China - Sustainable Forestry Development Project (SFDP) : environmental assessment (Vol. 1 of 3) : Draft executive summary

E-428 VOL. 1 CHINA: SUSTAINABLE FOREST DEVELOPMENT PROJECT AN ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT AND ENVIRONMENTAL MANAGEMENT AND MONITORING PLAN FOR THE SUSTAINABLE FOREST DEVELOPMENT PROJECT DRAFT EXECUTIVE SUMMARY SUSTAINABLE VISIONS ENVIRONMENTAL AND NATURAL RESOURCE MANAGEMENT CONSULTANTS VICTORIA, B.C., CANADA DECEMBER 8,2000  CHINA: SUSTAINABLE FORESTRY DEVELOPMENT PROJECT Environmental and Social Impact Assessment Report Draft Executive Summary TABLE OF CONTENTS 1. INTRODUCTION AND BACKGROUND 3 2. METHODOLOGY 4 2.1 General Methodology 4 2.2 Analysis of Options 5 3. THE LEGAL AND POLICY FRAMEWORK FOR SFDP 6 4. ENVIRONMENTAL AND SOCIAL CONDITION 7 3.1 Environmental Description 7 3.2 Social Description 8 5. PROJECT DESIGN: SUSTAINABILITY, OPPORTUNITIES AND RISKS 8 5.1 Social Assessment and Community Consultation 8 5.2 The Natural Forest Management Component 9 5.2.1 Project Design 9 5.2.2 Project Sustainability 10 5.2.3 Project Opportunities 10 5.2.4 Environmental Risks and Management Strategies 11 5.2.5 Social Risks and Management Strategies 12 5.3 The Protected Areas Management Component 12 5.3.1 Project Design 12 5.3.2 Project Sustainability 13 5.3.3 Project Opportunities 14 5.3.4 Environmental Risks and Management Strategies 14 5.3.5 Social Risks and Management Strategies 14 5.4 The Plantation Establishment Component 15 5.4.1 Project Design 15 5.4.2 Project Sustainability 16 5.4.3 Project Opportunities 16 5.4.4 Environmental Risks and Management Strategies 17 5.4.5 Social Risks and Management Strategies 19 5.5 Project Monitoring 20 6. AN ENVIRONMENTAL AND SOCIAL IMPACT MANAGEMENT SUMMARY 20 6.1 Social and Community Impact Management 21 6.2 Environmental Impact Management 21 6.2.1 Natural Forest Management 21 6.2.2 Protected Areas Management 22 6.2.3 Plantation Establishment 22 6.3 Environmental and Social Monitoring 22 2  CHINA: SUSTAINABLE FORESTRY DEVELOPMENT PROJECT Environmental and Social Impact Assessment Report Executive Summary 1. INTRODUCTION AND BACKGROUND 1. The last four decades have seen a severe decline in both the area and the quality of the natural forest estate in China. Forest harvesting has involved ecologically inappropriate silvicultural systems, harvesting techniques that have resulted in serious ecosystem degradation. and production quotas that took little account of sustainable yield. Triggered by the disastrous floods that occurred in the Yangtse and Yellow River Basins in 1998, the Peoples' Republic of China (PRC) took two decisive initiatives: first, it instituted an immediate ban on logging in natural forests; and second, it launched an ambitious new program (Natural Forest Protection Program or NFPP) to improve natural forest protection and management on 95 million ha of state-owned forest in 17 provinces. NFPP has been designed to support: 1) rehabilitation and more sustainable management and use of natural forests; 2) better management of protected areas; 3) establishment of plantations to reduce pressure on natural forests; and 4) the economic transition of forest-dependent communities from forest exploitation to more environmentally- sustainable activities. 2. The Sustainable Forestry Development Project (SFDP) is a cooperative proposal involving the State Forestry Administration, The World Bank and the European Commission for funding. SFDP comprises three components: 1) a Natural Forest Management (NFM) Component (the focus of proposed European Commission grant funding); 2) a Protected Areas Management (PAM) Component (proposed to be funded from Global Environment Facility [GEF] funding); and 3) a Plantation Establishment (PE) Component (proposed to be funded by a World Bank loan). NFM will focus on three key NFPP provinces - Sichuan, Hunan and Hainan; PAM will include these three provinces and the adjacent provinces of Gansu, Guizhou, Hubei and Yunnan; and PE will include the three key provinces plus Hebei, Liaoning, Anhui, Shandong, Henan, Hubei, Shanxi, and Gansu. It must be stressed that NFPP is a major initiative of the PRC with policies and programs that go far beyond the scope of SFDP. SFDP's responsibilities relate only to its own approved programs, not to the overall activities of NFPP. 3. The project has been designated by the World Bank as a Category A Project which has implications for the depth of the Environmental and Social Impact Assessment (ESIA), the levels of public consultation required, and provisions for the public disclosure of the final ESIA report. The World Bank and the European Commission have quite different project approval processes. In the World Bank process, funding is approved after appraisal of a feasibility-level project design. In the European Commission process, funding approval is based on a conceptual project design and final project approval is based on a feasibility design at project inception. Thus the design information available to this point for NFM is very general compared to that provided for the other two components. 3  2. METHODOLOGY 2.1 General Methodology 4. During the past decade, serious questions have been raised in many countries about the application of "traditional" ESIA processes to broad-scale renewable natural resource planning. Most of these processes have been designed to deal with complex "conistruction" projects with relatively clearly defined geographical locations and some degree of certainty in impact prediction and quantification. The focus of these processes is on impact identification and analysis to influence operational project design, planning and implementation. Such processes have little practical application to broad-scale natural resource planning p'rojects, such as SFDP, for the following reasons: * knowledge of the cause/effect relationship between human activities and changes in natural ecosystems is so poor that even impact prediction is difficult, let alone impact quantification; * natural resource planning and management activities are usually dispersed across broad, often complex, landscapes; * traditional ESIAs are conducted at a single point in time (feasibility design) whereas natural resource management involves continuous planning over many decades; * many of the resources at risk in natural resource management operations (i.e. native biodiversity, wildlife and aquatic resources) must be managed, and impacts mitigated, at a variety of scales - regional, landscape and site levels; and * most operational activities, such as infrastructure development, harvesting, planting, and stand tending, are small-scale and repetitive, and thus more amenable to management through sectoral assessments and management guidelines than by traditional ESIA techniques. In light of the forgoing discussion, environmental and social assessment in natural resource management should focus less on "scientific" impact analysis, and more on assessing whether project design avoids or minimizes environmental and social impacts by: 1) setting clear and appropriate goals, objectives and principles for management activities; 2) ensuring that the management activities directed at natural ecosystems are as consistent as possible with the ecological processes that created and maintain those systems; 3) ensuring that management activities directed at man-made ecosystems "mimic" natural ecological structures and processes so as to increase their stability and resilience; 4) limiting site disturbance and soil degradation; 5) minimizing environmental contamination; 6) incorporating participatory community planning and development programs; 7) providing potential beneficiaries with the skills and information necessary to participate effectively in the project; and 8) establishing well-conceived environmental and social monitoring programs. 5. The ESIA for this project has been carried out by Sustainable Visions of Victoria B.C., Canada in collaboration with the Institute of Forest Ecology, Environment and Protection, Chinese Academy of Forestry to meet the requirement of World Bank Operational Policy 4.01 that an environmental and social assessment of the project be carried out by "independent experts not affiliated with the project". It is based on: 1) three major field missions in which the EIA 4  team traveled independent from the project preparation team but provided advice on potential environmental impacts and suggestions on impact management strategies; 2) a series of project design documents prepared for the three project components by the project preparation team during the period May to September 2000; and 3) for the plantation component, a series of site visits supplemented by site descriptions and photographs of a selected 10% sample of proposed first-year plantation sites. The social aspects of the ESIA ate based on the results of an extensive Social Assessment (SA) process which was conducted as part of project preparation. The ESIA consists of a "sectoral" environmental and social review of SFDP which: 1) describes project design and identifies potential environmental and social risks; 2) assesses the effectiveness of proposed environmental and social impact management and monitoring strategies; and 3) identifies any residual, outstanding environmental and social issues and recommends measures to deal with these. It also recommends further assessment procedures for specific activities during implementation; proposing the application of environmental and social guidelines for simpler activities, and more detailed environmental and social planning requirements for more complex proposals. 2.2 Analysis of Alternatives 6. A fundamental precept of traditional ESIA processes (including the World Bank's environmental assessment policies), because of their focus on "construction" projects, is a systematic analysis of alternatives. An alternatives analysis is an important instrument of impact avoidance for construction projects through critical comparisons of site and route selection, project technologies site layout and operational procedures. Alternatives analysis has, however, limited relevance to an environmental and natural resource planning project such as SFDP. SFDP is a response to, and intended to support, the NFPP. NFPP encompasses a number of specific programs which served, in turn, to define the scope of SFDP and limit the range of options considered. Also influencing and guiding SFDP design were the current body of scientific literature, policy studies, experience gained in previous natural resource projects, and consultations with other donors and NGOs during project preparation. 7. An important option examined early in project design was whether Government should even consider inviting the World Bank to participate in SFDP. Arguements for participation related to the effectiveness of previous Bank projects in information and technology transfer, intersectoral integration, the management of community impacts, and project coordination involving multiple-donors. Arguements against involvement included the compexity of the Bank's project preparation requirements and procedures, and the "political" risks, from the Bank's perspective, associated with the presence of various ethnic minority communities in project areas. On balance, it was concluded by the Government and the World Bank that the advantages of participation outweighed the disadvantages, paticularly given the conclusions that: i) the forestry sector in China requires major reform if remaining natural forests and associated biodiversity are to be conserved; ii) there is limited familiarity in Government implementing agencies with sustainable forest management; and iii) NFPP is the most promising forestry reform opportunity to arise in the past 20 years. 8. During project design a number of alternatives were considered jointly by the State 5  Forestry Administration and the World Bank relating to the overall scope and organization of the project. The current project design is predicated on the priorities of improving natural forest management, conserving native biodiversity and enhancing the livelihood of forest-dependent communities, and on striking a balance between a project that is comprehensive enough to address the important issues and yet not so complex as to impose serious project management burdens. 9. The NFM and PAM components propose strategic-level natural resource planning processes with the explicit goals of improving environmental condition and the welfare of local conmmunities. Analysis of alternatives, in the context of traditional ESIA processes, will occur as part of management plan development during project implementation after significant preliminary surveys, research and inventories. For this reason an altematives analysis at this stage for these two project components is conside'red impactical. Of the three project components PE is the most like a "construction" project. Even here, however, there is only limited scope for alternatives analysis and this falls into five main areas: 1) whether the plantation component should be included at all in SFDP; 2) should the project be limited to timber trees or should it include economic tree crops; 3) whether the project should support pesticide procurement; and 4) whether pesticides should be procured on a centralized or decentralized basis. Given safeguards that are already built into the project, these alternatives are considered to be largely socially and environmentally neutral and will be dealt with in Section 5.4 below. 3. THE LEGAL AND POLICY FRAMEWORK FOR SFDP 10. Development of the ESIA has been guided both by laws and policies of the People's Republic of China, and by operational policies of the World Bank. Specific Chinese laws and policies consulted include: The Law on Environmental Protection (PRC 1989); The Forestry Law (PRC 1984, modified 1998); Circular on Strengthening Environmental Impact Assessment Management for Construction Projects Financed by International Financial Organizations (NEPA 1993); and Regulations on the Management of Environmental Protection in Construction Projects (NEPA 1998). World Bank Operational Policies consulted include: O.P. 4.01 Environmental Assessment and Environmental Management Plan; O.P. 4.04 Natural Habitats; O.P. 4.09 Pest Management; Draft O.P. 4.11 Cultural Property; Draft O.P. 4.12 Involuntary Resettlement; O.D. 4.20 Indigenous Peoples; O.P. 4.30 Involuntary Resettlement; O.P. 4.36 Forestry; and B.P. 17.50 Disclosure of Operational Infornation. 4. ENVIRONMENTAL AND SOCIAL CONDITION 4.1 Environmental Description 11. The thirteen provinces that are proposed for inclusion in SFDP occupy five major physiographic regions of China: the Eastern Lowlands (Liaoning, Hebei, Shandong, Anhui and the eastern portions of Henan, Hubei and Shanxi); the Southern Mountains and Hills (Hunan and 6  Guizhou); the Southwestern Mountains and Plateaus (Sichuan and Yunnan); the Loess Mountains and Ordos Plateau (eastern Gansu and the western portions of Shanxi, Henan and Hubei), and the South China Insular Mountains (Hainan). These five regions contain six of the seven major forest zones of China. The pattern of forest zonation that repeats with both increasing latitude and elevation is: 1) evergreen tropical hardwoods; 2) evergreen sub-tropical hardwoods mixed with tropical or sub-tropical conifers at higher elevations; 3) mixed temperate mesophytic hardwoods; 4) temperate dry deciduous hardwoods; 5) montane temperate deciduous hardwoods; 6) montane temperate conifers; and 7) sub-boreal conifers. Only the last zone is not included in SFDP. Much of the coastal plain of eastern China and many interior river valleys and basins were converted from forest to agriculture centuries ago. Nevertheless, as recently as the early 1960's China still possessed, in its hill and mountain systems, one of the richest and most diverse forest estates in the world. This remarkable forest heritage has been significantly depleted in only four decades by inappropriate'silvicultural practices and unsustainable harvesting quotas. 12. If forests are to be managed in a natural manner, the silvicultural system and harvesting methods must be modeled as closely as possible on the forest's natural disturbance regime. Forest ecologists now divide natural forests into three broad categories (with many inter- gradations between) based on the type and frequency of the natural disturbances that created or maintained them: disturbance-maintained forests - multi-aged savanna-like forests in dry climates whose structure is maintained by regular fire; disturbance-driven forests - generally even-aged forests in semi-dry climates initiated by periodic catastrophic disturbance; and gap driven forests - multi-aged forests in moist climates whose structure is maintained by the death of individual trees or groups of trees. The most appropriate silvicultural systems for these three types are: 1) single tree selection with regular prescribed fire for disturbance-maintained forests; 2) patch clear-cutting for disturbance-driven forests; and 3) single tree or small group selection for gap-driven forests. Because of China's characteristic summer rainfall regime, forest types in general will be predisposed towards broadleafed species rather than conifers, and the great majority of forests will be "gap-driven" in moister areas of the south and at higher elevations, and "disturbance-maintained" in the dry Yellow River basin and the loess areas of northeastern China. "Disturbance-driven" forests will be relatively rare, restricted perhaps to dry pine types in southeastern Sichuan and Yunnan, to the sub-boreal coniferous forests of the extreme northeast, and to degraded secondary forests in all zones. The major implication of this is that clear- cutting, the most common method of harvesting in China in the past, is an inappropriate silvicultural choice for most natural forest types that has led to significant forest degradation. 4.2 Social Description (with particular reference to ethnic minorities) 13. A particular concern in World Bank financed projects is protecting the rights, and improving the welfare, of ethnic minority and poorer communities. Much of SFDP's emphasis is on remaining areas of natural forest and areas suitable for plantation establishment. Since such areas will almost invariably be in steeper lands and upper watersheds, many of the affected and participating communities are likely to be ethnic minority or poor, or both. 14. These communities are amongst the most affected by the logging ban and NFPP 7  restrictions in terms of loss of income, croplands, grazing lands and access to forest products such as fuelwood, non-timber forest products and local construction timber. For many of these peoples, the natural forest also holds significant cultural and religious values. Generally these communities have limited access to primary education, basic health care and safe drinking water. It has, therefore, been a major design principle of SFDP that these communities are equitably represented in the beneficiaries of the project and that project activities are adapted to their specific needs. 5. PROJECT DESIGN: SUSTAINABILITY, OPPORTUNITIES AND RISKS 5.1 Social Assessment and Community Consultation 15. A major element of project design for all SFDP components is a Social Assessment (SA) of affected and participating communities. The SA provides a method for integrating community participation and social analysis into project design and preparation. SA is conducted to ensure that SFDP project preparation and implementation consider the needs, wishes, concerns and capacities of people affected or influenced by project activities. SA collects information from communities with the objectives of ensuring that positive social impacts are enhanced and adverse impacts are avoided or reduced, especially for potentially vulnerable groups, such as ethnic minorities, poorer socio-economic groups, women, and settlers and squatters with disputed tenure rights . In order to achieve these objectives, SA teams were established for each of the three project components, and approximately 400 team members trained in SA methodologies. These teams carried out participatory rural appraisals, individual household interviews and focus group discussions for representative samples of the beneficiary households of the project. 16. In addition to social assessments and community consultation during the design phase, World Bank directives on disclosure of the environmental and social impact assessment require that the borrower provide a summary of the draft ESIA report for public review and comment in a form and language that are understandable by affected peoples and in appropriate public places accessible to affected groups. 5.2 Natural Forest Management 5.2.1 Project Design 17. The Natural Forest Management (NFM) component consists of two sub-components: 1) Natural Forest Management, and 2) Community Development. As noted earlier, this project component is proposed to be funded by the European Commission. Project design activities to date have been carried out by the SFDP project preparation team but in less detail than for the other two components because of the nature of the EC approval process. World Bank requirements dictate that NFM be included in the ESIA for the project as a whole, and it is hoped that the analysis of environmental and social issues in the following sections may assist the EC in detailed feasibility planning and environmental assessment at project inception. 8  18. The purpose of the Natural Forest Management sub-component is "to test and demonstrate an increased range of options for sustainable management of forest resources for a variety of beneficiaries". It is also intended as an opportunity to develop multi-stakeholder resource planning and co-management mechanisms for broader application to natural forest areas throughout China. NFM focuses on three key provinces: Hainan; Hunan; and Sichuan. As currently designed the NFM Sub-component anticipates the following major activities: * overall coordination and communication; * forest resource assessment and mapping, forest function classification and forest management zonation; * yield regulation and control for timber, fuelwood and NTFPs; * policy studies, including resource valuation, market mechanisms and research, and rural energy analysis; * multi-stakeholder forest management planning on "operable" forest areas; * co-management implementation of the forest management plans; * monitoring and evaluation; and * technical extension and dissemination of experience. 19. Management plan implementation will focus on: 1) survey and design of harvesting access; 2) coupe layout and tree marking; 3) engineering works; 4) testing of reduced impact harvesting systems; 5) permanent sample plots for growth and yield and forest condition monitoring; 6) erosion assessment monitoring; 7) incorporating monitoring results in current management practice; 8) testing and demonstration of silvicultural options; 9) domestication and production of non-timber forest products; and 10) harvesting and access facilities maintenance. 20. The objective of the Community Development sub-component is to improve the livelihood and welfare of local communities impacted by the logging ban and by NFPP resource use restrictions. This sub-component will have two major vehicles to deliver programs: i) grant funding for vocational training and village infrastructure improvement, and ii) household credit for the development of income generating activities. Grant funding is presently proposed for the development of training facilities and vocational programs requested by villagers, and for an array of village infrastructure projects. Current proposals for household credit include livestock, horticulture, product processing, and small-scale service industries. 5.2.2 Project Sustainability 21. One of the primary concerns with this project component is the sustainability and broad application of management activities. The grant funding is simply "seed money" to attempt to establish natural forest management practices that can be sustained over the long term and can be disseminated to other areas. Sustainability will depend at some future point on forest revenues sufficient to offset the cost of inventory, mapping, planning and management. The decision to proceed with the enhanced levels of management envisioned in this project will depend on whether sufficient operable forest exists, both at a regional scale and within chosen forest management areas, to make management demonstrations financially viable and worthy of 9  dissemination. If insufficient operable forest exists management activities are likely to focus more on forest protection and sustenance use than on forest management and commercial harvesting. Project activities are likely be much less expensive and "technically sophisticated". Given the degraded state of many forest areas and the long-term nature of forest rehabilitation activities, SFA will have to consider its own time horizon for financial self-sustainability, which in all probability will extend far beyond the life of SFDP. Under the circumstances, the NFM sub-component should be very carefully sequenced. On forest management areas, broad forest resource inventory and mapping should be carried out, leading to forest function zonation and delineation of a viable operable forest, before any major decisions on further management activities and expenditures. At a broader level, regional reconnaissance surveys should be undertaken to determine whether sufficient operable forests exist in other forest management units to justify dissemination of project management experience. This will be particularly in1portant when considering forest harvesting demonstrations, given that many project forest areas are amongst the last remnants of their types and have very high residual biodiversity. 22. Participatory planning processes are a very valuable resource planning tool, but when the plan is completed some responsible and accountable entity representing the broader good has to declare that a plan is consistent with laws and policy, issue the necessary use permits, and ensure that the various stakeholders fulfill their obligations and comply with the agree-to plan. This function clearly lies with SFA and PFBs, and is essential if NFM experience is to be incorporated into day-to-day forest practice; yet there is little mention of it in the project design documents. This project component should make provisions for technical assistance to SFA and PFBs to upgrade their capabilities and skills in the essential areas of management plan development, adjudication and approval, monitoring and enforcement. 5.2.3 Project Opportunities 23. The NFM Component, if well planned and carefully implemented, should lead to a very substantial improvement in the condition and extent of natural forests through enhanced forest protection, rehabilitation and sustainable management practices. Local communities will be given a significant incentive to protect and sustain forest resources through their involvement in co-management arrangements. The participatory planning process envisaged for the NFM sub- component has great potential to: 1) resolve land use conflicts (such as those between forest rehabilitation activities, tourism, dryland agriculture and domestic grazing); 2) clarify land tenures and resource use rights; 3) ensure greater consultation, fairness and consistency in the application of new forest regulations and policies; and 4) alleviate some of the impacts of NFPP and the logging ban through the re-establishment of some level of sustainable harvest of forest products (particularly fuelwood and construction timber). Access to community development services, training and household credit could, over the longer term, reduce village dependence, and thus the pressures, on natural forest resources. 5.2.4 Environmental Risks and Management Strategies 24. The current conceptual project design carries with it a number of potential risks that will require further clarification and resolution during detailed feasibility planning of the component. 10  25. The project documents for NFM place great stress on co-management agreements developed through "participatory, bottom-up planning processes". Such processes are extremely valuable tools in natural resource planning, however, they work best when placed in the context of broader management goals, objectives, and policies that set the bounds for what is possible and desirable within a given time frame. The current project documents prescribe no such broader context. For example, though the terms "natural forest" and "sustainable forest management (SFM)" are used freely in the project reports, no attempt is made to define what they mean. Given this lack of context, the proposed over-all direction of natural forest management activities is unclear. 26. It is recommended that the first step of detailed planning at the inception phase should be the development of a clear vision of what a natural forest is and what sustainable natural forest management entails. For NFM, the following definitions are suggested: * Natural forests are forest communities that contain, or may be restored to, most of the principal characteristics of native ecosystems, including species composition, stand structure and ecological function. * Sustainable natural forest management is the process of managing permanent natural forest lands to maintain or restore natural forest quality - composition, diversity, structure and ecological function - while producing the widest possible sustainable array of public benefits. 27. The emphasis in forest management, at least over the short to medium term, should be less on immediate harvesting of forest products and more on forest protection, regeneration, and rehabilitation. Stand management objectives would be developed for each major forest type reflecting a desired future state of stand composition and structure to guide forest management, regeneration and rehabilitation. Activities would focus on succession management to meet these objectives through reduced-impact selection cutting, thinning, enrichment planting, enhanced natural regeneration, the gradual elimination of non-indigenous plantings, and the use of temporary "nurse crops" (plantations or early seral communities) to provide an optimum environment for regeneration and early growth of the predominant native hardwood forest types. 28. An approach such as this has real potential to fulfill the goal of improving the "condition and extent of natural forests" and thus ensure the long-term viability of these globally-significant natural forest communities. Such a management strategy may also have an important long-term application to the protected areas program through the rehabilitation of experimental zones and the restoration of regional connectivity corridors within reserve "clusters". Nor are the objectives likely to be solely environmental. Hardwood rehabilitation programs undertaken now in areas of high growth potential may look like a very good investment in the future, given that many countries are currently in the process of liquidating their hardwood forests. China has many species that have significant value-added potential for uses such as fine flooring, paneling, moldings, doors, veneer and furniture. 29. Community development activities are unlikely to have major environmental implications if adequately planned and carefully implemented. Community proposals for 11  increased forest product processing and investments in livestock have the potential to place further pressures on the natural forest but these problems should be capable of resolution through the participatory management planning process. Minor localized impacts may arise from small- scale village infrastructure and community development activities, and environmental guidelines will be prepared to deal with these during project implementation when proposals are more clearly defined. 5.2.5 Social Risks and Management Strategies 30. This project component proposes multi-stakeholder, participatory forest management planning and management, and community development proposals that have emerged through community consultation in the social assessment process. Thus the risk of serious social impacts should be minimized, and probably more than offset by potential project opportunities. Mechanisms for appeal and conflict resolution have been built into the planning processes for both sub-components. There is a remote possibility that community-based infrastructure development might result in involuntary loss of assets. A policy framnework for involuntary loss of assets has been developed for SFDP to establish principles and procedures for, among other things, fair compensation. 5.3 The Protected Areas Management Component 5.3.1 Project Design 31. The Protected Areas Management Component (PAM) supports conservation and improved management of selected nature reserves containing natural forest biodiversity of global importance. PAM will comprise four key sub-components: 1) nature reserve planning and management; 2) community-based nature conservation programs; 3) training and capacity building of government institutions at the provincial and individual nature reserve levels; and 4) project management, monitoring and evaluation. 32. The PAM component is to be implemented in thirteen nature reserves in seven provinces - the three NFM provinces of Hainan, Hunan and Sichuan, plus Gansu, Guizhou, Hubei and Yunnan. Gansu and Hubei are proposed for inclusion because they contain nature reserves that are contiguous with reserves in Sichuan and Hunan, and present opportunities for trans-boundary coordination of protection within the same ecological zones. The specific reserve proposals are shown in the following table: PROVINCE RESERVES Hainan Jianfengling Hunan Badagongshan, Hupingshan Sichuan Baiyang, Si'er, Piankou, Xiaozhaizigou, and Tangjiahe Gansu Baishuijiang Guizhou Fanjingshan Hubei Houhe 12  Yunnan Baimaxueshan, Nujiang 33. Four of these reserves (Fanjingshan, Jianfengling, Baimaxueshan and Nujiang) would be managed as separate entities and the rest in three "clusters": 1) the Motianlin Cluster comprising Baishuijiang and Tangjiahe; 2) the Minshan Cluster comprising Baiyang, Si'er, Piankou and Xiaozhaizigou; and 3) the Wulingshan Cluster comprising Badagongshan, Hupingshan and Houhe. Common nature reserve zoning in China includes a "core zone" in which only nationally-approved research is allowed and an "experimental zone", which may or may not include human settlement, but in which some sustainable, low-intensity resource uses by local communities are permitted. In a few reserves with large human populations in the experimental zone, a "buffer zone" is being contemplated to protect the core zone through additional use restrictions. 5.3.2 Project Sustainability 34. The PAM component must address two primary aspects of project sustainability: institutional and financial. Institutional sustainability is being dealt with through a comprehensive program of technical assistance training for government staff and local communities. The objective of this training will be to strengthen existing capacity in environmental and natural resource management and to develop project management skills in local institutions and communities. Financial sustainability for community-based programs is addressed through "revolving", self-managed Community Conservation Funds linked to implementation of approved Community Resource Management Plans. The means of ensuring financial sustainability for operational activities after the project ends is not a significant issue since the government already povides the majority of operational funding to these reserves. 5.3.3 Project Opportunities 35. If well planned and carefully implemented, the Protected Areas Management Component has the potential to greatly improve protection and management of thirteen nature reserves of global importance. Local communities will be encouraged to participate in reserve protection and management activities through co-management demonstrations. The participatory protected areas planning and the community resource management plans envisaged in this component have the potential to: 1) build local capacity in resource management and rural development; 2) increase community awareness of the economic opportunities of biodiversity conservation; 3) mitigate wildlife (bear, takin, wild pig and macaque) damage to agricultural crops; 4) support alternative sustainable livelihoods to reduce impacts on protected areas; 5) ensure greater consultation, fairness and consistency in the setting of boundaries and the application of protected area zonation; 6) rationalize conflicting resource uses within the experimental zone and adjacent lands outside the reserve; and 7) build partnerships and trust between nature reserves staff, local government and local communities. 5.3.4 Environmental Risks and Management Strategies 13  36. The majority of direct environmental impacts associated with this component are expected to be positive. Participatory planning provides a real opportunity to deal with many of the major threats to these protected areas, i.e. unsustainable fuelwood and NTFP collection, wildlife poaching, fire, overgrazing and illegal logging. Minor negative environmental impacts associated with reserve infrastructure improvement and increased recreation/tourism will be dealt with through appropriate environmental prescriptions in reserve management plans. 5.3.5 Social Risks and Management Strategies 37. The most significant social impacts relate to community use of forest resources within reserve areas where use restrictions may be deemed to be necessary. Several reserves contain only state-owned forest lands where unpermitted resource extraction is illegal but may have not been strictly enforced in the past. On such areas the enforcement 'of long-existing use restrictions may be acceptable. Other nature reserves (particularly in Hunan and Hubei) contain significant collective forests, some of which have been added to the reserves by unilateral government decision very recently. On many of these latter areas, zoning and use restrictions are currently being applied. All further protected area additions, zoning and use restrictions should now be held in abeyance, and final boundaries, zoning and use prescriptions should be OUTCOMES of the protected area and community development management plans to be undertaken as part of this project. Mechanisms for appeal and conflict resolution have been built into both the protected areas management and the community resource planning processes as part of the Process Framework for Mitigating Potentially Adverse Livelihood Impacts. 38. The possibility of friction between participating villages and non-participating villages in and adjacent to protected areas has been raised in the SA. Clearly, with limited funding and a limited time frame, the project must set priorities. Initial assistance will be given to those communities most affected by protected area programs or, conversely, those who have the most direct impact on natural resources within the protected area. In order to avoid conflicts, decisions must be transparent and the reasons for those decisions explained to all of the interested communities. There should also be some reasonable expectation that planning services and community conservation funding may be extended in time to other priority communities according to well-understood selection criteria. 5.4 The Plantation Establishment Component 5.4.1 Project Design 39. A major initial design consideration for the Plantation Establishment Component (PE) was whether it should be limited to timber trees or expanded to include horticultural (termed "economic trees" in China) tree crops. The problems of land degradation in China are closely associated with the problems of rural poverty and many local and international experts are of the view that the key to promoting sustainable natural resources management is to address the underlying problem of poverty; any strategies intended to promote sustainable natural resources management need to take account of income creation potentials and to structure economic returns in ways which meet the needs of the participant communities. Timber species offer potentially 14  significant returns in the long term and farmer groups in China have a very good track record of managing timber lots and plantations. However, many poor farmers lack the financial capacity to cope with the medium to long term nature of timber production and need access to alternative forms of production which generate cash flows more closely attuned to their needs. Within the context of the project's overall environmental objectives, horticultural tree species offer a good option in terms of financial returns, cash flow characteristics and land rehabilitation benefits. The environmental downside is that horticultural crops are more susceptible than timber plantations to insect and microbiological attack and support for horticultural trees could increase the propensity of project participants to apply biocides including pesticides, fungicides, etc.. On balance, and taking account of factors discussed further below, it was decided to support development of horticultural tree species provided that: i) a diversity of crops would be offered; ii) crop selection would take account of farmer preferences, site conditions and market prospects, iii) appropriate farmer training and extensi6n services would be provided; and iv) particular efforts would be made to design a pest management plan which supported integrated pest management approaches already being promoted by the State Forestry Administration. 40. The Plantation Establishment Component (PE) as presently designed aims to: i) increase production of wood to meet the growing deficit between domestic supply and demand; ii) reduce harvest pressures on the natural forest; iii) enhance employment and income for forest farms and rural households affected by the logging ban and NFPP use restrictions; and iv) improve environmental management of plantations. PE would comprise four sub-components: 1) Timber and fibre crops comprising the establishment of 115,085 ha of commercial timber and wood fibre plantations; 2) economic tree-crops comprising the establishment of 57,940 ha of fruit, nut and medicinal tree orchards; 3) Pre-commercial thinning on 61,335 ha of existing timber plantations on a demonstration basis; and 4) Technical support services, including i) planting stock development and improved nursery management, ii) training and extension services, iii) crop storage, processing and marketing facilities; iv) small-scale rural infrastructure, and v) monitoring and evaluation. The PE Component is proposed to be carried out in 107 counties in the provinces of Shanxi, Liaoning, Anhui, Shandong, Hebei, Henan, Hubei, Hunan, Hainan, Sichuan and Gansu. 41. Of the total area proposed for timber plantations, 45% is expected to be planted to poplar, 8% to pines, 6% to bamboo, 5% to Chinese fir and the remaining 35%, in decreasing order, to beefwood, black locust, sweetgum, larch, Paulownia and Acacia. Ecomomic tree crops orchards include tree fruits (pear, apricot, peach and apple) 41%, jujube 23%, chestnut 10%, grape 6%, and the remaining 20% to very small areas of walnut, Eucommia, Ginkgo, tea, citrus, prickly ash, pomegranate, winghackberry, Ti-oil tree, rubber, yew, hickory and wicker. 5.4.2 Project Sustainability 42. SFA has considerable experience in timber plantations derived from previous World Bank-supported plantation projects and thus sustainability of this type of plantation should be assured. The main uncertainties in project sustainability relate to the tree fruit sector in which SFA and Provincial Forestry Bureaus do not have extensive experience. Viability of new orchards will depend on new high-producing varieties, a high product quality, low enviromnental 15  impact and low production costs. Achieving these will require effective technical extension in areas such as appropriate varieties, tree shape and canopy management, crop loading, fertilizer and irrigation requirements, pest and disease control (IPM), proper harvesting and post harvest handling, storage and marketing. The PE component contains provision for technical extension services to ensure that participating farmers receive the training and information necessary to make technically-appropriate decisions. 5.4.3 Project Opportunities 43. The PE Component has the potential to contribute to closing the gap between domestic demand and supply of wood products, and thus reduce pressures on the natural forest. With the provision of adequate extension services, the PE component should also lead to real improvements to the welfare of local communities, p'roviding that: 1) participation is voluntary; 2) all relevant households have equal opportunity to participate; 3) there are no changes to land tenure or resource access that will disadvantage communities; and 4) production arrangements are fair and equitable. The SA, ongoing community consultation programs, monitoring and World Bank project supervision during implementation are the main instruments to insure that these conditions apply in all plantation areas. 5.4.4 Environmental Risks and Management Strategies 44. The most significant potential environmental impacts associated with the PE component are related to three main issues: 1) site selection, in particular the possible conversion of important native ecosystems; 2) aspects of plantation establishment and management, such as genetic and species diversity in project design, soil conservation practices, watershed protection and water management; and 3) pest management. Site Selection 45. Previous World Bank-financed projects developed a set of Environmental Protection Guidelines for Plantation Establishment and Management. These guidelines prohibit the conversion of natural forest to plantations and target the following categories of sites: 1) poor quality and harvested plantation sites; 2) agricultural lands suitable for plantations; 3) barren hills and waste lands; 4) shrublands; and 5) lightly stocked woods with a canopy density below 20%. They do not, however, provide adequate protection for native shrub and open-forest ecosystems in drier climates and drier micro-sites in eastern China which may contain important habitats for a wide array of native plants, birds and small mammals. 46. To strengthen this aspect of the guidelines, the ESIA team visited over 30 proposed plantation sites and developed a project screening process utilizing a standard written site description and photographs of proposed plantation sites. The first step in this process was the preparation of a screening table placing all proposed first year plantation sites in five land condition categories: 1) harvested or low quality plantations; 2) agricultural land; 3) bare land and exotic weed species; 4) disclimax vegetation (i.e. vegetation types that are atypical of a 16  particular climate zone); and 5) natural vegetation. Next a 10% sample (about 300 sites) was selected for initial screening, focusing on bare/weedy sites and disclimax vegetation in hilly or mountainous counties. It was reasoned that any sites containing important natural habitats would most likely occur in these areas through mis-identification, since the screening table showed no sites in the natural vegetation category. Finally the completed screening reports were reviewed to identify potential problem sites requiring further study. 47. Though there were some problems of inconsistent categorization and reporting, this initial sample does provide useful information. It appears that approximately 57 proposed sites in the sample would require further evaluation by plant ecologist/wildlife habitat specialists engaged by participating provinces to verify the validity of screening results and to decide: 1) which areas should be protected from plantation conversion; 2) which areas should be allowed for plantation establishment; and 3) how much of the natural vegetation in the latter should be conserved for in-plantation biodiversity conservation. 48. Screening reports, including photos, should be prepared and evaluated for all of the plantation sites proposed for the first year in categories 3) bare land and weed species, 4) disclimax vegetation, and 5) natural vegetation. Agriculture and plantation sites need not be included in further screening and evaluation. Those sites identified as of potential concern should be evaluated by plant ecologist/wildlife specialists for a decision on plantation conversion. A similar process should be followed for all subsequent years, prior to the conimencement of plantation establishment operations. Screening reports should be maintained in project files by PMOs and made available to World Bank supervision teams. 49. The site selection criteria in the guidelines were also strengthened in the area of site suitability, prescribing that no plantations will be permitted on slopes exceeding 35 degrees and that slopes between 30 and 35 degrees will require reduced planting densities to limit site disturbance from planting and harvesting and to retain protective ground cover. Plantation Management 50. The Enviromnental Protection Guidelines for Plantation Establishment and Management referred to in the last section have been revised in the areas of plantation design (stream protection prescriptions, and increased structural and genetic diversity to enhance plantation health and biodiversity conservation), plantation establishment (site preparation), tending (weeding and thinning), soil and watershed protection, integrated pest control, fire prevention/control, harvesting, and monitoring and evaluation (both compliance and effectiveness monitoring programs). These guidelines will provide a basis for individual plantation development plan preparation, plan approval and compliance monitoring by county and provincial PMOs and PMC. Pest Management 51. There were two major issues relating to pest management that were raised by World Bank staff early in project design: 1) should the project facilitate the procurement of pesticides; and 2) 17  if pesticides were to be procurred, should procurement be centralized or decentralized. Options considered and final decisions on these two issues were as follows. 52. The need for procurement of pesticides under the project is uncertain although the design includes provision for such procurement if the need arises as determined through an SFA administered pest monitoring and forecasting system. Where pest numbers are expected to exceed pre-determnined Economic Threshhold Levels (ETLs), prescribed pesticides are procured and distributed through local offices of the forestry bureau to the farmers. Pesticides are procured in advance based on projections made on the basis of monitored pest levels and other relevant factors such as weather patterns. If SFDP does not finance pesticides, the SFA and possibly even the farmers themselves, will unilaterally procure them. Given this, there are basically two considerations favoring SFDP financing: i) it would provide an element of assurance that pesticides proc'ured through the project would fall within FAO Hazard Categories II or III, as is required by the Bank's pesticide policy; and ii) it would represent a form of short term production credit that may not otherwise be available and which could make a major contribution to the long term viability of the farmers investment in orchard development. 53. As noted above, pesticide procurement would be undertaken on a needs basis as determined by pest monitoring and pest forecasting systems which already exist. There are two options available for carrying out the procurement; centralized and decentralized. Centralized procurement would entail the preparation of pesticide demand schedules by county Forestry Bureaus which would be collated by the PMC in Beijing, subjected to International Competitive Bidding (ICB) procedures, procured, delivered, and then distributed back down to the relevant Forestry Bureaus. The attraction of this option is that it provides the Bank and PMC with a very effective method of monitoring the types of pesticides actually procured to ensure compliance with Bank pesticide procurement policies. The disadvantage is that the process would be so slow as to be of no practical value; a period of 6 to 12 months could elapse between the pesticide needs assessment and delivery, by which time, the pest outbreak generally would have run its course and the damage would have been done. Pesticides would then have to be stored for possible use in a subsequent season (creating hazards associated with leakage, etc.) and it is possible that some procured chemicals might never be used, creating an additional disposal problem. Decentralized procurement, under which the individual counties procure their own supplies, has the advantage of expediting delivery of pesticides. The disadvantage is that it would make compliance (and fiduciary) monitoring much more difficult, requiring reliance on random audits during supervision missions. It was concluded, however, that the decentralized option would be preferable from an environmental point of view, even though it would be necessary to ensure that random spot checks are carried out as a normal part of supervision and compliance monitoring. 54. As part of project design a comprehensive Plantation Pest Management Plan was prepared, following an integrated pest management approach. This draft plan was found to be too general and is currently under revision. An improved version is expected to be available for review during project appraisal. 5.4.5 Social Risks and Management Strategies 18  55. Early in project design the following principles were established to minimize social impacts in the PE component: 1) participation must be voluntary; 2) all relevant households must have equal opportunity to participate; 3) there must be no changes to land tenure or resource access that will disadvantage local communities; and 4) production arrangements must be fair and equitable. The social assessment process carried out during the design of the PE component has had success in insuring compliance with the first three principles, and subsequent follow up investigations by the social assessment specialist have determined that the risk of unfair production arrangements in PE has now been minimized. As an additional safeguard, procedures have been established to ensure transparency in production arrangements, and these will be closely monitored during World Bank supervision missions. 56. In the very unlikely event that the development of storage and marketing infrastructure results in involuntary loss of assets, a policy framework for involuntary loss of assets has been developed for SFDP to establish principles and procedures for, among other things, fair compensation. 5.5 Project Monitoring 57. The fundamental goal of SFDP are: 1) to improve the quality and extent of natural forests through enhanced management and protection; 2) to assist in the economic transition of forest dependent communities impacted by the logging ban and NFPP use restrictions; and 3) improve environmental quality in project areas. Within this broad intent of SFDP, three general types of monitoring are relevant. 1. Implementation monitoring determines the progress in program implementation against established "benchmarks" (i.e. number of activities undertaken, number of plans completed, areas treated, number of clients served, cost of delivery, number of people trained, etc). 2. Compliance monitoring measures performance against environmental standards, regulations, permit conditions or plan commitments. 3. Condition monitoring measures environmental or social condition in relation to long-term management goals/objectives, and when measured in "time-series" determines trends in condition. 58. "Implementation monitoring" prescriptions are currently the most fully developed in SFDP because they relate directly to project supervision. The need for "compliance monitoring" has been acknowledged by all three project components; to ensure compliance with commitments made through participatory resource management plans in NFM and PAM, to enforce environmental standards and approved plans in PE, and to protect important environmental and natural resource values in all project areas. 59. "Condition monitoring" programs are presently the least developed in the project, and yet this is the only form of monitoring that can demonstrate that programs as implemented and 19  complied with have been effective in achieving the overall SFDP goals described above. Condition monitoring programs are presently described only in conceptual terms and will be more fully developed during project implementation. 6. AN ENVIRONMENTAL AND SOCIAL IMPACT MANAGEMENT SUMMARY 60. The stated goals of the SFDP project, as noted above, are to improve: 1) the extent and quality of natural forests; 2) the livelihood and welfare of local communities impacted by the logging ban and NFPP use restrictions; and 3) general levels of environmental management in the forestry sector. Not surprisingly, given the predominant environmental and social themes of SFA, environmental and social management and monitoring proposals are already fully integrated into project design. The objective of this section of the report is to extract and summarize those proposals, which constitute the project's "environmental and social impact management plan". 6.1 Social and Community Impact Management 61. A major element of project design for all SFDP components has been a SA of affected and participating communities which provides a method for integrating community participation and social analysis into project design and preparation. SA has been conducted to ensure that SFDP project preparation and implementation consider the needs, wishes, concerns and capacities of people affected or influenced by project activities. SA has collected information from communities with the objectives of ensuring that positive social impacts are enhanced and adverse impacts are avoided or reduced, especially for potentially vulnerable groups, such as ethnic minorities, poorer socio-economic groups, women, and settlers and squatters with disputed tenure rights. 62. The processes and procedures established in the SA during project preparation provide a firm basis for on-going community consultation in the multi-stakeholder participatory planning processes and co-management agreements proposed for project implementation. 63. Community support in the form of funding assistance and training/technical extension arrangements in all three components has great potential to improve and diversify the livelihoods of local communities. 64. Several mechanisms have been established to protect the rights of local communities during SFDP planning and implementation. Dispute resolution procedures have been built into the implementation of NFM and PE planning processes and, in the unlikely event that small- scale infrastructure development results in involuntary loss of individual assets, a policy framework has been developed to establish principles and procedures for, among other things, fair compensation. For PAM, mechanisms for-appeal and conflict resolution relating to protected areas zoning and use restrictions have been established in a "Process Framework for Mitigating Potentially Adverse Livelihood Impacts". In the unlikely event of loss of land or other assets, the World Bank's policy on involuntary loss would apply in the same way as with the NFM and 20  PE components. 6.2 Environmental Impact Management Plan 6.2.1 Natural Forest Management 65. NFM sets, as its primary goal, improvement in the condition and extent of natural forests through enhanced forest protection, rehabilitation and sustainable management practices. Through multi-stakeholder participatory forest management planning and direct involvement in co-management agreements, local communities will be given a significant incentive to protect and sustain forest resources. Management planning will stress forest protection, regeneration, rehabilitation, use zonation, and established levels of sustainable use for all forest products. 6.2.2 Protected Areas Management 66. The participatory protected areas planning and the community resource management plans envisaged in this component have the potential to build local capacity in resource management and environmental protection, increase community awareness of the economic opportunities of biodiversity conservation, and build partnerships and trust between NR staff, local government and local communities. Participatory planning also provides a real opportunity to deal with many of the major threats to these protected areas, i.e. unsustainable fuelwood and NTFP collection, wildlife poaching, fire, overgrazing and illegal logging. Minor negative environmental impacts associated with reserve infrastructure improvement and increased recreation/tourism will be dealt with through appropriate environmental prescriptions in reserve management plans. 6.2.3 Plantation Establishment 67. The most significant potential environmental impacts associated with the PE component are related to three main issues: 1) site selection, in particular the possible conversion of important native ecosystems; 2) aspects of plantation establishment and management, such as genetic and species diversity in project design, soil conservation practices, watershed protection and water management; and 3) pest management. The first two issues are dealt with through "Environmental Protection Guidelines for Plantation Management" that establish a site screening process to flag natural communities for further evaluation, and environmental standards for plantation silviculture. Pest management issues will be dealt with through a Plantation Pest Management Plan that: 1) promotes a range of pest management strategies; 2) stipulates acceptable pesticides.and procedures for their procurement, storage, distribution and application; and 3) proposes training programs in the safe handling and use of pesticide products by individual farmers or licensed practitioners. 6.3 Environmental and Social Monitoring 68. Social compliance monitoring programs will relate primarily to ensuring fair plantation and orchard production arrangements. Social condition monitoring will focus on project 21  participation rates and measures of beneficiary satisfaction obtained through selected household case studies and regular participatory rural appraisals. 69. Environmental compliance monitoring programs have been designed into all three project components: to ensure compliance with commitments made through participatory resource management plans in NFM and PAM; to enforce pesticide procurement procedures, envircnmental standards and approved plans in PE; and to protect important environmental and natural resource values in all project areas. Environmental condition monitoring will be more fully developed during project implementation and is likely to include the following parameters: 1) indicators of forest ecosystem condition and diversity, and GIS-based land use/land condition mapping in the natural resource management aspects of the NFM and PAM components; and 2) fertilizer and pesticide use, indicators of plantation diversity, and simple indicators of ecosystem and product health in the PE component. 22