1989 Ongoing - to mobilize people and resources in the Hill to establish a forest mmagement system which would conserve and expand the forest resources needed to sustain traditional farming systems and livelihoods in the Hills. 2. Project Timetable Date Planned Date Revised Date Actual Identification Feb-March 1982 Preparation June-July 1982 Appraisal November 1982 Negotiation May 1983 Board Approval July 3, 1983 Credit Signature September 1. 1983 Credit Effectiveness November 30, 1983 Project Completion June 1989 June 1990, June 1991 December 31, 1991 Credit Closing June 30, 1990 June 1991, June 1992 June 30, 1992  20 3. Disbursements Cumulative Estimated and Actual Disbursements (USS million) FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 Appraisal 0.80 4.10 7.50 10.30 13.50 17.10 18.00 Revised a/ 6.70 9.00 12.00 15.00 16.00 Revised kj 8.50 9.25 Actual 0.05 1.29 1.47 1.53 1.58 2.64 3.02 3.23 4.34 Actual as % of Appraisal/Revised Estimates 1 19 16 13 11 17 36 35 47 Date of Final Disbursement: December 11, 1992. i/ Cancellation of SDR 1.85 million (USS2 million) due to the EEC cofinancing which was approved in November 1985. k/ A further SDR 8 million (USS10 million) was cancelled in June 1990. Total IDA disbursements amounted to SDR 3.39 million (USS434 million), and the undisbursed balance of SDR 3.46 million (US4.91 million) was cancelled on December 11, 1992. The revised Credit amount in US Dollars equivalent was substantially higher due to depreciation of the US Dollar against the SDR (19% from USS1.08 = SDR 1.0 in 1983 to the average of USS1.28 = SDR 1.0 during 1984-1992). 4. Project Implementation Key Indicators (June 1992) Appraisal Actual Actual as % of Appraisal 1. Nursety (No.) Private 100 233 233 - Community 220 310 141 - Institution - 24 - Central Nursery 8 5 63 Total 328 572 174 2. Seedling Production ('000) 32,000 37,000 116 3. Private Plantings (ha) 12,500 7,300h/ 58 4. Plantations (ha) - Institutional Woodlots 1,000 1,010 100 - Community 2,000 2,300 115 - Strip 2,550 2,380 93 - Demonstration Woodlots 2,200 1,610 73 - Siwalik - 1,240 Total 7,750 8,540 110 5. Agro-forestry Plantation (ha) 5,900 1.680 28 6. Natural Forest Improvement (ha) 35,000 6,265 18 7. Improved Stoves Distribution (No.) 20,000 24,211 121 3I Mission estumate (see para 5.10 of Part 1)  21 5. Project Cost and Financing A. Project Cost Appraisal Estimate Actual NRs million USS million NRs million USS million Salaries & Other Operating Costs 78.23 5.47 51.90 1.80 Buildings 74.56 5.21 21.50 0.70 Vehicles & Equipment 33.40 2.34 10.30 0.30 Nurseries & Plantations 126.22 8.83 175.80 6.00 Technical Assistance 30.50 2.133 97.60 2.20 Total 342.91 23.98 357.10 11.00 Comments: 1. Project costs estimated at appraisal included physical and price contingencies. Salaries and other operating costs included costs of training, stoves, research and the preparation of Forest Development Plan. 2. The actual project costs include EEC, FAO and UNDP grant funds. 3. The total cost overrun in Nepalese Rupee terms was 4%, due mainly to significant cost increases in the establishment of nurseries and plantations by 40% and the increased TA inputs. Lower costs in buildings and equipment were due to: (a) only 20% achievements in the construction of DFOs' offices and staff quarters and deletion of some buildings for Fl and MFTW, which were financed using funds available under CFDTP; and (b) limited procurement of only necessary equipment. In US Dollar terms, the total cost underrun was 54% resulting from substantial depreciation of the Nepalese Rupee (127%, from NR 14.3 = US$1.0 in 1983 to the average of NR 32.5 = US$1.0 during 1984-1992. B. Project Financing (US$ million) Planned Revised Actual DDA 18.00 16.00 4.30 EEC - 2.00 2.201/ HMG/Farmers 6.00 6.00 4.50 Total 24.00 24.00 11.00 / Including EEC, FAO/ICP and UNDP grant funds.  22 6. Project Results A. Direct Benefits Appraisal Estimate Actual /PCR Estimate Production: Fuelwood, poles & timber (m3 million) 8.8 4.7 A/ Fodder (ton million) 1.7 0.7 Fruits (ton million) 0.3 -3 Foodgrains (ton pa.) 4,500 1,8000 Fuelwood Saving from Improved Stoves (m3 p.a.) 6,900 5,00, Employment (million person-days) 2.5 1.8 al Total forest produce generated from the project over 40 years is estimated at 4.7 m3 million, including 3.8 m3 million of fuelwood, 0.4 m3 million of sawlogs and 0.5 m3 million of poles. b/ No fruit tree seedlings were produced under the projecL ~/ About 1,800 tons of foodgrains per annum have been estimated from only maize, pulses and mustard. d/ Estimated at 5,000 m3 annually based on total of 24,211 stoves distributed, of which 60% were still in use after distribution according to results of the stove survey. B. Economic Impact Appraisal Estimate ActuaU/PCR Estimate ERR (%) 27 121/ Assumptions - Project Life (years) 36 40 - Standard Conversion Factor (SCF) 0.90 0.90 - Far Labor Conversion Factor 0.50 0.68 a/ See Annex 1, Table 1-6 C. Financial Impact Data Not Available D. Studies None Comment: The preparation of a National Forest Development Plan component was deleted as it was covered by an ADB-financed Forestry Master Plan exercise.  23 8. Use of IDA Resources A. Staff Inputs (Staff weeks, discounted local consultants at 4:1 ratio) FY LENP LENA LENN LOP SPN PAD Total Pre-1981 1.4 0.1 1.5 1982 35.1 0.2 35.3 1983 31.5 33.0 0.3 3.5 68.3 1984 3.5 1.0 4.5 1985 4.4 1.0 5.4 1986 14.6 14.6 1987 9.8 9.8 1988 9.6 9.6 1989 9.8 9.8 1990 9.0 9.0 1991 17.2 17.2 1992 4.4 4.4 1993 1.9 1.9 Total 68.0 33.0 0.3 3.8 84.2 2.0 191.3 LENP - Activities prior to appraisal. LOP - Pre-appraisal and appraisal work by Country DeparumenL LENA - Activities related to appraisal. SPN - Supervision time. LENN - Negotiations activities. PAD - Project administration work during supervision stage. B. Missions Date Sent Number of Person-days SpecialIzatIon Performance Trend Type of (Month/Year) by persons In field A/ Ratingh/ f/ problemsll Identification 2-3/82 IDAXP 4 80 E.2F,S Preparation 6-7182 FAO/CP 4 95 E.2F,S Appraisal IDA 4 75 E.F,I,S Supervision I 5/84 - 1 6 F 3 2 M I 11/84 - 1 12 A 3 2 F, mII 5-6/85 . 2 10 B,F 3 2 M.T IV 11-12/85 - I 18 B 2 2 F.M V 4/86 - 1 7 B 3 2 F.M VI 7-8/86 - 2 24 2F 3 2 F.M Vin 12/86 - 11 10 B 3 2 F.M vm 10/87 - I 10 F 3 2 F.M IX 5/88 - 1 8 F 3 2 F.M X 10-11/88 - 2 10 2E 3 2 F M,T Xl 7/89 - 1 4 F 3 2 FM XII 11/89 - I 10 F 2 2 F xmI 7/90 - 1 16 F 2 2 F XIV 2-3/91 - 3 30 A,FS 3%1 2 F XV 3/92 - 2 10 F.M 3%J 3 F L/ A = Agriculture; B = Management; E = Economic; F = Forestry; I = Institutional; M = M&E; S = Sociology. b/ Performance Rating: I = Problem-free or minor problems; 2 = Moderate problems; 3 = Major problems. c/ Trend: 1 = Improving; 2 = Stationary; 3 = Deteriorating. d./ Type of Problems: F = Financial; M = Management; T = Technical. gJ Project raiings were adjusted by CPPR missions. C. Costs Data Not Available  NEPAL SECOND FORESTRY PRO(IECT (CR. 1400-NEP) 7. Status of Compliance With Covenants SECllON DESCRION OF COVENANT ACllON BY ORIG DATE REV DATE STATUS a/ COMMENTS 3.02(a) Borrower to employ consultants. Forestry DepL. OK 3.02(b) Borrower to employ experts of planning and Forestry Dept. Diet HMG prepared a Forestry Master inventory Plan under ADB/Finnida financed project 3.04(d) Borrower to fumnish report not later than 6 Forestry Dept. OK Expected in carly April 1993. months after project completion on exe- cution/initial operation, cost/benefits, bor- rower/IDA performance, etc. IQ. 3.04 Borrower to prepare/furnish for approval not Forestry Dept. OK Report furnished and mid-term 4 later than 6/30/86 TORs for review for mid- review completed in 1988. term review project execution. Carry out review and promptly prepare report for review/comments by Association. 3.05(1) Borrower to designate Chief Conservator of Min. Forestry OK Chief Conservator of Forests now Forests as project coordinator. designated as Director General of Forests (DGF) and is operation as the Chief Coordinator. 3.05(2) Not later than 30 days after project effective- Forestry Dept. OK ness, Borrower to appoint officer to assist Project Coordinator. 3.06(a/b) Not later than 30 days after project effective- Min. Forestry OK Chief of CFAD assigned to this ness, Borrower to establish position/appoint post. From July 1990 a new Deputy Chief Conservator of Forests to post entitled Deputy Director administer CFAD. General of Forests, assists DGF in monitoring the project.  SECTION DESCRIP1lION OF COVENANT ACTIPON BY ORIGPATE REV DATE STATUSaW COMMENTS 3.06(c) Maintain Training Wing. Min. Forestry Part 3.06(d) Maintain stove improvement unit. CFAD OK Stove promotion under project operates separately as CFAD stove unit. 3.07 Maintain project coordination committee OK chaired by Sec. for Forests, MFSC. Committee shall meet regularly at least every 6 months. 3.08 Through Forestry Dept., Borrower shall Forestry Dept. OK provide to nurseries necessary production inputs. 3.09 Borrower shall purchase from nurseries their Forestry Dept. OK Project continues to promote forestry seedling production. commercialization of nurseries (i.e., to let nurseries grow on market demand). 3.10 Borrower shall cause ADB/N to provide HMGN OK nurseries with necessary financing on same terms as applied for horticultural nurseries. 3.11 Borrower shall not later than 12/31/84 Forestry Dept. OK Agro-forestry component was furnish for approval draft model agreement recommended to be discontinued to be entered into by agro-forestry as a separate component. This cultivators and Forestry DepartmenL was merged with the plantation component. 3.12 Through Forestry Dept., Borrower shall Forestry Dept. OK cover all cost incurred by nurseries. 3.13 Borrower to provide housing on site for field Forestry Dept. Part Civil works program delayed due staff, to decision of FD to cancel all bids. Civil work operation was decentralized to district level and fresh bids were called. Work started in FY89-90, and a total of 23 units were completed.  SECTION DESCRWION OF COVENANT AC